A STUDY ON FINANCIAL PERFORMANCE OF AGRICULTURAL

DEVELOPMENT BANK LIMITED

(ADBL), NEPAL

BY

KABITA KUMARI BIST

(Roll No.: 5517)
Submitted in partial fulfillment of the requirements for the degree of
Post Graduate Diploma in Cooperative Business Management

PGDCBM 55th BATCH

Under the Guidance of

Anshu Singh
(Assistant Professor, Centre for Gender Studies, VAMNICOM, Pune)

MARCH, 2022

CENTRE FOR COOPERATIVE MANAGEMENT

VAIKUNTH MEHTA
NATIONAL INSTITUTE OF COOPERATIVE MANAGEMENT
(A Grant-in-aid Institution under Department of Agriculture, Cooperation & Farmers
Welfare, Ministry of Agriculture & Farmers Welfare, Government of India)
PUNE - 07, MAHARASTRA, INDIA
 ACKNOWLEDGEMENT

This entitled dissertation report “A STUDY ON FINANCIAL PERFORMANCE OF

AGRICULTURE DEVELOPMENT BANK LIMITED (ADBL), NEPAL” has been
submitted in partial fulfillment of the requirements for the degree of Post Graduate Diploma
in Cooperative Business Management (PGDCBM) under the guidance of Assistant Professor
Anshu Singh, is based on research models involving the use of financial ratios in banking
sectors.
I have been fortunate enough to express my sincere gratitude to my respected teachers,
Associate Professor Shri S.Y. Deshpande (Head, Centre for Cooperative Management),
Assistant Professor. Anshu Singh (supervisor of project work), and Dr. Hema Yadav
(Director) of Vaikunth Mehta National Institute of Cooperative Management (VAMNICOM),
for all their support, insights and valuable guidance, without which this research would not
have been possible. I am very grateful to them. I will never forget their words of enthusiastic
encouragement which stimulated me to continue with my work during the course of studies. I
have been extremely fortunate to have such a best faculty during my PGDCBM program.

I would like to express my special thanks to the respected CEO and Human Resource
Department of our renowned bank Agricultural Development Bank Limited Nepal for given
me such a big opportunity to become the part of PGDCBM 55th Batch conducted by one of
the best governmental institute of India, VAMNICOM.

Similarly, I would like to express my heartfelt gratitude to my parents, all the family
members, friends, colleagues, well-wishers as well as manager and all the staff of ADBL
Campus Road Branch for their encouragement and support during the entire period of my
study. Most importantly, I would like to special thanks to my husband Jeetendra Regmi for
supporting me in every step of my dissertation work.

With Sincere Thanks,

Kabita Kumari Bist
(5517)

ii
 EXECUTIVE SUMMARY

Title: A STUDY ON FINANCIAL PERFORMANCE OF AGRICULTURE DEVELOPMENT

BANK LIMITED (ADBL), NEPAL.

Faculty Guide: Assistant Professor Anshu Singh

Participant‟s Name: Kabita Kumari Bist (5517)

The entitled dissertation report is based on research models involving the use of financial
ratios in banking sectors. This study has conducted with a view to examine and evaluate the
performance of ADBL, which is working as one of the leading commercial bank of the
country. Performance evaluation of ADBL is done on the basis of financial statement from
2016/17 to 2020/21. The main objective of the study is to evaluate the performance of ADBL
Nepal on the basis of financial ratios i.e. profitability indicators, stock market indicators,
productivity indicators, financial stability indicators and assets quality. To approach the result,
some financial and statistical tools have been used. As financial tools, ratio analysis has been
used particularly. In the same way, statistical tool, coefficient of correlation analysis between
selected research variable have been used to accomplish the objectives. This study is mainly
based on the secondary data that have been first processed and analyzed. There is strong
positive correlation between all relationships due to the value of r is nearer to 1. Since
calculated value of t is greater than tabulated values there is significant relationship between
selected variables. EPS is satisfactory due to the increase ratio is higher than decreasing ratio.
The NPA’s has been decreasing; it indicates the better performance. Conclusions are made
according to the obtained data from analysis. It is conclude that there is need to bring in newer
schemes to mobilize their deposits in extending credit and investment. ADBL should improve
its weaknesses by adopting the innovative approach to marketing. The profitability /earnings
indicators, capital market indicators and productivity indicators have been increasing during
the study period and there are strong positive correlations between selected six variables, it
can be recommended to increase in Investment in total assets, equity capital, deposits, loans
and advances.

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 TABLE OF CONTENTS

CHAPTER TOPIC PAGE NO.

Acknowledgements ii
Executive Summary iii
Table of Contents iv
List of Tables vii
List of Figures ix
Abbreviation x

CHAPTER - I INTRODUCTION
1.1 Background of Study 1
1.2 Focus of the Study 3
1.2.1 Brief profile of ADBL Bank 3
1.3 Statement of Problem 7
1.4 Objectives of the Study 7
1.5 Need and Significance of the Study 8
1.6 Limitation of the Study 8
1.7 Scope of the Study 9
1.8 Proposed Action Plan 9
1.9 Probable Outcome of the Study 9
1.10 Theoretical Framework 10
1.11 Problem Hypothesis 10
1.12 Organization of the Study 11

CHAPTER – II LITERATURE REVIEW

2.1 Conceptual Framework 13
2.1.1 Concept of Bank 14

iv
 2.1.2 Development of Banking System in Nepal 15
2.1.3 Classification of Banks in Nepal 16
2.1.4 Major Nepalese Banking Law 17
2.1.5 Concept of Commercial Bank 17
2.1.6 Function of commercial Bank 18
2.2. Review of Research 20
2.2.1 Research Gap 22

CHAPTER-III RESEARCH METHODOLOGY 24

3.1 Research Design 24
3.2 Population and sampling Design 24
3.3 Data Collection Procedure 25
3.4 Data Analysis Tools 25
3.4.1 Financial Tools 25

3.4.1.1 Ratio Analysis 25

3.4.1.1.1 Profitability Indicators 27

3.4.1.1.1.1 Average Net Profit per Branch 27

3.4.1.1.1.2 Return on Assets (ROA) Ratio 27

3.4.1.1.1.3 Return on Net Worth or Return on Equity (ROE) 27

3.4.1.1.1.4 Net Profit to Total Deposits Ratio 28

3.4.1.1.1.5 Return on Loans and Advances Ratio (ROL) 28

3.4.1.1.1.6 Interest Income Ratio 28

3.4.1.1.1.7 Interest Expenses Ratio 38

3.4.1.1.1.8 Net Interest Margin Ratio 29

3.4.1.1.1.9 Intermediation Cost to Asset Ratio 29

3.4.1.1.1.10 Net Profit Margin (NPM) 29

3.4.1.1.2 Capital market Indicators 29

3.4.1.1.2.1 Earnings per Share (EPS) 29

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 3.4.1.1.2.2 Price/Earnings ratio (P/E Ratio) 30

3.4.1.1.3 Productivity Indicators 30

3.4.1.1.3.1 Profit per Employee 30

3.4.1.1.3.2 Business per Employee 30

3.4.1.1.4 Financial Stability Indicator 30

3.4.1.1.5 Quality of Assets Indicators 31

3.4.2 Statistical Tools 31

3.4.2.1 Karl Pearson’s Correlation Coefficient Analysis 31

3.4.2.2 Test of Hypothesis 33

CHAPTER-IV PRESENTATION AND ANALYSIS OF DATA 34

4.1 Ratio Analyses 34

4.1.1 Analyses of Average Net Profit per Branch 35

4.1.2 Analyses of Return on Assets (ROA) Ratio 36

4.1.3 Analyses of Return on Net Worth or Return on Equity (ROE) 37

4.1.4 Analyses of Net Profit to Total Deposits Ratio 38

4.1.5 Analyses of Return on Loans and Advances Ratio (ROL) 39

4.1.6 Analyses of Interest Income 40

4.1.7 Analyses of Interest Expenses Ratio 41

4.1.8 Analyses of Net Interest Margin Ratio 42

4.1.9 Analyses of Intermediation Cost to Asset Ratio 43

4.1.10 Analyses of Net Profit Margin Ratio 44

4.1.11 Analyses of Earnings per Share (EPS) 45

4.1.12 Analyses of Price/Earnings ratio (P/E Ratio) 46

4.1.13 Analysis of Average Net Profit per Employee 47

4.1.14 Analysis of Capital Adequacy Ratio 48

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 4.1.15 Analysis of Non-performing Assets NPAS Ratio 49

4.1.16 Analyses of Loan & Advances to Total Deposit Ratio (LDR) 50

4.1.17 Analyses of Interest Income to Total Loan & Advances Ratio 51

4.2 Statistical Tools 52

4.2.1 Karl Pearson’s Correlation Coefficient Analysis 52

4.2.1.1 Correlation Coefficient between NP and Number of Employee 52

4.2.1.2 Correlation Coefficient between NP and Number of Branches 53

4.2.1.3 Correlation Coefficient between Net Profit and Total Assets 53

4.2.1.4 Correlation Coefficient between Net Profit and Net worth 54

4.2.1.5 Correlation Coefficient between Net Profit and Deposits 55

4.2.1.6 Correlation Coefficient between NP and Loans and Advances 55

4.2.2.1 Hypothesis between Net Profit and Number of Employees 56

4.2.2.2 Hypothesis between Net Profit and Number of Branches 57

4.2.2.3 Hypothesis between Net Profit and Total Assets 58

4.2.2.4 Hypothesis between Net Profit and Net Worth 59

4.2.2.5 Hypothesis between Net Profit and Deposits 60

4.2.2.6 Hypothesis between Net Profit and Loans and Advances 60

CHAPTER – V SUMMARY, FINDINGS, CONCLUSION AND

RECOMMENDATIONS 62

5.1 Summary 62

5.2 A brief Summary about major findings of the study 63

5.3 Conclusion 68

5.4 Recommendation 69

REFERENCES 71

APPENDICES 73

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 LIST OF TABLES

Table Title Page No

No.
4.1 Analyses of Average Net Profit per Branch 35
4.2 Analyses of Return on Assets (ROA) 36
4.3 Analyses of Return on Equity(ROE) 37
4.4 Analyses of Net Profit to Total Deposits Ratio 38
4.5 Analyses of Return on Loans and Advances Ratio (ROL) 39
4.6 Analyses of Interest Income to Total Assets Ratio 40
4.7 Analyses of Interest Expenses Ratio (%) 41
4.8 Analyses of Net Interest Margin Ratio to Total Assets (%) 42
4.9 Analyses of Intermediation Cost (Operating Expenses) Ratio (%) 43
4.10 44
Analyses of Net Profit Margin Ratio(%)
4.11 Analyses of Earning per Share (EPS) 45
4.12 Analyses of Price/Earnings ratio (P/E Ratio) 46
4.13 Analyses of Average Net Profit per Employee 47
4.14 Analyses of Capital Adequacy Ratio 48
4.15 Analyses of Non-Performing Assets (NPA’s) Ratio 49
4.16 Analyses of Loan & Advances to Total Deposit Ratio (LDR) % 50
4.17 Analyses of Interest Income to Total Loan & Advances Ratio (%) 51
4.18 Calculation of Correlation coefficient( r) between Net Profit Rs. In 52
million (X) and Number of Employees(Y) of ADBL, Nepal
4.19 53
Calculation of correlation coefficient( r) between net profit Rs. In
million (X) and number of branches(Y) of ADBL, Nepal
4.20 53
Calculation of correlation coefficientI between net profit in million
(X) and total assets in million(Y) of ADBL, Nepal

