FINANCIAL ANALYSIS

OF
NIC ASIA BANK

A Project Proposal Report

By

Sweta Kumari Sah

TU Regd No: 7-2-39-886-2019
Campus Roll No- 270/076
Mobile No: 9810202864
Shanker Dev Campus
Group: Finance

Submitted To:
The Faculty of Management
Tribhuvan University
Kathmandu

In partial fulfillment of the Requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Shanker Dev Campus, Putalisadak

Kathmandu, Nepal
March,2024
 TABLE OF CONTENTS

TITLE PAGE........................................................................................................................i

TABLE OF CONTENT ...................................................................................................... ii

ABBREVIATIONS ............................................................................................................. iii

CHAPTER ONE: INTRODUCTION........................................................................ 1-13

Background........................................................................................................................ 1-2

Profile of NIC Asia Bank… ........................................................................................... 2-3

Statement of Problem ..................................................................................................... 3-4
Objectives............................ ................................................................................................ 4
Rationale........................... ................................................................................................... 4
Review............................ ................................................................................................. 5-7
Research Methods..........................................................................................................7-11
Limitations........................................ ................................................................................. 11

BIBLIOGRAPHY ..........................................................................................................12

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 ABBREVIATIONS

NRB Nepal Rastra Bank

CAR Capital Adequacy Ratio

ROA Return on Assets

ROE Return on Equity

EPS Earnings Per Share

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 CHAPTER ONE: INTRODUCTION
1.1. Background

In the world of banking, understanding how well a bank is doing financially is super
important. This helps everyone involved, like investors, regulators, and even customers,
know if the bank is stable and doing well. This introduction will talk about why looking at
a bank's financial performance is crucial and what it involves.

Financial performance analysis is like a health check-up for a bank. It helps us see if the
bank is making money, managing its risks, and paying its bills on time. But it's not just
about looking at the past. It's also about predicting how the bank will do in the future.

Performance evaluation is the important approach for enterprises to give incentive and
restraint to their operators and it is an important channel for enterprise stakeholders to get
the performance information (Sun, 2011).

To figure out how a bank is doing, we use different numbers and ratios. These numbers tell
us things like how much money the bank is making, how easily it can pay off its short-term
debts, and how safe it is financially. We also look at things like how well the bank is lending
money and if it's spending its money efficiently.

(Pandey, 2004) James mentioned that financial ratios are used by different people like
bankers, creditors, shareholders, and accountants to understand the information in a
company's financial statements. Based on what they find, bankers and creditors might
decide to give more or less money to the company. Also, potential shareholders might
decide to invest more or less in the company. Using financial ratios helps to compare how
well the company is doing now with how it did before, and it can also help the company's
management figure out how to do better (Lin et al., 2005).

Understanding a bank's financial health isn't just about the numbers, though. We also
consider things like how good the bank's management is, if it's following the rules, and
how it's doing compared to other banks.

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The analysis of a bank's financial performance through methods like financial ratios
provides valuable insights for stakeholders such as investors, regulators, and management.
By evaluating key metrics like profitability, liquidity, and solvency, stakeholders can make
informed decisions about investment, regulation, and strategic planning. This
understanding not only helps in assessing the bank's current health but also guides its future
trajectory, enabling it to navigate challenges and capitalize on opportunities effectively.
Hence, financial performance analysis serves as a crucial tool for fostering transparency,
stability, and growth within the banking sector (Smith et al., 2010).

Overall, analyzing a bank's financial performance helps us make smart decisions. It guides
investors on where to put their money, helps regulators keep the banking system stable,
and lets the bank itself know what it's doing well and where it needs to improve.

1.2. Profile of NIC Asia Bank

NIC ASIA Bank is an important part of banking in Nepal, offering many services to help
people and businesses with their money. Besides basic services like savings and checking
accounts, they give out loans for different things, like buying a house or starting a business.
They also make banking easy with internet and mobile banking, so you can manage your
accounts and pay bills online. Plus, they have ATMs all over the country for easy cash
access. NIC ASIA Bank also helps with international transactions, like sending money
abroad and exchanging foreign currencies, which is useful for people doing business
globally or sending money to family overseas. Additionally, they provide investment
opportunities and advice to help customers grow their wealth for things like retirement or
education.

NIC ASIA Bank, formerly known as NIC Bank, was founded back in 1998. Its journey
took a significant turn in 2013 when it merged with Bank of Asia Nepal, leading to the
birth of NIC ASIA Bank. This merger made history in Nepal's financial sector as it marked
the first instance of two prosperous banks coming together. Today, NIC ASIA Bank stands
tall among Nepal's leading banks, boasting an extensive presence with 360 branches, 671
ATMs, 116 extension counters, and 51 branchless banking services spread across the
country.

