Professional Documents
Culture Documents
amir report revised
amir report revised
OF
NABIL BANK LIMITED
BY
Amir Bal
Roll No: 70455003
T.U. Registered Number 7-2-455-8-2019
Pinnacle College, Lalitpur
Group: Finance
Submitted to
The Faculty of Management
Tribhuvan University Kathmandu
Kirtipur, Kathmandu
July, 2024
i
DECLARATION
I hereby declare that this project work entitled “CREDIT RISK MANAGEMENT
OF NABIL BANK LIMITED” submitted to the Faculty of Management,
Tribhuvan University, Kathmandu is an original piece of my effort under
supervision by Mr. Nirmal Tiwari, faculty member of Pinnacle College, Lalitpur,
submitted in the partial fulfilment of the requirements for the degree of Bachelor of
Business Studies (BBS). This Project work has not been submitted to any other
university or institution for the award of any degree or diploma.
Amir Bal
ii
SUPERVISOR’S RECOMMENDATIONS
(Nirmal Tiwari)
Project Work Supervisor
Date:
iii
ENDORSEMENT
-------------------------- -------------------------------
(Mr. Atma Ram Koirala) (Dr. Rishi Prasad Tiwari)
Chairman of the Research Committee Principal
Date: Date:
iv
ACKNOWLEDGEMENT
Amir Bal
July 2024
v
TABLE OF CONTENTS
DECLARATION .............................................................................................. ii
ENDORSEMENT..............................................................................................iv
ACKNOWLEDGEMENTS ..............................................................................v
ABBREVIATIONS ..........................................................................................x
vi
CHAPTER TWO: RESULTS AND ANALYSIS ............................................14-29
Summary............................................................................................................... 30
Conclusion…....................................................................................................... 30-31
BIBLIOGRAPHY .................................................................................................. 32
APPENDICES......................................................................................................... 33
vii
LIST OF TABLES
viii
List of Figures
ix
ABBREVIATION
CD - Credit-Deposit
x
xi
CHAPTER I
INTRODUCTION
Credit is one the many factors that can be used by a firm to influence demand for its products.
According to Horne and Wachowicz (1998), firms can only benefit from credit if the probability
generated from increased sales exceeds the added costs of receivables. Myers and Brealey (2023)
1
define credit as a process whereby possession of goods or services is allowed without spot
payment upon a contractual agreement for later payment. Credit is extended by a creditor, also
known as a lender, to a debtor, also known as a borrower. The movements of financial capital are
normally dependent on either credit or equity transfers. Credit is in turn dependent on the
reputation or creditworthiness of entity which takes responsibility for the funds.
Loans are the largest sources of credit risk to commercial bank. However, other sources of credit
risk exist throughout the activities of a bank, including in the banking book and in the trading
book, and both on the off the balance sheet. Banks are increasingly facing credit risk in various
financial instruments other than loans, including acceptances, interbank transactions, trade
financing, foreign exchange transactions, options etc.
Operating and financial ratios have long been used as tools for determining the condition and the
performance of a firm. Modern early warning models for financial institution gained popularity
hen Sinkely (1975) utilized discriminant analysis for identifying and distinguishing problem
banks from second banks and Altman (1977) examined the saving and loan industry. To
anticipate banks financial deterioration, procedures have been developed to identify banks
approaching financial distress. These procedures, though varying from country-to-country, are
designed to generate financial soundness ratings and are commonly referred to as the CAMEL
ratings system (Gasbarro et al. 2022).
Bank is financial institutions where financial services are broadly offered and performed. So,
bank can be said a financial supermarket. In general sense, bank is a kind of business, which
deals in money by accepting deposits, advancing loan and rendering other financial services. In a
board senses, bank can be defined as the financial intermediary between depositors and
entrepreneurs. ‘Bank’ was originated from the italic language ‘Banco’ means bench or chair.
People do all transaction of money by sitting on the chair, in the Italy. So, this type of business is
been called bank.
2
The aforementioned organizations were unable to meet the needs of the people due to the growth
of the economy in Nepal. Thus, on April 30, 1994, B.S. Nepal Bank was founded as a semi
government commercial bank with 842000 paid capital and 10 million authorized capitals. It has
carried out the trailblazing role in promoting banking practices among the people. In response to
the perceived necessity for a central bank to oversee and manage commercial banks as well as
assist the government in enacting regulatory measures, Nepal Rastra Bank was established on 14
Baishakh, 2013 B.S.
