LIQUIDITY AND PROFITABILITY MANAGEMENT OF NABIL BANK

LIMITED AND HIMALAYAN BANK LIMITED

A Dissertation to the office of the Dean, Faculty of Management in partial fulfillment

of the requirements for the Master Degree

By

Chetan Parajuli

Exam Roll No.: 34207/2020

T.U. Reg. No.: 7-2-324-387-2011

Mahendra Multiple Campus

Dang, Nepal

May, 2024
 Certification of Authorship

I therefore attest to having conducted research for my dissertation, "LIQUIDITY AND

PROFITABILITY MANAGEMENT OF NABIL BANK LIMITED AND HIMALAYAN
BANK LIMITED" and submitting the final manuscript of it. This dissertation has never been
before submitted for the purpose of awarding a degree or suggested and presented as a
component of the criteria for any other academic programmed. I've been appreciated for the
help and collaboration I've gotten with this study project. Furthermore, I affirm that the
reference section of the dissertation contains citations to all information sources and literature
employed.

Chetan Parajuli

Signature

Date: June, 2024

ii
 Tribhuvan University

Mahendra Multiple Campus

Office of the Campus Chief

Ref. No:- 082-560035

Des. No:- 082-560458

Bharatpur Dang

Report of Research Committee

Mr. Chetan Parajuli has defended a research proposal entitled LIQUIDITY

AND PROFITABILITY MANAGEMENT OF NABIL BANK LIMITED
AND HIMALAYAN BANK LIMITED successfully. The research committee has registered
the dissertation for further progress. It is recommended to carry out the work as per
suggestions and guidance of supervisor Mr. Khadananda Khanal and Ishwari Prasad
Ghimire, submit the thesis for evaluation and viva voce examination.

Khadananda Khanal
Dissertation Proposal Defined Date :
Supervisor
May, 2024
Signature: …………………

Dissertation Submitted Date:

Ishwori Prasad Ghimire
May, 2024
Supervisior
Signature: ………………

Keshav Kumar Acharya Dissertation Viva-Voce Date:

Head of Research Committee May, 2024
Signature: ……………………...

iii
 Tribhuvan University

Mahendra Multiple Campus

Office of the Campus Chief

Ref. No:- 082-560035

Des. No:- 082-560458
Bharatpur Dang

Approval Sheet
We have examined the dissertation entitled "LIQUIDITY AND
PROFITABILITY MANAGEMENT OF NABIL BANK LIMITED AND HIMALAYAN
BANK LIMITED" presented by Mr. Chetan Parajuli for the degree of Master of Business
Studies. We hereby certify that the dissertation is acceptable for the award of degree.

Internal Examiner
Ishwori Prasad Ghimire
Signature:
Internal Examiner
Khadananda Khanal
Signature:

External Examiner
Signature:
Keshav Kumar Acharya
Chairperson,Research Committee
Signature:

Date: June, 2024

iv
 ACKNOWLEDGEMENTS

Firstly, I would like to express my gratitude to Tribhuvan University for providing me with
the opportunity to prepare the thesis, which is a partial requirement for completing the
Master of Business Studies program offered by Tribhuvan University. This research was
completed after many months of rigorous work and honest effort on my part. I would like to
thank the following well-known individuals for their invaluable contributions, which took
many forms, towards the development of this study.

I would express my profound gratitude to my thesis supervisor Mr. Khadananda Khanal and
Ishwari Prasad Ghimire of Mahendra Multiple Campus for his valuable guidance and kind
support to me all the way through this thesis her co-operation in the revision of this thesis has
precisely helped me to groom and bring it in this form.

I also owe deep gratitude to all reputed authors whose writings have provided me
the necessary guidance and invaluable materials for the enrichment of my research papers in
all possible ways. My special appreciation goes to my colleague and to all my family
members, teachers and friends for their continuous encouragement and help to complete this
work directly or indirectly.

Perfection is anything can hardly be thought of knowing the universal fact " Human is Error".
I have taken utmost care to avoid errors, but I know they are inescapable, so I shall be
obliged if they are forgiven.

Chetan Parajuli

v
 TABLE OF CONTENTS

Tittle Page .................................................................................................................................i

Certification of Authorship......................................................................................................ii
Report of Research Committee...............................................................................................iii
Approval Sheet.........................................................................................................................iv
ACKNOWLEDGEMENTS.......................................................................................................v
TABLE OF CONTENTS.........................................................................................................vi
LISTS OF TABLE.................................................................................................................viii
LISTS OF FIGURE.................................................................................................................ix
ABBREVIATIONS...................................................................................................................x
ABSTRACT..............................................................................................................................xi
CHAPTER IINTRODUCTION.............................................................................................1
1.1 Background of the Study .................................................................................................1
1.2 Statement of the Problems ..............................................................................................5
1.3 Objective of the Study .....................................................................................................6
1.4 Rationale of the Study ......................................................................................................6
1.5 Limitations of the Study ..................................................................................................7
CHAPTER IILITERATUREREVIEW ...............................................................................8
2.1 Conceptual Review ...........................................................................................................8
2.2 Theoretical Review .........................................................................................................10
2.3 Review of Related Studies ...............................................................................................16
2.4 Research Gap...................................................................................................................34
CHAPTER IIIRESEARCH METHODOLOGY................................................................36
3.1 Introduction ....................................................................................................................36
3.2 Research Design .............................................................................................................36
3.3 Population and Sample ..................................................................................................36
3.4 Nature and Sources of Data ..........................................................................................37
3.5 Method of Data Analysis ...............................................................................................37

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CHAPTER IVDATA PRESENTATION AND ANALYSIS..............................................44
4.1 Results ..............................................................................................................................44
4.2 Data Analysis....................................................................................................................53
4.3 Discussion ........................................................................................................................56
CHAPTER VSUMMARY AND CONCLUSION...............................................................58
5.1 Summary .........................................................................................................................58
5.2 Conclusion ......................................................................................................................60
5.3 Recommendations ..........................................................................................................61
REFERENCES.......................................................................................................................63
APPENDICES........................................................................................................................66

vii
 LISTS OF TABLE
Table 4.1Quick Ratio of Sample Banks...........................................................................44

Table 4.2Cash & Bank balance to Total Deposit Ratio....................................................46

Table 4.3Return on Total Asset Ratio..............................................................................49

Table 4.4Return on Equity Ratio......................................................................................51

Table 4.5Correlation between Deposit and Loan and Advances......................................54

Table 4.6Coefficient of Correlation between Total Deposits and Total Investment........54

Table 4.7Coefficient of Correlation between Total Investment and Net Profit...............55

viii
 LISTS OF FIGURE
Figure 4.1Quick Ratio of HBL.........................................................................................45

Figure 4.2Quick Ratio of Nabil........................................................................................45

Figure 4.3Cash and Bank balance to Total Deposit of HBL ..........................................47

Figure 4.4Cash and Bank balance to Total Deposit of Nabil...........................................48

Figure 4.5Net profits to Total Assets of HBL..................................................................50

Figure 4.6Net profits to Total Assets of Nabil Bank........................................................50

Figure 4.7Returns on Equity Ratio...................................................................................52

ix
 ABBREVIATIONS

C.V Coefficient of Variation

CRR Cash Reserve Ratio

DDC District Development Charge

EBIT Earnings Before Interest Tax EPS Earning Per Share

Etc Etcetera

F.Y Fiscal Year

Fig. Figure

HBL Himalayan Bank Limited

i.e. That is

Ltd. Limited

MBS Masters in Business Studies NBL Nepal Bank Limited

NIBL Nepal Investment Bank Limited NRB Nepal Rastra Bank
P.E Probable Error

PEs Public Enterprises

ROA Return on Assets

S.D. Standard Deviation

SWOT Strength, Weakness, Opportunity and Threat T.U Tribhuvan University

US$ United States Dollar

VAT Value Added Tax

x
 ABSTRACT
Two renowned financial institutions in Nepal, Nabil Bank Limited and Himalayan Bank
Limited are the subjects of this study, which looks into their approaches to managing
liquidity and profitability. A bank's stability and capacity to fulfill its responsibilities while
producing long-term returns for its shareholders are influenced by its liquidity and
profitability, which are crucial measures of the bank's financial health and performance.

This study compares the liquidity positions and profitability levels of Nabil Bank Limited
and Himalayan Bank Limited over a given time period using financial ratios, trend analysis,
and comparative evaluation. The research looks at how these banks control their liquidity to
make sure there are enough resources to cover their immediate needs while maximizing
profits by using efficient asset and liability management techniques.

In addition, the study examines the regulatory environment and market factors that influence
liquidity and profitability management in Nepal's banking sector. Understanding the
problems and opportunities presented by these banks in maintaining acceptable liquidity
levels and increasing profitability is critical for stakeholders such as investors, regulators, and
policymakers.

This study aims to provide insights into effective strategies for financial institutions operating
in similar environments by examining the liquidity and profitability management practices of
Nabil Bank Limited and Himalayan Bank Limited, thereby contributing to a broader
understanding of banking performance and risk management in emerging markets.

xi
 1

CHAPTER I

INTRODUCTION

1.1 Background of the Study

Liquidity represents how much of a resource or security may be traded in the market without
affecting its price. Market liquidity refers to the extent to which a market, such as a country's
financial exchange or a city's housing market, allows resources to be traded at consistent
prices. Cash is a liquid resource, whereas land, intriguing artwork, and collectibles are often
illiquid. Bookkeeping liquidity measures how easily an individual or organization may meet
their financial obligations using the fluid resources available to them. A few proportions
represent bookkeeping fluidity. Cash is regarded as the standard for liquidity since it can be
converted most quickly and effectively into other resources.

Assuming that an individual requires a Rs. 17000 cooler, cash is the most effective resource
for acquiring it. Assuming that individual has little money but an intriguing book collection
valued at Rs. 17000, they are unlikely to find someone willing to exchange the fridge for
their collection. All things considered, they should sell the assortment and use the proceeds to
purchase the refrigerator. That may be great if the individual can wait months or years to
make the purchase, but it may cause an issue if the individual only has a few days. They
might need to sell the books at a rebate, rather than hanging tight for a willing purchaser to
pay the full worth. Intriguing books are along these lines an illiquid resource. (Cheney, JM
and Mosses, E.A 1991)

Market liquidity refers to the extent to which resources can be exchanged at stable prices in a
market, such as the national financial exchange or the property market in a city. The most
liquid resource is money, but real estate, attractive artwork, and collectibles are all rather
illiquid. The market for coolers in exchange for rare books in the scenario presented is so
illiquid as to be nonexistent. Conversely, increased market liquidity characterizes the
financial exchange. Assuming a trade has a high volume of exchange that isn't overwhelmed
 2

by selling, the value a purchaser offers for every offer (the bid cost) and the value the vender
will acknowledge (the ask cost) will be genuinely near one another. Financial backers, then,
at that point, won't need to surrender hidden gains for a speedy deal. Whenever the spread
between the bid and ask costs develops, the market turns out to be more illiquid. Markets for
land are innately less fluid than securities exchanges.

Indeed, even by the norm of housing markets, notwithstanding, a fast moving business
sector is moderately illiquid, since purchasers can request steep limits from merchants who
need to offload their properties rapidly. (Gupta, SP 1994) For a substance, for example, an
individual or an organization, bookkeeping liquidity is a proportion of their capacity to take
care of obligations really, that is to say, to approach their cash when they need it. In the
model over, the intriguing book gatherer's resources are somewhat illiquid, and would
presumably not merit their full worth of Rs. 17000 when absolutely necessary. In
commonsense terms,

Evaluating bookkeeping liquidity implies contrasting fluid resources with current liabilities,
or monetary commitments that come due in one year or less. There are various proportions
that action bookkeeping liquidity, which vary in how rigorously they characterize "fluid
resources." (Kothari CR 1992) Productivity is the capacity of a business to acquire a benefit.
A benefit is the thing is left of the income a business creates after it pays all costs
straightforwardly connected with the age of the income, for example, delivering an item, and
different costs connected with the direct of the business exercises.

Productivity is the result of several organizational strategies and decisions. It makes an

assessment of how hard the company is really working and getting by. It displays the
company's operational productivity in terms of generating revenue from transactions,
acquiring resources, and contributing capital. There are several methods by which you can
analyze advantage. The focus of this example will be benefit proportions, which are the ratio
of the business's ability to generate revenue to the amount of expenses it incurs. (P. Reed,
2013)
 3

1.1.1 An Introduction of Sample Banks

Nabil Bank Limited

Nabil Bank Limited is established in 1984 AD, Nabil Bank has carved a cornerstone in the
development of the financial services industry in Nepal. The Bank has always stayed true to
its three strong pillars: Service Excellence, Technology, and Product innovation. This has led
to the start of customer-centric banking culture with the development of innovative services
and products, enriching customers' livelihoods and setting benchmarks in the Domestic
Banking Sector.