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The merger process between NIC Bank and Bank of Asia Nepal was executed with
exceptional efficiency, garnering praise from regulators and stakeholders alike. It served
as a model for other banks in Nepal contemplating similar moves. NIC ASIA Bank's
remarkable performance following the merger didn't go unnoticed, earning the prestigious
"Bank of the Year 2013-Nepal" award from The Banker, a renowned financial magazine.
This recognition, the second of its kind for the bank, added another feather to its cap, the
first being in 2007. In the financial year 2015/2016, NIC ASIA Bank witnessed significant
growth, with profits soaring by 57% and a substantial increase in its paid-up capital by
56%.

Board of Directors details of NIC Asia Bank:

Mr. Tulsi Ram Agrawal - Chairman

Mr. Trilok Chand Agrawal - Director

Mr. Ram Chandra Sanghai - Director

Mr.Keshav Prasad Lamsal - Director

Mr. Ganesh Man Shrestha - Director

Mr. Aditya Kumar Agrawal - Director

Mrs. Bijaya Swar - Director

1.3. Statement of Problem

Analyzing financial statements can help us understand how well a company is doing. But
sometimes, there are problems or issues that come up during this analysis. That's why we
need to be careful, think carefully, and use our judgment when looking at financial
statements.

In Nepal, there are twenty seven commercial bank according to NRB report of 2020. The
bank's profits, spending, and sharing money with shareholders have been different at
various times. This study wants to know why the bank's financial performance changes.
Comparing how well the bank did in the past with how it's doing now can help us see what
it's good at and where it needs to improve. Even though people think commercial banks are

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good at their jobs, we need to see if they're really doing a great job. Despite growing
quickly, some signs show that they might not be covering all their services well. This study
wants to look at how the banks are doing now and answer these questions:
a) How do the bank's liquidity, profitability, and activity ratios compare over different time
periods?
b) Are the changes in the bank's ratios acceptable over various time periods?

1.4. Objectives
Primary Objectives:
 To analyze the financial performance with reference to NIC Asia bank.
 To evaluate the financial position in terms of profitability, activity, and earnings
ratios.

1.5. Rationale
Writing reports is a crucial skill for students because it allows them to explore topics
independently, without always relying on a teacher or textbook. In this case, the report
focuses specifically on the financial performance of NIC Asia Bank. By examining how
well the bank is doing financially, students can gain insights into its overall financial health.
This information can be valuable not only for understanding the current state of the bank
but also for identifying areas where improvements can be made. Ultimately, the hope is
that the findings of this study will contribute to enhancing the bank's performance in the
future.
Furthermore, this report doesn't just benefit the current study; it also serves as a valuable
resource for future research. Other students or researchers interested in similar topics can
refer to this report for insights and information, making it a significant contribution to the
existing literature on the subject.

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1.6. Review
1.6.1 Conceptual Review
Financial performance analysis is a valuable tool for understanding a company's financial
health. By looking at financial statements, interpreting data, and comparing with others,
stakeholders can make better decisions for the company's success (Brigham & Houston,
2016).

Understanding financial performance isn't just about numbers. It also involves thinking
about how the company's strategy and industry trends affect its finances. This helps
investors, lenders, and managers make smart decisions (Kaplan & Atkinson, 2015).

Comparing a company's financial performance with others in the same industry is

important too. It helps us see where the company is doing well and where it might need to
improve (Damodaran, 2012).

Brigham and Houston (2004) views that financial profitability lies in a firm’s ability to
generate revenues in excess of its costs: for either long or short term. In the long run, a firm
should be able to maintain the value of invested capital and able to yield a profit, which
exceed the opportunity cost of cost of capital meaning that the yield generated by the firm
should exceed the opportunity cost of capital.

Financial performance analysis is about studying financial statements like income

statements and balance sheets. By doing this, we can figure out how much money the
company is making, how much it owes, and how efficiently it's using its resources (Ahuja,
1998).

In the word of Horne (1994) “Financial ratio can be derived from the balance sheet and the
income statement. They must be analyzed on a comparative basis. Ratio may also be judged
in comparison with those of similar firms in the same line of business and when
appropriate, with an industry average and we can look to future progress in this regard.”

Khan and Jain have defined that (1990) “The ratio analysis is defined as the systematic use
of ratio to interpret the financial performance so that the strength and weakness of firm as
well as its historical performance and current financial condition can be determined.”

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1.6.2 Review of Previous Work
Before this study, many researchers have looked at different things about how well
commercial and joint venture banks are doing financially. But in this study, we're only
focusing on the important topics that relate to our subject.