4.21 Calculation of correlation coefficientI between net profit in million 54

(X) and book net worth in million(Y) of ADBL, Nepal
4.22 55
Calculation of correlation coefficient( r) between net profit in million
(X) deposits in million(Y) of ADBL, Nepal
4.23 55
Calculation of correlation coefficientI between net profit in million
(X) and loans and advances in million(Y) of ADBL, Nepal

viii
 LIST OF FIGURES

Figure Title Page No

No
4.1 Average Net Profit per Branch 35

4.2 Return on Assets (ROA) 36

4.3 Return on Equity(ROE) 37
4.4 Net Profit to Total Deposits Ratio 38

4.5 Return on Loans and Advances Ratio (ROL) 39

4.6 Interest Income to Total Assets Ratio 40

4.7 Interest Expenses Ratio 41

4.8 Net Interest Margin Ratio to Total Assets 42
4.9 Intermediation Cost (Operating Expenses) Ratio 43
4.10 44
Net Profit Margin Ratio
4.11 Earnings per Share (EPS) 45
4.12 Price/Earnings ratio (P/E Ratio) 46
4.13 Average Net Profit per Employee 47
4.14 Capital Adequacy Ratio (CAR) 48
4.15 Non-Performing Assets Ratio (NPA’s) 49
4.16 Loan & Advances to Total Deposit Ratio (LDR) 50
4.17 Interest Income to Total Loan & Advances Ratio 51

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 ABBREVIATIONS

ADBL = Agricultural Development Bank Limited

BAFIA = Bank and Financial Institution Act

EBL = Everest Bank Limited

FRA = Financial Ratios Analysis

IMF = International Moetary Fund

LDR = Loan to Deposit Ratio

MPS = Market Price of Share

NBBL = Nepal Bangladesh Bank Limited

NEPSE = Nepal Stock Exchange

NP = Net Profit

NPA’s = Non – Performing Assets

NPM = Net Profit Margin

NRB = Nepal Rastra Bank ( Central Bank of Nepal )

NSBIL = Nepal State Bank of India Limited

PGDCBM = Post Graduate Diploma in Cooperative Business Management

P/E = Price/Earning

ROA = Return on Assets

ROE = Return on Equity

ROL = Return on Loans

SFCL = Small Farmers Cooperative Limited

SFDP = Small Farmers Development Program

SWIFT = Society for Worldwide Interbank Financial Telecommunication

T.U. = Tribhuvan University

VAMNICOM = Vaikunth Mehta National Institute of Cooperative Management

x
xi
 CHAPTER – I

INTRODUCTION

1.1 Background of Study

A bank is a financial institution licensed to receive deposits from the public and creates
credit. It also acts as a render of financial services, such as wealth management, currency
exchange, safe deposit boxes, etc. According to Hals bury, “A Banker is an individual,
partnership or corporation whose sole pre-dominant business is banking, that is the receipt of
money on current or deposit account, and the payment of cheque drawn and the collection of
cheque paid in by a customer.’’
The banking sector is the lifeline of any modern economy. It is one of the important financial
pillars of the financial system which plays a vital role in the success / fail of an economy. The
banking system is fuel injection system which spurs economic growth by mobilizing savings
and allocating them to high return investment. It reflects the economic health of the country.
The strength of the economy of any country basically hinges on the strength and efficiency of
the financial system, which, in turn, depends on a sound and solvent banking system. A
sound banking system efficiently deploys mobilized savings in productive section and a
solvent banking system ensures that the bank is capable of meeting its obligation to the
depositors. The efficiency and competitiveness of banking system defines the strength of any
economy.

Banking system in Nepal also plays a vital role in the process of economic growth and
development of a country. Currently there are 27 commercial bank in Nepal which are
operating under the commercial bank Act regulated by Nepal Rastra Bank (NRB) – A Central
Bank of Nepal. In case of the history of bank in Nepal, an institutional banking system came
in to existence only in the 19th century. Nepal Bank Limited was the first financial
institutional of Nepal established on the 15th November, 1937 A.D. Being a commercial bank,
it focuses on income generating and profit maximization. As it was only one commercial
bank has to look the economic condition of the country. Only one Nepal bank Limited was
not sufficient to look all the sector of country. So, in 1956 A.D another bank names “Nepal
Rastra Bank” was established as the central bank of Nepal to regulate and control banking
management system of country. Then in 1966 A.D. “Rastriya Banijya Bank” was established
under Rastrya Banijya Bank Act 1965. This act is now revised as commercial bank Act 1975
A.D. For the development of industry, commerce and trade, Nepal Industrial Development
Corporation was established under Industrial Development Corporation Act 1960. For the
development of agricultural sector, Agricultural Development Bank was established on 21st
January,1968 A.D., under Agricultural Bank Act 1968.

Nowadays the function of bank is not limited to within the same geographical limit of any
country. It is an important source of financing for most businesses. Also, bank is a financial
institution that require fund to carry out business. Fund may generate from deposit and non-
deposit such as capital, etc. Bank need to find best way to manage resources and assess its
activities and decisions of consumption of resources. Simply stated much of the current bank
performance literature describes the objective of financial organizations as that of earning
acceptable returns and minimizing the risks taken to earn return.

Generally financial performance of bank can be measured by using financial ratio analysis. In
simple accounting terms, performance to banks refers to the capacity in generating
sustainable profitability. Banks need a way to evaluate performance and consider some
important financial ratios and find the strengths and weaknesses. Financial ratio analysis is
structural and logical way to present overall financial performance of a financial institution.
It’s also help to evaluate and decision making for business operation. In financial analysis
process ratio analysis is the most dominant and logical structure to help business related
stakeholder. Under the financial ratio analysis process there are few categories to identical
area of financial institution. So business stakeholders try to concentrate to get overall
business overview from profitability, liquidity, assets management and solvency ratio
analysis. These ratios not only help to decision making process also emphasized on risk
avoiding and profit raising related factors. To calculate this ratio need to take quantitative
data from bank trading activity and other sources.

Investopedia describe about ratio analysis as Quantitative analysis of information contained

in a company’s financial statements. Ratio analysis is based on line items in financial
statements like the balance sheet, income statement and cash flow statement; the ratios of one
item – or a combination of items – to another item or combination are then calculated. Ratio
analysis is used to evaluate various aspects of a company’s operating and financial

2
performance such as its efficiency, liquidity, profitability and solvency. The trend of these
ratios over time is studied to check whether they are improving or deteriorating. Ratios are
also compared across different companies in the same sector to see how they stack up, and to
get an idea of comparative valuations. Ratio analysis is a cornerstone of fundamental
analysis. This study evaluates bank performance for the period 2016/17 to 2020/21 by using
financial ratio analysis (FRA) method. Financial ratio analysis has wide range advantage to
show the bank financial position compare to past year performance. To analyses the ratio, I
have taken data from Annual Report of ADBL. That’s help me to understand the financial
position of bank and purpose of the study.

1.2 Focus of the study

Commercial banks play an important role in economic development of the country by

mobilizing community saving and diverting them into productive sectors. The study,
Performance evaluation covers an analysis of performance of ADBL, Nepal which is
believed to be one of the leading commercial banks of the country. Financial ratio analysis is
widely used tool of financial analysis and its performance. The research report is mainly
focused on ratio analysis, growth and correlation analysis of selected variables of ADBL,
Nepal.

1.2.1 Brief Profile of Agriculture Development Bank Limited (ADBL),

Nepal

Agricultural Development Bank Limited

Industry Commercial Bank – Public Sector

Incorporation Year 21st January, 1968 A. D
Chairman Mr. Ramesh Kumar K.C.
Chief Executive Officer(CEO) Mr. Anil Kumar Upadhyay
Auditor Joshi & Bhandary/ K.A.S. Associates
Registered Office Ram Shah Path, Kathmandu
Telephone 01-4252359, 01-4262620
Fax 01-4262929
E-mail info@adbl.com.np

3
 Website http://www.adbl.gov.np
Offices and Branches 278
SWIFT ADBLNPKA
Financial Institution Category “A class financial institution” licensed by Nepal
Rastra Bank from 2006.
Face Value (Rs.) 100
Listing Nepal Stock Exchange Ltd. (NSE)
Listing & Trading start Date 24th August, 2010 A.D
NSE Code ADBL
Total listed Shares 131,879,152 Units
Authorized Capital 21 billion NPR
Total Paid up Value Rs. 13,187,915,200
Right Share 19688000 units on 26th November, 2016
Last AGM Date 13rd January,2022
Registrar‟s Name & Address NIBL Ace Capital Limited
Slogan “The bank with complete banking solution at
your own door step” ( Sampurna Banking
Suvidha sahitko Tapai Hamro Ghar Aanganko
Bank )

With the main objective of providing institutional credit for enhancing the production and
productivity of the agricultural sector in the country, the Agricultural Development Bank viz.
“KRISHI VIKAS BANK LIMITED”, Nepal was established in 1968 under the ADBN Act
1967, as successor to the cooperative Bank. The Land Reform Savings Corporation was
merged with ADBN in 1973. Subsequent amendments to the Act empowered the bank to
extend credit to small farmers under group liability and expand the scope of financing to
promote cottage industries. The amendments also permitted the bank to engage in
commercial banking activities for the mobilization of domestic resources.

Agricultural Development Bank Limited (ADBL) is an autonomous organization largely

owned by Government of Nepal. The bank has 51% share of Government of Nepal and 49%
of general public. Most of its shareholders are customers and employees. The bank has been
working as a premier rural credit institution since its establishment, contributing a more than

4
67% of institutional credit supply in the country. Hence, rural finance is the principal
operational area of ADBL. Besides it has also been executing Small Farmers Development
Program (SFDP) was initiated for financing small formers on group liabilities in order to
boost up the socio-economic condition of rural populace. In 1984, the amendment of the Act
also permitted ADBL to extend its wing in commercial banking activities so as to mobilize
urban resources in the rural areas of the country. In 1993, ADBL initiated farmers‟ co-
operative approach by transferring SFDP into the Small Farmers Cooperative Limited
(SFCL).

The enactment of Bank and Financial Institution Act (BAFIA) abolished all Acts related to
financial institutions including the ADBN Act, 1967. Since then, the bank has been working
as a public limited company registered under the Companies Act, 2006 and is licensed as “A
class financial institution” by Nepal Rastra Bank from 2006. ADBL is a sole financial
institution in the country maintaining its activities by three major windows namely
Development financing, Commercial Banking and Small farmers development. Through
these 17 sectors, it is contributing more than 79% of institutional credit to the real populace
by strengthening its network in the entire geographical region i.e. the mountains, the Hills
and the Terai region.

It is spread all over the 7 provinces & 77 districts of the nation with its 278 offices. While
providing comprehensive services with complete banking solution, the bank has main motto
of promoting rural agriculture, productive and deprived sectors. The bank is committed to
provide best banking services through its widespread network and help the government from
its part, to achieve the aim of: “Prosperous Nepal, Happy Nepali”
ADBL operates as an autonomous body that has been controlled by the Ministry of finance. It
has total 21 billion rupees of an authorized capital, out of which 16.42 billion rupees is paid-
up Capital.

Vision: To be a Mass-based Complete Bank serving from Urban to Rural.

Mission: To deliver comprehensive banking solution strengthening its extensive network.