To satisfy the nation's expanding credit requirements. The commercial bank i.e. Rastriya Banijay
bank was establishes in 10h Bhadra 2022 B.S. this bank also provides facility for the economy
welfare of the general public. Nepal is a farming nation that is working to improve its
agricultural system. The Nepal Industrial Development Corporation and the Industry Agriculture
Development Bank were founded in 2024 and 2016 B.S., respectively.
The essential goal of the board of joint venture banks’ entrance in the field of finance and
liberalizing strategy of NRB was to accelerate the development of the country. At present, a great
number of joint venture banks are operating in increasing profit in a competitive market. The
then His Majesty’s Government is actively considering the policy of allowing the foreign joint
venture banks to operate in the Kingdom of Nepal. Local traditional commercial banks operating
in Nepal are encouraged to strengthen their capacity utilizing the efficiency of competitors
capacity of automation, modernization, and efficient customer service. The first joint venture
bank from abroad was established in 2041, with the name Nepal Arab bank Ltd.
As of mid-July 2011 (licensed by NRB), our nation has 31 commercial banks, 87 development
banks, 79 finance companies, and 21 microcredit development banks.
3
as Chartered Bank Limited) joined the Nepali financial market through a joint venture with
ANZGrind Lays.
b) Advancing of Loans:
By providing the necessary loan/credit to various sectors of economy such as industry, trade,
agriculture or business deprived sector etc., commercial banks create facilities for people. The
main goal is to eliminate debt and they offer loans from several different processes not just one
type. Here are a few ways in:
• Overdraft
• Cash credit
• Direct loan with collateral
• Discounting bill of exchange
• Loans of money at call and notice
General Utility Functions:
In addition to all the income earning avenues enumerated above, the Common commercial banks
also perform the following general utility functions.
• Providing letters of credit to customers
• Providing bank draft, travels cheque etc. for transferring of funds from one place to
another
• Purchase or Discounting of Change & Security Foreign exchange and financial foreign
trade, by taking/collecting bill. The verified imported bill is prepared and release along
with all required original shipping documents to the customers.
• Public bodied and corporations underwriting loans to be raised.
• Vaults for the safe custody of securities and other valuables belonging to clients, - State
Postal Savings Bank is a general depositary facility where individuals can lodge their
funds which are placed in current accounts opened by them.
4
• Telegraphic Transfer remittance of funds
Agency Functions
Apart from the above-mentioned function of commercial banks, it works as an agent and
commission on various services and acts as an agent as well such as:
• Collecting cash on behalf of customers from other banks.
• Receive payment of dividends and interests. • Provide security Brokerage Services
• Financial advisory services.
• Underwrite the government and private securities.
NABIL BANK LIMITED commenced its operation on 12 July 1984 and was the first joint
venture bank in Nepal, Dubai Bank Limited. Dubai (Later acquired by Emirates Bank
International Limited Bank, Dubai) was the first joint venture partner of Nabil. Currently, NB
(international) Ltd. Ireland is the foreign partner.
NABIL Bank Limited had the official name Nepal Arab Bank Limited till 31 st December 2001.
NABIL is the pioneer in introducing innovative products and marketing concepts in the banking
sector of Nepal. Also, the number of outlets in the country is the highest among the joint venture
and private banks operating in Nepal as it paved the way for the establishment of many
commercial banks and financial institutions.
NABIL Bank Limited is the nation’s first private sector bank, commencing its business in July
1984. NABIL was incorporated with the objective of extending international standard modern
banking services to various sectors of society. Pushing its objectives, NABIL provides a full
range of commercial banking services through its 74 points of representation. In addition to this,
NABIL has a presence through over 1500 NABIL Remit agents throughout the nation.
NABIL, as a pioneer in introducing many innovative products and marketing concepts in the
domestic banking sector, represents a milestone in the banking history of Nepal as it started an
era of modern banking with customer satisfaction measured as a focal objective while doing
business. Operations of the bank including day-to-day operations and risk management are
managed by highly qualified and experienced management team. The bank is fully equipped
with modern technology which includes international standard banking software that supports
the E-channels and E-transactions.
5
NABIL is moving forward with a Mission to be “1 st Choice Provider of Complete Financial
Solutions” for the 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.
• Customer Focus: At Nabil, providing excellent customer service is our top priority. Our
customers are our main focus and inspiration. Our goal is to become our client’s trusted
partners and win their trust.
• Quality: We firmly feel that providing our clients with a high-quality service experience
is essential, and we are dedicated to meeting this goal.
