A PROPOSAL ON LIQUIDITY ANALYSIS OF NEPAL

INVESTMENT BANK LIMITED(NIBL)

Sumitted By:
Junu Pandey
T.U. Regd. No.: 703870004

Submitted To
Lord Buddha College
Faculty of Management
Tribhuvan University
Biratnagar, Nepal

In Partial fulfillment of the requirements for the degree of

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 A PROPOSAL ON LIQUIDITY ANALYSIS OF NEPAL
INVESTMENT BANK LIMITED(NIBL)

1. Introduction

In business world, we frequently have to face events that affect the business adversely. Risk can be
understood as a possible event which could have adverse financial consequences. Risk management
is a constant challenge to all financial institutions. Banks need to consistently develop and improve
their operational and technical practices. Risk management is the identification of the possible events
that could have adverse financial consequences and taking the measures to prevent or minimize the
financial losses. (Rajan B. Paudel, 2016). In any financial institutions there are various types of risks.
They are interest rate risk, market risk, credit risk, liquidity risk, insolvency risk etc. All the financial
institutions face the risk that their liabilities holders will seek to cash in their claims. The holders of a
checking amount can always walk into the bank and ask for the balance in cash. This risk of sudden
demand for liquid funds is called liquidity risk (Kiran Thapa, 2016). Liquidity is a bank’s capacity to
fund increase in assets and meet both expected and unexpected cash and collateral obligations at
reasonable cost and without incurring unacceptable losses.

Liquidity risk is the inability of a bank to meet such obligations as they become due, without
adversely affecting the bank’s financial condition. Effective liquidity risk management helps ensure
a bank’s ability to meet its obligations as they fall due and reduces the probability of an adverse
situation developing. For banks using liability-based or off-balance sheet liquidity strategies,
traditional measures of liquidity, such as the ratio of loans to deposits or non-core funding
dependency, may not provide an accurate view of the institution’s true liquidity position. Such
institutions should augment traditional liquidity risk measures with pro forma cash flow and scenario
analysis, and should have realistic contingency funding plans that are responsive to changes in
liquidity risk exposure. The liquidity risk of banks arises from funding of long-term assets by
shortterm liabilities, thereby making the liabilities subject to rollover, or refinancing risk. Liquidity
risk is usually of an individual nature, but in certain situations may compromise the liquidity of the
financial system. As in overall terms it is about a situation that is very dependent on the individual

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characteristics of each financial institution, defining the liquidity policy is the primary responsibility
of each bank, in terms of the way it operates and its specialization.

Liquidity risk can be sub-divided into funding liquidity risk and asset liquidity risk. Asset liquidity
risk designates the exposure to loss consequent upon being unable to effect a transaction at current
market prices due to either relative position size or a temporary drying up of markets. Having to sell
in such circumstances can result in significant losses. Funding liquidity risk designates the exposure
to loss if an institution is unable to meet its cash needs. This can create various problems, such as
failure to meet margin calls or capital withdrawal requests, comply with collateral requirements, or
achieve rollover of debt (AJMR-AIMA, 2013). The scope and frequency of a bank’s internal
liquidity risk management reports may vary according to the complexity of the institution’s
operations and risk profile. Reportable items may include cash flow gaps, asset, and funding
concentrations, critical assumptions used in cash flow projections, key early warning or risk
indicators, funding availability, status of contingent funding sources and collateral usage.

2. Scope Of Study

NEPAL INVESTMENT BANK LIMITED(NIBL) established with the slogan of “Truly a Nepali
Bank”, aims to be the household name gaining confidence of its shareholders, investors,
depositors and other interested parties. For this purpose, analysis of financial performance is
must. The analysis of financial performance manifest various aspects such as stability,
profitability, solvency and liquidity position of the organization. Information regarding such
aspects of financial statement not only facilitates the users but also the bank itself to identify its
strength and weakness. This will help the bank to formulate plans and policies for better
operation in future. Therefore, this report will portray the analysis of financial statement of
NEPAL INVESTMENT BANK LIMITED(NIBL) .