Being a true pioneer in the domestic banking industry, Nabil Bank's goal is to become the
bank of choice for all of its stakeholders, including shareholders and employees as well as all
tiers of retail, SME, corporate, state-owned, non-profit, and international development
agency customers. Offering a full range of commercial banking products, including branch
banking, treasury, trade, cards, remittance, and investment banking, the Bank aims to be a
one-stop shop for solutions. The knowledgeable group of very talented experts offers advice
and direction tailored to the industry for effective financial management, increasing client
profitability. Nabil Bank operates through its wide network of 255 branch offices,
283 ATMs, numerous POS terminals, remittance agents and sub-agents 20000 plus spread
across the nation. The Bank also has over 170 international correspondent banking
relationships. The Bank operates its investment banking arm through its subsidiary Nabil
Investment Banking Ltd.

The Bank recognizes that its contribution to improving society extends beyond simple
financial transactions. As a result, the Bank actively promotes financial literacy and offers
financial access to a significant percentage of people countrywide as part of its CSR efforts.
Key areas that characterize the Bank's commitment to the nation's development plan are
financing priority industries like agriculture, renewable energy, and tourism, as well as
providing credit to disadvantaged segments of society through micro lending. In order to
address the economically disadvantaged population and raise financial literacy there, Nabil
Bank has also opened branch offices in a number of remote localities in the western and far-
western hills.
 4

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.

Himalayan Bank Limited

In 1993, Himalayan Bank was founded as a joint venture with Pakistan's Habib Bank
Limited. In the face of fierce competition in Nepal's banking industry, Himalayan Bank has
managed to hold a lead in the two main banking services it offers: loans and deposits.
An organization that is well-known throughout Nepal for its creative approaches to customer
service and merchandising carries on the legacy of Himalayan. HBL initially launched
services including ATMs and Tele-banking along with products like the Millionaire Deposit
Scheme, HBL Proprietary Card, and Premium Savings Account. Our example has been
followed by other financial institutions around the nation with the introduction of comparable
goods and services. Therefore, in addition to updating the banking industry, we support the
innovations we bring about in our nation to benefit our customers. Himalayan Bank Limited
acquired Civil Bank Limited at 100:80.28 swap ratios (A shareholders holding 100 scripts of
CBL will get 80.28 scripts of HBL) and commenced the joint operation as “Himalayan Bank
Limited” from February 24, 2023. After acquisition, the Banks has been happily serving its
customers from total of 189 Branch Offices, 20 Extension Counters and more than 263 ATM
Booths spread all over Nepal.

With the largest deposit base and loan portfolio among private sector banks, as well as the
ability to provide guarantees to correspondent banks covering the exposure of other local
banks under our credit standing with overseas correspondent banks, we firmly believe that
we are at the center of Nepal's banking sector. HBL's position as the top bank in the country
according to the most recent rating from the Bankers' Almanac easily supports our claim.
Every HBL branch is included in Globustial investments. This has made it easier for the bank
 5

to offer services like Internet, SMS, and "Any Branch Banking Facility." HBL launched a
number of new goods and services, living up to the hopes and expectations of its stakeholders
and customers for innovation. Among the goods and services offered are the Millionaire
Deposit Scheme, Small and Medium Enterprises Loan, Prepaid Visa Card, International
Travel Quota Credit Card, Consumer Finance via Credit Card, and online fee payment for
tests like the TOEFL, SAT, and IELTS. HBL additionally offers an off-site "Disaster
Recovery Management System" that is distinct. Considering the sheer number of Nepalese
employed overseas and their want for a legitimate means of transferring money, HBL has
created the unique and proprietary online money transfer program known as Himal Remit
TM. HBL is the largest bank in Nepal that handles remittances from abroad by assigning our
own employees to handle remittances, and we have technological partnerships with local
banks and exchange houses in the Middle East and Gulf. All of this just serves to highlight
HBL's outside-in rather than inside-out methodology, which prioritizes the requirements and
desires of its customers.

1.2 Statement of the Problems

The executives' need for cash to improve a country's finances is no more an issue. However,
asset activation is an important issue that we are facing. They have clearly done an excellent
task of reviving dormant stores. Just as problematic as assembling and non-producing
business associations is the board's liquidity. Business banks are unique financial institutions
which contribute significantly to the economy's overall government aid. Business banks have
greater responsibilities than those of certain other financial institutions. They must to be
ready to quickly and without warning settle a sizable amount of their obligations upon
request. The bank collects assets from different types of retailers in order to provide advances
and loans in various areas. Banks should try to boost their venture and store assets in order to
receive a higher yield. The main objective of the banking industry is to gather public savings
and provide loans to those in need. However, business banks usually address the issue of
using more stores as a fully functional endeavor. The gap between the distribution of
advances and the store assortment increases the bank's cash balance, which its substantial
amount of liabilities on its contributors seeks without warning. However, a significant
 6

portion of inactive money balances can lower bank output. The following highlights the
issues with reinvestment and liquidity management that commercial banks have to deal with:

• How much money do the banks in the sample have in deposits?

• How do the banks in the sample fare financially?
• How do investments, loans, advances, and total deposits relate to one another?

1.3 Objective of the Study

Examining Nabil Bank Limited's and Himalayan Bank Limited's liquidity management
practices is the study's primary goal. The following are the study's particular goals:
• Determining the Himalayan and Nabil banks' liquidity status.
· To evaluate the Himalayan and Nabil banks' profitability status.
• To investigate the connection between total deposits, loans, and advances.
• To look at the trends in investments, deposits, loans, advances, and net profit.
• To determine the cause of the present credit crunch.

1.4 Rationale of the Study

Business banks in Nepal operate in a highly competitive environment. Banks now operating
in this environment must adopt the right protocols for their particular situation. They need to
coordinate and modify the several operational areas of corporate concern. Any association's
achievement or failure depends by its methods, which are influenced by working capital
management. The administration of working capital is the basic issue in preparing a valid
strategy for its approval.

The review assists in determining the efficiency with which the banks operate their stores. It
is essential that academic experts and producers of tactics make plans and arrangements in
light of these banks' display. The focus also provides advice to financial backers, clients
(including investors, advance takers, and other types of clients), competitors, employees of
banks, stockbrokers, vendors, market producers, and others to help them make decisions
about purchases and borrowings.
 7

1.5 Limitations of the Study

The following are the study's limitations: • The study used Nabil Bank Limited and
Himalayan Bank Limited as a sample of 20 commercial banks.
• The study solely uses secondary data from the sample institutions' annual and financial
reports.
• Data from 2018–19 to 2022–2023 are included in the study.
• Only a limited number of financial and statistical instruments are employed for analysis;
only the sample banks' liquidity and profitability positions are taken into account in the
study.
 8

CHAPTER II

LITERATUREREVIEW

2.1 Conceptual Review

The term "liquidity" refers to the speed and efficiency with which a resource can be
converted into money. The most flexible resource is cash. Illiquid resources are those that
typically need to be sold after an extended and thorough search for a buyer.
Controlling liquidity involves identifying needs for liquidity and finding the most economic
solution to meet them. Both the two sides of the accounting report and cockeyed sheet
exercises can provide banks with liquidity. A supervisor who endeavors to control liquidity
exclusively by changes on the resource side is once in a while overlooking less expensive
wellsprings of liquidity. Then again, zeroing in exclusively on the responsibility side or
relying too intensely upon bought discount assets can leave the bank defenseless against
economic situations and impacts outside its ability to control. (Vaidya, S. 1999) A class of
financial measurements known as profitability ratios is employed to evaluate a company's
capacity to turn a profit in relation to its costs and other pertinent expenses incurred over a
given time frame. For the majority of these ratios, the company is performing well if its value
is higher than that of its competitors' ratios or higher than the same ratio from a prior time.
(A.R. Amengor, 2013)

A few ventures experience irregularity in their activities. The retail business, for instance,
normally encounters higher incomes and profit for the Christmas season. It wouldn't be
helpful to look at a retailer's final quarter net revenue with its first-quarter net revenue.
Contrasting a retailer's final quarter net revenue with the net revenue from a similar period a
year prior would be undeniably more enlightening.

Return on value (ROE), net revenue, and return on resources (ROA) are a few examples of
benefit proportions. Measures of productivity are the most widely used measures in financial
analysis. Consider the brief guide on ratios of profitability indicators: Overview. An
organization's benefit at various expense levels is measured by different net revenues, such as
 9

net edge, working edge, pretax edge, and net overall revenue. As layers of additional costs
are included, such as cost of goods sold (COGS), working and non-working expenditures,
and charges paid, the edges get thinner. Gross edge calculates the amount that a company can
raise sales over cost of goods sold. Working edge is the level of deals left in the wake of
covering extra working cost. The pretax edge shows an organization's productivity
after additional representing non-working cost. Net revenue concerns an
organization's capacity to create profit after charges. (Sinkey, J.F. 1983)

Importance of Liquidity Management

The following highlights the significance of liquidity management:

• To pay for all types of deposits

• To satisfy the debtor's demand

• To offer security to the banks

• To cover the costs of the bank's daily administrative work

Nepal Rastra Bank (NRB) is the administrative body of the financial business. The NRB
publishes principles and recommendations, such as various guidelines, to work with financial
activities in Nepal. Business banks have guidelines for maintaining liquidity. Periodically,
there is a continuation of the functional strategy and financial approach correction. The Cash
Reserve Ratio (CRR) is the name of the guideline. It has a direct relationship to the flexible
resources offered by commercial banks. The guideline establishes the percentage of business
funds held by the national bank and its own vault in order to facilitate daily operations
(exchange). It is a method that the national bank uses to supply currency.

Cash supply is a variable of financial strategy through which the bank intends to keep up
with sufficient liquidity in the economy. It changes according to the prerequisite of the
economy. As indicated by the national bank's guideline, business banks need to think about
the accompanying principle to compute CRR. Total deposit includes certificates of deposit
 10

(CDs), call money deposits, savings accounts, and fixed deposit accounts. The employee
guarantees amount, the margin account, and deposits stored in convertible foreign currency
would not be included for these purposes.

Fixed deposit accounts are defined as follows:

a) deposits accepted in local currency with repayment terms contingent upon

b) completion of a certain time period

c) all deposit accounts other than fixed deposit accounts.

d) Only local liquid cash and international currency (apart from clearing checks) may be
found in the vault.

2.2 Theoretical Review

2.1.1 Bank
Banking refers to any activity in which a person or organization provides financial services to
customers, companies, or government agencies. Banking, in its widest definition, is the
exchange of money, lending or facilitating loans, insuring creditworthiness, and protecting
and transferring funds. Institutions involved in investment banking, such as merchant banks,
trust companies, savings banks, commercial banks, and financing firms, offer these services.
The taking of, transferring of, and, above all, creating of deposits constitutes a more
condensed and popular definition of banking. Commercial banks, mutual savings banks,
building societies, savings and loan associations—which are more prevalent in the US—and
other depository institutions fall under this category. Government oversight and control of
banking is imposed on all nations and is often carried out by central banking institutions.
Check out the related articles for more details on investment banking and central banks.
 11

2.1.2 Concept of Commercial Bank

The core of the financial system is comprised of commercial banks. Numerous individuals,
government institutions, and commercial entities have their deposits held by them. They
provide funds through their lending and investing activities to borrowers, private companies,
and services from producers to consumers, and government financial operations. They serve
as a significant amount of the exchange medium and have an impact on monetary policy.
These data demonstrate the critical role that each country's commercial banking sector plays
in the smooth operation of the economy.
Like textbook publishers, fast food restaurants, and Frisbee manufacturers, banks are
businesses. Their employees purchase the necessary supplies, give them a little message,
light some incense, say a few magic words, and then some output comes out of the oven. If
all goes according to plan, the final product is sold for a higher price than the initial cost of
purchasing the raw materials. Money is the raw ingredient for bankers. An analysis of an
organization's total financial situation is the basis for any evaluation of financial
performance. It has a tight connection to how decisions are made. It provides crucial support
for decisions on investments, finance, and dividends in the current environment. Financial
statements that the company releases on a regular basis are used to aid in the study of
financial performance.

2.1.3 Financial Statements

"A company's financial position is shown through the use of financial statements, which can
be categorized into two categories: income statements and balance sheets. These are created
to provide stakeholders with an overview of the company's financial situation and overall
business operations during a given time period. They include a systematically arranged
summary of financial affairs information. These declarations are the responsibility of the
upper management.
Financial statements serve as a tool to help in decision-making. Financial statement analysis
and interpretation are reliant on the kind and quantity of available data. Therefore, the term
"financial statement" refers to any official and unique declaration that provides the financial
data related to a corporate enterprise during an amount of time. The firm's situation appears
in the income statements and balance sheet that are typically prepared at the conclusion of
each financial year.
 12

A) Balance Sheet
An organization's balance sheet is one of its fundamental financial statements. It is also
known as the report on fundamental accounting. As its name implies, a balance sheet
highlights a company's financial situation at a specific point in time, usually the end of the
fiscal year. It is comparable to a quick picture of a company's financial situation.
At the end of the fiscal year, typically, a balance sheet provides an overview of the assets,
liabilities, and owner's equity of a company. A balance sheet is a type of financial statement
that details various capital expenditures that were incurred when purchasing assets on a
specific date, as well as the different sources of funding that the company used to finance
these acquisitions. It also lists the various sources of liabilities and capital that the company
had at that specific point in time.

