RATIO ANALYSIS OF NABIL BANK LIMITED

A Project work report

By

Suman Kc
TU Registration No: 7-2-1156-69-2017
Symbol No: 711560041
Padmodaya Campus, Ghorahi Dang

Submitted to
The Faculty of Management
Tribhuvan University
Kathmandu

In partial fulfilment of the Requirement for the Degree of

Bachelor of Business Studies (BBS)

Ghorahi Dang
February, 2022
 DECLARATION

I hereby declare that the project Work Report entitled “RATIO ANALYSIS OF
NABIL BANK LIMITED” submitted to Padmodaya campus, Faculty of management,
Tribhuvan University, if my original work done in the form of partial fulfilment of the
requirement of the degree of Bachelor of business Studies(B.B.S) under the supervision of
Mr.Ramesh Ghimire Faculty Member, Faculty of management T.U.

......................

Suman Kc

Padmodaya Campus

Date: February, 2022

ⅱ
 SUPERVISOR’S RECOMMENDATION

The project work report entitled “RATIO ANALYSIS OF NABIL BANK LIMITED”
submitted by Suman Kc of Padmodaya Campus, Ghorahi, Dang is prepared under my
supervision as are the procedure and format requirements laid by the Faculty of Management,
Tribhuvan University, as partial fulfilment of the requirements for the award of the degree of
Bachelor in Business studies (B.B.S). I therefore, recommend the project work report for
evaluation.

.................

Mr. (Ramesh Ghimire)

Lecturer

Padmodaya campus

Date: February, 2022

ⅲ
 ENDORSEMENT

We hereby endorse the research project work report entitled RATIO ANALYSIS OF
NABIL BANK LIMITED submitted by Mr. Suman Kc of Padmodaya Campus, Ghorahi,
Dang, in partial fulfilment of the requirement for award off the degree of Bachelor of
Business Studies (B.B.S) for internal evaluation.

...................... .......................

Mr. Bablu Sharma Mr. Nischal Acharya

Chair, Research Committee Campus Chief

Padmodaya Campus, Dang Padmodaya Campus, Dang

Date: February, 2022 Date: February, 2022

ⅳ
 ACKNOWLEDGMENT

It is my great pleasure to state that being a student of management; I have attended to

write the research project work report in the topic “Ratio analysis Of Nabil Bank limited” in
partial fulfilment of the requirement for the Bachelor degree of Business Studies (BBS). This
report has not been completed by my sole effort; many helping hands have made contribution
in different ways to bring out it in this shape. I use this opportunity to say “Thank You” to all
of them.

I also wish to express my appreciation to the campus chief Mr. Nischal Acharya for
helping in each and every step and for providing needed materials. Similarly I also thanks to
our supervisor sir Mr. Ramesh Ghimire who helps me in selecting this topic. I would like to
express my sincere thanks to Mr. Bablu Sharma who is our Business Research teacher for
inspiration and whose proper guidance valuable suggestions and direction made it possible to
complete this research report.

I would like to express my heartfelt thank to my parents and family members for their
support in each and every steps of my life. My every achievement is possible because o their
effort, help and blesses. And I also thank to my friends Mis.Kazal Gharti, Mr. Prashant Pun,
Mr. Jiwan Budhathoki and Mr. Gaurav Khadka for helping me to finalize this research
project work report.

Suman Kc

Padmodaya Campus

Ghorahi, Dang

ⅵ
 VIVA- VOCE SHEET

We have conducted the viva-voce examination of the report

Submitted by

Suman Kc

Entitled

RATIO ANALYSIS OF NABIL BANK LIMITED

We found the report as the original work of the student according to the prescribed
format. We recommend the thesis to be accepted as partial fulfilment of the requirement for
bachelor Degree of Business Studies (BBS).

Viva-Voce Committee

1. Mr. Bablu Sharma Chairperson, Research Committee

2. Mr. Ramesh Ghimire Research Supervisor
3. ..................................... External Expert

Date: February, 2022

ⅴ
 TABLE OF CONTENT
Title page.....................................................................................................................................ⅰ

Declaration.................................................................................................................................ⅱ

Supervisor’s Recommendation...................................................................................................ⅲ

Endorsement...............................................................................................................................ⅳ

Viva-Voce Sheet...........................................................................................................................ⅴ

Acknowledgement.......................................................................................................................ⅵ

Table of Contents......................................................................................................................ⅶ

List of Table..............................................................................................................................ⅷ

List of Figure..............................................................................................................................ⅸ

Abbreviations..............................................................................................................................ⅹ

CHAPTER I: INTRODUCTION.......................................................................1
1.1 Background...........................................................................................................1
1.2 Profile of organization...........................................................................................4
1.3 Objectives..............................................................................................................6
1.4 Rationale................................................................................................................6
1.5 Review...................................................................................................................8
1.6 Methods...............................................................................................................10
1.7 Limitations..........................................................................................................18

CHAPTER II: RESULTS AND ANALYSIS..................................................19

2.1 Data Presentation.................................................................................................19
2.2 Analysis Of Results.............................................................................................27
2.3 Major Findings....................................................................................................29

CHAPTER III: SUMMARY AND CONCLUSION......................................30

3.1 Summary.............................................................................................................30
3.2 Conclusion............................................................................................................31
BIBLIOGRAPHY

ⅶ
 LIST OF TABLE

Table No. Title Page No

2.1 Liquidity Ratio................................................................................................20

2.2 Cash and Bank Balance Vs Money at Call and Short Notice..........................20
2.3 Management Efficiency Ratio.........................................................................21
2.4 Profitability Ratio............................................................................................23
2.5 Market/ Shareholder Ratio..............................................................................25