• Honesty & Integrity: We build enduring relationships of trust and confidence by
upholding the greatest standards of integrity for our clients. We give our clients fair,
honest, and respectful treatment.
• Belief in our people: We understand that our workforce is both our greatest asset and our
greatest competitive advantage. We value and appreciate each employee's worth and
dignity when they dedicate their careers to the advancement of the Bank.
• Teamwork: We firmly think that committed and driven teams are capable of achieving
amazing things. Our motivation comes from a performance culture that bases incentives
and recognition on an individual's accomplishment and track record.
6
• Good Corporate Governance: Public trust and confidence in any firm, especially a
banking organization, must be established and maintained through the implementation of
effective corporate governance practices. Nabil is dedicated to upholding best standards
that lead to sound corporate governance.
• Corporate Social Responsibility: We believe that acting responsibly toward the
environment and society is crucial for us as responsible business citizens. We have
always been committed to acting morally and making a positive impact on the
community, the people we live for, and society as a whole—all of which we are an
essential part of.
7
1. To examine the credit risk management of NABIL.
2. To examine the trend of NABIL loans and net profit.
3. To examine the status of the CD ratio of NABIL.
Conceptual Framework
Credit risk is simply defined as the potential that the borrower or counterparty will fail to meet its
obligations in accordance with agreed terms. The goal of credit risk management is to maximize
a bank’s risk adjusted rate of return by maintain credit risk. Credit management strongly
recommends analysis and management the credit risks. Credit risk is defined as the possibility
that a borrower will fail to meet its obligations in accordance with the agreed terms and
conditions credit risk is not restricted to lending activities only but includes off-balance sheet and
inter-bank explores. The goal of the credit risk management is to maximize a bank’s risk adjusted
rate of return by maintaining the credit risk exposure within acceptable parameters. The credit
policy of a firm provides the framework to determine whether or not to extend credit and how
much credit to extend. The credit policy decision of a bank has to broad dimensions; credit
standards and credit analysis.
8
Review of Related Studies
In the preparations of this report, previous annual report book of bank, articles, previous related
material, website of NABIL bank to be considered. The review and the extract from previous
thesis are presented in this section.
Maxwell 1974, Opines that the interest rate fixing authorities cause adverse effects on income
distributing. The interest rate is beneficial especially for the small savers. According to him
interest affects the saving and mobilization. A high interest rate diverts the resources from
unproductive tangible assets into financial claims. For Nepalese people and Nepalese
undeveloped money and capital market interest rate can be taken as an important weapon in
mobilizing the interest resources, here interest rate plays as a market clearing device. Higher
interest rate pushed people to some money and it allows people to invest into opportunities. Low
interest rate attracts the small borrowers.
Carl Felsenfeld 2004 outlined the patterns of international Banking regulations and the sources of
governing law. He reviewed the present practices and evolving changes in the field of control
systems and regulatory environment. The book dealt a wide area of regulatory aspects of
Banking in the United States, regulations of international banking, international bank services
and international monetary exchange. The work attempted in depth analysis of all aspects of
Bank Regulation and Supervision.
As per G. Dalai, D. Rutherberg, M. Sarnat and B.Z. Schreiber (2001) risk is intrinsic to banking.
However, the management of risk has gained prominence in view of the growing sophistication
of banking operations, derivatives trading, securities underwriting and corporate advisory
business etc. Risks have also increased on account of the on-line electronic banking, provision of
bill presentation and payment services etc. The major risks faced by financial institutions are of
course credit risk, interest rate risk, foreign exchange risk and liquidity risk.
S.K. Bagchi (2010), observed that in the world of finance more specifically in Banking, Credit
Risk is the most predominant risk in Banking and occupies roughly 90-05 per cent of risk
segment. The remaining fraction is on account of Market Risk, Operation Risk etc. HE feels that
so much of concern on operational risk is misplaced. As per him, it may be just one to two per
cent of Bank’s risk. For this small fraction, instituting the Risk Management apparatus, Banks
seem to be giving equal priority to these three Risks viz., Credit Risk, Operational Risk and
Market Risk. They may prove counter-productive.
9
Kioko (2008) did a study credit risk management techniques of unsecured loan of commercial
banks in Keny and revealed that banks used a combination of credit risk management methods
for unsecured loans.
Macaulay (1988), conducted a survey in the United States and found credit risk management is
best practice in bank and above 90% of the bank in country have adopted the best practice.