3. Statement of Problem

Liquidity risk is one of the challenges faced by banks at present days. In today’s competitive world, a
bank is responsible for the sound management of liquidity risk. A bank should establish a robust
liquidity risk management framework that ensures it maintains sufficient liquidity and clearly
articulate a liquidity risk tolerance that is appropriate for its business strategy and its role in the

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financial system. Liquidity costs, benefits and risks in the internal pricing, performance measurement
and new product approval process should also be incorporated for all significant business activities
(both on- and off-balance sheet) moreover, a bank should have a sound process for identifying,
measuring ,monitoring and controlling liquidity risk.
Based on the above discussions, this study aims to identify about the management of liquidity in one
of the leading banks of Nepal. Within the context, the study deals with following issues:

1. Why should a bank be responsible for sound management of liquidity risk and articulate a
liquidity risk tolerance?

2. Do strategy, policies, and practices have to be in accordance with the risk tolerance?

3. How does continuous review information on bank’s liquidity developments and reporting to the
BOD on a regular basis affects the liquidity risk of a bank?

4. What principles and procedures should a bank follow in order to control liquidity risk?

5. Why should a bank’s liquidity management process be sufficient to meet its funding needs and
cover both expected and unexpected deviations from normal operations?

4. Objective Of the Study

The main objectives of the study are as follows:

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5. Research Methodology

The research methodology is the process used to collect information and data. The methodology
may include interviews, survey, publication, research and other research techniques.
5.1 Sources of Data Collection
Data can be collected from primary sources and secondary sources. Primary data are first hand
data collected through direct involvement of researcher whereas secondary data are second hand
data which are already collected by someone else and used by researcher for his/her study.
The major data used in this project report are collected through secondary sources.
5.2 Secondary Data:
Secondary data are those data, that has previously been gathered and can be accessed by
researchers. Data in this project are collected from published as well as unpublished sources.
Secondary data used in this project are listed below:
• Annual reports of Nepal Investment Bank Limited(NIBL) .
• Official website of Nepal Investment Bank Limited(NIBL) .
• News papers
• Books and articles

6. Data Presentation and Analysis Tool

The collected data were processed for analysis. Various table and calculation have been shown in the
study in order to come to reliable conclusions. Finding and results are compared and interpreted.

While processing data in the table and charts following tools were used:

1. Liquidity Ratio

2. Profitability Ratio

3. Activity/Turnover Ratio

4. Capital structured or Leverage Ratio.

5. Others Ratios.

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7. Chapter Plan s
i) Chapter one - Introduction:
It deals with the introductory part. It consists of background of study, banking scenario in Nepal,
profile of the organization, statement of the problem, objective of the study, review of literature,
methods of data collection, limitations of the study and definition of terms.
ii) Chapter two – Result and Analysis:
Chapter two deals with data presentation and analysis of result and findings. It exhibits
systematic presentation of data collected and analysis of result and findings of project work.
iii) Chapter three - Discussion and Conclusion:
Chapter three, last chapter of the study focuses on evaluating and interpreting the results
obtained. Further, it also deals with present implication of results obtained and conclusion drawn
useful for future studies.

8. Limitation of the study

This study is simply conducted for the partial fulfillment of the requirement for the degree of the
bachelor in business studies (BBS). While preparing this project, many problems showed up. As we
know, there are positive and negative factors in everything. The limitations of this project report are
given below:

1. This project report is based on secondary sources of data which could not disclose actual result.

2. Data contains mostly of the annual reports of the bank from 2016 to 2020only.

3. Only annual data is used due to time and cost constraints.

4. The only aims to fulfill the partial requirement for the degree so bachelor in business studies so it
cannot cover all the dimension of all subject matter.

9. Tentative Time Frame

Junu Pandey
BBS 4th year
Lord Budha College
Biratnagar, Nepal