5
Objective

 To provide quality banking services

 To adopt market driven strategy
 To obtain sustained and competitive return on investment

Main function of ADBL

The Major functions of the ADBL are to:

 Provide a full and balanced range of financial products and services that satieties the
needs of the customers on a profitable and sustainable basis.
 Strive constituting to provide improved products and services to its clients at
reasonable cost using modern unified banking communication and information
technology.
 Execute full-fledged commercial banking functions using the concept of unified
banking operation.
 Provide short, medium and long term agricultural credit to individual farmers, small
farmers groups and co-operative societies.
 Provide project loan for agricultural business, cottage and small scale industries,
alternative energy based on feasibility study.
 Provide credit on non- agricultural business and other marketing facilities.
 Develop mutually acceptable relationship with government in the pursuit of
improvement in living standards in rural areas while respecting best financial
practices.
 Provide credit to support the poverty alleviation program of Government of Nepal.
 Develop competent and professional human resources.

On the way of executing its main function in the financial market, the bank gives its priority
on building reputation for professionalism, competitive pricing reliability and quality service
and innovation. In addition, the bank fosters its operation in accordance with the best banking
practices acting with financial prudence and keeping in mind the need to balance profitability
with asset presentation and liquidity and to safeguard depositions funds.

6
1.3 Statement of Problem

The health of the financial position of ADBL is crucial to achieving its corporate mission and
vision. The development bank have played important role in the economic growth of the
country and has been facing competition against one another. Government looking at
economic liberation has further intensified the competition which has unlimited affected the
profitability of the bank concentrates their activities in rural areas. In Nepal about 79% of
population lives in the rural areas and about 66% population depends on agriculture. It is
difficult to solve the credit problems of the country through commercial banks which are
reluctant to enter rural and agricultural area. To overcome these challenges Agricultural
Development Bank has started various problems with various wings of the Agricultural
Development Bank with opening branches in rural areas. Small framers who are involving in
agro sector are benefited by the small framers development program (SFDP) Large scale
farming facilities from the development sector of the Agricultural Development Banks Ltd,
Nepal and urban people facility by the commercials banking sector of ADBL. Although
government banks are considered as poor people’s favor, but how far are they favoring? This
question does emerge in banking sector. The problem of the study on the issue related to the
strength and weakness of ADBL, Nepal researchers are strived to find out the answer of the
following questions:

 What is the position of ADBL, Nepal in terms of profitability, productivity, stock

market indicators, financial stability and Assets quality?
 What is the relationship between selected variables? (where selected variables are:
net profit & no. of employee, NP & no. of branch, NP & total assets, NP & net worth
(equity), NP & deposit and NP & loan & advances)?

1.4 Objective of the study

The specific objectives of the study are as follows:

1. To evaluate the performance of ADBL, Nepal on the basis of financial ratios i.e.
profitability indicators, stock market indicators, productivity indicators, financial
stability indicators and assets quality.
2. To examine the relationship between selected variables.
3. To make necessary suggestions and recommendations.

7
1.5 Need and Significance of the study

This study focuses on the financial performance (i.e., profitability) and efficiency of the
management of the Agriculture Development Bank Limited. The study covers the period of 5
years i.e., from 2016/17 to 2020/21. The study would provide management with the true state
of financial performance of the bank and also make projections into the future with the view
to ensure improved performance. The ADBL is mandated by Government of Nepal to
provide financial services to the rural population to stimulate income and generate
employment in remote areas. This study will find the strengths and weaknesses of the Bank
by analyzing the opportunities and threats in its overall conduct in the real ground. This study
also be an important support to the management owner clients, steak holders and other
interest groups in analyzing the Bank’s economic strength and performance efficiency. As it
is a well-known fact that the Development Banks can affect the economic condition of the
whole country .It will be helpful to the policy makers while formulating the policy regarding
ADBL and people can understand how benefit is taking by them from the semi-government
banks. The study is basically confined to review the financial performance and investment
policies of the banks during the five years period. This study is expected to provide a useful
feedback to the policy maker of banks and also to the government and central bank to
formulate the appropriate strategies for improvement in the performance of banks.
Furthermore, it gives insight about the current situations and performance of banks to the
regulatory body, shareholders, investors and managers. Besides, it will be used as a reference
to researchers that want further investigation into the area of study.

1.6 Limitation of the study

Due to constraints of time and resources, the study is likely to suffer from certain limitations.
Some of these are mentioned here under so that the findings of the study may be understood
in a proper perspective:

1. The study is based on the secondary data and the limitation of using secondary data
may affect the results.
2. The secondary data are taken from the annual reports of ADBL Bank. It may be
possible that the data shown in the annual reports may be window dressed which does
not show the actual position of the banks.

8
 3. Due to certain constraints of time, this study is based on selected financial ratios
which cover the performance of bank only for the period of five years i.e. Financial
Year 2016/17 to 2020/21.

1.7 Scope of the Study

The scope of a study explains the extent to which the research area will be explored in the
work and specifies the parameters within the study will be operating. Commercial banks play
an important role in economic development of the country by mobilizing community saving
and diverting them into productive sectors. The study, Performance evaluation covers an
analysis of performance of ADBL, Nepal which is believed to be one of the strong
commercial banks of the country. Financial ratio analysis is widely used tool of financial
analysis and its performance. The project report is mainly focused on ratio analysis, growth
and correlation analysis of selected variables of ADBL, Nepal.

1.8 Proposed Action Plan

The action plan defines specifically what needs to be done, by whom and by when, to ensure
that the strategies necessary to accomplish the goals are achieved. The health of the financial
position of ADBL is crucial to achieving its corporate objective, mission, vision and
organizational goal. The action plan of the study on the issue related to the strength and
weakness of ADBL, researchers will have strived to find out the answer of the following
questions:

1. What is the position of ADBL, Nepal in terms of profitability, productivity, stock

market indicators, financial stability and Assets quality?
2. What is the relationship between selected variables? (Where selected variables are:
net profit & no. of employee, NP & no. of branch, NP & total assets, NP & net worth
(equity), NP & deposit and NP & loan & advances)

1.9 Probable Outcome of the Study:

The study is basically confined to review the financial performance and investment policies
of the banks during the five years’ period. This study is expected to provide useful feedback
to the policy maker of banks and also to the government and central bank to formulate the
appropriate strategies for improvement in the performance of banks. Furthermore, it gives

9
insight about the current situations and performance of banks to the regulatory body,
shareholders, investors and managers. Besides, it will be used as a reference to researchers
that want further investigation into the area of study.

1.10 Theoretical Framework

The dependent variable that has been considered in this research study is Net Profit of the
ADBL. The variable which are supposed to be independent are number of Employees,
number of Branches, Deposits, Total Assets and Loans and Advance of ADBL. The
significance of the relationship is tested in the analytical chapter i.e., Chapter-IV. The
positive correlations are expected in all six relations. The higher the number of employees,
number of branches, totals assets, net worth, deposits and loans and advances, the higher the
chances of net profit and vice versa.

1.11 Problem Hypothesis

From the theoretical framework discussed earlier the following hypotheses have been
developed which have been thoroughly tested in the Chapter-iv.

Hypothesis 1:

The net profit and number of employees are correlated.

Hypothesis 2:

The net profit and number of branches are correlated.

Hypothesis 3:

The net profit and total assets are correlated.

Hypothesis 4:

The net profit and book net worth are correlated.

Hypothesis 5:

The net profit and deposits are correlated.

10
Hypothesis 6:

The net profit and loans and advances are correlated.

1.12 Organization of the study

This study has organized into the following five chapters:

Chapter – I: Introduction
This chapter includes background of the study, a brief profile of ADBL, statement of the
problems, objectives of the study, significance of the study and limitations of the study. It is
oriented for readers for reporting & giving them the perspective they need to understand the
detailed information about coming chapter.

Chapter – II: Review of Literature

This chapter includes conceptual framework and review of empirical works related to
financial performance analysis. For this purpose various books, journals and periodicals as
well as internet have been utilized. It also contains reviews of journals and articles, and
earlier research related to the subject.

Chapter – III: Research Methodology

Research methodology refers to the various sequential steps to be adopted by a researcher in
studying a problem with certain objectives in view in the research process. It describes about
the various source of data related with study and various tools and techniques employed for
presenting the data. It includes research design, population and sample, data collection
procedure and processing, tools and method of analysis.

Chapter – IV: Analysis and Interpretation of Data

This chapter is the core part of the study. In this chapter collected and processed data are
presented, analyzed and interpreted with using financial tools as well as statistical tools. It
includes major finding of study, presentation and analysis of data using financial tools such
as ratio analysis and statistical tools such as coefficient of correlation of different variables.

11
Chapter – V: Summary, Conclusion and Recommendations
This is the final chapter of the study which consists of the summary of the earlier four
chapters. In this chapter summary of whole study, conclusions and recommendations are
made. This chapter tries to fetch out a conclusion of the study and attempts to offer
recommendations for the bank under review.

References: It consists of list of published and unpublished books, articles, websites etc.
which have been the source of information and use of references.

Appendices: It consists of relevant material.

References and other Appendices used in statistical results have been incorporated at the end
of the study.

12
 CHAPTER – II

LITERATURE REVIEW

This chapter highlights about the relevant literature to make the base of knowledge for the
study. The scholars in respect of financial performance have expressed different visions.
Review of literature means to collect the information about the selected topic of the research
through the different sources. Review of literature helps till of the last step of the research
process. It gives knowledge about which type of process of adopted, which type of data are
collected, what are the difficulties arises in completing the research process, which type of
study had been made in the past on that topic. So, this character highlights the literature
related to the present study available from libraries, document collection centers, studying
encyclopedias, different magazines, journals, periodicals, research articles and information
managing bureaus. Besides these this unit highlights the literature that is available in
concerned subject as to my knowledge, review of reports related to concerned bank, review
of research works, review of books, review of articles and relevant study on this topic and
review of this research works performed previously. Review of literature comprises upon the
existing literature and research related to the present study with a view to find out what had
already been studied. According to Wolf & Pant “The purpose of the reviewing the literature
is to develop some expertise in One’s area, to see what new contribution can be made and to
review some idea for Developing research design”. This portion has been divided into two
parts: -

a. Conceptual Framework

b. Theoritical Review i.e., Review of Related Studies

2.1 Conceptual Framework

The modern financial evaluation has greatly affected the role and importance of financial
performance. Nowadays, finance is best characterized as ever changing with new ideas and
techniques. Only efficient manager of the company can achieve the set up goals. If a bank
does not maintain adequate equity capital, it makes the bank more risky. If a bank has
inadequate equity capital, it must be used more debt that has high fixed cost. So any firm
must have adequate equity capital in their capital structure. The main objectives of the bank

13
are to collect deposits as much as possible from the customers and to mobilize into the most
profitable sector. If a bank fails to utilize it’s collected resources than it cannot generate
revenue. Resource mobilization management of bank includes resource collection,
investment portfolio, loans and advances, working capital, fixed assets management etc. It
measures the extent to which bank is successful to utilize its resources. To measure the bank
performance in many aspects, we should analyze its financial indicator with the help of
financial statements. Financial analysis is the process of identifying the financial strength and
weakness of the concerned bank. It is the process of finding strength and weakness of the
concerned bank. It is the process of finding details accounting information given in the
financial statement. It is performed to determine the liquidity, solvency, efficiency and
profitability position of an organization. The function or the performance of finance can be
broken down into three major decisions i.e. the investment decision, the financing decision,
and the dividend decisions. An optional combination of the three decisions will maximize the
value of the firm.

12.1.6 Concept of Bank

Banks are among most important financial institution in the economy as essential in
thousands of local towns and cities. In this context, there is much confusion about exactly
what bank is. Certainly bank must be identified by the functions they perform in the
economy. Different views were shared against bank concepts. In general, bank means
financial institution that accepts deposits in different accounts and loan of different types. The
term bank was originated from Italian word “Banko” which means bench. The term bank was
first used in Italy. In reality, the history of modern banking had started from “Bank of
England” established in 1694. Different economists have given different definition of the
bank.