Inadequate credit policies are still the main source of serious problem in the banking industry as
result effective credit risk management policy must be to maximize a bank’s risk adjusted rate of
return by maintaining credit exposure within acceptable limits. Moreover, banks need to manage
credit risk in the entire portfolio as well as the risk in individual credits transactions.
Rasid and Rahman (2009), investigated management accounting and risk management practices
in financial institutions in Malaysia using mail surveys. These were sent to 106 financial under
Malaysian Central Bank, consisting of commercial banks, Islamic banks, merchant/investment
banks, discount houses, development houses, development financial institutions and insurance
companies. The questionnaires were mailed to the Chief Financial Officer or the most senior
position in finance department. The study employed eight variables consisting of job designation,
length of time holding current position, types of services, number of employees, annual revenue,
annual total assets, firm’s age, and ownership structure. The study found that size was not related
to the extent of ERM development and concluded that financial institutions tend to adopt ERM
because of the requirements set by regulators.
Research done by Manab et. Al., (2010) focused on the drives and the success of Enterprise-
Wide Risk Management (EWRM) implementation with corporate governance compliance and
value creation in for profit companies in Malaysia. The study selected 132 listed companies in
the service sector an only 85 companies agreed to participate. The study chose two types of
company, namely financial companies and non-financial companies. 11 EWRM drivers were
employed in the study: corporate governance, mandate from BOD, shareholder value,
technology, improved decision making, improved communication, globalization, competitive
pressure, stakeholder pressure, good business practice, and catastrophic event. The study found
five main drivers which contribute to the success of EWRM for financial and non-financial
companies. These were corporate governance, mandate from BOD, shareholder value, improved
decision making and good business practices.
Daud et. Al., (2010) investigated the relationship between quality of Chief Risk Officer (CRO)
and Enterprise Risk Management (ERM) in Malaysia. The study focused on the level of
Enterprise Risk Management adoption within Malaysian companies and the quality of Chief
Risk Officer in Implementation of Enterprise Risk Management. The questionnaires were sent to
500 companies through main from seven types if industry such as Technology, Industrial
Product, Consumer Product, Plantation, Trade and Services and Construction. Among these, only
89 respondents participated in the study. The study focused on four levels of adoption of
Enterprise Risk Management: complete ERM in place; partial ERM in place; planning to
implement in ERM; and investigating to adopt ERM. The results of the study showed that only
10
43% of various companies have complete ERM program while 57% were considered as partial.
The study also found that the quality of CRO and ERM were significant indicating that CRO is
an important factor for companies to adopt ERM.
A study by Yusuwan et. Al., (2008), focused on the risk management practices on construction
project companies specifically in Klang Valley, Malaysia. The study was undertaken to identify
the level of awareness of risk management, to examine the policy undertaken when dealing with
risks in a construction project, and to identify the problems and challenges for the
implementation of risk management. The study employed questionnaire survey and interviews.
Their respondents were 27 companies from public and private sectors that are operated in Klang
Valley. The study found that in terms of level of awareness and perception of risk management,
44.4% had heard occasionally, 29.6% had heard and attended training, 14.9% had practiced risk
management and 11.1% has never heard about risk management at all.
This part of proposal not only shows which methods are used but it will show why they are used
in the research. This part of the proposal incorporates the following topic:
This research problem will be studied through the use of causal research design. In research
design, the emphasis is on specific objectives about the effects of change of one variable on
another variable and it involves an experiment where an independent variable is change or
manipulated to see how it will affect of dependent variable. Research design will useful in this
study since it enabled the researcher to examine the impact on the dependent variable from
variations in the dependent’s variables.
In Nepal, there are 111 banks and Financial Institutions are currently operating. Among them,
only some selected institutions are taken as samples. However, the study will select only NABIL
out of 111 banks and Financial Institutions.
11
1.7.3 Sources of Data
For the preparation of this report, different kinds of books will be followed. In this report, all the
data collected will be secondary in nature. Almost all the data will be collected from published
annual reports, brochures etc.
The main purpose of analyzing the data is to change the raw data into understandable
presentation. Various statistical and financial tools will be uses the data will be processing,
tabulation and graphing to analyze and objective of the study.
Bar diagram
Graphs
Tabulation presentation
Financial tools
12
1.9 Organization of the Study
The whole study would have been divided into three chapters.
Chapter I Introduction
In this chapter we will deal with the introduction part of the study which includes background of
the study, organizational profile/place/time etc. objective of the study, rationale of the study,
literature review, method of study and limitations of the study.