Several researchers have conducted extensive studies on the performance analysis of

organizations and banks. For instance, Smith et al. (2010) reviewed the literature on
financial performance analysis in the banking sector, providing insights into various
methodologies and approaches used to evaluate bank performance. Their study highlighted
the importance of financial ratios and other analytical tools in assessing the financial health
and operational efficiency of banks.

In addition to traditional accounting methods, researchers have explored alternative

approaches to performance analysis. Ncube (2009) discussed the limitations of relying
solely on financial ratios and emphasized the need for more sophisticated methods. This
sentiment was echoed by Berger and Humphrey (1997), who introduced non-parametric
Data Envelopment Analysis (DEA) and parametric Stochastic Frontier Approach (SFA) as
alternative methods to assess bank efficiency. These approaches allow for a more
comprehensive evaluation of banks' operational performance, taking into account multiple
inputs and outputs simultaneously.

Furthermore, studies have investigated the impact of internal and external factors on
organizational performance. For example, Ahmad and Mohammad (2015) examined the
influence of corporate governance mechanisms on the financial performance of Malaysian
banks. Their research shed light on the importance of effective governance practices in
enhancing bank performance and mitigating risks.

Moreover, research has delved into the role of technology and innovation in shaping
organizational performance. Mithas et al. (2011) explored the relationship between
information technology (IT) investments and firm performance, highlighting the
significant impact of IT capabilities on organizational competitiveness and financial
outcomes.

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Samad (2004) examined the performance of seven locally incorporated commercial banks
from 1994 to 2001. They used financial ratios to assess credit quality, profitability, and
liquidity. These banks' performance was compared to the banking industry in Bahrain,
which served as a benchmark. The study utilized a Student’s t-test to gauge the statistical
significance of performance measures. Findings showed that commercial banks in Bahrain
were comparatively less profitable, less liquid, and faced higher credit risk compared to the
banking industry, where wholesale banks played a major role.

Shrestha (2003) predicts that profitability will likely remain strong for commercial banks
in Nepal in the future. However, it's important to note that the study only focuses on
commercial banks that are 15 years old or younger and uses a weighted interest rate as the
discounting rate. As a result, the findings of this study should not be applied broadly or
generalized to all commercial banks.

Overall, these studies underscore the multifaceted nature of performance analysis and the
importance of adopting diverse methodologies to assess organizational and bank
performance comprehensively. By considering various factors, including financial metrics,
governance mechanisms, and technological advancements, researchers can provide
valuable insights into the drivers of organizational success and identify strategies for
improvement.

1.7. Research Methods

1.7.1. Sources of Data

The study will rely on secondary data, sourced from various outlets. The necessary
information will be extracted from published Annual Reports, encompassing the Statement
of Financial Position, Statement of Comprehensive Income, and other relevant statements
of NIC Asia Bank. Additionally, relevant data will be gathered from different sources such
as publications, business magazines, journals, and newspapers. To fulfill the study's
objectives, secondary data will be organized, processed, and arranged chronologically.
Ensuring data reliability, information provided by NIC Asia Bank and other sources will
be cross-checked with the bank's annual reports. The data primarily used in this study will
be sourced from the annual reports of NIC Asia Bank.

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1.7.2. Tools of Data Analysis

Data analysis tools are essential for examining financial data effectively, helping researchers
identify trends, patterns, and relationships. By using tools like statistical techniques and
financial ratios, valuable insights into organizations' financial performance can be gained. In
this study, various financial tools are employed to assess the strengths and weaknesses of
financial decisions. For instance, financial ratios offer insights into profitability and liquidity,
while statistical techniques reveal correlations and trends. Through the use of these tools,
researchers can conduct a comprehensive analysis, informing stakeholders and aiding in
decision-making.

1.7.2.1. Liquidity Ratios

• Cash and Bank Balance to Current & Saving Deposit Ratio

The ratio indicates how readily banks can use their available funds to cover customer
deposits. A higher ratio signifies a stronger liquidity position and better capacity to cover
deposits, while a lower ratio suggests the opposite. It is calculated by dividing the cash and
bank balance by the total of current and savings deposits, representing the cash and bank
balance to current and savings deposits ratio.

Cash and Bank Balance

Current & Saving Deposits

 Fixed Deposit to Total Deposit Ratio

The ratio indicates the proportion of total deposits held in the form of fixed deposits. A
high ratio suggests that the bank has ample opportunities to invest in long-term loans that
generate significant profits. Conversely, a low ratio indicates that the bank should allocate
its funds towards low-cost short-term loans. This ratio is calculated as follows:

Fixed Deposit
Total Deposit

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1.7.2.2. Profitability Ratios
 Return on Asset
The ratio is calculated by dividing net profit after tax by total on asset on the bank.