B) Income Statement
An income statement is meant to demonstrate how well the business performed over a given
time period, such as a year, month, or quarter. The income statements display the revenues
and expenses incurred by the business as a result of its successful operations. It is a
"Scoreboard" of the company's achievements over a specific time period. It presents an
overview of a company's earnings for a specific time period, including sales, expenses, and
net income or loss. Additionally, a reliable measure of the company's profitability is the
income statement.

2.1.4 Financial Performance Analysis

Financial analysis is the process of identifying a company's financial strengths and
weaknesses by systematically connecting the components of a profit and loss statement,
balance sheet, and other operational information. A variety of financial statements are used in
financial statement analysis. These claims achieve many different things. First, a balance
sheet presents a company's assets, liabilities, and owner's equity as of a particular time,
usually the end of a quarter or year. Afterwards, the income statement provides an overview
 13

of the company's earnings and outlays for a particular period of time, typically a quarter or
year. The income statement provides a summary of the company's profitability throughout
time, whereas the balance sheet shows the company's financial situation as of a particular
date in time. From these two statements certain derivate statements can be produced, such
as statement of retained earnings, a sources and uses of funds statements and a statement of
cash flows.
“Financial Analysis is the process of identifying the financial strengths and weaknesses of
the firm by properly establishing relationship between the items of the balance sheet and
profit and loss account". (Pandey; 2004:560.
"Analyzing financial statements is a process of evaluating relationship between component
parts of financial statements to obtain a better understanding of a firm's position
and performance”. (Metcalf; 1976:157)
“Financial Statement Analysis allows managers, investors and creditors as well as potential
investors and creditors to teach conclusion about the recent and current status of a
corporation. The checking of financial performance in a business deserves much attention in
carrying out the financial position. It also requires to retrospective analysis for the purpose of
evaluating the wisdom and efficiency of financial planning. Analyzing of what has happened
should be of great value in improving the standards, techniques and procedures of financial
control involved in carrying out finance function”. (Kuchhal; 1982)
The balance sheet, income statement, statement of retained earnings, and statement of cash
flows are the four fundamental statements that make up an annual report. Investor
expectations regarding future dividend and profit levels, as well as the risks associated with
these projected values, are established using the information in these statements. The process
of analyzing financial statements usually starts with the computation of a series of financial
ratios intended to highlight a company's relative strengths and weaknesses in relation to other
businesses operating in the same sector and to indicate whether the company's standing has
been getting better or worse over time. That type of computation is known as financial
analysis, and it is carried out with the aid of annual reports.. For the financial analysis, the
information taken from the annual report is therefore essential. It is a methodical and
analytical approach that aids in providing answers to appropriately posed queries. It is
therefore a means to an end. In addition to the particular analytical solution, the opinions of
 14

the parties concerned, the issue's relative importance, and the quality and dependability of the
available data all play a major role in the resolution of financial difficulties and challenges. A
financial appraisal is a methodical assessment of a company's financial stability and
profitability. Financial statement analysis techniques are applied to make a proper, critical,
and comparative scientific assessment of a given concern's profitability and financial health.
This process is known as financial appraisal.
A thorough financial analysis and interpretation of financial statements includes forecasts of
the likelihood of future success in reaching anticipated or desired outcomes, as well as an
appraisal of the business's current state and past performance. Financial statement analysis
compares a company's performance to other companies operating in the same industry, which
is often determined by the company's industry categorization. In general, the analysis's
purpose is to ascertain the company's financial standing in order to pinpoint its existing
advantages and disadvantages and a course of action that could allow it to build on its
advantages and address its disadvantages. (Fred and Weston, 1996:78)The main purpose of
financial performance analysis is to provide light on the operational and financial issues that
the company is facing. Making the distinction between a problem's cause and its symptoms
requires caution. Thus, it is an endeavor to, on the one hand, break down the financial
statements into its constituent parts based on purpose and, on the other, develop connections
between these parts as well as between individual parts and item totals. In addition, an
analysis of several significant variables over the previous several years is conducted in order
to have a comprehensive grasp of the evolving profitability and financial state of the
company.Analysis and appraisal of financial statements can reveal important information that
would otherwise be lost in the shuffle regarding managerial performance, organizational
efficiency, financial strength and weakness, and creditworthiness. You can use this
information to make well-informed decisions regarding managing your finances and
operating a business.
.

2.1.5 Objectives of Financial Performance Analysis

Through financial analysis, we may examine a range of information about the historical
performance of businesses and make predictions about their potential for future success in
 15

attaining their goals. The primary goals of a financial statement analysis are to evaluate the
following elements related to the business firm:
• The company's potential for current and future earnings or profitability
• The effectiveness of the company's operations overall and in each of its divisions or
departments.
• The concern's ability to be solved both now and in the future.
• The analysis that compares one company to another.
• The potential for future events that could affect forecasting and budgetary planning.
• The long-term liquidity of its fund.
• The true importance and meaning of financial data.
• The financial stability of the business concern.

Types of Loan

1) Secured Loan
A secured advance is one in which the borrower pledges some asset as security, such as a car
or piece of real estate. Many people use home loan advances, which are a very common type
of debt instrument, to pay for lodging. The plan calls for using the funds to purchase the
property. As a safeguard, the financial institution is granted a lien on the house's title until the
entire debt is paid off. Should the borrower fail to make payments on the credit, the bank
would be legally entitled to take possession of the home and sell it in order to recover any
amounts owed. In rare circumstances, a vehicle may receive an advance to purchase a new or
expensive car, much like a house loan is obtained by lodging. When compared to the useful
life of the vehicle, the advance time frame is noticeably more constrained. Car advances can
be classified as either immediate or backhanded. When a bank directly grants an advance to a
buyer, it's known as an instant auto credit. In a backhanded car loan, a car dealership acts as a
middleman between the buyer and the bank or another financial institution.

2) Unsecured Loan
 16

Unsecured loans are monetary loans that are not secured against the borrower's assets. These
may be available from financial institutions under many different guises or marketing
packages:
• Credit Card Debt

• Personal Loans

• Bank Overdrafts

• Credit Facilities or Lines of Credit

• Corporate Bonds (May Be Secured or Unsecured)

The borrower and the bank may have an impact on the loan fees that apply to these different
structures. Regulations may be used to control these. Because an unstable moneylender has
much less options for taking legal action against the borrower in the event of default,
financing costs for unstable advances are virtually always greater than those for forgotten
advances. An unstable loan specialist ought to file a lawsuit against the borrower, obtain cash
judgment for breach of contract, and then pursue the execution of the judgment against the
borrower's unrestricted assets (those not yet pledged to banks). When a court divides the
borrower's assets during bankruptcy procedures, secured loan specialists typically have
preference over unreliable moneylenders. As a result, a larger loan cost reflects the additional
risk that the debt may not be repaid in the event of bankruptcy.

Provisions Relating to Compulsory Reserve/Statutory Liquidity

The following guidelines have been released regarding the mandatory reserve and liquid
assets that a licensed institution must maintain in accordance with its borrowing and deposit
obligations after exercising the authority granted by Section 79 of the Nepal Rastra Bank
Act, 2002.

Provisions relating to Compulsory Reserve:

1. For "A", "B", "C" And "D" Classes Micro-Banking Institutions Collecting Deposits
of General Public
 17

1. Class "A" licensees, as well as class "B" and class "C" licensees that take current/call
accounts, are obliged to maintain a deposit with the bank equal to three percent of
their total deposit liabilities. With the understanding that "B" and "C" class licensed
institutions that accept deposits other than "Current Deposit" and "D" class micro
banking institutions that receive public deposits must keep a mandated balance of two
percent of their total deposit liabilities. At the very least, 70% of the minimum deposit
per day.
2. For this reason, the licensed "B" and "C" class institutions, as well as the class "D"
microbanking institutions, that accept public deposits and are situated in an area
without a branch of this bank, may maintain a separate current account with the
nearby "A" class institution. However, the amount deposited in a class "A" licensed
institution with the prospect of generating interest will not be taken into account for
determining the needed reserve. The information about this account will be sent to
this bank's Bank and Financial Institution Regulation Department and the applicable
Supervision Department.
3. Should the balance required to be maintained as per Subclause (1) above be
insufficient, the following penalties will be applied:
a) The first time there is a shortfall in maintaining the mandatory reserve, the penalty
will be equal to the percentage of the current bank rate on the shortfall amount;
b) The second time there is a shortfall in maintaining the mandatory reserve; the
penalty will be doubled;
c) The third time and any subsequent shortfalls in maintaining the mandatory reserve
will be subject to a triple penalty of the percentage of the current bank rate on the
shortfall amount.
4. Separate times shall be calculated for the purpose of computing "times" under
subclauses (a), (b), and (c) above on a fiscal year basis. Additionally, any licensed
institution that neglects to keep mandatory reserve for three weeks in a row will be
punished one time for the first week, two times for the second week, and three times
for the third week.
 18

5. There will be a weekly fine on the deficit amount, calculated at the current bank rate.
The amount of the shortfall will be split by 52 after being multiplied by the bank rate
percentage.
6. The following protocols must be adhered to in order to calculate the mandatory
reserve that must be kept:
a) The mandatory reserve will be reviewed every week, from Sunday through
Saturday.
b) The mandatory reserve will be compared to the average weekly balance of deposit
liabilities for the two weeks that have just passed. If a given week has all of its
holidays, the average deposit from the week before will be taken into account.
c) The weekly average of all deposit liabilities and balances kept with this bank will
be calculated for the purpose of calculating compulsory reserve by adding together all
daily balances from Sunday to Saturday and dividing the result by seven. In doing so,
the balance of the day before will be taken into account if there are any holidays in
the week.
d) For this purpose, within seven days of the end of the week, all information
pertaining to Sunday through Saturday (including the balance from the previous day
in the event of a holiday) must be mandatory submitted to the relevant Supervision
Department of this Bank in the format specified in Directives Form No. 13.1.
7. For this purpose, all offices of a licensed institution shall be constituted as one unit.
8. Any amount of local currency lying in transit for fund transfer and meant to
be credited in the account with this Bank shall be included in the balance held
with this Bank. …
9. Explanation: For the purpose of this Section, "total deposit" means the amount
of current, savings, and fixed deposit including the money collected by the
licensed institutions through various financial instruments as prescribed by this Bank.
Only the balance held in ordinary account of this Bank shall be considered
a) For compulsory reserve. For the purpose, balances held in special accounts
and foreign currency accounts shall not be included.
 19

b) For the purpose of calculating compulsory reserve, balance of foreign currency

accounts and staff guarantee account and margin account shall not be included for
this purpose.
c) "Current Account" means the deposit accounts maintained with the bank and financial
institutions having the facility for withdrawal on demand.
d) "Savings Deposit" means the deposit accounts maintained with the bank and financial
institutions with an objective of saving
e) "Fixed Deposit" means the deposit accounts maintained with the bank and financial
institutions for a stipulated time period.
f) For the purpose of calculating compulsory reserve, the cash in transit to be balanced
at the note fund of Rastriya Banijya Bank and Nepal Bank Limited in the places
where there is no office of this Bank may also be included. If amount is balanced at or
withdrawn from the note fund, the concerned bank shall have to send details thereof
to the Currency Management Department and the concerned supervision
department.

