A Study on Financial Analysis of Himalayan Bank Limited

A Research Proposal

Submitted By
Alisha Khadka
T.U. Registration No.: 7-2-0319-0194-2019
Group: Finance
Nepal Commerce Campus
Minbhawan Marg, Kathmandu

Submitted To:
The Faculty of Management
Tribhuvan University
Kathmandu

In Partial Fulfillment of the Requirements of the Degree of Bachelor of Business Studies

(BBS)

Kathmandu, Nepal
April, 2024
 Introduction

1.1. Background of the Study

1.1.1. Meaning of Financial Analysis

Financial analysis is the process of evaluating businesses, projects, budgets, and other
finance-related transactions to determine their performance and suitability. Financial
statement analysis is the process of analyzing a company's financial statements for decision-
making purposes and to understand the overall health of an organization. Financial statements
record financial data, which must be evaluated through financial statement analysis to
become more useful to investors, shareholders, managers, and other interested parties. It is
the method of evaluating past, present, and projected performance of a company. Financial
analysis is a crucial aspect of understanding a business’s stability, profitability, and overall
financial health. It involves evaluating financial statements like balance sheets, income
statements, and cash flow statements to make informed decisions about investments, business
strategies, and performance assessments.

Analysts track performance measures across financial statements using several different
methods for financial statement analysis, including vertical, horizontal, and ratio analysis. It
helps to analyze whether an entity is stable, solvent, liquid or profitable enough to warrant a
monetary investment. It is therefore essential to analyze the financial statement to know the
actual financial performance and financial position of the organization.

Financial analysis in banking is a comprehensive assessment of a bank's financial health,

performance, and risk profile. It plays a crucial role in evaluating the bank's ability to
generate profits, manage risks, and maintain stability in the face of economic fluctuations and
regulatory changes. Profitability ratios, such as return on assets (ROA) and return on equity
(ROE), measure the bank's ability to generate profits from its assets and equity capital. A
higher ROA and ROE indicate better performance and efficiency. Liquidity ratios, such as
the loan-to-deposit ratio and current ratio, assess the bank's ability to meet its short-term
obligations. Solvency ratios, including the capital adequacy ratio (CAR) and leverage ratio,
evaluate the bank's capital strength and its capacity to absorb losses.
1.1.2. Objective of Financial Analysis

Analysis of financial statements reveals important facts concerning managerial performance

and the efficiency of the firm. Broadly speaking, the objectives of the analysis are to
apprehend the information contained in financial statements with a view to know the
weaknesses and strengths of the firm and to make a forecast about the future prospects of the
firm thereby, enabling the analysts to take decisions regarding the operation and further
investment in the firm. To be more specific, the analysis is undertaken to serve the following
objectives:
 To assess the current profitability and operational efficiency of the firm as a whole as
well as its different departments so as to judge the financial health of the firm.
 To ascertain the relative importance of different components of the financial position of
the firm.
 To identify the reasons for change in the profitability/financial position of the firm.
 To judge the ability of the firm to repay its debt and assessing the short-term as well as
the long-term liquidity position of the firm.

1.2. Profile of Himalayan Bank Limited

Himalayan Bank Limited (HBL) is one of the largest private commercial banks in Nepal.
The Bank was incorporated in 1992 by a few eminent individuals of Nepal in partnership
with the Employees Provident Fund and Habib Bank Limited of Pakistan. The bank
commenced its operations in January 1993. Himalayan Bank is also the first commercial
bank of Nepal with most of its shares held by the private sector of Nepal. The bank has its
head and corporate office at Kamaladi, Kathmandu.

The bank holds the legacy of introducing various banking services for the first time in Nepal
from the very beginning. Products such as Premium Savings Account, HBL Proprietary Card
and Millionaire Deposit Scheme besides services such as ATM and Tele-banking were first
introduced by HBL which was able to win customers’ hearts during that time. Since its
establishment, the bank has been highly focused on innovative approaches and customer
satisfaction. The bank started its journey from Employees Provident Fund Building,
popularly known as Sanchayakosh Building at Thamel, Kathmandu.