According to Sayers,” A bank is an institution whose debts (bank deposits) are widely
accepted the in settlement of their peoples, debts to each other.

According to Chandler,” A bank is an establishment which makes individuals such advances

of money as may be required and safely made to which individual money when not required
by them for use.”

In the opinion of Horace,” A bank is manufacture of credit and machine for facilitating
exchange.”

14
In the view of Crowther,” the bankers business is to take the debts of other people to offer his
own in exchange and thereby create money.”

Therefore summarizing the above, banks are those financial institutions that offer the widest
range of financial services, especially credit, savings and payments services and perform
widest range of financial functions of any business firm in the economy.

12.1.6 Development of Banking System in Nepal

Nepal’s first commercial bank, the Nepal Bank Limited, was established in 1937. The
government owned 51 percent of the shares in the bank and controlled its operations to a
large extent. Nepal Bank Limited was headquartered in Kathmandu and had branches in other
parts of the country. There were other government banking institutions. Rastriya Banijya
Bank (National Commercial Bank), a state-owned commercial bank, was established in 1966.
The Land Reform Savings Corporation was established in 1966 to deal with finances related
to land reforms. Here were two other specialized financial institutions. Nepal Industrial
Development Corporation, a state-owned development finance organization headquartered in
Kathmandu, was established in 1959 with United States assistance to offer financial and
technical assistance to private industry. Although the government invested in the corporation,
representatives from the private business sector also sat on the board of directors. The Co-
operative Bank, which became the Agricultural Development Bank in 1967, was the main
source of financing for small agribusinesses and cooperatives. Almost 75 percent of the bank
was state-owned; 21 percent was owned by the Nepal Rastra Bank, and 5 percent by
cooperatives and private individuals. The Agricultural Development Bank also served as the
government’s implementing agency for small farmers’ group development projects assisted
by the Asian Development Bank (see Glossary) and financed by the United Nations
Development Program. The Ministry of Finance reported in 1990 that the Agricultural
Development Bank, which is vested with the leading role in agricultural loan investment, had
granted loans to only 9 percent of the total number of farming families since 1965. Since the
1960s, both commercial and specialized banks have expanded. More businesses and
households had better access to the credit market although the credit market had not
expanded. In the mid-1980s, three foreign commercial banks opened branches in Nepal. The
Nepal Arab Bank was co-owned by the Emirates Bank International Limited (Dubai), the
Nepalese government, and the Nepalese public. The Nepal Indosuez Bank was jointly owned
by the French Banque Indosuez, Rastriya Banijya Bank, Rastriya Beema Sansthan (National

15
Insurance Corporation), and the Nepalese public. Nepal Grindlays Bank was coowned by a
British firm called Grindlays Bank, local financial interests, and the Nepalese public. Nepal
Rastra Bank was created in 1956 as the central bank. Its function was to supervise
commercial banks and to guide the basic monetary policy of the nation. Its major aims were
to regulate the issue of paper money; secure countrywide circulation of Nepalese currency
and achieve stability in its exchange rates; mobilize capital for economic development and
for trade and industry growth; develop the banking system in the country, thereby ensuring
the existence of banking facilities; and maintain the economic interests of the general public.
Nepal Rastra Bank also was to oversee foreign exchange rates and foreign exchange reserves.
There is a significant growth in the number of banks in Nepal in the last two decades. At the
beginning of the 1980s when the financial sector was not liberalized, there were only two
commercial banks. During 1980s, there were only few banks. After the liberalization in the
1990s, financial sector has made a progress both in term of the number of banks and financial
institutions and their branches. As on Mid July 2009, the number of commercial banks is 27
based on the applications for establishment of new banks as well as for the up gradation of
other financial institution, the number is likely to grow in the near future as well. Banking
system occupies an important role in the economic development of a country. A banking
institution is indispensable in a modern society. It plays a pivotal role in the economic
development of a country and focus the core of the money market in an advance country. The
pivotal function of the bank is to collect deposits as much as possible from customers and
mobilize it into the most preferable and profitable sector like industry, commerce, agriculture,
entertainment etc.

12.1.6 Classification of Banks in Nepal

According to the Banks and Financial Institutions Act (BAFIA) 2006, banks and financial
institutions in Nepal are classified as:

(i) Commercial Banks (Class A),

(ii) Development Banks (Class B),

(iii) Finance Companies (Class C),

(iv) Microfinance Development Banks (Class D),

(v) Savings and Credit Cooperatives, and

16
 (vi) Microfinance NGOs.

12.1.6 Major Nepalese Banking Laws

One useful way to see the potential influence exercised by regulatory authorities on the
banking industry is to review some of the major laws regarding banking business. In case of
Nepal, banking laws are formulated and implemented by the government of Nepal (Finance
ministry) and Nepal Rastra Bank. As the central bank of Nepal, Nepal Rastra Bank directs
and controls all other banks in the country. The major Nepalese banking laws are as follows:

 Nepal Rastra Bank Act ,2001

 Bank and Financial Form Act , 2006
 Company Act, 2006
 Bank and Financial Form Loan Recovery Act ,2001
12.1.6 Concept of Commercial Bank

Commercial Bank is an institution, which deals with money and credit .IT accepts deposits
from public, makes the funds available those who need them and helps in remittance of
money from one place to another. In fact, a modern commercial bank performs such a variety
of functions that it is difficult to give a precise and general definition of it. According to
American Institute of Banking,” Commercial Bank is the corporation which accepts demand
deposits subject to check ad makes short-term loans to business enterprises regardless of the
scope of its other sources.”

Commercial Bank Act,2031 B.S. of Nepal has defined commercial bank as,” An organization
which exchanges money, accepts deposits, grant loans and performs commercial banking
functions and which is not a bank meant for co-operative, agriculture, industries or for such
specific purpose.”

Banks are dealer in credit; they specialize in the exchange of money for credit and credit for
money. They receive deposits; current, fixed, savings, call and short, that can be withdrawn
by cheque. They borrow in order to lend. They trade in loan able capital; they borrow it from
the depositors and lend it to borrowers. They thus, coordinate the demand for and the supply
of floating funds; they form an integral of part of credit mechanism.

The role of commercial banks

17
Normally Commercial banks engaged in the following activities

 Accepting money in term deposit.

 Lending money by way of overdraft, installment loan or otherwise.
 Inward remittance through online services
 Processing of payments by way of telegraphic transfer, EFTPOS, internet
banking or other means.
 Issuing bank drafts and bank cheques,
 Providing documentary and standby letter of credit, guarantees, performance bonds,
securities underwriting commitments and other forms of off balance sheet exposures.
 Safekeeping of documents and other items in safe deposit boxes (lockers)
 Foreign currency trading

12.1.6 Functions of Commercial bank

Normally, commercial bank’s function can be categorized into two types: -

a. Primary function
b. Secondary function

Primary function

12. Acceptance of deposit: - An important function of commercial bank is to attract

deposit from the Public. Those people who want to keep their money safe deposit
their cash in the bank. Commercial bank accepts deposits from every class and takes
responsibility to repay the deposit in the same currency whenever they are demanded
by the depositors. Hence one of the primary functions of commercial bank is
acceptance of deposits.

ii. Lending: - Another function of commercial bank is to make loans an advance of deposit
received in various forms. Bank apply the accumulated public deposits to productive use by
way of loans and advance, overdraft and cash credit against approved security.

iii. Investment: - Now-a-days commercial banks are also involved in the investment
activities. Generally investment means long term and mid-term investments.

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Secondary Function

Secondary functions are two types: -

A. Agency Service: -

1. Collection and payments of Cheques

2. Standing Instruction

3. Acting as correspondence

4. Collecting of bills- electricity, gas, WASA, telephone etc.

5. Purchase & Sales of stocks/share-act as a banker to issue

B. Miscellaneous or General Services: -

1. Safe Custody

2. Lockers-Trustee

3. Remittance facilities –DD, TT, MT and PO

4. Advisory Services

5. Providing Credit Reports

6. Opening L/C

7. Demand ForEx/Travers Cheque only Authorized Dealer branches

8. Compete service in Foreign Trade

9. Other Services: Debit Card, Credit Card, On-Line banking SMS Banking

10. Creation of Credit: a multiplier effect, deposit creates credit and credit creates
deposits – derivative deposit. Beside these activities, commercial bank may perform
further tasks; all its activities are guided by its authority for the betterment of the
company or for society.

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2.2 Review of Research

Prior to this study, the several researchers have found various studies regarding financial
performance of commercial and joint venture banks. In this study, only relevant subject
maters are reviewed which are as follows:

Singh (2015), “Performance of Agricultural Development Bank: A Critical Appraisal”. He

has compared favorably on growth, asset quality and profitability of ADBL over the last few
years. Policy makers have made some notable changes in policy and regulation which help
strengthen the function of the ADBL. These changes include changing legal status from the
special charter to the commercial bank. The bank attained notable growth in loans and
advances and operating income during the period. The increment in loans and advances is
attributed to the implementation of bank’s policy on achieving business growth. Reserve and
surplus has increased due to the profit contributed mainly by income from loans and treasury
transactions. Liquidity was satisfactory during the period.

Jha S. and Hui X. (2012). “A comparison of financial performance of commercial banks: A

case study of Nepal. The objective of this study was to compare the financial performance of
different ownership structured commercial banks in Nepal based on their financial
characteristics and identify the determinants of performance exposed by the financial ratios.
Eighteen commercial banks for the period 2005 to 2010 were financially analyzed. In
addition, econometric model (multivariate regression analysis) by formulating two regression
models was used to estimate the impact of capital adequacy ratio, non-performing loan ratio,
interest expenses to total loan, net interest margin ratio and credit to deposit ratio on the
financial profitability namely return on assets and return on equity of these banks. The results
show that public sector banks are significantly less efficient than their counterpart are;
however domestic private banks are equally efficient to foreign-owned (joint-venture) banks.
Furthermore, the estimation results reveal that return on assets was significantly influenced
by capital adequacy ratio, interest expenses to total loan and net interest margin, while capital
adequacy ratio had considerable effect on return on equity.

Shakya (2010), “Financial Performance Of Nepal SBI Bank Limited And Everest Bank
Limited.” analyzed different ratio of NSBIL and EBL for the period of five years till fiscal
year 2008. Here, in some cases the liquidity position of EBL is slightly stronger where as in
some cases the ratio of NSBIL is higher. It concludes that liquidity position of these two

20
banks is sound. NSBIL has better utilization of resource in income generating activity than
EBL. They are on decreasing trends while interest earned to total assets and return or net
worth ratio of EBL is better than NSBIL. It seems overall profitability position of EBL is
better than NSBIL and both banks are highly leveraged.”

Adhikari (2008), “A Study Of Financial Performance Of NSBIL and EBL" conclude that ”BL
is found superior regarding the liquidity, quality assets they possessed and capital adequacy
overall capital structure of NSBIL appears more levered than that on EBL. But NSBIL is
found superior in terms of profitability and turnover comparatively interest remained more
dominant in the total income and expenses of NSBI than that of EBL. Regarding the test of
hypothesis is (at 5% level of significance) the performance of the sampled banks significantly
different with respect to the ratios, loans and advances to saving deposits. Loan loss provision
to total deposit interest earned to total assets and tax per share correlation analysis signifies
that EBL is successful to utilize its resources more efficiently than NSBIL. (Adhikari, 2001,
p.28) The review of the above mention bunch of research writes have definitely enriched my
vision to elaborate analysis to come to the meaningful conclusion in realistic term and
thereby come with some conclusion, few key suggestions that help in improvement of
commercial banks. Previous researches on the basis of financial performance of commercial
banks in Nepal. But this research is about joint venture bank of Nepal with sample of Nepal
SBI Bank Limited and Everest Bank Limited. This research is about the financial
performance of selected two banks. In the previous research, there is no clearcut financial
performance of joint venture banks. The research can help the people who wanted to know
about the overall financial performance of joint venture bank in Nepal. There are two-
selected bank to find out the comparative financial position of selected bank. Therefore, this
topic may not new but the researches efforts may be appreciable.