ⅷ
 LIST OF FIGURE

Figure No Title Page No

2.1 Liquidity Ratio.................................................................................................20

2.2 Cash and Bank Balance Vs Money at Call and Short Notice......................;...20
2.3 Management Efficiency Ratio.........................................................................22
2.4 Profitability Ratio............................................................................................24
2.5 Market/ Shareholder Ratio...............................................................................26

ⅸ
 ABBREVIATIONS

NRB Nepal Rastra Bank

VDC Village Development Committee

WWW World Wide Web

BBS Bachelor in Business Studies

Fig Figure

Ltd Limited

No Number

Rs Rupees

ROA Return on Assets

ROE Return on Equity

AMT Amount

NIBAL Nepal Arab Bank Limited

ⅹ
 CHAPTER I

INTRODUCTION

1.1 Background

A ratio analysis is a quantitative analysis of information contained in a company’s

financial statement. Ratio analysis used to evaluate various aspects of a company’s operating
and financial performance such a efficiency, liquidity, profitability and solvency.

Ratio analysis is a form of financial statement analysis that is used to obtain a quick
indications of a form’s financial performance in several key areas. The ratios are categorized
as short-term solvency ratio. Debt management ratio, assets management ratio, profitability
ratio and market value ratios.

Financial ratios are most common tools of managerial decision making. A ratio is a
comparison of one number to anther-mathematically, a simple division problem. Financial
ratio involve the comparison of various figure form the financial statements in order to gain
information about a company’s performance. It is the interpretation, rather than the
calculation, that makes financial ratios a useful tool for business managers. Ratio may serve
as indicators, clues, or red flags regarding noteworthy relationships between variables used to
measure the firm’s performance in terms of profitability, assets utilization, liquidity, leverage,
or market valuation.

Thapa (2008), financial ratio are relationships determined from a company’s financial
information and used for comparison purposes. Examples include such often referred to
measures as return on investment (ROI) return on assets (ROA), and debt-to-equity, to name
just three. These ratios are the result of dividing one account balance or financial
measurement with another. Usually these measurements or account balance are found on one
of the company

Financial ratios are most common tools of managerial decision making. A ratio is a
comparison of one number to anther-mathematically, a simple division problem. Financial
ratio involve the comparison of various figure form the financial statements in order to gain
information about a company’s performance. It is the interpretation, rather than the
calculation, that makes financial ratios a useful tool for business managers. Ratio may serve
 2

as indicators, clues, or red flags regarding noteworthy relationships between variables used to
Measure the firm’s performance in terms of profitability, assets utilization, liquidity, leverage,
or market valuation.

Thapa (2020), financial ratio are relationships determined from a company’s financial
information and used for comparison purposes. Examples include such often referred to
measures as return on investment (ROI) return on assets (ROA), and debt-to-equity, to name
just three. These ratios are the result of dividing one account balance or financial
measurement with another. Usually these measurements or account balance are found on one
of the company’s financial statements-balance sheet, income statement, cash flow statement,
and/or statement of changes in owner’s equity. Financial ratios can provide small business
owners and managers with a valuable tool with which to measure their progress against
predetermined internal goals, a certain competitor, or the overall industry. In addition,
tracking various ratios over time is a powerful means of identifying trends in their early
stages. Ratios are also used by bankers, investors, and business analysis to assess company’s
financial status.

Ratios are also used by bankers, investors, and business analysts to assess company’s
financial status. Ratios are calculated by dividing one number by another. Total sales divided
by number of employees, for example. Ratios enable business owners to examine the
relationships between items and measure that relationship. They are simple to calculate, easy
to use, and provide business owners with insight into what is happening with in their business,
insights that are not always apparent upon review of the financial statements alone. Ratios are
aids to judgement and cannot take the place of experience. But experience with reading ratios
and tracking them over time will make any manager a better manager. Ratios can help to
pinpoint areas that need attention before the looming problem with in the area is easily
visible.

The first task of financial analyst is to select the information relevant to the decision
under consideration form the total information contained in the financial statement. The
second step involved in financial analysis is to arrange the information in a way to highlight
significant relationships. The final step is interpretation and drawing of inferences and
conclusions. In brief, financial analysis is the process of selection, and evaluation.
 3

Virtually any financial statistics can be compared using a ratio. In reality, however, small
business owners and managers only need to be concerned with a small set up ratio in order to
identify where improvements are needed.

It’s important to keep in mind that financial ratio are time sensitive; they can only
present a picture of the business at time that the underlying figures were prepared. For
example, a retailer calculating ratios before and after the Christmas season would get very
different results. In addition, ratio can be misleading when taken singly, though they can be
quite valuable when a small business tracks them over time or usages them as a basis for
comparison against company goals or industry standards. Perhaps the best way for small
business owners to use financial ratio is to conduct a formal ratio analysis on a regular basis.
The raw data used to compute the ratios should be recorded on a special monthly. Then the
relevant ratio should be computed, reviewed, and saved for future comparisons. Determining
which ratio to compute depends on the type of business, the age of the business, the point in
the business cycle, and any specific information sought. For example, if a small business
depends on a large number of fixed assets, ratios that measure how efficiently these assets are
being used may be the most significant. In general, financial ratios can be broken down in to
four main categories—1) profitability or return on investment; 2) liquidity; 3) leverage, and 4)
operating or efficiency---with several specific ratio calculations prescribed within each.
 4