HBL has also been serving Nepali citizens living in the country and abroad through
remittance service. Presently, HBL is the biggest inward remittance handling bank in Nepal.
With its exclusive and proprietary online money transfer software – Himal RemitTM, HBL is
among the top remittance service providers in Nepal having ties with financial institutions
based in the Middle East, Gulf region, UK, Australia, USA, Japan, Israel, South Korea,
Malaysia, Singapore, Portugal, Spain and Hong Kong. With respect to the Merger and
Acquisition Policy introduced by Nepal Rastra Bank, Himalayan Bank Limited acquired
Civil Bank Limited at 100:80.28 swap ratio (A shareholders holding 100 scrips of CBL will
get 80.28 scrips of HBL) and commenced the joint operation as “Himalayan Bank Limited”
from February 24, 2023. Currently, the Banks has been happily serving its customers from
total of 176 Branch Offices and 20 Extension Counters spread all over Nepal.

1.3. Statement of the Problems

A "Statement of Problems" in finance typically refers to identifying and articulating the

challenges, issues, or concerns that need to be addressed in a particular area of finance. It
serves as a foundation for research, analysis, and problem-solving. In academic research,
especially in finance-related studies, the Statement of Problems provides a clear and concise
description of the research problem or questions that the study aims to investigate. It outlines
the scope of the study, highlights the gaps in existing literature or practices, and establishes
the rationale for conducting the research.

In present context of Nepal, commercial banks have good performance. On the basis of
profitability and productivity of commercial banks, public have confidence in their
performance. However, various environmental factors, state of economy, structure of capital
and money market, government policies, taxation policies and various internal factors have
influence upon financial performance and position of commercial banks. In these
circumstances, it is highly useful to make the study on financial statement of Himalayan
Bank Ltd. Profitability position and stock prices are the general factors considered for
evaluating the financial performance of Himalayan Bank Limited. The main problem of the
study, is to inquire into the financial performance of Himalayan Bank Limited. This study is
targeted to find out answers to the following questions:

*What is the financial position of the bank?

*Do the current assets are enough to discharge the current liabilities?

* Has the Bank got satisfactory profitability position?

In this context, the main purpose of the study is analyzing the financial performance of the
HBL in terms of turnover, profitability, liquidity and efficiency in operation.

1.4. Objectives of the Study

The primary objectives of this study are as follows:

1) To analyze the overall financial performance of the HBL in terms of ratio analysis.

2) To measure profitability, liquidity position and activity of the bank.

1.5. Rationale of the Study

Report writing develops the habit of researching, collecting and interpenetrating obtain result
which is a very important things in a real world. So, report writing is very significant to
students as it helps to broaden their mind. The case of the study is related with the financial
performance of Himalayan Bank Limited. The analysis will be helpful to know the financial
strength of the bank. This report may helps in predicting the future scenario of HBL on the
basis of past and present performance. Lastly, this report can becomes the suitable literature
for future study.

1.6. Review of Literature

Literature review is the study of the available literature in one’s field of research. The
literature provides us with the knowledge of the status of their field of research. Past study
knowledge provides foundation to the present study.
1.6.1. Origin of Bank

The concept of banking traces back to ancient civilizations, where various forms of financial
transactions and lending activities existed. The word "bank" is believed to have originated
from the Italian word "banca", which means bench. In ancient times, moneylenders and
financial institutions would conduct their business sitting on benches in public places.

The first bank was set up in Venice, Italy as a public bank, by the name ‘Bank of Venice’.
Subsequently, ‘Bank of Barcelona’ in 1401 A.D. & ‘Bank of Geneva’ in 1407 A.D. were
established. In 1609 A.D, “Bank of Amsterdam’, a famous bank was established. In reality,
the history of modern banking had started from ‘Bank of England’ in 1694 A.D. But the
modern joint stock banks were established in England only in 1833 A.D. In 1844 A.D., ‘Bank
of England’ was established as a first central bank in the world. The ‘Banque De France’ was
established in France in 1807 A.D. Later, the banks were established in other parts of the
world.