2. For "D" Class Licensed Institutions

a) In locations without a branch office of this bank, "D" class licensed institutions are
required to maintain compulsory reserves equal to at least 0.5 percent of the total
amount collected from individual group members, group-wise special savings and
borrowed funds with this bank or in a special current account with "A" class licensed
institution. The relevant supervision department of this bank as well as the Bank and
Financial Institutions Regulation Department will receive the information regarding
such an account. The amount borrowed by the licensed institution from another
licensed institution, individual, firm, corporate body (domestic and foreign), and
company is referred to as the "borrowed fund" for the purposes of this subclause.
.
b) "D" class licensed institutions shall have to maintain a minimum of two point five
percent of its total deposit liability in the form of liquid asset. The 'liquid assets'
comprises the following:-
i. Cash in one's own vault
 20

ii. Investment in Government Securities

iii. Investment in Nepal Rastra Bank bonds, or
iv. Deposit maintained with "A" Class licensed institution.

c) any excess amount placed in the deposit pursuant to sub-clause (1) above shall be
available for calculation under the requirement of sub-clause (2). d. The calculation
of compulsory reserve and liquid assets shall be as follows: -
i. The compulsory reserve and liquid assets shall be calculated monthly based on daily
average balances.
ii. A maximum proportion at 90 percent shall be considered as liquid assets in respect of
the amount placed in the fixed deposit with "A" class licensed institution.
iii. For the purpose of calculation of liquid assets under sub-clause (2), the amounts
borrowed against the fixed deposit receipt or government securities and Nepal Rastra
Bank bonds, up to the amount of borrowing, shall be deducted.
iv. The "D" class licensed institutions shall submit returns as to the compulsory reserve
and liquid assets as provided in the Directives Form No. 13.2 on a monthly basis
within 15 days of the close of the month to the concerned Supervision Department of
this Bank.

d) In case of non-maintenance of compulsory reserve and liquid assets or the "D" class
licensed institutions failing to maintain deposit with this Bank according to sub-
clause (1) above or in case such deposits fall short, fines pursuant to Point No. 1(3)
shall be imposed for the default period. Notwithstanding anything contained in the
foregoing, exemption may be given with regard to the provisions of compulsory
reserve in the amount of loan and advance transferred to micro finance development
bank of class 'D' carrying out the transaction of bulk loan with the condition of
recovering such loans from other banks and financial institutions.
e) Other provisions relating to compulsory reserve to be maintained by class 'D'
licensed institution carrying out transaction of retail micro banking including
collecting deposits from general public and the returns to be furnished to this Bank
shall be as referred to in Point No. 1 of these Directives. Moreover, in the case of
 21

such micro finance development banks, provision of Point No. 2 of these Directives
shall not apply. In order to render the functioning of the licensed institution well-
managed, easy and convenient, the institutions of class 'A', 'B' and 'C' licensed from
this Bank, other than the market-makers, may also make payment of the principal
and interest of government bond and make a claim to this Bank for reimbursement
thereof. For the period of non receipt of reimbursement of the amount of payment of
principal of Government of Nepal securities from this Bank to the licensed institution,
the said amount shall also be calculated in the ratio of compulsory reserve.
Moreover, in the event where the principal amount could not be paid to the
concerned banks and financial institution for the reason of falling a public holiday,
the said principal amount shall, for the duration of the said holiday, be calculated in
the compulsory reserve ratio to be maintained at this Bank.

Provisions Relating to Statutory Liquidity Ratio:

On July 22, 2023, the Central Bank of Nepal released its Monetary Policy for the Fiscal Year
2022–2023. Governor Mr. Maha Prasad Adhikari promises to assist businesses in getting
back on their feet while attempting to lessen the economic effects of COVID-19 through the
annual monetary policy. Key measures announced by the Nepal Rastra Bank in its monetary
policy for the fiscal year 2022–2023 for relief and revival of various sectors affected by the
virus include extending the loan repayment deadline, refinancing options, extending the
grace period for infrastructure projects, and targeted lending in productive sectors at a lower
interest rate.

Operating Target & Instruments

• The deposit collecting rate has been lowered to 1% while the current Standing Liquidity
Facility (SLF) rate, which serves as the Interest Rate Corridor's upper bound, has remained
constant at 5%. Additionally, the policy rate, or repo rate, was lowered from 3.5% to 3%.
• The 3% cash reserve ratio that the BFIs are required to uphold has not changed. The CCD
Ratio was raised to 85% from 80%.
• The 10% Statutory Liquidity Ratio (SLR) for commercial banks, 8% for development
banks, and 7% for financing businesses remains unchanged.
 22

•The bank rate of five percent has been maintained for the Lender of Last Resort (LOLR)
program.
• Long-term repo facilities will be offered in accordance with the need to supply extra
liquidity necessary for the revival of the economy.

ECONOMIC GROWTH
• The Central Bureau of Statistics' preliminary assessment states that the FY 2076–2077 saw
only 2.28% of GDP growth. Agriculture is expected to increase at a rate of 2.6%, the
industrial sector at 3.2%, and the service sector at 2%.
• The Gross National Savings is anticipated to have been 46% and the Gross Domestic
Savings to have been 18.1% of GDP in FY 2076–2077. These ratios were 19% and 48.9%,
respectively, in the prior year.
• GDP to total fixed capital creation is projected to be 28.1% in FY 2076–2077, and GDP to
total capital formation to be 50.2%. These ratios were 33.7% and 56.6% in the prior year,
respectively.

• In Jestha, 2077, the annual point-based inflation of consumer prices was 4.54%. During the
first eleven months of FY 2076–2077, the average inflation rate of consumer prices was
6.28%. This kind of inflation was 4.51% during the same time last year.

• During the first eleven months of FY 2076–2077, imports fell by 15.3% to Rs. 1100.81
billion while exports rose by 0.2% to Rs. 88 billion. Remittance inflow fell by 3% to Rs.
774.87 billion, while the trade deficit improved by 16.4%. throughout the evaluation time.

Return on Equity (ROE)

The amount of net income returned as a percentage of shareholders' equity is known as return
on equity, or ROE. Return on equity is a metric used to assess a company's profitability that
indicates how much profit it makes using the capital that shareholders have invested in it.

Return on Assets (ROA)

 23

The measure of a company's profitability in relation to its total assets is called return on
assets, or ROA. ROA provides insight into how well management uses its resources to
produce profits. ROA is expressed as a percentage and is computed by dividing a company's
annual earnings by its total assets. This is also known as "return on investment" at times.

2.3 Review of Related Studies

2.3.1 Review of Articles and Journals

Shah (2017). In his article Stock Market's Contribution on Economic Growth in Nepal: A
Brief Note. Stock Markets are basically similar to other kinds of market. People buy and sell
bargain and haggle, win and loss in this marketPeople purchase and sell securities, such as
stocks and bonds, on the stock market. These products are less tangible than gold but just as
valuable. Large-scale infrastructure and industry establishment need a sustained financial
commitment, and these initiatives are essential to the country's economic growth. However,
investors find it difficult to part with their savings in the long run. This would necessitate the
development of an efficient stock market and an environment that is favorable to investing,
enabling investors to readily sell their shares to other investors. Thus, the capital is not taken
out too soon. Industrialized stock markets, on the other hand, are larger, more liquid, and less
volatile in industrialized nations. The stock market in emerging nations is highly volatile,
non-liquid, and centered on a small number of enterprises. It is easier to acquire and sell
securities when the stock markets are liquid. Because they enable investors to acquire and
sell securities fast and cheaply, liquid stock markets improve capital allocation and raise the
possibility of long-term economic growth, which reduces risk and increases appeal. Liquid
stock markets, on the other hand, promote investor myopia. Liquid stock markets
may weaken investors’ commitment and make easy for unsatisfied investors to sell quickly.

This opinion holds that the liquidity of the stock market hinders economic progress.
According to Pardy (2012), capital markets can mobilize domestic savings and allocate funds
more effectively even in less developed nations. In the past, the Biratnagar Jute Mills Ltd.
share float in 1936 marked the beginning of the capital market's development (NEPSE,
2009). Then, in 1974, the Nepali government proclaimed an industrial policy, and as a result,
the Securities Marketing Center (SMC) was founded to trade in corporate securities of select
 24

firms, national saving bonds, and government securities. The Securities Exchange Center
(SEC) replaced the Securities Marketing Center (SMC) as the new name in 1976.At that
time, the SEC was the only capital market organization operating in Nepal, hence it was
responsible for brokering, underwriting, and managing public issues. In 1993, the
government of Nepal transformed SEC into Nepal Stock Exchange Ltd. (NEPSE) in
accordance with the financial sector liberalization strategy, and NEPSE was tasked with
running the secondary market. The Securities Board of Nepal (SEBON), a securities market
regulatory body, was founded by the Nepali government in 1993. It has seen considerable
ups and downs in the brief time since its founding. Following the second Constitution
Assembly (CA) and the conclusion of the Maoist insurgency phase, the NEPSE index
increased and reached 1036.1, the highest level in the previous six years (Shrestha & Subedi,
2014). In this regard, there is little doubt that the daily changes in the NEPSE index have a
significant effect on business transactions and activity. In light of this, an important query is
raised: What is the statistical relationship between the expansion of Nepal's stock market and
its economic growth? This essay explores the role of the stock market in Nepal's economic
growth. Policy makers, researchers, trade companies, and academics all particularly benefit
from it. The remaining portions of the text are arranged as follows: Section 2 covers the
pertinent literature that looks at how the share market affects economic growth. The data and
technique are discussed in Section 3. The discussion of the empirical results occurs in section
4. Section 5 concludes the paper.

Major objectives of the article are as follows:

i. To developed countries has developed stock market size, more liquid and
less volatile.
ii. To liquid stock markets make investment less risky and attractive because
they yellow investors buy and sell of securities.
iii. To find out infrastructure and industries requires long run commitment of capital
these project are economic development of nation.
 25

Ojha (2018). In his article Macroeconomics and Bank-Specific Factors Affecting Liquidity: A
Study on Nepali Commercial Banks.. A bank's capacity to pay its debts on time is referred to
as its liquidity. Bank lending primarily uses short-term liabilities to make its loans, but it also
invests investments in somewhat illiquid assets. Therefore, maintaining a bank's own
liquidity under all realistic circumstances is one of the biggest issues it faces. The ability of a
bank to use only liquid assets to cover all of its projected costs, such as funding loans or
making debt payments, is what defines its liquidity. Lenders are paying attention to the last
option for resolving the liquidity situation. Vodova demonstrated how a macroeconomic
factor and a bank-specific variable impact bank liquidity. Following the global financial
crisis, banks have started looking into liquidity issues and how crucial they are to the overall
health of the banking industry and financial markets. The global economy has gone through
several financial crises. These crises are related to the banking industry's and the financial
market's inability to provide liquidity. Because the market for external financing is not very
liquid, banks tend to be less reluctant to lend during times of crisis and to hoard more
liquidity. The relationship between bank liquidity creation and financial crises was
discovered by Berger and Bouwman. The unique qualities of each bank that influence the
performance of the bank are known as internal or bank-specific factors. The internal
decisions made by the board and management have an impact on these factors.

The banks can also control these variables, however their specifics vary from one bank to
another. These include, among other things, capital, the amount of deposit liabilities, the size
and makeup of the credit portfolio, interest rate policy, labor productivity, the quality of risk
level management, the size and ownership of the bank, and the status of information
technology (Dang, 2011). The liquidity ratio is a measure of a bank's liquidity that is
assumed to depend on the individual behavior of banks, their market and macroeconomic
environment, and the exchange rate regime, i.e., on the following factors: total assets, which
indicates the size of the bank; equity to assets, which indicates capital adequacy; the
existence of prudential regulation, which implies that banks must be sufficiently liquid;
lending interest rate, which indicates the profitability of lending; the share of public
expenditures on gross domestic product, which indicates the supply of relatively liquid
assets; and the rate of inflation, which makes banks more susceptible to the nominal values of
loans made to customers (+), the occurrence of a financial crisis, which may be brought on
 26

by insufficient bank liquidity(-) and the exchange rate regime, where banks in nations with
extreme regimes—such as hard pegs and independently floating exchange rates—had more
liquid banks than those in nations with intermediate regimes. The majority of research on
bank performance has concentrated on industry-specific elements that influence the overall
performance of the banking industry. However, it is imperative to incorporate the
macroeconomic variables. As a result, the research in this paper includes two important
macroeconomic variables: GDP and inflation. Additionally, this study looked at how
ownership identity affected the relationship between macroeconomic variables and bank-
specific factors that affect Nepalese commercial banks' liquidity.
It is commonly known that banks and other financial institutions in Nepal are now dealing
with a liquidity crisis, which is getting harder to handle. Nonetheless, a great deal of research
has been done to determine how macroeconomic and bank-specific factors affect liquidity in
global settings. However, no specific research has been done on the macroeconomic and
bank-specific factors that affect liquidity in the context of Nepalese banking. Thus, this work
makes an effort to close the gap to some extent. The results of this study will support future
research projects in nations like Nepal. The financial industries within the economy and
society benefit from this study as well. Therefore, commercial banks stand to gain the most
from this study., regulatory bodies, the academic staff and society.
Major objectives are follows:
i. To examine how to hold on liquidity in crises condition the low level is liquidity in
the market.
ii. To identify how to productivity of the organization.
iii. To find out impact bank specific and macroeconomics father liquidity international
scenario.
Pokhrel (2019). In his article Impact of Liquidity on Profitability in Nepalese Commercial
Bank. The entire service industry is currently industrializing and becoming more
commercialized. Companies are striving to maximize profits by managing micro factors in an
optimal manner. One of the main influencing factors of the controllable element for profit
generation is the proper control of liquidity. The risk of a shareholder's return and customer
happiness can be affected by important managerial decisions like profitability and liquidity.
Every bank aims to draw in more clients in order to increase revenue and become a more
 27

lucrative institution. Retaining a significant amount of current assets will strengthen the
firm's liquidity position, but it will also lower overall profitability. Many banks may find it
difficult to identify the ideal level of liquidity. The first kind of liquidity risk in the context of
commercial banks occurs when depositors try to take their money out. Furthermore, keeping
a strong liquidity position to reduce such risks has a negative impact on the bank's profits.
Highly liquid assets will not produce anything while they are idle. To maintain their sound
health, banks must therefore weigh the trade-off between profitability and liquidity status.
For the Ghanaian listed bank's era of 2005 to 2010, there is a weakly positive correlation
between profitability and liquidity. Analyzed the profitability and liquidity ratios of
Pakistan's standard charter banks and demonstrated a strong positive correlation between
them.

i. To Customer satisfaction can be influence by liquidity and profitability which are

significance marginal decisions.
ii. To maintain the high liquidity position minimizes such risk also adequacy affected
the profitability of the bank.
iii. To commercial bank first type of liquidity risk arise when depositors of commercial
bank seek to with draw their money.
Sapkota(2020). In his article Corporate Governance and Financial Performance
of Nepalese Commercial Banks, Corporate governance refers to the set of regulations,
customs, and procedures that regulate how an organization is run. The method used to
manage and govern entities is called corporate governance. Through rules, regulations,
systems, procedures, activities, and codes of conduct, it balances the interests of key
stakeholders, including shareholders, management, suppliers, financiers, society, the
government, customers, and so on. This allows it to facilitate, handle, and promote efficient,
prudent, and entrepreneurial management that can contribute to the long-term success of the
organizations. Corporate governance functions as a framework of guidelines, directives,
accountabilities, and commitments to its principal stakeholders. Managers are incentivized to
seize a company's assets by starting initiatives that increase their own wealth at the expense
of shareholder equity. In order to create an effective corporation that is optimally positioned
 28

to generate long-term value for all stakeholders, corporate governance is a system of checks
and balances between the board, management, and investors.