Suryan and Veluraj (2005), “Profitability Analysis of the Pondicherry State Co-operative
Bank”, analyzed the performance of the bank from 1998-99 to 2002-03. Various ratios, such
as cost of management (total expenses) to working capital ratio, profit to working capital
ratio, non-interest income to total income ratio, etc. were used to assess the general
performance of the bank. Spread and burden positions of the bank were also analyzed. They
concluded that the profitability performance of the bank was impressive and the bank was
able to meet its obligations and norms. The cost of management and establishment expenses
got reduced during the period of study which further strengthened the profitability position of
the bank.

21
Regmi (2001), “A study of the financial performance of HBL and NBBL”, has suggested
NBBL is increase its current assets because the bank is not maintaining adequate liquidity
position in comparison with HBL. As capital structure of both the banks is highly levered,
both the banks are recommended to maintain and improve mix at debt. And owners’ quality
by increasing equity share. He further suggests to HBL to improve the efficiency in utilizing
deposits in loan and advances for generating the profit, NBBL should try to maintain present
position on their regards. Profitability position of HBL is comparatively better than the same
of NBBL. So, NBBL is recommended to utilize its resources held idle, bank faces high cost
and causes the low profit margin. An idle dividend payout ratio is based upon shareholders
exceptional and the growth requirements of the banks. NBBL is suggested to increase its
dividend payout ratio. Depositors aware of such fact and think before depositing money in
any commercial banks.

Pathania and Singh (1998), “A Study of Performance of HP State Co-operative Bank”

observed that the performance of the Himachal Pradesh State Co-operative Bank Ltd. in terms
of membership drive, share capital, deposit mobilization, working capital and advances has
improved over the period of five years, i.e., 1991-92 to 1995-96. However, recovery
performance was unsatisfactory and over-dues had increased sharply. This was due to the after
effects of loan waiver scheme. The analysis of per member and per branch performance of the
bank revealed that there is a significant growth in share capital, deposits, borrowings,
advances and profits. They suggested that in the context of globalization and liberalization of
economy, cooperative banks should ensure their business on healthy lines by having
professional manpower, training and a sense of competition.

Amatya (1993), “An Appraisal of financial Position of Nepal Bank Limited, has indicated
the liquidity position satisfactory maintained and the bank has been found to adopt
conservative financing policy that is low portion of equity capital has been resorted to finance
total assets. The bank has successfully performed beyond the break-even point over the study
period the research recommends the use of proportionately more equity capital.

2.2.1 Research Gap

The review of above relevant literature has contributed to enhance the fundamental
understanding and knowledge, which is required to make this study meaningful and
purposeful. There are various researchers conduct on financial performance, profitability

22
analysis and liquidity mobilization of various commercial banks. In order to perform those
analysis researchers have used various ratio analysis. in the past research topic on financial
performance the researcher has focused on the limit ratios which are incapable of solving the
problems. In this research various ratio are systematically analyzed and generalized.
Researchers are properly analyzed about investment aspect and mobilization of fund and its
impact on the profitability.

23
 CHAPTER - III

RESEARCH M–THODOLOGY

Research Methodology is a systemic way to solve the research problem. Previous chapters
have provided the conceptual, inputs and basis of this study. Research methodology describes
the methods and process applied in the entire study. It also refers to the various steps to be
adopted by the researcher in studying the problem with certain object in view. It is also the
set of various instrumental approaches used in achieving predetermined objectives.

It can be understood as a science of studying how research has been done. This chapter
contains the research design, nature and sources of data, data collection procedure and tools
and techniques of analyses. It counts on the resource and techniques available and to the
extent of their reliability and validity in the research. The research methodology adopted in
the chapter follows some limited but crucial aimed to achieve the objectives of the research.
This study is descriptive cum analytical and the research is more quantitative and less
descriptive. Moreover, various aspects relating to financial performance are applied by using
financial ratios as well as statistical tools.

3.1 Research Design

Research design indicates a plan of action to be carried out in connection with proposed
research work. This research attempts to analyze the performance evaluation ADBL bank
Nepal. The research design is basically focused on analytical study Ratio analyses,
correlation analyses and testing of hypothesis have been done for analyzing the research.

3.2 Population and Sampling Design

There are Twenty-seven Commercial banks which are currently operating in Nepal. All the
commercial banks that are operating in Nepal are considered as the population. It is not
possible the study all the data related with all the banks so, Agriculture Development Bank
Limited ADBL has been selected for the present study.

24
3.3 Data Collection Procedure

The data which are originally collected by an investigator or an agent for the first time for the
purpose of statistically enquiry are known as primary data. These data are collected
personally through questionnaire, observation and interviewing method. The data which are
originally collected but obtained from some published or unpublished sources are secondary
data. These data are not original in character.

The data and information were collected from secondary sources. Secondary data include the
annual reports published by the ADBL, Banking and Financial Statistics and annual reports
published by Nepal Rastra Bank, internet web sites, unpublished research, journals, books
etc. Such data information have been processed through various processes like editing,
tabulating, calculating and result have been interpreted in the form of ratios, percentages and
figures for clear view.

3.4 Data Analysis Tools

Before analyzing the data, the data and information have been presented systematically in the
formats of Tables, Graphs and Charts which will explain a lot about the data and information
collected. For the analysis of the research study, the following financial and statistical tools
are used.

3.4.1 Financial Tools

Financial tools are instruments that help to analyze and interpret the financial performance of
an organization. In other words, financial tools help to analyze the strength and weakness of a
firm.

3.4.1.1 Ratio Analysis

Ratio analysis is a most important part of financial analysis. It helps to show the quantities
relationship between two numbers. It may be expressed in terms of proportion, times or in
percentage. Ratio analysis is a technique of analysis and interpretation of financial statement
.Therefore; a ratio is used as a yardstick for evaluating the financial position and performance
of a firm. Ratios help to summarize large quantities of financial data and to make qualitative
judgment about the firm’s financial performance.

25
According to Wixom, Kell and Bedford, “A ratio is an expression of the quantitative
relationship between two numbers.”

Similarly, according to Kohler, “A ratio is the relationship of one amount to another

expressed as the ratio of or as a simple function, integer, decimal, fraction or percentage.

Thus, Ratio analysis; which is a powerful tool of financial analysis, is identifying financial
strength and weakness of business firm. It is one of important ways to stage meaningful
relationship between components of financial statements. The primary purpose of ratio is to
point out area for further investigation. Ratio analysis has been a major tools used in the
interpretation and evaluation of financial statement since late 1800.

A ratio helps to the researcher to make qualitative judgment about the firm’s financial
position and performance. Ratio analysis is the best tool for financial analysis. Ratios can be
taken as expression of relationships between two items or group of items and therefore may
be calculated in any number and ways so far meaningful co-relationship is obtainable. Hence,
ratio analysis is a part of financial analysis that evaluates the performance of an organization
by creating the ratios from the figure of different accounts consisting in balance sheet,
income statement. It is the process of determining and interpreting numerical relationship
between the items of financial statements.

Therefore, a ratio is used as a yardstick for evaluating the financial position and performance
of a firm. Ratios help to summarize large quantities of financial data and to make qualitative
judgment about the firm’s financial performance.

Ratio analysis does inter-firm comparison, so it helps management to shape in market

strategies tool of financial analysis. The relationship between two accounting figures
expressed mathematically, is known as financial ratio (or simply as a ratio).

Ratio analysis is technique and interpretation of financial statement. To evaluate the

performance of an organization by creating the ratio from the figure of different accounts
consisting in balance sheet and income statement is known as ratio analysis. A ratio helps to
the researcher to make qualitative judgment about the firm’s financial position and
performance.

26
Therefore, a ratio is used as a yardstick for evaluating the financial position and performance
of a firm. Ratios help to summarize large quantities of financial data and to make qualitative
judgment about the firm’s financial performance.

The performance of a bank can be judged on various indicators. These indicators can be
categorized as under:

3.4.1.1.1 Profitability Indicators

A class of financial metrics that are used to assess a business's ability to ge’erate earnings as
compared to its expenses and other relevant costs incurred during a specific period of time.
For most of these ratios, having a higher value relative to a competitor's ratio or the ’ame
ratio from a previous period is indicative that the company is doing well. Following are the
profitability indicators of a commercial bank:

3.4.1.1.1.1 Average Net Profit per Branch

It is the ratio of a bank’s net profit after tax income divided by its total number of branches at
the end of the fiscal year. It shows the branch net profit in monetary value. Higher ratio
indicates the better efficiency of the branches. The formula for calculating it is:

Average Net Profit per Branch (in rupees) =Net Profit After Tax Total Number of
Branches

3.4.1.1.1.2 Return on Assets (ROA) Ratio

It is the ratio of a bank’s net profit after tax income divided by its total assets. ROA is
primarily an indicator of managerial efficiency. It indicates how capably the management of
the bank has been converting the institution’s assets into net earnings. It is the most important
indicator of the bank's performance. ’ higher ratio is an indicator of high performance and
profitability. It is calculated by using following formula:

Return on Assets (ROA) = (Net Profit After Tax Total Assets) 100

3.4.1.1.1.3 Return on Net Worth or Return on Equity (ROE)

It is the ratio of a bank’s net profit after tax income divided by its net worth or equity. It
indicates how the bank will have used the resources of owners’. In fact, this ratio is one of the
most important relationships in financial analysis. The earning of satisfactory return is the

27
most desirable objective of a business. The ratio of net profit to owners’ equity reflects the
extent to which this objective has been accomplished. This ratio is thus, of great interest to
the present as well as the prospective shareholders and also of great concern to management,
which has the responsibility of maximizing the owners’ welfare. . A higher ratio indicates
greater profitability and better efficiency. This enables a bank to raise more funds from the
capital markets. ROE is calculated as follows:

ROE = (Net Profit÷ Net Worth 100

3.4.1.1.1.4 Net Profit to Total Deposits Ratio

It is the ratio of a bank’s net profit after tax income divided by its total deposits. It measures
that the bank is how much efficiency to mobilize and utilize deposits in generating profit. The
formula of calculating it is:

Net Profit to Total Deposits Ratio = (Net Profit After Tax Total Deposits) 100

3.4.1.1.1. 5 Return on Loans and Advances Ratio (ROL)

ROL measures the extent to which the banks are successful to utilized the outsiders’ fund
(total deposits) for the profit generating purpose on the loans and advance. Generally high
ratio reflects higher efficiency to the utilized of outsiders fund and vice-versa. It can be
calculated by dividing the amount of net profit by the amount of loans and advances, which is
given below:-

ROL = (Net Profit After Tax Loans& Advances) 100

3.4.1.1.1.6 Interest Income Ratio

This is the ratio of a bank's interest inco’e to its total assets. A high interest income ratio
indicates greater profitability.

3.4.1.1.1.7 Interest Expenses Ratio

It is the ratio of interest expenses to total assets. A decline in this ratio brings greater
profitability to the bank.