1.2 Profile of Organization

Nabil Bank Limited is the nation’s first private sector bank, commencing its business
since July 1984. Nabil was incorporated with the objective of extending international standard
modern banking services to various sectors of the society. Pursuing its objective, Nabil
provides a full range of commercial banking services through its 52 points of representation.
In addition to this, Nabil has presence through over 1500 Nabil Remit agents throughout the
nation. Nabil, as a pioneer in introducing many innovative products and marketing concepts
in the domestic banking sector, represents a milestone in the banking history of Nepal as it
started an era of modern banking with customer satisfaction measured as a focal objective
while doing business. Operations of the bank including day-to-day operations and risk
management are managed by highly qualified and experienced management team. Bank is
fully equipped with modern technology which includes international standard banking
software that supports the E-channels and E-transactions. Nabil is moving forward with a
Mission to be “1st Choice Provider of Complete Financial Solutions” for all its stakeholders;
Customers, Shareholders, Regulators, Communities and Staff. Nabil is determined in
delivering excellence to its stakeholders in an array of avenues, not just one parameter like
profitability or market share. It is reflected in its Brand Promise “Together Ahead”. The
entire Nabil Team embraces a set of Values “C.R.I.S.P”, representing the fact that Nabil
consistently strives to be Customer Focused, Result Oriented, Innovative, Synergistic and
Professional.

In this context of increase competition and diminishing profitability this report will
analysis business and financial performance of Nabil Bank over the duration of five year.
Using research approach mentioned below.

Vision

As the nation’s first joint venture Bank, we will consistently surge together ahead
providing the entire gamut of financial services across all demographic strata and geographic
regions of the nation, constantly evolving to better ourselves, so as to always better serve our
stakeholders.
 5

Mission

To be the 'Bank of 1st Choice' of all our stakeholders

Customers

We realize that the very reason for our existence is to provide the highest level of
financial services to our customers. No matter where the customer is located, or what level of
economic activity they are engaged in, we must work in a manner that they will consider
Nabil Bank, first, when they are in need of any financial product or service.

Shareholders

We always work in a manner that creates shareholder value, consistently delivering

results that ensure the best returns to our investors. The Nabil Bank shares must always be
seen as a blue chip investment, making us the first choice amongst investors.

Regulators

We work with the highest levels of governance, transparency, and professionalism. We

strive to be an exemplary Banking Institution for our regulators.

Communities

We will always give back to the communities in which we work, and of which we are
part. Nabil Bank will always be a ‘model citizen’ in any community in which we are present,
working in a manner that fosters growth as well as safeguards our environment.

Staff

We recognize that we are where we are because of our Team. So Nabil Bank will always
provide an environment that recognizes and rewards excellence at work. We will continue to
attract and retain the best talent as the first choice employer.
 6

1.3 Objectives

Every task is done tom attain some objectives. This study is mainly focused on following
objectives.

i. To determine the financial ratio of NABIL bank limited

ii. To explore the financial position of NABIL bank limited

1.4 Rationale

A part form aiming to gain knowledge, research itself adds new to the existing literature.
The signification of this study lays mainly in indentifying problems or deteriorating financial
institution with deficiencies in particular components areas. Further, it assists in the aggregate
strengths, weakness, threats and opportunity of the financial industry. This study helps and
justify for finding out the financial analysis and financial ratio of the commercial bank with
reference to the NABIL bank limited. The present study will be more helpful to aware the
stakeholders regarding ratio analysis of this bank. Moreover the management of bank may
also be benefited from this study. This study will be beneficial for finding out fact and figure
that will be helpful for all those who are directly and indirectly involved with the bank.

1.5 Review

Baker (2002), “A literature review is a body of test that aims to review the critical points
of current knowledge on particular topic.” Review a of literate means reviewing research
studies or other relevant proposition in the related areas of study so that all the past studies
their conclusions and deficiencies may be known and further research can be conducted. It is
integral and mandatory process in research work.

Research is a continuous process. The procedure of findings may change but it never
ends. In literature review researcher the books, journals, magazine or any other types of
studies, which are related to his her filed study in order to analyze the data and to find
something new. Review of literature further helps us to indentify the problem, to avoid
unintentional replication of previous studies and also helps up to interpret the signification of
researcher results in precise manner.
 7

1.5.1 Conceptual Review

Commercial bank

Commercial bank are banks that deal with financial transaction like accepting deposits,
lending loan, exchanging currency, remittance and other many more financial service. They
are the most sophisticated institution providing wide range of financial service. The first
commercial bank was “Bank of England” (1694), Central bank of Britain. First commercial
bank of Nepal is Nepal bank Limited, which was established in 1937 A.D. Collecting founds
from customers is not only a task of commercial bank, but collected funds should be properly
invested in productive sector

The Role of Commercial Bank

Commercial banks engage in the following act ivies

i. Accepting money as deposit.

ii. Issue Bank draft and bank cheques.
iii. Processing of payment by way of telegraphic transfer, EFTPOS, internet banking or
other means.
iv. Lending money by overdraft, instrument of loan, or other means.
v. Providing documentary and standby letter of credit, guarantees, performance bonds,
securities underwriting commitments and other forms of off balance sheet exposures
safekeeping of documents and item in safe boxes.
vi. Cash managements and treasure.
vii. Merchant banking and private equity financing.