This chapter will be the main part of the study, which includes analysis and interpretation of the
data using financial and statistical tools. Similarly, this chapter also may include the major
finding of the study.
It includes the summary and conclusion of the study and also the reference of the study will be
included at last.
13
CHAPTER II
RESULTS AND ANALYSIS
Data presentation is the interpretation of the study and data analysis summarizes the collected
data. Analysis is not complete without interpretation and interpretation cannot proceed without
analysis. In this course of analysis, data has been gathered from various sources and has been
analyzed by using financial and statistical tools. The results of the computation have been
summarized with appropriate tables. The samples of computation of each model have been
included in annexes. This chapter includes presentation of data and analysis of that data to reach
at a conclusion.
Data Presentation
Credit risk has of sub-issue including concentration risk and settlement risk. Concentration risk
arises when there are large number of exposures to parties that share similar characteristics.
Settlement risk arises when a clearing agent or third-party processes transaction for other parties.
Indeed, financial institutions have recognized the importance of measuring credit concentration
risk in addition to the credit risk of individual loans. That is, they examine not only individual
risks but also the total credit risk characteristics at the portfolio level. Under this topic, the
various variables in their absolute value are measured. Unlike ratio analysis, different variable is
measured individually. The volume of variable and its variability are measured. The value of
individual variables enables to measure the gross contribution of the bank in the respective years.
Though the ratio analysis solely describes the ratio between the two variables, it does not tell
about the absolute value of those variables. Therefore, in this chapter, some of the important
individual variables in their absolute value of mean and standard deviation are examined.
Analysis of Data
Credit risk is most simply defined as the potential that a bank borrow or counterparty will fail to
meet its obligations in accordance with agreed terms. The goal of credit risk management is to
14
maximize a bank’s risk-adjusted rate of return by maintaining credit risk exposure within
acceptable parameters. Banks need to manage the credit risk inherent in entire portfolio s well as
the risk in individual credits or transactions. Banks should also consider the relationship between
credit risk and other risks. The effective management of credit risk is a critical component of a
comprehensive approach to risk management and essential to the long-term success of any
banking organization.
Since exposure to credit risk continues to be the leading source of problems in banks world-wide,
banks and their supervisors should be able to draw useful lessons from past experiences. Banks
should now have a keen awareness of the need to identify, measure, monitor and control credit
risk as well as to determine that they hold adequate capital against these risks and that they are
adequately compensated for risk incurred. The Basel Committee issuing this document in order
to encourage banking supervisors globally to promote sound practices for maintain credit risk.
Although the principles contained in this paper ae most clearly applicable o the business of
lending, they should be applied to all activities where credit risk is present. Credit risk related
ratios measure the capability of the company to meet its credit risk is present. Credit risk related
ratios measure the capability of the company to meet its credit risk management position and
performance. From an investor’s stand point predicting the future is what credit risk analysis is
all about, while from the management’s stand point, credit risk analysis is useful both as aways
to anticipate future conditions and more important as a starting point for planning action well
influence the future course of events. For the purpose of analysis of the credit risk of any
company, different credit risk related ratio can be calculated and evaluated. Some of the
commonly used credit risk related ratios are calculated and interpreted as follows:
Percentage change in credit risk = Current year RWA – Previous year RWA * 100
Previous year RWA
15
Table no. 2.1 Percentage Change in Credit Risk
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
2018/19 2019/20 2020/21 2021/22 2022/23
Current Year Value (Rs. In Millions) Previous Year Value (Rs. In Millions)
16
Figure 2.1 Values of Credit Risk of Nabil Bank Limited
Fromm above table 2.1 and figure 2.1, it can be observed that the overall credit risk values of the
bank are continuously in increasing trend. In all five years of the study period from 2018/19 to
2022/23, the value of the credit risk measured by total risk weighted assets is raising year by
year. The deposit collection as well as the loan and advance from the bank, to targeted customers
and institution are also rapidly increasing in recent years and hence the credit risk also resulted
into rising direction.
Total credit risk is the combined form of on balance sheet and off-balance sheet risk exposure.
With passes of time, both on as well as off-balance sheet exposure are continuously rising and
the result is rapidly increase in total credit risk of NABIL BANK LIMITED. The credit risk is
directly associated with loan and advance given by the bank. With higher distribution of loan and
advance, the chance of loan recovery also changes in the same direction. It is the main reason for
the increase in credit risk of the banking sector.