28
3.4.1.1.1.8 Net Interest Margin Ratio

Net interest indicates the difference between interest income and interest expense. So, it is
the difference between the revenue generated by interest bearing assets and cost of borrowed
funds. A net interest margin ratio is the ratio of this net interest to total assets. The higher the
ratio is the greater the profitability and vice versa. A fall in the ratio signals the bank to
reorient its policies to earn higher yields through cheaper mix of funds.

3.4.1.1.1.9 Intermediation Cost to Asset Ratio

It is the ratio of intermediation cost (operating expenses cost) to its total assets. A lower
ICAR is an indicator of higher profitability and efficiency.

3.4.1.1.1.10 Net Profit Margin (NPM)

It is the ratio of net profit after tax to total income of the bank. Profit margin is a profitability
ratios calculated as net income divided by revenue, or net profits divided by sales. Net
income or net profit may be determined by subtracting all of a company’s expenses,
including operating costs, and tax costs, from its total revenue and are expressed as a
percentage. An increase in NPM brings greater profitability to the bank.

Net Profit margin = Net Profit ⁄ Total revenue x 100

3.4.1.1.2 Capital market Indicators:

The performance of a bank's scrip (shares’ on the stock market depends on its profitability
and it is judged by two parameters:

3.4.1.1.2.1 Earnings Per Share (EPS)

The performance and achievement of a bank can be identified with the earnings power of the
bank. Higher earning implies the strength in general case. However, the earning associate
with different assets and liabilities are not adequate to satisfy in its earnings per share over
the years. Therefore the earnings per share in another ratio that shows how well the banks get
return from a unit share. This ratio is an important factor for decision making to those
associated with stock exchange. The earnings per share is calculated by dividing the net
income available to the common stock holders by the total number of common stock
outstanding.

29
 EPS= Net income available to the common stockholders Total number of common
shares outstanding

3.4.1.1.2.2 Price/Earnings Ratio (P/E Ratio)

The most common measure of how expensive a stock is. The P/E ratio is equal to a stock's
market capita’ization divided by its after-tax earnings over a 12-month period. Banks with
high P/E ratios are more likely to be considered "risky" investme“ts th”n those with low P/E
ratios, since a high P/E ratio signifies high expectations. Comparing P/E ratios is most
valuable for companies within the same industry. Companies that are not currently profitable
(that is, ones which have negative earnings) don't have a P/E ra’io at all also called earnings
multiple.

Price Earnings Ratio (P/E) Is calculated as follows:

Price Earnings Ratio (P/E) =Market Price Per Share ÷Earnings Per Share

3.4.1.1.3 Productivity Indicators

The performance of a bank's employee (hum’n resource) has an important effect on the
bank's performance i’ the world of competition.

The productivity of the banks can be indicated by:

3.4.1.1.3.1 Profit per Employee: Net profit/ No. of employees

3.4.1.1.3.2 Business per Employee: Net Total Income/ No. of employees

Higher ratio indicates a productive and efficient staff.

3.4.1.1.4 Financial Stability Indicator

Apart from profit, financial stability is also of utmost importance to the banks as it gains the
trust and confidence of its depositors. Financial stability can be judged by the capital
adequacy ratio. It is the ratio of capital to risk-weighted assets. It measures whether the bank
has maintained sufficient capital or not. It helps to decide whether the existing capital is
adequate or not. Overcapitalization and under capitalization both have adverse effect on
profitability of the bank .If the capital is excess, it remains idle .If the capital is insufficient

30
,the bank may not be able to grasp the opportunity from potential profitable sectors
.Therefore, the commercial banks have been directed to remain sufficient ratio by the central
bank. It is calculated by using following formula.

Capital Adequacy Ratio = (Total Capital Fund ÷Total Risk Weighted Exposures) 100)

3.4.1.1.5 Quality of Assets Indicators

The quality of assets in the bank depends on the level of Non-performing Assets (NPAs). The
NPAs are those assets on which the payment of interest / principal amount receivable is in
arrears. Higher NPAs indicate the deteriorating quality of assets. They are compared to Total
Advances / Total Assets. The ratios used are:

a. Gross NPAs / Gross Advances

b. Net NPAs / Net Advances

If these ratios are higher, they indicate decreasing performance of assets.

3.4.2 Statistical Tools.

Under this heading various statistical tools can be used in research in order to draw the
reliable conclusion according to the financial data available to the researcher. Some statistical
tool such as coefficient of correlation analysis between different variables, trend analysis of
deposit, loan and advances, net profit and EPS are used to achieve the objective of the study.
The following statistical tools are used to analyze the data.

3.4.2.1 Karl Pearson‟s Correlation Coefficient Analysis:

Karl Pearson’s correlation coefficient is the method of measuring the correlation. It is known
as the best method of measuring a correlation, because it is based on the method of
covariance. It gives information about the magnitude of correlation as well as the direction of
the relationship.

Assumptions:

Independent of case: Cases should be independent to each other.

Distribution: Variables of the correlation should be normally distributed.

31
Linear relationship: Two variables should be linearly related to each other, or if we plot the
value of variables on a scatter diagram, it should yield a relatively straight line.

Properties:

Limit: Coefficient values lie between +1 to -1.

Pure number: It is independent of the unit of measurement. For example, if one variable’s
unit of measurement is in inches and the second variable is in quintals, even then, Pearson’s
correlation coefficient value does not change.

Symmetric: Correlation of the coefficient between two variables is symmetric. This means
between X and Y or Y and X, the value of will remain the same.

Degree of correlation:

Perfect: If the value is near ± 1, then it said to be a perfect correlation.

High degree: If the value lies between ± 0.75 and ± 1, then it is said to be a high degree of
correlation.

Moderate degree: If the value lies between ± 0.25 and ± 0.75, then it is said to be moderate
degree of correlation.

Low degree: When the value lies between 0 and ± 0.25, then it is said to be a low degree of
correlation.

No correlation: When the value is zero.

The relation between two variables is correlated by Karl Pearson’s co correlation coefficient.
The following is the formula proposed by Karl Pearson for calculation of correlation
coefficient (r )

r=NΣXY-ΣX*ΣY /√[NΣX2 - (ΣX)2] √[NΣY2 – (ΣY)2

Where,

R– Correlation Coefficient between two variables

N=Number of observations in series X and Y

ΣX=Sum of observations in series x

32
ΣY= Sum of observations in series Y

ΣXY= Sum of the product of observations in series X and Y

ΣX^2=Sum of squared observations in series X

ΣY^2= Sum of squared observations in series Y

Statistical analysis is carried out for better understanding of the collected data and
information. The result of the statistical analysis is enumerated in the following section.

To test the relationship between number of employees and net profit, number of branches and
net profit, total assets and net profit, net worth and net profit, deposits and net profit and loans
and advances and net profit, the correlation coefficients have been calculated by using Karl
Pearson’s correlation coefficient.

3.4.2.2 Test of Hypothesis

The Hypothesis Testing is a statistical test used to determine whether the hypothesis assumed
for the sample of data stands true for the entire population or not. Simply, the hypothesis is an
assumption which is tested to determine the relationship between two data sets. In hypothesis
testing, two opposing hypotheses about a population are formed Viz. Null Hypothesis (H0)
and Alternative Hypothesis (H1). The Null hypothesis is the statement which asserts that
there is no difference between the sample statistic and population parameter and is the one
which is tested, while the alternative hypothesis is the statement which stands true if the null
hypothesis is rejected.
The calculated correlation coefficients have been used to test the hypothesis as proposed in
Chapter-1 by using the following t-test formula.

t=r*√n-2/√1-r^2

Where,

r= calculated correlation coefficient

n= number of observations

t=calculated value of t

The hypotheses have been tested with at a 95% level of confidence.

33
 CHAPTER - IV

PRESENTATIO– AND ANALYSIS OF DATA

The presentation and analysis of data is the main body of this study. This chapter deals with
the analysis, presentation, interpretation and major finding of relevant data of concern bank in
order to fulfill the objectives of research study. To obtain better result, the data have been
analyzed according to the research methodology as mentioned in CHAPTER-III. The purpose
of this chapter is to introduce the mechanics of data analysis and interpretation. With the help
of this analysis, efforts have been made to highlight the financial performance of Agriculture
Development Bank Ltd. (ADBL).The heart of this chapter will be the ratio analyses, which is
the powerful financial tool to measure the performance of a ADBL, Nepal. The main purpose
of analyzing the data is to change it from an unprocessed form to an understandable
presentation.

The analysis of data consists of organizing, tabulating, and performing statistical analysis.
Here, analysis and interpretation is categorized into two headings.

4.1 Ratio Analyses

4.2 Statistical Analyses

4.1 Ratio Analyses

Ratio analysis is widely used and important tool of financial analysis. Ratio analysis shows
the mathematical relationship between two accounting figures. Interest result about
company’s financial performance can be found out by using ratio analysis. It helps to analyze
the financial strength and weakness of the banks. From the help of ratio analysis, the
qualitative judgment can be done regarding financial state of a firm. It is also concerned
without output and credit decision. Ratio analyses have been adopted to evaluate the
performance of a bank. In order to analyze and interpret the tabled data, the following ratios
have been used.

34
 Table 4.1
4.1.1 Analyses of Average Net Profit per Branch

(Rs. in „000')

Net Pro‟it Number of

Year Average NP per Branch (Rs.)
(NP) Branches
2016/17 2,973,281 249 11,940.89
2017/18 3,653,519 250 14,614.08
2018/19 4,191,591 264 15,877.24
2019/20 3,331,738 268 12,431.86
2020/21 3,527,537 278 12,688.98
Average 3,535,533 262 13,510.61
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

Note : The number branches includes Development Banking of ADBL too.

The above tabled information is shown in the following figure:

Figure 4.1
Average Net Profit Per Branch
18,000
15,877
16,000 14,614
13,511
14,000 12,432 12,689
11,941
12,000
10,000
8,000
6,000
4,000
2,000
0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Average NP per Branch

The above table and figure 4.1 shows the Average Net Profit per branch in thousands of
rupees is increasing & decreasing in different years. It was 11,914 in fiscal year 2016/17,
increased to 14614 in 2017/18 , again increased to doubly 15,877 in 2018/19, again decrease
to 12432 in 2019/20 and little bit increase to 12689 in 2020/21. It doesn’t show the better
efficiency of branches due to fluctuation in Average Net Profit of branches. For better

35
efficiency Average Net Profit should be in increasing order as compare to previous year. So
we can say while increasing the number of branches net profit would be satisfactory. The
Average Net Profit per Branch between 2016/17 to 2020/21 was Rs.13511 in thousands.

Table 4.2
4.1.2 Analyses of Return on Assets (ROA)
(Rs. in „000')

Year Net Pro‟it (NP) Total Assets

Return On Assets (%)
2016/17 2,973,281 128,290,187 2.15
2017/18 3,653,519 134,854,098 2.71
2018/19 4,191,591 151,574,997 2.77
2019/20 3,331,738 179,320,859 1.86
2020/21 3,527,537 222,440,349 1.59
Average 3,535,533 163,296,098 2.22
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.2
Return on Assets (%)
3 2.77
2.71

2.5
2.15 2.22

2 1.86
1.59
1.5

0.5

0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Return On Assets (%)

The above table and figure 4.2 show the Return on Assets of ADBL for the study periods.
ROA increased from 2.15 % to 2.71 % to 2.77% from fiscal year 2016/17 to 2017/18 to

36
2018/19 respectively. It shows the profitability and efficiency of investment in total assets.
ROA decreased from 2.77 percent to 1.86 percent to 1.59 from fiscal year 2018/19 to 2019/20
to 2020/21 respectively, which indicates the decreasing in profitability of bank and less
efficiency of investment on total assets. The average ROA between financial year 2016/17 to
2020/21 was 2.22%.