The value of shareholders will decrease if management make poor decisions, but they will
also gain from making the right ones. Good corporate governance lessens the "control rights"
that creditors and stockholders grant to managers, increasing the likelihood that managers
will invest in initiatives with positive net present value. This suggests that companies with
stronger corporate governance do better operatingly by making the appropriate decisions
when they need to. The cornerstones of good corporate governance are the management
values of accountability, openness, fairness, and responsibility, which are essential to the
organization's success. Accountability, openness, fairness, and other aspects of corporate
governance are essential to any organization's success.
There are five reasons why corporate governance is becoming more popular: a number of
issues have been observed in both the business and overall economic sectors. (1) Global
wave of privatization; (2) Pension fund reforms and the rise in private savings; (3) The wave
of takeovers in the 1980s; (4) Global capital market deregulation and integration; and (5)
Economic crises.
The necessity to enhance and modify the governance framework was brought to light by the
company failures brought about by a deficient corporate governance system. A company that
has poor corporate governance will eventually fail. The likelihood of accounting frauds is
significantly influenced by a company's governance, and accounting frauds are more likely to
occur in companies with inadequate governance structures. Corporate governance is
becoming more and more important to Nepalese businesses in order to operate effectively.
Various rules and guidelines for corporate governance processes are made by the oversight
and regulatory authorities. a number of institutions are being liquidated, including Samjhana
Finance Company, Bansbari Leather and Shoes, Gurkha Development Bank, and Nepal
Development Bank. In order to oversee and regulate BFIs, the NRB created a framework and
set of corporate governance regulations specifically for financial institutions. Poudel and
Hovey came to the conclusion that commercial banks operate more efficiently when their
boards and audit committees are larger, board meetings occur less frequently, and
institutional ownership is smaller.
 29

Acharya (2013) came to the conclusion that there was insufficient data to support the idea
that corporate governance matters when valuing a company in Nepal (using Tobin Q).
According to Pradhan (2015), there is a large impact of corporate governance on return on
equity (ROE) in financial institutions, namely commercial banks. Board size and the
presence of an executive CEO have a big effect on ROE, whereas overall assets have a small
effect on ROE.According to Gnawali (2018), corporate governance significantly influenced
the Nepalese commercial banks' ROE-based financial performance. The aforementioned
studies, which are presented from a Nepalese perspective, demonstrate the inconsistent
results of firm performance when considering different corporate governance variables.
Additionally, these studies are unable to take into account block holding because a small
number of shareholders hold large volume shares that could influence the decision-making
process. The banking industry's primary source of earnings is interest margin; the size of the
firm determines its capability, which could impact the performance of banking institutions;
and board meetings can impact performance by raising expenses and/or by offering
additional, novel, or diverse decision-making. As a result, questions like whether board
meetings and size have a big influence on company performance come up. Does a bank's
performance significantly depend on its net interest income? Does the performance of a
corporation get significantly affected by block holdings?

i. It can help manage and encourage successful entrepreneurship for long-term

organizational success.
ii. Managers must make the appropriate judgment at the right moment because if they
make a poor decision, the value of the shareholders will decrease.

iii. A thorough examination of strong corporate governance revolves around the concepts
of accountability, transparency, and firm responsibility, all of which are essential to
an organization's success.

2.3.2 Review of Thesis

The Central Department of Management, T.U. received an unpublished master's thesis by
Niraula (2015) titled "Comparative Financial Performance Analysis of Nepal Bank Limited
 30

and Everest Bank Limited in the Framework of CAMEL." The following are the study's
primary goals:

 To measure the capital adequacy of selected banks.

 To evaluate the asset quality of selected banks.
 To measure the earning capacity of selected banks.
 To measure the liquidity position of selected banks.

Mr. Niraula had pointed out various remarkable findings were:

i. Compared to NBL, EBL performs better according to CAR, but it has a larger risk.
EBL has a stronger capital base than NBL according to SCAR, and its asset quality is
superior to NBL's according to ratios on non-performing loans and loan loss
provisions. Unlike NBL, the loans extended by EBL are secured. In comparison to
EBL, NBL's management is less effective as indicated by the expense to revenue
ratio.
ii. When it comes to earnings per employee, EBL's management is more effective than
NBL's. Efficiency ratios are the foundation for identifying differences in the
efficiency outcomes of commercial banks. The results indicate that NBL's low
earnings per employee are a result of overstaffing, necessitating a reduction in the
workforce. Compared to NBL, EBL is able to obtain greater benefits from its assets.
Comparably, EBL's shares are yielding higher profits than NBL's.
iii. The earnings per share of NBL vary more than those of EBL. While NBL has
maintained the ratio, with the exception of last year, EBL has maintained the ratio of
NRB balance to total deposit. With regard to the ratio of NRB balance to total
deposit, NBL is able to maintain a more efficient liquidity position than EBL. In a
similar vein, NBL's total cash deposit in the vault is superior to EBL's.

Dhungana, (2016) conducted a study on “Liquidity position of commercial nanks in Nepal”

of BOK, SCBL, SBI, EBL, NIBL and NABIL. The main objectives of the study are as
follows:
 To investigate the connection between profitability and liquidity.
 31

 To investigate how interest rates and liquidity are related.

 To make recommendations for future bank liquidity situation improvements.

The major findings of this study are as follows:

 SBI Bank has a higher NRB to total deposit ratio than other banks.
 For BOK, NABIL, SBI, SCBL, NIB, and EBL, there is a positive connection
between changes in deposits and changes in overall liquidity; however, NABIL has a
negative correlation coefficient.
 Total liquid funds and net profit of BOK, NIB, and EBL have favorable correlations;
nevertheless, NABIL, SBI, SCBL, and NABIL have negative correlations.

Adhikari, (2020), entitled "Comparative Study of the Liquidity and Profitability of Nepal SBI
Bank and Nepal Bangladesh Bank". The main objectives of the study are as follows:
 To analyze profit plans of the banks.
 To analyze the income and expenditure, cost and profit trends of the banks.

The major findings of this study are as follows:

 NBBL's mean ratio of return on equity is over five times higher than NSBI's.
 When comparing NBBL to NSBI Bank, the variability of return on overall equity is
significantly greater. It demonstrates the irregularity of return on equity.
 Compared to NSBI, NBBL's mean ratio of return on total assets is lower. It
demonstrates the irregularity of return on equity.
 Comparing NBBL to NSBI, the ratio of Net profit margin is noticeably lower.
 The bank is unable to keep operating costs and other leaks under control.
 The average of the two banks reveals that NSBI has a larger net profit margin mean
ratio (7.40) than NBBL (6.09).
 It can be assumed that the profitability situation of NBBL is somewhat poorer than
that of NSBI since the CV of NSBI is higher than that of Nepal Bangladesh Bank.
 To ensure its continued prosperity, the bank needs to keep its high profit margin.
 32

 The ratio of NSBI's average cash and bank balance to total deposits remained higher
than NBBL's. It suggests that NSBI has a stronger liquidity position.
 Investors are drawn in by earnings per share and dividends per share.
 A higher cash dividend plan ought to be implemented in order to improve shareholder
value growth.
 It is recommended that NBBL and NSBI Bank make current banking technologies
accessible to all of its depositors, regardless of their type, as much as possible. •
Investments in small business development initiatives are necessary.
 Planning research and development should be prioritized in order to achieve the right
planning and controlling goals.
 A well-designed and consistent internal auditing system can assist management with
their cost-control plan and prevent needless expense leaks.

The research study "A Comparative Study of Dividend Policy and Practice in Commercial
Bank (A Comparative Study of Himalayan Bank & Nabil Bank)" was carried out by Oli in
2018. A dividend choice should aim to maximize the return to the shareholder in order to
maximize the value of his investment. The main goals of this study are to examine the most
common dividend policies, offer recommendations for future initiatives aimed at improving
the share market's general health, and assess potential effects on the Nepalese share market.
The main objectives of this study are as follows:
I. To determine the kind of dividend policy being followed by
Himalayan Bank Limited and Nabil Bank Limited, as well as
whether or not it is reasonable.
II. To emphasize Nabil Bank Limited's and Himalayan Bank
Limited's dividend policies.
III. To examine the correlation between dividends per share and
other significant variables, including price-earnings ratio, market
price per share, earning per share, and dividend payout ratio.
IV. To offer a workable solution and potential guidance based on the
analysis's findings to address various problems and gaps.
 33

The research paper "A Study on Financial Performance of Commercial Banks (With
reference to Agriculture Development Bank Limited and Nepal Bank Limited)" was
carried out by Acharya (2018). This study's main goals are to compare the financial
performance of two commercial banks, Agricultural Development Bank and Nepal
Bank Limited, and to offer suggestions for improving the current situation. Among
the other goals are:
i. To assess the chosen banks' liquidity situation.
ii. To assess how the money that was raised was mobilized.
iii. Examining dividend payments, market value to book value per share,
and earning prices.
iv. To assess the profitability and earning status of particular banks.
v. To examine the connection between total investment and total deposit.
vi. . Examining the connection between operating profit and interest
earned.

Bhandari (2019), conducted a research study entitled "A Study on Profitability Position of
Nabil Bank Limited. The study is mainly concerned with the financial statement of the bank
mainly profit and loss statement of NABIL bank. It has its main objective of exploring some
of the relation in the statements. The specific objectives of the study are as follows:
• To assess NABIL's profit situation and net profit trend.
• To investigate the factors influencing NABIL Bank's net profit as well as its stability
and consistency.
• . To ascertain the correlation between NABIL Bank's total assets, loan and advance
policies, shareholder equity, and net profit.

Sharma (2019) carried out a study named "Impact of Bank-Specific and Macroeconomic
Factors on Financial Performance of Nepalese Commercial Bank." Finding the factors
influencing the performance of particular Nepali commercial banks is the study's main goal.
Nonetheless, the following are the study's precise goals:
I. To evaluate the state of net margin, return on equity, and return on
assets in commercial banks.
 34

II. To investigate the impact of inflation and the gross domestic product
on the financial performance of banks.
III. To examine how a bank's size, cost inefficiency, and capital
sufficiency affect return on equity.
IV. To evaluate the effect on net interest margin of banks' capital
adequacy, size, and cost inefficiency position.