60
50
40
30
20
10
0
208/19 2019/20 2020/21 2021/22 2022/23
Figure 2.2 Trend Line of Percentage Change in Credit Risk of Nabil Bank Ltd.
In above trend line it seems that, the percentage change in credit risk from one year to another is
in fluctuating ratio. There is highest percentage growth rate during the year 2021/22 having
percentage change in value of 65.85% and lowest increase in credit risk was during the year
2022/23 and the average growth rate of 4.19% in recently ended five years of the study period. In
17
all years of the study there observed an increase in credit risk as compared to previous year’s
corresponding value, but the rate of change does not have any particular trend of increasing or
decreasing. It is almost in decreasing trend except during 2020/21, at which the ratio sharply
claimed as shown in above trend line as well as in the table.
For success or un-success of any bank and financial institutions, it is directly dependent upon
how fast the loan and advance is being increased. It is main business of the banks to collect
money from different sectors and then to distribute those funds as loan and advance. It has been
observed that, as the value of loan increases, the credit risk also increases. The risk of default or
non-recovery of loan and advance; hence credit risk is the function of loan and advance
distributed by the concerned bank and the financial institutions.
18
500000
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
2018/19 2019/20 2020/21 2021/22 2022/23
Current Year Value (Rs. In Millions) Previous Year Value (Rs. in Millions)2
Figure 2.3 Trend Values of On-Balance Sheet Credit Risk of NABIL Bank Ltd.
The above figure and table show that, on balance sheet credit risk is rapidly increasing every year
throughout the study period. In total credit risk, the proportion of on balance sheet exposure is
highest and it is the major factor influencing the overall risk of the bank. The rate of change can
be summarized using the following trend line.
19
Percentage Growth Rate
50
45 44.23
40
35
30
25
22.46
20 18.96 18.16
15 14.47
10
5
0 0 0 0 0 0
2018/19 2019/20 2020/21 2021/22 2022/23
Figure 2.4 Trend Line of Growth Rate of On-Balance Sheet Credit Risk Exposure.
From above figure no. 2.4 regarding trend line of the balance sheet exposures, the percentage
growth rate is highest during the year 2021/22 whereas the rate is lowest during 2022/23. The
highest percentage change value was 44.23% and the lowest value was 14.47%. In all years of
the study there observed an increase in credit risk as compared to previous year’s corresponding
value, but rate of change does not have any particular trend of increasing or decreasing.
Table No. 2.3 Percentage Change in Off-Balance Sheet Credit Risk Exposure
The credit risk analysis is not complete without the combined examination of on balance
sheet as well as off0balance sheet risk exposures. The off-balance sheet exposure of
NABIL Bank is regularly being increased in five years study periods as listed in above
table, which was highest during 2022/23 whereas lowest on 2018/19, indicating regularly
increasing trend for the bank. The trend values cam be presented below in bar diagram.
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2028/19 2019/20 2020/21 2021/22
Current Year Value (Rs. In Millions) Previous Year Value (Rs. In Millions)
21
From above figure 2.5, it can be observed that off-balance sheet risk exposure is
continuously increasing. In the recent year 2022/23, observed the least or slight increase
in value; otherwise, there is an adequate rise in off-balance sheet risk exposure.
Regarding the performance of NABIL Bank, it can reduce off-balance sheet risk exposure
in current years. It is a good indicator of the risk management aspect of the bank,
especially credit risk management. The trend line off percentage change in off-balance
sheet risk exposure can be summarized as follows:
45
40
35
30
25
20
15
10
0
Category 1 2019/20 2020/21 2021/22 2022/23
Rate of change(%)
From above figure no. 2.6, it is clear that the off-balance sheet risk exposure is almost in
the decreasing trend, except during the fiscal year 2020/21 amounting to 38.34% change
whereas the lowest one is during 2022/23 amounting to 4.18% representing a sharp fall in
off-balance sheet risk exposure. The average percentage change found to be 21.006% in
the five-year study periods.
23
Total Credit Risk
600000
500000
400000
300000
200000
100000
0
2018/19 2019/20 2020/21 2021/22 2022/23
On Balance Sheet Exposure (Rs. in Millions) Off-Balance Sheet Exposure (Rs. in Millions)
Total Credit Risk (Rs. in Millions)
With rise in total credit risk, both on balance sheet as well as the off-balance sheet risk
exposure are rising but the rate of rising in on balance sheet is almost similar to total risk,
whereas the off-balance sheet risk exposure is gradually increasing with almost constant
values as shown in the above figure 2.7.