Table 4.3
4.1.3 Analyses of Return on Equity(ROE)

(Rs. in „000')
Year Net Prof‟t (NP) Net Worth Return on Equity (%)
2016/17 2,973,281 16,363,997 18.17
2017/18 3,653,519 25,967,490 14.07
2018/19 4,191,591 28,352,733 14.78
2019/20 3,331,738 28,470,887 11.70
2020/21 3,527,537 315,051,177 1.12
Average 3,535,533 82,841,257 11.97
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21
The above tabled information is shown in the following figure

Figure 4.3
Return on Equity (%)
20.00 18.17

14.07 14.78
15.00
11.70 11.97

10.00

5.00
1.12
0.00
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Return on Equity (%)

The above table and figure 4.3 shows the ROE of ADBL for the study period. The increasing
ROE shows better performance. The ROE decreased from 18.17 % to 14.07% to 11.70 from
fiscal year 2016/17 to 2019/20 .It shows the profitability of bank getting lower year to year and
again there is significant fall on ROE from 11.70% to 1.12% on FY 2020/21 due to second

37
wave of COVID. It shows poor performance and less utilization of common share holders’
equity. Average ROE between financial year 2016/17 to 2020/21 was 11.97 % which indicates
there was less profitability and less efficiency.

Table 4.4
4.1.4 Analyses of Net Profit to Total Deposits Ratio
(Rs. in „000') ‟
Year Net Profit (NP) Total Deposit NP to Deposit Ratio (%)
2016/17 2,973,281 99,515,339 2.99
2017/18 3,653,519 104,178,960 3.51
2018/19 4,191,591 118,884,923 3.53
2019/20 3,331,738 143,628,525 2.32
2020/21 3,527,537 162,814,931 2.17
Average 3,535,533 125,804,536 2.90
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.4
Net Profit to Total Deposit Ratio (%)
4.00
3.51 3.53
3.50
2.99 2.90
3.00

2.50 2.32
2.17
2.00

1.50

1.00

0.50

0.00
2016/17 2017/18 2018/19 2019/20 2020/21 Average

NP to Deposit Ratio (%)

The above table and figure 4.4 show the Net Profit to Total Deposit Ratio of ADBL for the
study period. Higher ratio shows better performance. It was slightly increased from 2.99
percent to 3.51% to 3.53 percent from fiscal year 2016/17 to 2017/18 to 2018/19 respectively,

38
it indicates better mobilization of deposits but again there is a fall in ratios from 3.53% to
2.32% to 2.17% on FY 2017/18 to 2018/19 to 2019/20 which shows bad performance and less
mobilization of deposits than previous year. The average of net profit to total deposit ratio
from financial year 2016/17 to 2020/21 was 2.90%.

Table 4.5
4.1.5 Analyses of Return on Loans and Advances Ratio (ROL)
(Rs. in „000')

Year Net‟Profit (NP) Loan and advances Return on Loan Ratio (%)
2016/17 2,973,281 93,184,410 2.91
2017/18 3,653,519 98,096,350 3.65
2018/19 4,191,591 109,467,842 3.75
2019/20 3,331,738 121,849,394 2.7
2020/21 3,527,537 150,598,356 2.33
Average 3,535,533 114,639,270 3.07
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.5
Return on Loans and Advances Ratio (%)
4 3.65 3.75
3.5 3.07
2.91
3 2.7
2.33
2.5
2
1.5
1
0.5
0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Return on Loan Ratio (%)

The above table and figure 4.5 shows Return on Loans and Advances Ratio of ADBL for the
study period. Generally high ratio reflects higher efficiency to the utilization of outsider’s fund
and vice-versa. It was increased from 2.91 percent to 3.65 % to 3.75 percent from fiscal year
2016/17 to 2017/18 to 2018/19 respectively, which shows the higher efficiency and better
utilization of fund in the initial 2 years of study period. But there was fall in ratios from 3.75

39
percent to 2.7 to 2.33 percent from fiscal year 2018/19 to 2019/20 to 2020/21, which indicates
the lower efficiency & less utilization of fund. The Average of Return on Loan Ratio from
financial 2016/17 to 2020/21 was 3.07%.

Table 4.6
4.1.6 Analyses of Interest Income to Total Assets Ratio
(Rs. in „000')
Year Interest‟Income Total Assets Interest Income Ratio (%)
2016/17 11,210,153 128,290,187 8.74
2017/18 13,956,458 134,854,098 10.35
2018/19 15,480,122 151,574,997 10.21
2019/20 15,821,701 179,320,859 8.82
2020/21 15,124,046 222,440,349 6.80
Average 14,318,496 163,296,098 8.98
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.6
Interest Income Ratio (%)
12.00
10.35 10.21
10.00 8.98
8.74 8.82

8.00
6.80

6.00

4.00

2.00

0.00
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Interest Income Ratio (%)

The above table and graph 4.6 show the Interest Income Ratio of ADBL for the study period
2016/17 to 2020/21. It is an indicator of profitability and efficiency. Higher ratio shows better
efficiency and vice-versa. Interest income ratio increased from 8.74 percent to 10.35 from

40
fiscal year 2016/17 to 2017/18, which indicates increase in profitability. But it was decreased
from 10.21 percent to 8.82 to 6.80 percent from fiscal year 2018/19 to 2019/20 to 2020/21
simultaneously which indicates poor performance and decrease in profitability. The average
Interest Income Ratio from financial 2016/17 to 2020/21 was 8.98%.

Table 4.7

4.1.7 Analyses of Interest Expenses Ratio (%)

(Rs. in „000')
Year Interest‟Expenses Total Assets Interest Expense Ratio (%)
2016/17 4,224,871 128,290,187 3.29
2017/18 6,966,286 134,854,098 5.17
2018/19 7,865,130 151,574,997 5.19
2019/20 9,105,580 179,320,859 5.08
2020/21 8,258,328 222,440,349 3.71
Average 7,284,039 163,296,098 4.49
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure

Figure 4.7
Interest Expenses Ratio (%)
6.00 5.17 5.19 5.08
5.00 4.49
3.71
4.00 3.29
3.00
2.00
1.00
0.00
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Interest Expense Ratio (%)

The above table and figure 4.7show the Interest Expenses to Total Assets Ratio of ADBL for
the study period. Decrease in interest expenses ratio indicates higher profitability and better
performance. Interest expenses ratio increased from 3.29 percent to 5.17 % to 5.19 percent
from fiscal year 2016/17 to 2017/18 to 2018/19 respectively, which indicates poor performance

41
and decrease in profitability. From FY 2019/20 to 2020/21 it was slightly decreased from 5.08
percent to 3.71 percent, which indicates profitability and good performance than previous year.
The average Interest Income Ratio from financial 2016/17 to 2020/21 was 4.49%.

Table 4.8

4.1.8 Analyses of Net Interest Margin Ratio to Total Assets (%)

(Rs. in „000')

Net Interest Margin Ratio

Year Net Inte‟est Margin Total Assets
(%)
2016/17 6,985,282 128,290,187 5.44
2017/18 6,990,172 134,854,098 5.18
2018/19 7,614,992 151,574,997 5.02
2019/20 6,716,121 179,320,859 3.75
2020/21 6,865,718 222,440,349 3.09
Average 7,034,457 163,296,098 4.50
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.8
Net Interest Margin Ratio (%)
6.00 5.44 5.18 5.02
5.00 4.50
3.75
4.00
3.09
3.00
2.00
1.00
0.00
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Net Interest Margin Ratio (%)

The above table and graph 4.8 show the Net Interest Margin Ratio of ADBL for the study
period. It is an indicator of profitability and efficiency. Higher ratio shows better efficiency and
vice-versa. From fiscal year 2016/17 to 2020/21 Net Interest Margin decreased from 5.44% to
5.18% to 5.02% to 3.75 to 3.09 which indicates decrease in profitability, less efficiency and
poor performance. The average net margin ratio from financial 2016/17 to 2020/21 was 4.50%.

42
 Table 4.9

4.1.9 Analyses of Intermediation Cost ( Operating Expenses) Ratio (%)

(Rs. in „000')

Total Op‟rating
Year Total Assets Operating Expenses Ratio (%)
Expenses
2016/17 4,050,921 128,290,187 7.02
2017/18 4,044,449 134,854,098 8.17
2018/19 3,971,361 151,574,997 7.82
2019/20 4,184,224 179,320,859 7.71
2020/21 4,719,753 222,440,349 5.86
Average 4,194,142 163,296,098 7.32
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.9
Total Operating Expenses Ratio (%)
9
8.17
7.82 7.71
8 7.32
7.02
7
5.86
6
5
4
3
2
1
0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Operating Total Expenses Ratio (%)

The above table and figure 4.9shows the total Operating Expenses to Total Assets Ratio of
ADBL for the study period from 2016/17 to 2020/21. Decrease in operating expenses ratio
indicates higher profitability and vice-versa. From fiscal year 2016/17 to 2017/18, the
Operating Expenses Ratio is increased from 7.02 % to 8.17 percent which indicates decrease in
profitability. From fiscal year 2017/18 to 2020/21 the ratios decreased from 8.17 percent to
7.82% to 7.71% to 5.86 percent, which indicates increase in profitability and improve in
efficiency and the average operating expenses ratio from financial 2016/17 to 2020/21 was
7.32%.

43
 Table 4.10
4.1.10 Analyses of Net Profit Margin Ratio(%)
(Rs. in „000')

Year Net Prof‟t (NP) Total Revenue Net Profit Margin Ratio (%)
2016/17 2,973,281 16,445,138 18.08
2017/18 3,653,519 15,376,763 23.76
2018/19 4,191,591 17,284,911 24.25
2019/20 3,331,738 18,236,114 18.27
2020/21 3,527,537 18,211,342 19.37
Average 3,535,533 17,110,854 20.75

Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.10
Net Profit Margin Ratio
30
23.76 24.25
25 20.75
18.08 18.27 19.37
20
15
10
5
0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Net Profit Margin Ratio (%)

The above table and graph 4.10 show the Net Profit Margin Ratio of ADBL for the study
period from 2016/17 to 2020/21. It is an indicator of profitability and efficiency. Higher ratio
shows better efficiency and vice-versa. It is calculated by dividing net profit after tax to total
income of the bank. From fiscal year 2016/17 to 2017/18 to 2018/19 net profit margin
increased from 18.8 percent to 23.76 percent to 24.25%, which indicates increase in
profitability and efficiency. From fiscal year 2018/19 to 2019/20 the NPM decreased from
24.25 percent to 18.27 percent which indicates poor performance. In FY 2020/21 the NPM
slightly increased to 19.37 percent and the average net profit margin ratio from financial
2016/17 to 2020/21 was 20.75%

44
 Table 4.11
4.1.11 Analyses of Earning per Share (EPS)
(Rs. in „000')
Number of
Year Net Prof‟t (NP) Earnings per Share (EPS) Rs.
Shares
2016/17 2,973,281 70,876,800 31.59
2017/18 3,653,519 85,052,160 36.91
2018/19 4,191,591 90,155,290 42.88
2019/20 3,331,738 95,564,607 31.45
2020/21 3,527,537 109,899,298 29.13
Average 3,535,533 90,309,631 34.39
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.11
Earnings per Share (EPS)
50
45 42.88

40 36.91
34.39
35 31.59 31.45
29.13
30
25
20
15
10
5
0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Earnings per Share (EPS) Rs.