Ratio Analysis

Financial ratios are a great way to quickly asses a company’s health before digging
deeper into its financial statements. Price-earnings ratios can provide insight into valuation,
while debts-coverage ratios can tell investors about potential liquidity risk. If you are
interested in learning more about financial ratios.
 8

1.5.2 Review of related literature

Review of Article, and Journals

Under this topic review of articles published in different economic journal, bulletins of
the world bank, magazines, newspapers and other related books has been done. Out of these, I
have submitted as following:

Pradhan (2006), in this research article “role of saving, investment and capital formation
in economic development; A case of Nepal”, has stated that “mobilization of saving implies
transfer of resources from surplus spending unites to deficit unit. In this connection financial
intermediaries play an important role in mobilization of voluntary saving”. After such analysis
the researcher has concluded that “Saving, investment and capital formation have positive
impact on economic development. The current values and past values saving. Investment and
capital formation positive impact on economic development but the current values have the
largest impact.

Review of previous project work report

Prior of this, several project work have been done regarding various aspect of
commercial bank like lone lending process, financial performance, capital structure etc.
Among them some relevant studies are put into the review as below.

Kc(2022), has done project work on “financial analysis of NABIL bank ltd”.

The major objectives of the study were;

i. To analyze the liquidity position of NABIL BANK

ii. To analyze the risk and return of NABIL BANK

Major finding of the study were;

i. Liquidity ratio of the NABIL Bank is maintained as per requirement.

ii. The current ratio for the mega bank is slightly low in the contrast of industry average
due to the nature of the bank.
iii. The cash and bank balance of NABIL Bank is moving in a zigzag trend firstly,
decreasing and increasing and so on.
iv. NABIL Bank has decreasing trend of loan and advances to total.

This report helps to me gathering and evaluating the data of MEGA bank and it also helps to
select data analysis techniques.
 9

Acharya(2014), in this study “A Comparative Study on Investment Policy of Joint

Venture Banks” has studies primarily two banks i.e. NABIL and NIBL. The main objectives
of this study are as follows.

i. To access the liquidity, efficiency, profitability and risk portion.

ii. To determine the growth rate of loan and advance: total investment with other
financial variables.
iii. To examine fund mobilization and investment policy of the sample bank.

Her major findings of the studies were;

i. NIBL has maintained the ratio of cash and bank balance considerably higher than
NA/BIL.
ii. NIBL is weak to invest more fund is government securities.
iii. NABIL’s utilization of risk assets and shareholders fund to gain higher profit margin
is low.
iv. Both Banks hadn’t invested their more funds in different types companies in different
areas.

This topic is related to my project work. It help to me collection of data, identify variables,
know the concept, research design, select tools for data analysis, prepare the conceptual
framework.
 10

1.6 Methods

1.6.1 Research Design

To obtain relevant qualitative and quantitative data, the following methodology was
employed. The different tools and technique were used in the data collection and the analysis
of Various Information. This study is based on an appropriate research methodology. It helps
to analyze the data in finding the causes and effects of relationship and the performance of the
bank. This research has given emphasis in descriptive and analytical research design.

1.6.2 Source of Data

The study includes secondary data.

Secondary data are those that contain published and exposed information and data by the
firm it’s self. These types of data contain full analysis financial calculation and published data
till the last year. These types of data are reliable, suitable and adequate in term of the required
details.

1.6.3 Population sample and Sampling

There are several commercial banks operating in Nepal. The entire commercial banks
that are operating in Nepal are considered as the population and the population in number is
27. It is not possible to study all the data related with all banks because of the limited period
and showed also taken into consideration of the partial fulfilment of the Bachelor’s Degree.
Nabil bank is one of the reputed banks of the Nepal. It has been expanding its branches in the
various part of the country. It has been successfully lunching various facilities and service to
the people. Thus, Nabil Bank financial performance is the challenging and interesting subject
to study. Thus Nabil Bank has been selected as sample for the present study. Furthermore
Laxmi Bank are selected as sample for the compression to Nabil Bank.

1.6.4 Data Collection Procedures

This study based on secondary data. Heance, the secondary data was collected from
various sectors. For this the researcher consulted related bulletins, Journals, Directives,
reports etc. During data collection information gap was found was fulfilled through the
discussion with thesis advisors and financial exports.
 11

1.6.5 Data Collection Tools

Annual Report

Published financial statement and others publication, reports and journals were obtained
by visiting various banks, central bank of Nepal, Nepal stock exchange etc. This method was
easy and effective to collect published financial information. However request for any
unpublished financial information was usually denied.

Information Collection via Internet

In addition to persons visit abundant information was collected from internet website of
banks and various regulatory institutions. Collection of information from internet was much
easier, flexible, time and cost effective than personal visit. Information collected was
comprehensive and much more details.

Library Visit

Libraries were visited specially to obtain background literature and research information.
Library visit helped to form a sound understanding of research methodologies and report
writing as well as provided technical knowledge required for the chosen project topic.

Media Watch

Current and available previous issues of few good financial and business newspaper,
journals and magazines were scanned for relevant articles. Though most of information
watches not directly useful these helped to develop a broad perspective for research and to
understand the interrelationships between a healthy banking industry and prosperous society.
 12

1.6.6 Data Analysis Tools

Various Accounting techniques used for this research are explained below:

Ratio analysis

Ratio analysis performed on financial statements is a very useful tool to evaluate and
interpret business and financial position and performance of an entity. Ratio analysis together
with other statistical tools like trend analysis can also be used to forecast the likely future
outcomes. We will use following broad categories of ratio to examine business and financial
performance of NABIL Bank.

Liquidity Ratio

A liquidity ratio is a type of financial ratio used to determine a company’s ability to pay
its short-term debt obligations. The metric helps determine if a company can use its current, or
liquid, assets to cover its current liabilities

A liquidity ratio is used to determine a company’s ability to pay its short-term debt
obligations.

The three main liquidity ratios are the current ratio, quick ratio, and cash ratio.