2.3.3 Dependent and Independent Variables

Dependent Variables Independent Variable

Liquid Ratio Liquid Assets

Cash and Bank Balance to Total Deposit Ratio Liquid Liabilities

Quick Ratio
Cash and Bank Balance
Loan and advance to Total Deposit Ratio Total
Total Deposit
Investment and Deposit ratio
Loan and Advance to Total assets ratio Return on Current Liabilities
Total Assets Ratio Loan and Advance
Return on Equity
Total Investment

Total Assets

Net Profit after tax, Net Profit Total

Equity Capital
 35

2.4 Research Gap

The scope of this study can be expanded to investigate the impact of internal and external
factors on the productivity and liquidity of HBL and NABIL banks. An examination of the
banks' productivity framework in light of monetary, securities exchange, and vital models is
warranted given the globalization of business sectors and the improvements made to the
monetary environment. Because the number of branches was growing at a much faster rate
than that of banks from the first and second eras, banks from the third and second eras were
growing far faster than banks from the first period. On the other hand, third-era banks
enjoyed favorable circumstances while first- and second-era banks had unfavorable
expanding patterns of advantage. Every bank of the three ages continued to grow. The entire
position remained stable at the highest point of liquidity. Since the initial banks donated more
than the retail assortment, the liquidity balance was negative. Executives' access to better
liquidity depends on the state of the economy, internal policies, and how well these policies
are implemented. Liquidity management needs to be done well in order to increase
productivity. This investigation is guided by an examination of Bangladesh's financial
situation, which shows that high liquidity reduces production. Several techniques have been
applied to determine this truth.
As an example, the focus on liquidity and the advantages for the board of business banks in
Nepal with regard to Nabil and Himalayan Bank is a coherent result of exploration work that
has already led to this point including a number of business banks. The goal of this review is
to provide an exhaustive and up-to-date worldwide analysis of the productivity and liquidity
of these two banks, as they are expected to be the focal points of future research in this
similar area.
 36

CHAPTER III

RESEARCH METHODOLOGY

3.1 Introduction
The methodical technique to conducting research is referred to as "research strategy". The
term is widely believed to encompass information analysis, information social collecting, and
information strategy, however several systems are used in different types of research.
Subjective research philosophy may include collecting information on a certain scenario or
quantitative research philosophy like figuring out how often a person finishes a task under
specific circumstances. Complete study should ideally attempt to incorporate both
quantitative and subjective approaches, however this is typically not possible owing to time
and financial restrictions. The primary purpose of research methods in academic inquiry is to
test theories or hypotheses. A solid design should guarantee that the study is reliable—that is,
that consistently reliable data are produced—and significant—that is, that the hypothesis is
tested and not other factors. (Kothari, CR 1992)

3.2 Research Design

Research plans deal with converting an exploratory idea into a test project. The greatest
strategy starts with research questions. There are benefits and drawbacks to every scheme.
The exploration configuration has been called a "blue print" for research because it addresses
issues such as what topics to investigate, what information to gather, what is critical, and how
to interpret the findings.

3.3 Population and Sample

In Nepal, there are presently twenty operational commercial banks. To evaluate each of these
banks for this study was almost impossible. As such, the total bank population is considered.
Due to time and resource constraints among the 27 commercial banks, the study, which
 37

attempted to achieve its goals by evaluating the data, was restricted to just two commercial
banks: Himalayan Bank Limited (HBL) and Nabil Bank Limited (NABIL).

3.4 Nature and Sources of Data

For this inquiry, secondary data sources were used. One of the main sources of information is
the public annual reports of the relevant banks. The source of the financial performance data
is the relevant banks. Resources used include the Central Bureau of Statistics, pertinent
internal websites, books, periodicals, journals, articles, reports, bulletins, statistics from the
Nepal Rastra Bank and Nepal Stock Exchange, additional supplemental data, and other
economic surveys. Also considered are data from previous research projects on the subject.
Since the data came from secondary sources, a master sheet of financial data was retrieved
After financial statements were obtained, they were tabulated in compliance with the study's
requirements. The data was processed by looking through financial statements and other
available data. Depending on which categories these data fit into, a number of tables and
charts were produced. Much of the data has been collected into a single format, processed,
and examined when necessary.
.

3.5 Method of Data Analysis

Factorial and financial tools are used to improve the research's validity, utility, and
dependability. Additional items from the proclamations and accounting report are
categorized for further information analysis. After that, they are computed and included in
the tables together with their coefficients of variation, means, proportions, rates, and standard
deviations. Patterns of different sizes can also be found by analyzing patterns.

3.5.1 Financial Tools

i) Liquidity Ratios:
This ratio measures the liquidity position of a firm. It measures the firm ability to meet its
short-term obligations. As a Financial Analytical tools, following liquidity ratios will be
used.
a.) Liquid Ratio
 38

The bank's liquidity and short-term solvency are shown by this ratio. A higher liquid ratio
indicates an enhanced state of liquidity. Or, to put it another way, the liquid ratio serves as a
safety net for creditors. A greater ratio indicates a larger margin of safety, a higher ratio of
liquid assets to liquid liabilities, and a higher capacity of the bank to meet its liquid
obligations.

Liquid Ratio = Liquid assets / Liquidity liability= ……%

Where,

Liquid assets = Cash in hand+ Cash at bank + Accrued incomes + Loans and advances (short
term) + Trade investments (short term) + Bills receivable

Liquidity liability = short term debt + accounts payable + accrued liabilities + other debts.

b) Cash and Bank Balance to Total Deposit Ratio:

The most liquid current assets are cash and bank account balances. The percentage of the
bank's most liquid funds that can be used to pay a depositor right away is indicated by this
ratio. This ratio can be calculated as follows by dividing the entire deposit by the sum of the
cash and bank balance:
Cash and bank balance to total deposit ratio =Cash and Bank Balances Total Deposits

Where,

Total deposits = current account+ saving account+ fixed account

Checks and other cash items, balances with domestic and foreign banks, cash in hand, and
foreign cash in hand are all included in the term "cash and bank balance." Customers'
deposits made through various accounts, such as current (demand), savings, fixed, call, and
other deposit accounts, are included in the total deposit.

c) Quick Ratio
 39

The quick ratio creates a connection between current liabilities and quick assets. An asset is
considered liquid if it can be converted into cash very rapidly without depreciating in value.
Cash is one extremely quick asset. Two more assets that fall under the rapid asset category
that are regarded as reasonably liquid are marketable securities and book debts. The
government securities, bank balances, and cash are considered quick assets for the Quick
Ratio. Divide the total quantity of liquid liabilities by the total amount of fast assets to get
this ratio.
.

Quick Ratio =Quick Assets / Total Current Liabilities

Where,

Current liability = short term debt + accounts payable + accrued liabilities + other debts.

ii) Assets/Liability Management Ratios:

The percentage of various asset and liability kinds on the balance sheet is measured by the
asset management ratio. Appropriate management ensures that assets and liabilities are used
effectively. The banking sector converts liabilities into assets through lending and investment
activities. The following is a list of the various ratios that are used to evaluate the subject
bank's portfolio and asset management.
a) Loan and Advances to Total Deposit Ratio:

Another name for this ratio is the credit-deposit ratio (C-D ratio). It is computed to determine
the extent to which the bank can profitably use the entirety of its deposits for loans and
advances. A higher ratio indicates better overall deposit utilization. The following formula
can be used to calculate this ratio: divide loan and advances by total deposit;
Loan and Advances to total deposit ratio =Loan and Advances / Total Deposit
Where,

Total deposits = current account+ saving account+ fixed account

b) Total Investment to Total Deposit Ratio:

 40

One of the main ways to create credit and generate revenue is through investing. This
suggests using the company's deposit for investments in shares, debentures, and government
securities held by banks and other businesses. By dividing the total investment by the total
deposit, one can compute this ratio as follows:

Total investment to total deposit ratio =Total Investment / Total Deposit

Where,

Total investment= Total deposits = current account+ saving account+ fixed account

c.) Loan and Advances to Total Assets Ratio

Through money mobilization, a commercial bank's operating fund actively contributes to
profit generation. This ratio shows how well the banks are able to use their whole asset base
for loans and advances in order to generate revenue. Better money mobilization as loans and
advances is indicated by a high ratio, and vice versa.

Loan and Advances to Total Assets Ratio=Loan and Advance / Total Assets
Where,

Total assets = current assets+ fixed assets

d) Loans and advances to shareholders equity ratio

Share capital, share premium, reserve fund, and retained earnings make up shareholders'
equity. How far shareholders equity has been able to develop assets to grow its wealth is
measured by the ratio of loans to advances to shareholders equity. It says as much.
Loans and advances to shareholders equity ratio= Loan and Advances / Shareholder's equity

Where,

Shareholder's equity = Total Assets- Total Liabilities

 41

iii) Profitability Ratios:

Profitability ratios are a useful tool for assessing a company's overall profitability and
financial performance. A firm's profitability ratios should be greater for improved
performance. This will result in the computation of the profitability ratio that follows.

a.) Return on Total Asset Ratio (ROA)

This ratio calculates the total assets, or working fund, profitability. Another name for it is
return on assets (ROA). Net profit (loss) is divided by total operating funds to get this ratio.
This could be expressed as;
Return on Total Asset Ratio=Net profit (loss) / Total Assets
Where,

Total assets Ratio = current assets+ fixed assets

b.) Return on Equity (ROE)

The term "net worth" describes a bank's owner's claim. Net worth is the total asset value less
the total liability amount. This ratio assesses how well the bank has managed shareholder
funds. Net profit divided by total equity capital (net worth) yields this ratio. This can be
computed as;
Return on Equity (ROE) =. Net Profit / Total Equity

3.5.2 Statistical Tools

The goal of this study will be accomplished with the use of several significant statistical
tools. Statistical tools like the mean, standard deviation, correlation coefficient, coefficient of
variation, and trend analysis will be employed in this investigation.

i) Mean:
 42

A mean is the average value or the sum of all the observation divided by the number of
observations and it is given by the following formula:

Mean=n∑i=1nXi

Where,
Xi =Individual data points in the dataset.
2
1 = Mean of the values

Σ1= Summation of the values

N = No. of Observations

ii) Coefficient of variation:

An exact measurement of dispersion is provided by the computed standard deviation.
Therefore, comparing two pairs of variables solely on the basis of standard deviation is
inappropriate when the mean value of the variables is not equal. In the percentage basis, the
coefficient of variation (C.V.) can be found using the following formula:

(C.V.):=(Standard Deviation Mean)×100C.V.=(Mean Standard Deviation)×100

iii) Measures of Correlation:

We look at how the different factors relate to one another. To assess how well these banks
are performing, the correlation between their various metrics is compared. The degree of
association between two variables is referred to as correlation. When two variables are
correlated, it means that an increase or decrease in one leads to an increase or decrease in the
other. Probable error serves as a gauge for the coefficient of correlation's dependability. The
degree of link between two variables is expressed by the correlation coefficient. It determines
whether there is a positive or negative correlation between variables. This tool examines how
those variables relate to one another in order to help determine the best course of action for
 43

minimizing profits. The following formula yields the Karl Pearson coefficient of correlation,
or r:

r=∑i=1n(Xi−Xˉ)2∑i=1n(Yi−Yˉ)2∑i=1n(Xi−Xˉ)(Yi−Yˉ)

 Xi and Yi are the individual data points of the two variables being compared.
 Xˉ and Yˉ are the means of X and Y respectively.
 N is the number of data point.

Karl Pearson's coefficient of correlation is consistently in the range of -1 to +1. A negative

correlation is indicated by a correlation value in minus, and a positive correlation is indicated
by a correlation value in plus. It is stated that there is no substantial association between the
variables when the correlation value approaches zero.

iv) Trend Analysis

The least squares method is the most widely used and mathematically sound approach for
figuring out the trend of a time series. The future trend values of several variables have been
estimated through the application of the least squares approach. The line following formula
can be applied to the estimation of linear trends: y= a + bx

Where,

y= Dependent variable

x = Independent variable

a = Y – intercept

b = Slope of the trend line

 44

CHAPTER IV

DATA PRESENTATION AND ANALYSIS

4.1 Results

4.1.1 Quick Ratio

Fast proportion lays out a connection between speedy resources and current liabilities. A
resource is fluid on the off chance that it very well may be changed over into cash right away
or sensibly without a deficiency of unique worth. Cash is a most speedy resource.
Table 4.1
Quick Ratio of Sample Banks
(Rs. in Millions)

Fiscal HBL NABIL

Year
Quick Current Ratio Quick Current Ratio
Assets Liabilities Assets Liabilities

2018/19 4734344 1834351 2.58 1770689.86 5064267 0.35

2019/20 4741359 1834351 2.58 10528900.36 12417886 0.85

2020/21 6968064 2777022 2.51 11474082.94 13488692 0.85

 45

2021/22 7231139 3544577 2.04 13847660.1 16699880 0.83

2022/23 1062898 3090589 0.34 10820379174 6703351256 1.61

Mean 2.01 0.90

S.D 0.96 0.45

C.V 47.69 50.50

Source: Annual Report of HBL and Nabil Bank

Figure 4.1 also displays Table 4.1, which is a bar graph showing HBL's current liabilities and
quick assets. The SD and CV are 0.96 & 47.69%, respectively, while the average ratio is
2.01. Nabil Bank's average ratio is 0.90, while CV is 0.45 and CV is 50.50.
.
Figure 4.1
Quick Ratio of HBL

Quick Ratio
3
2.5
2 Quick Ratio
1.5
1
0.5
0
2018/19 2019/20 2020/21 2021/22 2022/23

The fast ratios of HBL exhibit a fluctuating increasing tendency, with the exception of the
last few years of the research period, as indicated by T 4.1 and F 4.1. The ratio is at its lowest
(0.34) in 2022–2023 and at its peak (2.58) in 2018–19. HBL has an average fast ratio of 2.01.
The annual fast ratios are below the mean for the years 2018–19, 2022–2023, and 2023.
Nonetheless, throughout the first and second years of the study period, the ratio is larger.
Figure 4.1 also displays the bar graph of NABIL's quick assets and current liabilities, which
is displayed in
Figure 4.2
 46

Quick Ratio of Nabil

Quick Ratio
1
0.8
0.6
Quick Ratio
0.4
0.2
0
2018/19 2019/20 2020/21 2021/22 2022/23

Likewise, T 4.1 and F 4.2 demonstrate that Nabil's quick ratios have increased during the
course of the study. It reaches its maximum (1.61) in 2020–2021 and its minimum (0.35) in
2018–19. Nabil's quick ratio on average is 0.90. The annual fast ratios are higher than the
average ratio throughout the first few years of the study period. Compared to Nabil, HBL has
a greater average quick ratio.
.