Capital of the commercial bank should be adequate as required by Nepal Rastra Bank,
which is minimum of 10% of total risk weighted exposure and the Core Capital Ratio
(Tier I) ratio should be at least of 6%. It is the regulating directives issued by the Nepal
Rastra Bank, the details for NABIL Bank in the past five years period can be summarized
below:
Core Capital (Tier-I Capital) Ratio = Core Capital of the Bank * 100
Total Risk-Weighted Assets
24
Total Risk Weighted Assets
These are the capital adequacy norms and it is the duty of bank to maintain 6% core capital ratio,
10% total capital ratio and certain composition of supplementary capital ratio in order to achieve
the target.
25
Percentage Ratio
14
12
10
0
2018/19 2019/20 2020/21 2021/22 2022/23
Capital adequacy measure is a compulsory obligation for every bank and financial institution.
Regarding NABIL Bank Limited, its core capital ratio is greater than 8% in all five years study
periods. It has adequate capital as required by Nepal Rastra Banks directives. By maintaining
sufficient capital, NABIL Bank is operating its business in Nepal as the leading bank of the
nation. Credit risk management of this bank is in comfortable position as it has sufficient capital
to fulfill the requirement of risk weighted assets.
Table No. 2.6 Loan Loss Provision Ratio of Nabil Bank Limited
26
Fiscal Years Loan Loss Provision Total Loan (Rs. in Ratio (%)
(Rs. in Millions) Millions)
2018/19 405.17 1,77,930.21 0.23
2019/20 856.76 2,11,824.37 0.41
2020/21 827.52 2,57,208.11 0.32
2021/22 1,118.82 3,66,836.36 0.31
2022/23 1226.26 4,26,870.06 0.28
Average 0.31
450000
400000
350000
Amounts in Millions
300000
250000
200000
150000
100000
Column1
50000
Figure 2.9 Trend Values of LLP and Total Loan of Nabil Bank Limited
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0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2018/19 2019/20 2020/21 2021/22 2022/23
Ratio (%)
Figure 2.10 Trend Line Showing Loan Loss Provision Ratio of Nabil bank Limited
Above table no. 6shows that the bank has highest and lowest loan loss provisions in the fiscal
year 2019/20 and 2018/19 respectively. The loan loss ratio was highest during the fiscal year
2019/20 and it was least during the year 2018/19. The corresponding highest and lowest ratios
are 0.41% in 2019/20 and 0.23% in 2018/19 with the average ratio of 0.31% in current five years
of the study period.
The decreasing trend of loan loss provision ratio implies the better financial performance of the
concerned financial institutions. It is the objectives of every financial institution to minimize this
ratio as much as possible. Regarding the performance of Nabil, it is highly satisfactory as per
sharply decreasing trend on the loan loss provision ratio in recent years of the study period. This
bank is found to become able to minimize the amount of loan loss provision in combination with
increasing trend in loan disbursement. These to inversely directed values helped this to minimize
the loan loss provision ratio up to minimum level. Only distribution of greater amounts of loan
loss provision is not the success for every bank. It must be able to collect loan and interest on
timely basis and minimize any loss as measured by loan loss provision. The credit risk analysis
should significantly cover this area in order to provide the actual position of loans for every
financial institution. In this report major concern has been given to analyze this factor.
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2.2 Major Findings
Using different credit risk-related ratios; the overall performance of NABIL Bank Limited is
satisfactory and is in increasing trend. Its credit risk measures as measured by credit risk change
ratio, loan loss provision, capital adequacy ratio, etc, are being improved as compared to
previous years. The overall credit risk position of the bank is also satisfactory but due to the tight
policy of NRB, the financial indicators seem quite weak, but it seems that the future is bright for
this bank and its investors. It is positive to observe that, this bank can make fulfilment of capital
as required from NRB, although there are many banks which are still unable to maintain capital
adequacy.
From the loan and advance disbursement and collection point of view, this bank is very strong in
today’s competitive financial market. Among 20 existing commercial banks, NABIL Bank is one
of the leading banks and investors are attracted towards its share for investment nowadays. The
ability of this bank's management to generate sufficient surplus from financial business and
adequate interest spread is a positive factor for the success of this bank in future periods.