When analyzing a company, investors and creditors want to see a company with liquidity
ratios above 1.0. A company with healthy liquidity ratios is more likely to be approved for
credit. Three liquidity ratios are commonly used – the current ratio, quick ratio, and cash ratio.
In each of the liquidity ratios, the current liabilities amount is placed in the denominator of the
equation, and the liquid assets amount is placed in the numerator.
 13

a) Total Credit/ Total Deposit

Total credit includes all the investment made by in terms of lending i.e. loan, advance
and bill purchased. Total deposit includes all the deposit in form of saving, current, fixed
deposit and other form of deposit. Form liquidity perspective the lower the credits to deposits
ratio the batter the liquidity position. This is calculated as

Loan, Advance &bill purchase

Total Credit/ Total Deposit = Tot al Deposit

b) Cash & Bank Balance/ Total Deposit

Cash & Bank Balance includes all the cash that are in hand, Nepal Rastra Bank and in
other institution. Total deposit includes all the deposit in forms of saving, current, fixed
deposit and others forms of deposit. Form liquidity perspective the higher the cash & bank
balance to deposit ratio the batter the liquidity position. This is calculated as

(Cash+Bank Balance in NRB+Bank in Other Institution)

Cash& Bank Balance/ Total Deposit = Total Deposit

c) Loan, Advances & Bill Purchase/ Total Assets

Loan, Advance & bills purchased are illiquid item so higher proportion of these items
in bank’s total assets is bad for bank’s liquidity. These calculate as

Loan Adavance & Bills Purchase

Loan, Advance & Bills Purchase/ Total Assets = Total Assets

Management Efficiency Ratio

Management efficiency ratio analyzed how well management has been able to utilize
assets, control cost and run operation efficiency. Below we will consider few indicators of
managerial efficiency of the bank and they are as

a) Employee Expense/ Total Operating Expenses

This ratio analyzes how much employee expenses are covered in total operating
expenses. This is calculated as
 14

(Staff Expense+Provision for Staff Bonous)

Employee Expense/ Total Operating Expenses = Total Operating Expenses

b) Exchange Gain/ Total Income

This ratio analyzed the part of income that arises from currency fluctuation. Higher
the ratio shows better management of foreign currency. These calculated as:

Exchange Gain
Exchange Gain/ Total Income = Total Income

b) Staff Bonus / Total Employee Expenses

This ratio analyzed how much staff bonus is covered in total employee expenses.
This is calculated as:

Provision For Saff Bonus

Staff Bonus / Total Employee Expenses = Total Employee Expenses

c) Total Operating Expenses/ Total Assets

This ratio analyzes the part of operating expense in relation to its total assets. This is
calculated as:

Total Operating Expenses

Total Operating expenses/ Total Assets = Total Assets

d) Non-performing Loan/ Total Loans

This ratio analyzed the part of bad loan that occur in the portfolio of total loan lower the
ratio better the position of bank. This calculated as

Non-performing loan
Non-performing loan/ Total Loans =
Total Loans
 15

Profitability Ratios

Profitability is a key to survival of any organization. Profitability ratio indicates how will
the organization is running in terms of profit. Below are few key Profitability indicators of
the bank and they are as

a) Net profit/ Gross Income

This ratio analyzes the net Profit Margin for the bank. Higher the ratio indicates the better
result. The calculated as

Net Profit After Tax

Net Profit/ gross Income = Total Income

b) Interest Income/ Loans, Advance and Bills Purchases

This ratio analyzes the interest income in relation to total lending or investment made by
bank. Higher the ratio indicates the better result. This calculated as

Intrest Income
Interest Income/ Loans, Advance and bills purchase = Loans, Advance and bills purchase

c) Interest Expenses/ Total Deposits, Borrowing & Bills Payable

This ratio analyzes the interest expenses in relation to total deposit that include current/
saving/ fixed/ soon, borrowing and bills payable. Lower the ratio indicates the better
result. This calculated as

Interest Expenses/ Total deposit, borrowing & bills Payable

Interest Expenses
= Total Deposits, Borrowing & Bills Payable

d) Net profit/ Total assets

This ratio analyzes how will the assets is utilized to earn profit. This ratio also known as
return on assets or capital employed. Higher the ratio indicates better the result. This
calculated as

Net Profit
Net Profit/ Total Assets = Total Assets
 16

e) Weighted Average Interest Rate Spread

This analysis the average interest rate overall portfolio of bank.

Market Ratios

These ratios have focus on share market and are key ratios closely monitored by
current and future investor’s of the bank. Below we will consider few indicters of market
ratio of the bank and they are as

a) Earnings Per Share (EPS)

The position of a company’s profit allocated to each outstanding share of common

stock is earnings per share. Earnings per share (EPS) serve as an indicator of a company’s
profitability. This calculated as

Net income-Dividend on preferred stock

Earnings per Share = Average Outstanding Share

Average number of outstanding share is calculated as per Nepal Accounting Standards.

b) Market value per Share (MPS)

Market value per share represents the current market values of share. This calculated
as:

Market Value per Share = P/E Ratio ⅹ EPS

c) Price Earnings Ratio (P/E Ratio)

Price earnings ratio represents the market view of the future prospects of the share.
Higher the P/E ratio suggests that high growth is expected. Its calculated as

Market Value per Share

P/E Ratio = Earnings Per Share

d) Dividend (including bonus) on Share Capital

This is total amount of dividend including bonus distributed to per share holder.
 17

e) Cash Dividend on Each Share

This is total amount of cash dividend only which, is declared to each shareholder.

f) Book Net Worth per Share

Book net worth means the net worth each share consists of, and it’s calculated as

Shareholders equity (Net Worth)

Book Net Worth per Share = Total Number Of Share

g) Total Share

Here we place total number share the bank consists. Ratios are based on historical
data and may be out of current trend so the analysis may lose relevance. Many ratios lack
standard definition and there are a number of ways to calculate same ratio. This hinders
comparability. Ratios are based on financial statements which may be prepared using
different accounting policies and conventions which further hinder comparability.