4.1.2 Cash and Bank Balance to Total Deposit Ratio:

The most liquid current assets are cash and bank account balances. The percentage of the
bank's most liquid funds that can be used to pay a depositor right away is indicated by this
ratio.
.

Table 4.2
Cash & Bank balance to Total Deposit Ratio
(Rs. in Millions)

Fiscal HBL NABIL

Year
Cash & Total Ratio Cash & Total Ratio
Bank Deposit Bank Deposit
Balance Balance
 47

2018/19 108755 928811 0.12 119119 1219410 0.10

2019/20 99006 997430 0.10 113772 1359793 0.08

2020/21 141992 113090 1.26 165335 1643730 0.10

2021/22 196390 131860 1.49 227040 1930353 0.12

2022/23 891094 269281 3.31 728564 2234745 0.33

Mean 1.25 0.15

S.D. 1.31 0.10

C.V. 104.77 70.18

Source: Annual Report of HBL and Nabil Bank

Figure 4.3 also displays a bar graph of the cash and bank balance in relation to the total
deposit made by HBL. The highest total deposit made by HBL was Rs. 997430 in the 2019–
20 fiscal year and Rs. 2234745 in the 2022–2023 fiscal year of Nabil Bank. In 2022–2023
HBL's maximum highest cash and bank balance is Rs. 891094; Nabil Bank's is Rs. 728564.
HBL averages are 1.25 and 0.15 for Nabil Bank, respectively. HBL's SD and CV are 1.31
and 104.77, whereas Nabil Bank's are 0.02 and 20.10, respectively.

Figure 4.3
Cash and Bank balance to Total Deposit of HBL
 48

Ratio
3.5

2.5

Ratio
1.5

0.5

0
2018/19 2019/20 2020/21 2021/22 2022/23

T 4.2 and F 4.3 demonstrate that both banks' ratios of cash and bank balances to total
deposits are declining. In 2022–2023, HBL reaches its maximum ratio of 3.31. In the same
way, HBL's ratio drops to 0.10 in 2020–2021. The bar graph of cash and bank balance to
total deposit of HBL is also displayed in Figure 4.4 by presenting Table 4.2.

Figure 4.4
Cash and Bank balance to Total Deposit of Nabil
 49

Ratio
1

0.9

0.8

0.7

0.6

0.5 Ratio

0.4

0.3

0.2

0.1

0
2018/19 2019/20 2020/21 2021/22 2022/23

Bank balance to Total Deposit of Nabil

The cash and bank balance to the total deposit of Nabil is displayed in T4.2 and F4.4.
Because HBL has a higher average ratio than NABIL, the average ratios demonstrate that
HBL has a better liquidity situation than NABIL. According to CV, HBL has a stronger cash
and bank balance situation than NABIL in terms of the total deposit.

Table 4.3
Return on Total Asset Ratio
 50

(Rs. in Millions)

Fiscal Year HBL NABIL

Net Profit Total Assets Ratio Net Profit Total Assets Ratio

2018/19 22818 1080633 0.02 37024 1440179 0.026

2019/20 18756 1164623 0.02 39819 1690761 0.024

2020/21 2764 133151 0.02 42389 2011388 0.021

2021/22 2587 155885 0.02 34632 2376800 0.015

2022/23 2757 178491 0.02 45275 2910662 0.016

Mean 0.02 0.02

S.D 0.00 0.00

C.V 15.06 24.32

Source: Annual Report of HBL and Nabil Bank

To display the bar graph of the HBL return on total assets ratio, Table 4.3 is also included in
Figure. Before declining in 2020–2021, net earnings to HBL's total assets were higher in
2019–20. During the 2018–19 fiscal year, HBL recorded its highest profit of Rs 22818. The
bar graph displaying Himalayan Bank's return on total assets ratio is also displayed in Figure
4.6, where Table 4.3 is mentioned.

Figure 4.5
Net profits to Total Assets of HBL
 51

Ratio
1
0.9
0.8
0.7
0.6 Ratio
0.5
0.4
0.3
0.2
0.1
0
2018/19 2019/20 2020/21 2021/22 2022/23

T4.3 and F4.5 demonstrate that the net profits of both institutions are trending upward.
Figure 4.7 shows the net earnings to HBL's total assets up until 2019–20, after which they
decreased. In 2018–19, HBL made its highest profit of Rs 22818.

Figure 4.6
Net profits to Total Assets of Nabil Bank

Ratio
0.03
0.025
0.02
0.015
Ratio
0.01
0.005
0
2018/19 2019/20 2020/21 2021/22 2022/23

T 4.3 and F 4.6 show that the Net profits to Total Assets of Nabil Bank Likewise NABIL
have its highest profit of Rs 2910662 in the year 2022/23. The analysis helps to conclude that
 52

the overall profitability of NABIL has been better than HBL. NABIL is efficiently using its
working fund of assets to earn higher rate of profit.

4.1.3 Return on Equity (ROE)

Net value is the proprietor's claim to a bank. An asset's net worth is calculated by deducting
all of its obligations from all of its assets. This ratio evaluates how well the bank uses the
cash of its shareholders. One can calculate this ratio by dividing net profit by total equity
capital, or net value.

Table 4.4
Return on Equity Ratio

Fiscal Year HBL NABIL

2018/19 21.58 22.41

2019/20 14.17 20.94

2020/21 18.34 17.76

2021/22 15.40 13.61

2022/23 15.00 15.19

Mean 16.90 17.98

S.D 3.05 3.72

C.V 18.07 20.68

Source: Annual Report of HBL and Nabil Bank

The effectiveness with which the banks mobilized the property of their shareholders to
generate profit was demonstrated by the table 4.4 Return on Equity Ratio. The data indicated
that HBL's return on shareholders' equity peaked in the fiscal year 2018/19 at 21.58% and
peaked in the fiscal year 2019/20 at 14.17%. The ROE for HBL was 16.90% on average,
 53

meaning that from the mobilization of Rs. 100 of shareholders' equity, HBL was able to
create net income of Rs. 18.07. Furthermore, the coefficient of variation, which stands at
22.84, suggests that the ratio is consistent. The Return on Equity Ratio bar graph for HBL
and NABIL is displayed in Figure 4.4 as well.

Figure 4.7
Returns on Equity Ratio

Ratio
25

20

15
Ratio

10

0
2018/19 2019/20 2020/21 2021/22 2022/23

F 4.7 Equity Ratio Returns. Comparably, Nabil's return on equity (ROE) peaked in 2018/19
at 22.41 and peaked in 2021–2022 at 13.61%. Based on a comparison of the banks, it can be
inferred that Nabil was the most successful in terms of efficiently mobilizing shareholders'
equity, as evidenced by the fact that HBL's ROE (21.58%) was higher than Nabil's (22.41%).
 54

4.2 Data Analysis

4.2.1 Statistical Analysis

Coefficient of Correlation Analysis

The relationship between two or more variables can be seen through a correlation coefficient.
It evaluates how strongly the two variables are correlated, whether positively or negatively.
Karl Pearson's correlation coefficient has been taken and applied in order to ascertain and
analyze the relationships between deposits and loan and advances, deposits and total
investments, total assets and net profit, and total investments and net profit, as well as the
correlations between total deposits, total investments, loan and advances, and net profit.
NABIL, HBL, the coefficient of determination (r2), the probable error (P.Er.), and (6 P.Er.)
are all calculated and analyzed using Karl Persons' coefficient of correlation.

Correlation Coefficient between Deposit and Loan and Advances

Commercial banks have relied heavily on deposits to function, and loans and advances are
essential to making the most of those deposits. The coefficient of correlation between deposit
and loan and advances indicates the strength of the relationship between these two variables.
In this analysis, deposits are the independent variable (X), whereas loans and advances are
the dependent variables (Y). The main objective is to find the r-squared between these two
variables in order to assess whether or not deposits are used appropriately as advances and
loans.
 55

Table 4.5
Correlation between Deposit and Loan and Advances

Banks R R2 P. Er. 6 P. Er. Remarks

HBL 0.91 0.82 0.08 0.48 significant

NABIL 0.86 0.73 0.12 0.72 significant

Source: SPSS Software

T 4.6 demonstrates that the correlation coefficients between deposits and advances and loans
from HBL and NABIL are, respectively, 0.91 and 0.86. It demonstrates that there is a
positive correlation between the two variables. Because the correlation coefficient for both
banks is higher than the relative value of 6 P. Er, it is noteworthy. Stated otherwise, there
exists a noteworthy correlation between deposits, loans, and advances.

Coefficient of Correlation between Total Deposits and Total Investment

The degree of association between these two variables—whether or not the deposit is
considerably utilized—is measured by the coefficient of correlation between deposit and
investment. Deposit is the independent variable (X) and total investment is the dependent
variable (Y) in a correlation analysis.
Table 4.6
Coefficient of Correlation between Total Deposits and Total Investment

Banks R r2 P.Er. 6 P.Er. Remarks

HBL 0.84 0.70 0.13 0.80 significant

NABIL 0.80 0.64 0.16 0.96 significant

Source: SPSS Software

According to T 4.6, there is a 0.84 coefficient of correlation between HBL's total investment
and total deposit. It demonstrates a strong positive association. In a similar vein, the
correlation coefficient of 0.84 indicates a significant degree of positive correlation between
 56

the total deposit and the total investment of HBL. The coefficient of determination, which
stands at 0.70, indicates that the total deposit accounts for 70% of the variation in the total
investment. Because the correlation coefficient is more than 6 P.Er, it is not significant.
Furthermore, NABIL's coefficient of determination is 0.80. This indicates that the whole
deposit only explains 80% of the total investment. Because the correlation coefficient is more
than 6 P.Er, it is considered significant. It indicates that there is a substantial correlation
between NABIL's total deposit and total investment. It indicates that there is a substantial
correlation between HBL's total deposit and total investment. Based on the aforementioned
data, it can be inferred that NABIL and HBL exhibit a significant degree of positive
connection

Coefficient of Correlation between Total Investment and Net Profit

The degree of the relationship between total investment and net profit is indicated by the
coefficient of correlation. Investment is the independent variable and net profit is the
dependent variable in the correlation study. The correlation coefficient of determination,
likely error, and six times of P.Er. for the fiscal years 2018–19 through 2022–2023 are
displayed in the following table.
Table 4.7
Coefficient of Correlation between Total Investment and Net Profit

Banks r R2 P.Er. 6 P.Er. Remarks

HBL 0.92 0.84 0.068 0.41 significant

NABIL 0.87 0.75 0.11 0.67 significant

Source: SPSS Software

According to T 4.7, there is a 0.87 correlation coefficient between NABIL's total investment
and net profit, suggesting a favorable relationship between the two. Furthermore, NABIL's
coefficient of determination is 0.75. This indicates that just 75% of the entire investment is
contributed. Since the coefficient of determination is greater than the P-error, it is evident
that this correlation is significant at all. However, HBL exhibits a strong positive connection
 57

(r = 0.92) between net profit and total investment. HBL has a 0.84 coefficient of
determination. This indicates that 84% of profit is contributed by total investment; yet, since
the correlation coefficient is larger than 6 P.Er., or 0.92, the association is significant.
Compared to HBL, NABIL shows a stronger correlation between total investments and net
profit. Therefore, it can be said that there is a little stronger correlation between NABIL's
total investment and net profit than there is with HBL. This low correlation coefficient
suggests that the bank has not done well enough to generate a profit.

4.3 Discussion
• HBL's current liabilities and quick assets are trending upward. Its fast assets and current
liabilities for the 2018–19 fiscal year are Rs. 7209691 and Rs. 1959749. Its liquid assets and
liabilities fell to Rs 1834351 and Rs 2721359 in 2019–20. There has been an increase in its
liquid assets and liability from 2018/19 to 2020/21.