Almost maximum of the credit risk-related indicators of this bank are satisfactory and in the
improvement stage and most of the loans and advances are good for the current period as
compared to the past few years. The major concern of this bank is to be towards application of
the loan in profitable areas and the bank's management is to include such schemes which will
attract customers towards the bank as today’s banking market is very competitive.
During the five-year study period regarding credit risk of NABIL Bank Ltd., the overall
performance of the bank is satisfactory. This bank can maintain sufficient capital required for
investment as well as to operate day to day activities of the company. The major findings of the
study on credit risk management of NABIL Bank Limited can be summarized as follows:
NABIL Bank Limited is able maintain sufficient capital within this fiscal year as required by Nepal
Rastra Bank to maintain 8 Arba capital for “A” categories commercial banks operating within the
country.
Loan and Advance of NABIL Bank Limited is in continuo, as well as off-balance sheet credit risk
exposure, us increasing trend throughout the study period.
Credit Risk as measured by total risk-weighted assets is also in an increasing stage from one year
to another during this five-year study period.
Both on-balance sheet, as well as off-balance sheet credit risk exposure, are on a rising
trend. On a balance sheet, risk-exposure is shapely increasing as compared to the off-
balance sheet.
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CHAPTER III
SUMMARY AND CONCLUSION
3.1 Summary
The role of the bank has paramount significance role in the economic development of the
country. Along with government participation, there should be equal participation from
private and public sectors to perform development activities. Credit risk analysis is the
process of identifying the strengths and weaknesses of the bank by establishing the
relationship between the items on the balance sheet and the profit and loss account.
The present study mainly aims to examine the loan and advance position of NABIL Bank
Limited. Its specific objectives are to know the ability of the bank to meet its current
obligations and to evaluate the financial data collected from financial statements namely
balance sheets and profit and loss accounts. Throughout the study, altogether seven ratios
have been computed and analyzed. The objective of the study is to know the actual position
of NABIL Bank of the last five years especially focused on loan and advance-related issues.
As mentioned earlier in the report loan and advances play a vital role in developing
confidence in a competitive market environment and to make demand and closing its door to
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loan and advance-related data presented and analyzed in Chapter 2 shows that have
maintained sufficient loan and advance disbursements to meet its short term and long-term
loan provided to the targeted customers.
3.2 Conclusion
The bank income statement shows that operations can be expected to be profitable. Its
profitable operation of its attributed to serval factors; one is the real increase in deposit
volume and the other is seen as a number of other branches increasing every year. The loan
and advance evaluation of the bank shows the addition of other branches in the main cities of
our country is highly profitable. It earned profit from the date of its establishment considering
the demand and supply quality aspects and financial evaluation the is a good shape to
increase other new branches. The dividend paid and ratios show that the bank’s loan and
advance disbursement and their collection position is much better.
The following are the financial indicators for the year 2022/23 which show the strengths and
weaknesses of Nabil Bank Limited:
The NABIL Bank can operate its financial activities smoothly and effectively. As this report
has concluded NABIL Bank seem to have a large quantity of resources with skilled
manpower, technology and qualitative performance but this is not sufficient for a bank to
support a country for its overall economic development unless there is well established
financial institution to mobilize capital. Thus, banks should keep on lending their credit in
different sectors of the economy.
The following are some recommendations that NABIL Bank should follow or take care of:
Customer care is truly a sustainable competitive advantage in the world of non-resting
competition. An institution that lacks proper customer care finds it difficult to stand firmly in
the business. So, the institution should extend its facilities and services to the customers.
NABIL Bank can use the latest technology to motivate employees, provide better services
and also emphasis to controls also interest and marketing activities.
The bank should maintain mare cash balance to pay the current liabilities in time.
Cash retention in the bank is essential for the bank; it should be considered that too much
idle funds in a bank is not beneficial for the bank. Thus, such funds should be invested in
profitable opportunities.
The bank should capture the market not only in urban but also in rural areas and should
launch new project.
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BIBLIOGRAPHY
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Of India Pvt.Ltd.
Thomas, Shakespare (1996). Financial Markets and Institutions (International edition) U.S.A.
Timilsina, Yogendra (2053B.S). Banking Business in Nepal (3rd ed.) Kathamandu: Ratna
Putsak Bhandar
Publications, Journals and reports
Annual Report- NABIL Bank 2018-2022
Principle of Book operation (1972 U.S.A.). Principle on Operation of Bank and Financial
Institutions Regulations Department.
http://www.nepalstock.com
http://www.worldbank.org
http://www.nabilbank.com
APPENDICES
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