Read More
 18

1.5 Limitations

The limitation of the study is as following

i. This study is based on secondary data.

ii. This study is based on the recent data of fiscal years.
iii. This study is only about NABIL bank.
iv. This report mainly concentrates only on those factors which are related to the ratio.
It’s not sufficient for analysis of the overall financial position of the bank.
 CHAPTER II

RESULTS AND ANALYSIS

2.1 Data Presentation

In the chapter, the data collected so far have been presentation, analyzed and interpreted.
This chapter presentation the data, fact, figure relating of different aspects of Nabil Bank Ltd
and its competitors. This available data have been tabulated, analyzed and interpreted so that
financial forecast of bank can be done easily. Hence, the financial ratios have been used fo
this purpose. Thought there are many ratios have been taken for analyzing the strength and
weaknesses of the bank.

2.1.1 Liquidity Ratios

Liquidity is the ability of the bank to meet its currents obligation for cash outflow and to
respond to change in customer demand for loans and cash withdraw without selling assets at
substantial loss (Jhonson, 1993). Liquidity management in banks is very crucial and important
task because liquidity needs of banks is more difficult to predict than other business. A bank
is considered to be liquid if it has ready access to immediately spend able funds at reasonable
cost at times these funds are needed. (Singh, 2005)

There is no standard way of measuring a bank’s liquidity position. Below liquidity of

Nabil Bank are examined using three key ratios.
 20

Table 2.1

Liquidity Ratio Of Nabil Bank (In %)

Liquidity-Indicator unit 2016/17 2017/18 2018/19 2019/20 2020/21

Total % 74.90% 73.87% 69.53% 76.53% 77.91%

Credit/Deposits
Cash & Bank % 8.03% 9.03% 3.02% 4.9% 6.76%
Balance/Total
Deposit
Loan, Advance & % 65.06% 62.89% 61.88% 67.83% 65.42%
Bills Purchased/
Total assets

Source: Annual report of Nabil Bank (Annex 6)

Liquidity Ratio

74.90% 73.87% 76.53% 77.91%

80.00% 69.53% 67.83%
65.06% 62.89% 61.88% 65.42%
60.00%

40.00%

20.00% 8.03% 9.03% 6.76%

3.02% 4.90%
0.00%
2016/17 2017/18 2018/19 2019/20 2020/21

total credit/ deposit

cash & bank balance/ total deposit
loan advance & bills purchase/ Toatal assets

Figure: 2.1 Cash and Bank Balance Vs Money at Call and Short Notice
 21

2.1.2 Management Efficiency ratio

Management efficiency ratios analyze how well management has been able to utilize
assets, control cost and run operations efficiency. Below we will consider few indicators of
managerial efficiency of the bank.

Table 2.2

Management Ratio of Nabil bank Ltd (in %)

Management unit 2016/17 2017/18 2018/19 2019/20 2020/21
Efficiency - indicator

Total Employee % 25.59% 18.75% 16.12% 18.57% 19.59%

Expenses/Total
Operating Expenses
Exchange Gain/ Total % 7.34% 5.76% 4.59% 6.26% 7.20%
Income
Staff Bonus/ Total % 43.50% 44.28% 42.05% 48.26% 48.90%
Employee Expenses
Total Operating
Expenses/ Total Assets % 4.35% 5.41% 6.91% 6.73% 4.84%
Non Performing % 0.80% 1.48% 1.77% 2.33% 2.13%
Loans/ Total Loans

Source: Annual Report of Nabil Bank (Annex 7)

 22

Management Efficiency Ratio

60.00% 8.00%
50.00% 7.00%
6.00%
40.00% 5.00%
30.00% 4.00%
20.00% 3.00%
2.00%
10.00% 1.00%
0.00% 0.00%
2016/17 2017/18 2018/19 2019/20 2020/21

Total employee Expenses/Total Operating Expenses

Exchange Gain/Total income
Staff Bonus/Total employee expense
Expenese/Total assets
Non Performing Loans/Total Loans

Figure: 2.2 Management Efficiency Ratio

 23

2.1.3 Profitability Ratios

Profitability ratio is a key to survivable of any organizations. Below key profitability
indicators of the bank have been examined.
Table 2.3
Profitability Ratio of Nabil Bank ltd.(In %)
Profitability- unit 2016/17 2017/18 2018/19 2019/20 2020/21
Indicator

Net Profit/Gross % 30.56% 24.12% 22.29% 23.74% 32.66%

Income
Interest Income/
Loans, Advance & % 8.82% 10.41% 12.50% 12.85% 11.64%
Bills Purchased
Interest Expenses/ % 3.32% 4.43% 6.15 5.74% 3.67%
Total Deposit,
Borrowing & Bills
Payables
Net Profit/ Loans and % 4.02% 3.47% 3.73% 4.14% 5.04%
Advance & Bills
Purchased
Net Profit/Total % 2.55% 2.37% 2.43% 2.80% 3.25%
Assets
Weighted Average % 4.16% 4.40% 4.37% 4.95% 5.48%
Interest rate Spread

Source: Annual Report of Nabil Bank (Annex 7)