• NABIL's current liabilities and quick assets are trending upward from 2019–20 to 2020–21.
In HBL, the standard deviation is 0.96, while in NABIL, it is 0.45. Corresponding
coefficients of variation in HBL and NABIL are 47.69 and 50.50, respectively. Thus, it
demonstrates that NABIL maintains a greater degree of variance in the liquid ratio than HBL.
• Both banks' ratios of cash and bank balances to total deposits are erratic. 2020/21 had the
highest HBL ratio of 3.31.
• Cash and bank balance to NABIL's total deposit Drawing conclusions from the
aforementioned analysis, it can be inferred that HBL's liquidity position is superior to
NABIL's due to its higher average ratio

• Banks' net profits are trending upward. Net profits relative to HBL's total assets. In 2018–
19, HBL made its highest profit of Rs 22818. • Net profits relative to NABIL's total assets
Similarly, NABIL's highest profit of Rs 2910662 was recorded in 2020–21. The
aforementioned data contributes to the conclusion that NABIL has historically been more
profitable overall than HBL.NABIL is generating a greater percentage of profit by effectively
utilizing its working capital of assets.
 58

• Return on Equity Ratio demonstrated how well banks mobilized the assets of their
shareholders to generate profit. According to the table, HBL's return on shareholders' equity
peaked in the fiscal year 2018/19 at 21.58% and peaked in the fiscal year 2019/20 at 14.17%.
The ROE of HBL was 16.90% on average, meaning that from the mobilisation of Rs. 100 of
shareholders' equity, HBL was able to create net income of Rs. 16.90. Additionally, the
coefficient of variation of 15.06 shows that the ratio is consistent.

• The correlation coefficients of HBL and NABIL between deposits and loans and advances
are 0.91 and 0.86, respectively. It demonstrates that there is a positive correlation between
the two variables. Because the correlation coefficient for both banks is higher than the
relative value of 6 P.Er, it is considered significant. Stated otherwise, there exists a
noteworthy correlation between deposits, loans, and advances.

• The correlation coefficient between NABIL's total investment and net profit is 0.87,
indicating a positive relationship between the two. Furthermore, NABIL's coefficient of
determination is 0.75. This indicates that just 75% of the entire investment is contributed.
Since the coefficient of determination is greater than the P-error, it is evident that this
correlation is significant at all. However, HBL exhibits a strong positive connection (r =
0.92) between net profit and total investment. HBL has a 0.84 coefficient of determination.
This indicates that 84% of profit is contributed by total investment; yet, since the correlation
coefficient is larger than 6 P.Er., or 0.92, the association is significant. Compared to HBL,
NABIL shows a stronger correlation between total investment and net profit. Thus, it can be
said that there is a little stronger correlation between NABIL's total investment and net profit
than there is with HBL. This low correlation coefficient suggests that the bank's performance
has been subpar when it comes to making net profit.

.
 59

CHAPTER V

SUMMARY AND CONCLUSION

5.1 Summary
A business's ability to generate revenue is referred to as profitability. A benefit is what
remains of the revenue a company generates after all expenses directly related to the revenue,
such as product delivery and other expenditures associated with the operation of the firm, are
paid. The result of different corporate decisions and arrangements is productivity. It makes
an assessment of how hard the company is really working and getting by. It displays the
company's operational productivity in terms of generating revenue from transactions and
obtaining resources and capital. There are numerous methods by which you can analyze
production.This illustration will zero in on benefit proportions, which are a proportion of the
business' capacity to produce income contrasted with how much costs it causes.

Market liquidity refers to the extent to which resources can be exchanged at stable prices in a
market, such as the national financial exchange or the property market in a city. The most
liquid resource is money, whereas collectibles, real estate, and creative endeavors are all
somewhat illiquid. According to the above scenario, there is almost no market for
refrigerators in exchange for interesting books because it is so illiquid. On the other hand,
increased market liquidity is a representation of the securities exchange. In a trade with a
high volume of exchange that isn't overtaken by selling, the bid cost—the value a buyer
provides for each offer—and the ask cost—the value the vendor will accept—will be
reasonably close to each other. At that time, financial backers won't have to give up
unrealized gains in exchange for a quick transaction. The market becomes less liquid when
the difference between the ask and bid prices widens. Land markets are by nature less liquid
than stock exchanges. In fact, a fast-moving business sector is typically illiquid even by
housing market standards, as buyers may demand high limitations from sellers who must
quickly sell their houses.
 60

Examining Nabil Bank Limited's and Himalayan Bank Limited's liquidity management
practices is the study's primary goal. This study aims to investigate the following specific
areas: the sample banks' liquidity position; the sample banks' profitability position; the
relationship between investment, loan, and advance and total deposits; and the trend analysis
of deposit, investment, loan, and advance and net profit. This study aims to investigate the
degree of internal and external factor solidarity on the productivity of HBL and Nabil banks
in comparison to regular banks. An examination of the HBL and Nabil bank performance
framework in light of monetary, financial exchange, and vital models merits leading, given
the globalization of the business sectors and the altered monetary climate. Additional tests
can be conducted by increasing the test size, using new parameters, and using alternative
monetary and quantifiable instruments. When considering fluid percentage, NABIL
maintains a greater variety than HBL. It follows that HBL should provide variation in the
liquid proportion as well. The review's primary objective was to evaluate and examine how
much and to what extent liquidity drills were used in double cross focuses. Furthermore, the
goal was to assess the relationship between the benefit calculated by return on resources
(ROA) and the altering liquidity technique.

Organizations listed on the Small and Midcap registers of the Stockholm Stock Exchange
were tested, subject to specific restrictions. Financial ratios from the fiscal reports and phone
interviews were used to collect data for the quantitative examination approach. Various
portions of the money that the executives and liquidity practiced were experimented with.
Relapse analysis of the productivity and change scores guided the factual research. Overall,
the findings suggested that ROA is not significantly impacted by the transition of liquidity
systems. ROA was significantly impacted by the merely increased use of anticipated and
temporary financing during a financial emergency. Furthermore, it was noted that there has
been no change in the importance of the critical ratios that monitor an organization's liquidity
between the focused time periods. The most widely used liquidity estimation is the working
capital proportion. Additionally, throughout the emergency, the use of working capital and
DIO measurements has increased the most. Gains can be realized by keeping a closer eye on
liquidity levels, forecasting them, and engaging in more sporadic speculation. Even while
benefits aren't often as easily measured as productivity, the shift in liquidity practices is
 61

beneficial for the firms in light of the findings. The following suggestions have been made
for improving the liquidity and profitability position of the sampled banks based on the main
conclusions from the previous chapter and the conclusion from this chapter. This suggests
that HBL is in terrible condition, NABIL is in a moderate position, and NABIL has a strong
liquidity position. All banks' ratios of liquid funds to total deposits are trending downward.
While the majority of HBL's deposits are still liquid, NABIL is fast depleting its funds.
While NABIL has kept a reasonable amount of balance with NRB, HBL has not kept enough
reserves in the bank to sustain a liquidity position. While NABIL has a normal liquidity
situation, HBL is having trouble managing its liquidity.

5.2 Conclusion
In comparison to NABIL, HBL has a greater normal money, bank equilibrium, and
government protections rate. Only HBL's systems administration capitals are favorable
throughout the first year of the study period. HBL's net working capital is almost more than
NABIL's. In that time frame, both banks are able to maintain a sufficient liquidity position to
fulfill their current and future obligations. Both HBL and NABIL have fluid proportions that
are less than the usual standard ratio of 2:1. Nevertheless, HBL's liquidity position is
marginally superior to NABIL's.Higher liquidity in business banks doesn't always translate
into decreased production, even though it does imply reduced risk and lesser benefit. In the
event that a benefit position should materialize, NABIL's productivity in terms of premiums
obtained to add up to resources is marginally higher than HBL's. All things considered, one
could argue that an effective capital management system is perhaps the most important
component of any financial foundation. Working capital is an essential resource that is
frequently compared to an individual's life nail.
After examining the two banks, HBL and NABIL, as case studies using various financial and
quantifiable tools, some important conclusions were drawn from the analysis. By doing this,
NABIL is able to obtain interest payment with even greater efficiency by employing all of its
resources, or assets. In addition, HBL has more net benefits to store proportions and to build
up to resources than NABIL. It follows that the normal benefit proportion of HBL is assumed
to be greater than that of NABIL. Throughout the study period, both banks' benefits have
 62

consistently improved. They should take strong steps toward improved management,
effective marketing, and significant events in order to obtain greater rewards.

5.3 Recommendations
The analysis that follows suggests

• It would be preferable for all banks to concentrate on accepting deposits through fixed
deposits, which need less liquidity and allow the bank to invest the funds in profitable
ventures. HBL has the least amount of net profit earned and net profit margin. While NABIL
made the most profit over these five years, interest income from HBL's loans and advances
was the lowest. It would be better if HBL reengineered the portfolio of its investments to get
a larger profit. HBL should therefore apply for the grant with a high interest rate.

• To that end, the bank ought to devise a novel strategy to bank marketing and devise fresh
approaches to provide consumers with more convenient and satisfying service by making the
best use of contemporary technology and providing new services at competitive rates.
Additionally, the bank must investigate untapped markets. It is advised to have a robust
market department at the central level of the organization to handle banking products,
locations, pricing, and promotions for this reason. The research might potentially be
expanded to encompass additional domains of performance evaluation, such as the efficacy,
cost-effectiveness, caution, and stability of HBL and Nabil banks globally. Additional
research is needed to compare the banking services offered by HBL and Nabil banks.

• Bank management at HBL and Nabil are given knowledge from this study on what has to
be done to improve their banks' financial results. In order to improve the financial conditions
of HBL and Nabil banks, the study's findings suggest that the bank management may need to
make all the essential steps. 74. For many stakeholders, including central banks, bankers
associations, governments, and other financial authorities in Islamic nations, understanding
the fundamental elements influencing banks' profitability is crucial. This knowledge extends
beyond the managers of participating banks.
 63

.
• The most significant discovery of this research is the similarity between the bank
determinants of HBL and Nabil and those of conventional banks. This suggests that many of
the methods and instruments found in studies on traditional banking could be used to the
financial environments of HBL and Nabil. In an effort to improve the performance of HBL
and Nabil Bank, more research is necessary to identify commonalities between the two
banking systems as well as potential alternative approaches. If a similarity is found, HBL and
Nabil Bank will be able to use the literature on traditional banking to their advantage and
suggest an improved approach for improved performance.
 64

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Websites:

www.himalayanbank.com

www.nabilbankltd.com

www.nrb.org.com.np
 67

APPENDIX I

Calculation of Quick Ratio

Fiscal Ye HBL NABIL

ar
Quick Ass Current Liabilit Rati Quick Current Liabilit Rati
ets ies o Assets ies o

2018/19 4734344 1834351 2.58 1770689.86 5064267 0.35

2019/20 4741359 1834351 2.58 10528900.3 12417886 0.85

6

2020/21 6968064 2777022 2.51 11474082.9 13488692 0.85

4

2021/22 7231139 3544577 2.04 13847660.1 16699880 0.83

2022/23 1062898 3090589 0.34 108203791 6703351256 1.61

74

Mean 2.01 0.90

S.D 0.96 0.45

C.V 47.6 50.5

9 0
 68

APPENDIX II

Calculation of Cash & Bank Balance to Total Deposit Ratio

Fiscal Yea HBL NABIL

r
Cash & Total Ratio Cash & Bank Total Deposit Ratio
Bank Deposit Balance
Balance

2018/19 108755 928811 0.12 119119 1219410 0.10

2019/20 99006 997430 0.10 113772 1359793 0.08

2020/21 141992 113090 1.26 165335 1643730 0.10

2021/22 196390 131860 1.49 227040 1930353 0.12

2022/23 891094 269281 3.31 728564 2234745 0.33

Mean 1.25 0.15

S.D. 1.31 0.10

C.V. 104.77 70.18

 69

APPENDIX III

Calculation of Return on Total Asset Ratio

Fiscal Year HBL NABIL

Net Profit Total Assets Ratio Net Profit Total Assets Ratio

2018/19 22818 1080633 0.02 37024 1440179 0.026

2019/20 18756 1164623 0.02 39819 1690761 0.024

2020/21 2764 133151 0.02 42389 2011388 0.021

2021/22 2587 155885 0.02 34632 2376800 0.015

2022/23 2757 178491 0.02 45275 2910662 0.016

Mean 0.02 0.02

S.D 0.00 0.00

C.V 15.06 24.32

 70

APPENDIX IV

Return on Equity Ratio

FiscalYear HBL NABIL

2018/19 21.58 22.41

2019/20 14.17 20.94

2020/21 18.34 17.76

2021/22 15.4 13.61

2022/23 15 15.19

Mean 16.90 17.98

S.D 3.05 3.72

C.V 18.07 20.68