1.6.2. Conceptual Review

Brigham E.F. & L.G. Gapenski, (1992), “Financial analysis means assessing the viability,
stability and profitability of a project. It also includes techniques used for determining the
needs of a business.”

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.”

According to Metcalf and Tatar (1996), “Financial Performance analysis is a process of

evaluating the relationship between components parts of a financial statement to obtain a
better understanding of a firm’s position and performance.”

Ahuja (1998), “Financial Performance analysis is a study or relationship among the various
financial factor in business a disclosed by a single set of statement and a study of the trend of
these fact as shown in a series of statements. By establishing a strategic relationship between
the item of a balance sheet and income statements and other operative data, the financial
analysis unveils the meaning and signification of such items.”

Ross, P.S. (2000), “Financial analysis refers to the assessment of a business to deal with the
planning, budgeting, monitoring, forecasting, and improving of all financial details within an
organization.”

1.6.3. Review of Previous Work

Oberholzer & Van Der Westhuizen (2004) investigated the efficiency and profitability of Ten
banking regional offices of one of South Africa's larger banks. This study demonstrates how
conventional profitability and efficiency analyses can be used in conjunction with DEA .
Although their study concentrated on banking regions; their findings confirm those of Yeh
(1996) that DEA results as an efficiency measure have a relationship with both profitability
and efficiency ratios. The conclusions were that there are significant relationships between
conventional profitability and efficiency measures and allocative, cost and scale efficiency
and no significant relationship with technical efficiency.

Tarawneh (2006) analyzed the financial statement of five Omani banks for the financial
period 1999-2003. In addition, he used simple regression to estimate the impact of asset
management, operation efficiency, and bank size on the financial performance of these banks.
The results showed that financial performance of the banks was strongly and positively
influenced by the operational efficiency, asset management, and bank size.

Almazari (2011) in his study attempted basically to measure the financial performance of
seven Jordanian commercial banks for the period 2005-2009, by using simple regression in
order to estimate the impact of independent variable represented by; the bank size, asset
management, and operational efficiency on dependent variable financial performance
represented by; return on assets and interest income size. It was found that banks with higher
total deposits, credits, assets, and shareholders’ equity do not always mean that has better
profitability performance. Also found that there exists a positive correlation between financial
performance and asset size, asset utilization and operational efficiency, which was also
confirmed with regression analysis that financial performance is greatly influenced by these
independent factors.

Haque and Sharma (2011), their research studied the hypotheses tested imply that there are
significant differences amongst Saudi banks. The financial performance of banks in Saudi
Arabia is studied on the basis of financial variables and ratios through the help of Spearman's'
rank correlation method. Although, benchmarking performance of banks is done using
advanced linear programming models, this study attempts to develop an efficiency frontier on
the basis of simple linear regression. Albeit certain restrictive assumptions, this study
identifies Al Rajhi bank to be the best bank to which other banks could look up to and
justifies this model on the basis of parsimony.

Almumani (2014) the purpose of his study is to analyze and compare the performance of
Saudi banks that listed in stocks market for the period 2007-2011. The study is an evaluator
in nature, drawing sources of information from secondary data. The financial performance of
banks is studied on the basis of financial ratios and variables. Financial performance was
measured by two approaches; trend analysis and inter-firm analysis. It was found that
increasing of assets, operating expenses, and cost to income causes a decrease in Saudi
bank’s profitability, while increasing of operating income causes an increase in the
profitability of Saudi Banks. Analysis shows that all the variables of study have a positive
mean value and all banks are generating income. Saudi joint venture banks proved to be more
proficient in generating profits, absorbing loan losses and dominating in ROE, while, Saudi
established banks have more capacity of absorbing asset losses and dominating in ROA.

1.7. Research Methodology

Research methodology refers to the systematic process used by researchers to collect, analyze,
and interpret data in order to answer a research question or test a hypothesis. It provides a
framework for conducting research in a structured manner to ensure that the results obtained
are valid, reliable, and generalize.This chapter focuses and deals with the following aspects
or methodology.

- Research Design

- Population and Sample

- Source of Data

- Data Collection Procedure

- Method of Date Analysis

1.7.1. Research Design

Zikmund (2007), “Research design is a master plan specifying the methods and procedures
for collecting and analyzing the needed information.”