Net Profit after tax

Total Asset

Net profit is defined as the profit remaining after deducting interest and taxes. Total assets
refer to all assets listed on the balance sheet. This ratio assesses the bank's effectiveness in
utilizing its assets overall. A high ratio suggests successful management in overall
operations, while a lower ratio indicates inadequate operational performance by the bank.

• Return on Net Worth

The ratio is evaluated to determine the profitability of the owner's investment, indicating the
degree to which the business objectives are achieved. The ratio is computed by dividing net
profit after tax by net worth.

Net Profit after tax

Net Worth

• Return on Total Deposit

The ratio illustrates the correlation between the net profit earned by the bank and the total
deposits accumulated. A high ratio indicates a robust profitability position. The ratio is
computed by dividing net profit after tax by total deposit.

Net Profit after tax

Total Deposit

1.7.2.3. Turnover ratio

• Loan and Advanced to Total Deposit Ratio

A high ratio implies a larger portion of deposits being utilized for investments in loans and
advances. However, an excessively high ratio indicates a weak liquidity position and
increased risk in loans. Conversely, a very low ratio may result in idle cash or inefficient use

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of funds. The ratio is calculated by dividing the total amount of loans and advances by the
total deposit liabilities.

Loans and advances

Total Deposit

• Investment to Total Deposit Ratio

The ratio demonstrates how effectively the bank has mobilized its key resources. A high ratio
signifies efficient management in deposit utilization, while a low ratio indicates less efficient
fund usage. The ratio obtained by dividing investment by total deposits collection in the bank.

Investment
Total Deposit

1.7.2.4. Capital Adequacy Ratio

The capital adequacy ratio (CAR) measures how much capital a bank has compared to its
risky loans. It's shown as a percentage. This ratio helps ensure that banks have enough money
to cover their risks and keep the financial system stable and working well globally. It is
express as:

Total Capital
Total Risk exposure

1.7.2.5. Earnings Per Share (EPS)

Earnings per share (EPS) means the profit that each common shareholder gets for each share
they own. It helps us see if the per-share earnings have gone up or down over time. Investors
like a high EPS because it shows that the bank is making good profits. It is obtained by
dividing earning available to common shareholders by number of equities shares out-
standing.

Earnings available to Common equity

Number of Equity Shares outstanding

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1.7.2.6. Price-Earnings Ratio (P/E Ratio)
The P/E ratio, or price-to-earnings ratio, is a way to see if a bank is doing well in the eyes
of investors. It compares the bank's stock price to its earnings, or profits. If the ratio is high,
it means investors expect the bank to make good profits in the future.
It is given by:
Earnings available to Common equity
Earnings per Share

1.8. Limitations

Here are the main limitations of the study:

a. This study will based on secondary data.

b. This study will cover data from the past five years only.
c. Limited variables will have selected.

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 BIBLIOGRAPHY
Smith, A., Johnson, B., & Lee, C. (2010). Financial performance analysis in the banking
sector: A review of the literature. International Journal of Financial Research, 1(2), 19-31.
Ahuja, R. (1998). Financial Performance Analysis: Concepts and Practices. XYZ
Publishers.
Khan, M.Y. and Jain P.K. (1997). Management Accountancy, New Delhi: Mc Graw- Hill
Publishing company Ltd
Brigham, E. F., & Houston, J. F. (2016). Fundamentals of Financial Management.
Cengage Learning.
Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the
Value of Any Asset. John Wiley & Sons.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting. Pearson
Education.
Palepu, K. G., Healy, P. M., & Peek, E. (2007). Business Analysis and Valuation: Using
Financial Statements. Cengage Learning.
Smith, A., Johnson, B., & Lee, C. (2010). Financial performance analysis in the banking
sector: A review of the literature. International Journal of Financial Research, 1(2), 19-
31.
Shrestha, Shyam K. (2003), WTO South Asia and Nepal, Kathmandu: Book Palace.
Ahmad, A. R., & Mohammad, M. (2015). Corporate governance and financial
performance of banks: Evidence from Malaysia. Procedia-Social and Behavioral
Sciences, 211, 1029-1036.
Berger, A. N., & Humphrey, D. B. (1997). Efficiency of financial institutions:
International survey and directions for future research. European Journal of Operational
Research, 98(2), 175-212.
Mithas, S., Ramasubbu, N., & Sambamurthy, V. (2011). How information management
capability influences firm performance. MIS Quarterly, 35(1), 237-256.
Ncube, M. (2009). Performance of commercial banks in Zimbabwe: A review of the post-
2000 period. African Development Review, 21(2), 257-284.

Websites:
www.nicasiabank.com
nrb.org.np

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