 24

Profitability Ratio
35.00%

30.00%

25.00%

20.00%

32.66%
15.00% 30.56%
24.14% 22.29% 23.74%
10.00%

5.00%
4.43% 6.15%
3.32% 5.74% 3.67%
0.00%
2016/17 2017/18 2018/19 2019/20 2020/21
Net Profit/Gross Income
InterestIncome/Loans, Advantages & bills purchased
Intereerst expenses/Total Deposits, borrowing & bills Payables
Net profit/Loans & Advances & Bill purchased
Net Profit/Total assets
Weighted Average Interest Rate Spread

Figure 2.3 Profitability Ratio

These ratios have focus on share market and are key ratios closely monitored by current
and future investor of the bank. Most of these ratios presented below show a gloomy picture
and weakening investor confidence on the bank.
 25

Table 2.4

Market/Shareholder Ratio of Nabil bank Ltd. (In %)

Market unit 2016/17 2017/18 2018/19 2019/20 2020/21

(Shareholder's)
-Indicator
Earnings Per Rs. 113.44 83.81 70.67 83.23 95.14
Share
Market Value Rs. 4,899 2,384 1,252 1,355 1,815
Per Share
Price Earnings Times 43.19 28.45 17.72 16.21 19.08
Ratio
Dividend Rs. 85 70 30 60 65
(including
Bonus) on
Share Capital
Cash Dividend Rs. 35 30 30 40 40
on each share
Book Net Rs. 324 265 225 269 275
Worth Per
Share
Total Shares Number 9,657, 14,491, 20,297, 20,297, 24,368,
470 240 694 694 414
Source: Annual Report of Nabil Bank Ltd. (Annex 7)
 26

Market /Shareholder Ratio

700

600 324

500 275
265 269

400
225

300
35
85
30 40
200 40
70 65
43.19 30 60
113.44 28.45 30 19.08
100 16.21 95.14
83.81 17.72 83.23
70.67

0
2016/17 2017/18 2018/19 2019/20 2020/21
Book net worth per share
Cash Dividend on each share
Dividend (including bonus) on Share Capital
Price Earning Ratio
Earnings Per Share

Figure 2.4 Market/Shareholder Ratio

 27

2.2Analysis of Results

Liquidity Ratio

From liquidity perspective lower the credits to deposits ratio better the liquidity position.
As we see this indicator has gone up in FY 2020/21 in compare to FY 2016/17. This shows
improving liquidity position in financial year 2019/20 compared to last year few FY.
Liquidity position in financial year 2020/21 has shown good result compare to 2019/2020.

Cash and Bank Balance Vs Money at Call and Short Notice

Cash & and bank balance to total deposit has fallen from 2016/17 to 2020/21 from
i.e.9.03 to 8.03%. This is worry from liquidity perspective. However, cash and bank balance
to total deposit has showed improved liquidity position compared to last year i.e. it increase to
8.03% in compare 6.67%. Cash balance has remained in fluctuating trend in last five years.

Loan, Advances & Bills purchased are illiquid item so higher proportion of these items
in bank's total assets is bad for bank's liquidity. This ratio has fallen in 2020/21 showing
improved liquidity position in compared to 2019/2020.

Holding money in the from cash and bank balance has been increased and management
investment in money in the from cash and short notices has been decreased in compare to last
year. This suggests liquidity position has improved from last year.

Management Efficiency Ratio

Total employee Expenses/Total Operating Expenses have been in increasing trend. Staff
bonus has remained approximately in the same level and this has seen a major employee cost
as a result which has help to retain high quality manpower and boost employee morale.

The operating expense has increased higher in comparison to growth in total assets in
previous year but in 2022. It is in decreasing trend. This exhibits inefficiency in managing
assets of organization. Another indicator non-performing loans total has decreased to 2.13%
from 2.33% from FY 2019/22020 to FY 2020/2021, showing the management has been able
to control loan defaults and lending ton risky customers.
 28

Similarly, the growth in gain from foreign exchange to growth in total income has been in
upward trend showing strong foreign currency management.

Profitability Ratio

Net Profit margin has climb up to 32.66%, from FY 2016/17 to 2020/21 and interest rate
spread in 2020/21 is also increased from previous years. This ratio indicates the proportion of
the bank's total operating revenue going towards paying all expenses including interest and
taxes (Joshi, 2005). The rate of interest expenses for deposits is in increasing trend in last few
years. The rate in interest expenses for deposit is lowering down as a result the rate of interest
income from loan and advances may also be lowering down which was higher in last few
years.

The return on assets has been in increasing trend. It is growing up to 2.55% (financial
year 2016/17) from 3.25% (financial Year 2020/21). Overall 2020/21 has reasonable
profitable than 2019/20.

Interest income/Loans, Advances & Bills purchased have ben in upward trend which
shows the good profitability indication. But in FY 2020/21 this ratio is fall from FY 2019/20
which shows a critical condition.

Net Profit/Loans, Advances & Bills purchased is also in increasing level over the last
few years which shows the growing level of indication.

Market/Shareholder Ratio

Bank's shareholders have been earning higher per share income by controlling on issue
of large number of bonds shares. Book Net worth per share is growing significantly due to
same reason.

Cash and bonus dividend are growing upward from fiscal year 2017/18 and major
portion of total dividend is taken by bonus dividend, however in financial year 2017/18 and
total dividend is taken by cash and bonus dividend in equal proportion.

Price Earnings Ratio has fallen down significantly in last year, but it has stepped up at
FY 2020/21. Investor prefers cash and bonus dividends equally. Share price also have
increased from FY 2019/20 which shows improving profitability condition.
 29

From above analysis we can say Mega Bank is going to build a healthy overall
market/Shareholders ratio. All the profitability ratios, assets management ratios and
market/shareholders ratios shows improving condition.