Research design is a crucial aspect of the research methodology, as it outlines the overall
strategy and plan for conducting a study. It serves as the blueprint for how the research will
be carried out, guiding researchers in collecting and analyzing data to address their research
questions or hypotheses. A research design is the arrangement of conditions, for collection
and analysis of data in a manner that aims to combine relevance to the research purpose with
economy in procedure. In fact, the research design is the conceptual structure within which
the research is conduct.

General objective of this research is to examine and evaluate the financial performance of
Himalayan Bank Limited. In order to achieve this objective, descriptive research design has
been followed. Also, the research is based on historical research design (used of historical
data for analysis).

1.7.2. Population & Sample

The population refers to the entire group that is the subject of the research study. It can be
defined based on various characteristics, such as age, gender, location, or specific criteria
relevant to the research question. The population represents the broader group to which the
study's findings are intended to be generalized.

A sample is a subset of the population selected for the study. It is impractical and often
impossible to study an entire population due to factors such as time, cost, and feasibility.
Therefore, researchers use samples to make inferences about the larger population.

There are altogether 27 commercial banks functioning all over the nation and most of their
stocks are traded actively in the stock market. Here HBL have been selected as sample for
our study. Similarly, financial statements of this bank for 5 years have been taken as samples
for the same purpose.
1.7.3. Source of Data

The present study is based on secondary data. The necessary data is obtained from published

annual report containing Statement Of financial position, Statement of Comprehensive

Income and other related statements of the bank. Since the stock of HBL is listed in NEPSE,
the figures are all most reliable and suitable too.

So, the major sources of secondary data used for this study are as follows:

*Annual Report of HBL (2075/76 to 2079/80)

*Official Website of NICA

*NRB circulars

*Some third parties

1.7.4. Data Collection Procedure

Data collection procedure refers to the systematic process used to gather information or data
relevant to the research study. A well-designed data collection procedure ensures that the data
collected is accurate, reliable, and relevant to the research objectives.

Data collected from various sources are in raw form. The method of analysis is directed to
find the actual financial performance of the bank. The obtained data are presented in the
tabular form, diagrams and Figure with the supporting interpretation. The collected data are
accumulated in organized way and are grouped for calculation using the method given by the
formulas.

1.7.5. Method of Data Analysis

Data Analysis tools are those, that are used for the analysis and interpretation of financial
data. These tools are fruitful in exploring the strengths and weaknesses of the financial
policies and strategies. The various results obtained with the help of financial, accounting and
statistical tools are tabulated under different headlines. Such results are interpreted to portray
the current position and performance of the bank. Two kinds of tools have been used to
achieve the certain goals.

1. Financial Tools

2. Statistical Tools

1.8. Limitations of the Study

The major limitations of the study are as follows:

 Only limited variables have been selected.

 The Study is based on secondary data obtained from annual report of the bank.

 This study covers data of past five years only.

 The main focus is given to the quantitative aspect rather than qualitative aspect.
 BIBLIOGRAPHY

 Adhikari, D. R & Pandey, D.L. (2012). Business research methods. Kathmandu: Asmita
Books Publishers.

 Agrawal, O P. Principles and Practices of Banking. New Delhi: Macmillan Publishers.

 Kenneth S. Bigel. Introduction to Financial Analysis. New York: Open Touro.

 Francis, Jack Clark.(1986). Investment analysis and Management. New York: Mc Graw-
Hill publication.

 Gautam, Rishi Raj and Thapa, Kiran (2008). Capital Structure Management. Kathmandu:
Asmita Publication

 Pandey, I. M. (2004). Financial statement analysis (9th edition). New Delhi, India: Vikas
Publishing House Pvt Limited

 Pradhan, I.M.(2003). Financial Management Practices in Nepal. New Delhi: Vikas

Publishing House Pvt. Ltd.

Websites:
 https://www.wikipedia.org/
 https://www.himalayanbank.com/en/
 https://www.sharesansar.com/
 https://cdetu.edu.np/e-library
 https://corporatefinanceinstitute.com/