2.3 Findings

The main finding of the study is carried out on the basis of the analysis of financial data
of banks which as follows:

i. Political instability has created economic uncertainty and slow down of economic
activity this has hampered banking sector organization as a well as Nabil bank also
been effected by political factor.
ii. GDP has also fallen down which as adversely affected bank.
iii. Technological advancement has reduced the operating costs of bank.
iv. Banking is only the field where most of the investor fell safe to invest their money and
central bank has also open the door for most of the investor to invest their money in
bank and it has also open door to foreign investor to invest in banking sector. Hence
threat of new entrant is high.
v. Liquidity position is financial year 2020/21 has shown average result compare to
previous year. However, the liquidation position in upcoming financial year may show
the better result as the liquidation position of most of the commercial bank has been
improved (as per Nepal rostra bank).
vi. Management efficiency ratio for the Nabil Bank financial year 20220/21 has shown
better result compare to 2019/20.
vii. Profitability Ratio for the Nabil Bank in financial year 2020/21 so best results
compare to other competitors.
viii. One of the most hampered ratio due to political instability and economic recession is
market ratio.
ix. Overall ratio of bank and financial institutions are stared to increase from FY 2018/19.
 CHAPTER III

SUMAMARY AND CONCLUSION

The proceeding chapter has discussed and explores the fact and matters required for the
various part of the study. Analytical part, which is the heart of the study, made a analysis of
various aspects of the financial status and performances of commercial banks by using some
important financial as well as non-financial. Having completed the basis analysis required for
the study, the final and most important task of the researcher is to enlist finding and give
recommendation for further improvement. This would be meaningful to top management of
the banks to initiate action and achieve the desired result. The objected of the researcher is not
only to point out earners and mistake but to correct them and give advices and direction for
father growth and improvement.

3.1Summary

Though the economic growth was as snail speed in earlier year, it had caught its full
sailing with restoration of democracy in the country. These days Nepal has been facing
several economic problems due to the unrest condition. Financial analysis is the process of
determined the significant operation and financial characteristics of a firm accounting data. It
show the relationship between the various component which can be found in balance sheet
and profit and loss account. The analyzed statement contain that information which is useful
for management, shareholders, creditors, investors, depositors etc. as in other industries
banking industries also need financial analysis, as it is crucial for evaluating and analyzed the
performance of the particular company as compare to the other and also from the previous
performances of the same company. At present there are altogether thirty one commercial
bank operating in the country among which Nabil bank occupied wide range of the business
due to access to most of the corner of the country. Slowly private banks are also initiating to
move towards every corner of the company but due to prevailing crisis they are not being able
to meet their objects to reach to every corner of the country. Due to increasing competition
banks are forced to Innovate new products to their customer and they are shifting from
traditional service procedure to various sophisticated services like ATM card, debit card,
credit card, housing loan, educational loans, vehicle financing etc.
 31

Banking promotes the development of commerce to its extreme, as banking itself is the
part of comers economic activity remains that in absence of banking industrious as it plays the
role of catalyst for economic development of the country in the developing county where
there prevail unorganized transactions. It helps to enhances economic activates of the country
by providing capital fund for smooth operation of business activates, create employment
opportunities, investing agriculture, industry and soon.

In this study the objective function and strategies of foreign participated private
commercial banks have been emphasized and analyzed of their financial as well as non
financial status and performances. Here, the main finding of the study is the financial and non
financial status and financial performances and business analysis of mega banks has been
presented. The financial data, statement of five consecutive years i.e. 2017/18 to 2020/21 has
been examined for the purpose of the study. The study is mainly based on the primary and
secondary data, which have been processed first and analyzed comparatively. From this
analysis of financial performances and business analysis of Nabil bank and making its
comparison with Everest bank limited and Himalayan bank limited, various findings are made
as discuss in earlier chapter.

3.2 Conclusion

Competition in the banking sector has become intense. Unfortunately they are all
concentrated in capital and large cities and share customer and supplier base. Being a retail
banking buyers and suppliers has how bargaining power. But threat from substitutes and new
entrants is quite significant. At the same competitive rivalry is acute which has squeezed
profitability. However Nabil bank has excellent history and brand recognition in market, has
talented pool of human resource, has huge base of customers, suppliers, assets and markets.
This has kept bank in a superior position among its competitors.

Strong brand reputation, excellent credit rating, large customer base are few key
strengths of the bank however small branch network and concentration around cities is the
major weakness. Size and economics of scale create a lot of opportunity for the bank.
Possibility of a foreign bank opening branch in its market or its competitors consolidating to
make a major bank is a big threat.
 32

Regarding ratio analysis liquidity ratios have averaged this year with last year but bank is
still sufficiently liquid to pay its debts as they fall due. Decrease in operating expenses and
Non-performing loan has indicated improving managerial efficiency in current year compared
to previous years. Current year’s profitability has higher compare to previous year. The bank
has maintained capital adequacy as required by the central bank of Nepal. Market ratio have
also in increasing trend indicated rising in investor confidence. Hence current year’s business
and financial performance has been better and improving over five years.

Significantly, minimize risk by diversification of investment and use latest state of art
technology to provide appealing modern day banking products and services.
 BIBLIOFRAPHY
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pdf[feb 28 2022].

Pradhan, S.B.(2006), Role of Saving, Investment and Capital Formation In Economic

Development A Case of Nepal, Kathmandu : Asmita Publication.

Reilly,F.K & Brown, K.C. (2008) Investment Analysis. Singapore: Thomson South Western.

Thapa, K.(2008). Fundamentals of Investment. Kathmandu: Asmita Books Publication.