The above table and graph 4.11 show Earnings per Share (EPS) in rupees of ADBL for study
period from 2016/17 to 2020/21. An increase in EPS indicates higher earning and higher
efficiency and decrease in EPS indicates decrease in profitability and efficiency. The EPS
increased from Rs.31.59 to Rs.36.91 to Rs.42.88 from fiscal year 2016/17 to 2017/18 to
2018/19 respectively. It indicates better utilization of common shareholders fund and better
efficiency. But from FY 2018/19 to 2019/20 to 2020/21 there was decrease in EPS that is
from Rs. 42.88 to Rs.31.45 to Rs 29.13 which indicates decrease in profitability & efficiency

45
 and less utilization of shareholders fund and the average EPS from financial 2016/17 to
2020/21 was Rs. 34.39.

Table 4.12

4.1.12 Analyses of Price/Earnings ratio (P/E Ratio)

Market Price of Earnings per

Year Price/Earning (P/E) Ratio
Share (MPS) Share (EPS)
2016/17 435 31.59 13.77
2017/18 314 36.91 8.51
2018/19 409 42.88 9.54
2019/20 385 31.45 12.24
2020/21 479 29.13 16.44
Average 404 34 12.10
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.12
Price/Earnings ratio (P/E Ratio)
20 16.44
13.77
15 12.24 12.10
8.51 9.54
10
5
0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Price/Earning (P/E) Ratio

The above table and graph 4.12 show the Price/Earnings Ratio (P/E Ratio) of ADBL for the
study period from 2016/17 to 2020/21. An increase in P/E ratio indicates higher market price
and higher risk and vice-versa. The P/E ratio decreased from fiscal year 2016/17 to 2017/18
from 13.77 to 8.51 times which indicates decrease in market price per share. From fiscal year
2017/18 to 2018/19 to 2019/20 to 2020/21 the P/E ratio increased from 8.51 times to 9.54 to
12.24 to 16.44 times simultaneously which indicates increase in market price per share, higher
the degree of liquidity and higher the corporate image of a bank and the average Price/Earnings
Ratio from financial 2016/17 to 2020/21 was 12.10 times.

46
 Table 4.13
4.1.13 Analyses of Average Net Profit per Employee
(Rs. in „000')

Number
Year Net Prof‟t (NP) Average NP per Employee (Rs.)
Employee
2016/17 2,973,281 2,632 1,130
2017/18 3,653,519 2,455 1,488
2018/19 4,191,591 2308 1,816
2019/20 3,331,738 2013 1,655
2020/21 3,527,537 2402 1,469
Average 3,535,533 2,362 1,512
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.13
Average Net Profit per Employee
2,000 1,816
1,655
1,488 1,469 1,512
1,500
1,130
1,000

500

0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Average NP per Employee (Rs.)

The above table and graph 4.13 show Average Net Profit per Employee of ADBL for the
study period from 2016/17 to 2020/21. Net profit per employee in thousands of rupees
increased from Rs. 1130 to Rs. 1488 to Rs. 1816 from fiscal year 2016/17 to 2017/18 to
2018/19 respectively, which indicates increase in productivity and employee performance.
But from fiscal year 2018/19 to 2019/20 to 2020/21 it was decreased from Rs. 1816 to Rs.
1655 to Rs 1469 simultaneously, which indicates decrease in productivity, decreases in
employee performance and may be lack of skilled manpower in specific field of bank and the

47
 average net profit per employee from financial 2016/17 to 2020/21 was Rs. 1512 in
thousands.

Table 4.14
4.1.14 Analyses of Capital Adequacy Ratio
Year Capital Adequacy Ratio (%)
2016/17 20.41
2017/18 20.33
2018/19 20.37
2019/20 19.29
2020/21 16.94
Average 19
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.14
Capital Adequacy Ratio (%)
25
20.41 20.33 20.37
19.29 19
20 16.94
15

10

0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Capital Adequacy Ratio (%)

The above table and graph 4.14 Shows Capital Adequacy Ratio of ADBL for the study period
from 2016/17 to 2020/21. According to Nepal Rastra Bank norms and bench mark standard
the minimum capital adequacy ratio should be 10 percent. The Capital Adequacy Ratios of
ADBL Bank for study period 2016/17 to 2020/21 were 20.41%, 20.33%, 20.37%, 19.29% &
16.94% respectively and which is more than 10% that indicates better financial stability and
the average Capital Adequacy Ratio from financial year 2016/17 to 2020/21 was 19% which
is also more than NRB norms.

48
 Table 4.15
4.1.15 Analyses of Non-Performing Assets (NPA‟s) Ratio

Year Non-Performing Assets Ratio (%)

2016/17 5.85
2017/18 5.46
2018/19 5.35
2019/20 4.36
2020/21 4.60
Average 5.12
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.15
Non-Performing Assets (NPA‟s) Ratio (%)
7
5.85
6 5.46 5.35
5.12
5 4.6
4.36

0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Non-Performing Assets Ratio (%)

The above table and graph 4.15 show Non- Performing Assets Ratio of ADBL for study
period from 2016/17 to 2020/21. Higher NPA’s indicate the deteriorating quality of assets.
From fiscal year 2016/17 to 2019/20 the NPAS decreased from 5.85 percent to 4.36 percent,
which indicates increase in the quality of assets and better performance. But there was
increasing in NPA’s Ratio from 4.36 percent to 4.60 percent from financial year 2019/20 to
2020/21, which shows deteriorating quality of assets and the average of non-performing
assets ratio from financial 2016/17 to 2020/21 was 5.12%.
49
 Table 4.16
4.1.16 Analyses of Loan & Advances to Total Deposit Ratio (LDR) %
(Rs. in „000')
Loan Loan to Deposit Ratio (LDR
Year Total Deposit
and‟advances %)
2016/17 93,184,410 99,515,339 92.9
2017/18 98,096,350 104,178,960 95.64
2018/19 109,467,842 118,884,923 93.62
2019/20 121,849,394 143,628,525 85.84
2020/21 150,598,356 162,814,931 92.93
Average 114,639,270 125,804,536 92.19
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.16
Loan & Advances to Total Deposit Ratio (%)
100
95.64
95 92.9 93.62 92.93 92.19

90
85.84
85

80
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Loan to Deposit Ratio (LDR %)

The above table and graph 4.16 show Loan and Advances to Total Deposit Ratio (LDR) of
ADBL for study period from 2016/17 to 2020/21. Higher the ratio means the bank may not
have enough liquidity to cover any unforeseen fund requirements or economic crises.
Conversely, lower the ratiI means, the bank may nIt be earning as much as it could be. In the
above figure LDR was increased from 92.9% to 95.64% from financial year 2016/17 to
2017/18. It was decreased to 93.62% to 85.84% in the FY 2018/19 to 2019/20 again it was
increased to 92.93% in FY 2020/21. Since,
Bank has higher LDR ratio i.e. in the range of 85%, it means the bank may not have enough
liquidity to cover any unforeseen fund requirements. The average LDR ratio from financial
year 2016/17 to 2020/21 was 92.19%

50
 Table 4.17
4.1.17 Analyses of Interest Income to Total Loan & Advances Ratio (%)
(Rs. in „000')
Loan and
Interest Income to Total Loan
Year Interest‟Income
advances Ratio (%)
2016/17 11,210,153 93,184,410 12.55
2017/18 13,956,458 98,096,350 13.93
2018/19 15,480,122 109,467,842 13.85
2019/20 15,821,701 121,849,394 11.74
2020/21 15,124,046 150,598,356 9.98
Average 14,318,496 114,639,270 12.41
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

The above tabled information is shown in the following figure:

Figure 4.17
Interest Income to Total Loan & Advances Ratio (%)
16 13.93 13.85
14 12.55 12.41
11.74
12 9.98
10
8
6
4
2
0
2016/17 2017/18 2018/19 2019/20 2020/21 Average

Interest Income to Total Loan Ratio (%)

The above table and graph 4.17 show Interest Income to Total Loan and Advances Ratio of
ADBL for the study period from 2016/17 to 2020/21. Higher the ratio results increase in
profitability and sometimes may be increase in risk of bad debt and lower the ratio results less
profitability & less utilization of funds. From financial year 2016/17 to 2017/18 there was
increase in Interest Income to Loan Ratio from 12.55 % to 13.93%, it indicates increase in
profitability and utilization of fund. But from FY 2017/18 to 2020/21 there is continuous fall
in ratios that is from 13.93% to 13.85% to 11.74% to 9.98% which indicate less profitability
and less utilization of fund. The average interest income to total loan and advances from
financial year 2016/17 to 2020/21 was 12.41%.

51
4.2 Statistical Tools

Statistical analysis is carried out for better understanding of the collected data and
information. The result of the statistical analysis is enumerated in the following.

4.2.1 Karl Pearson‟s Correlation Coefficient Analysis:

To test the relationship between selected variables the Karl Pearson’s correlation coefficient
have been calculate

Table 4.18

4.2.1.1 Calculation of Correlation coefficient( r) between Net Profit Rs. in million (X)
and Number of Employees(Y) of ADBL, Nepal
Year X Y XY X2 Y2
2016/17 297 2,632 782,568 88,404 6,927,424
2017/18 365 2,455 896,939 133,482 6,027,025
2018/19 419 2,308 967,419 175,694 5,326,864
2019/20 333 2,013 670,679 111,005 4,052,169
2020/21 353 2,402 847,314 124,435 5,769,604
Total (Ʃ) 1,768 11,810 4,164,919 633,020 28,103,086
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

r=NΣXY-ΣXΣY/√NΣX^2-(ΣX)^2*√NΣY^2-(ΣY)^2

r =5*4164919-1768*11810/√5*633020-(1768)^2*√5*28103086-(11810)^2

r= 0.97293

The correlation coefficient between net profit and number of employees of ADBL, Nepal is
0.97293, which is positively correlated. Here, coefficient is nearer to 1 which indicates that
the correlation seems to be nearly perfectly positive. It can be said that an increase in number
of employees increases net profit and vice-versa.

52
 Table 4.19

4.2.1.2 Calculation of correlation coefficient ( r) between net profit Rs. in million (X)
and number of branches(Y) of ADBL, Nepal
Year X Y XY X2 Y2
2016/17 297 249 74,035 88,404 62,001
2017/18 365 250 91,338 133,482 62,500
2018/19 419 264 110,658 175,694 69,696
2019/20 333 268 89,291 111,005 71,824
2020/21 353 278 98,066 124,435 77,284
Total (Ʃ) 1,768 1,309 463,387 633,020 343,305
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

r=NΣXY-ΣXΣY/√NΣX^2-(ΣX)^2*√NΣY^2-(ΣY)^2

r= 0.97484

The correlation coefficient between net profit and number of branches of ADBL, Nepal is
0.97484, which is positively correlated. Here, coefficient is nearer to 1 which indicates that
the correlation seems to be nearly perfectly positive. It can be said that an increase in number
of branches increases net profit and vice-versa.

Table 4.20
4.2.1.3 Calculation of correlation coefficient(r) between net Ifit in million (X) and total
assets in million(Y) of ADBL, Nepal

Year X Y XY X2 Y2
2016/17 297 12,829 3,814,428 88,404 164,583,721
2017/18 365 13,485 4,926,920 133,482 181,856,277
2018/19 419 15,157 6,353,404 175,694 229,749,797
2019/20 333 17,932 5,974,501 111,005 321,559,705
2020/21 353 22,244 7,846,666 124,435 494,797,089
Total (Ʃ) 1,768 81,648 28,915,919 633,020 1,392,546,589
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

53
r=NΣXY-ΣXΣY/√NΣX^2-(ΣX)^2*√NΣY^2-(ΣY)^2

r= 0.98989

The correlation coefficient between net profit and total assets of ADBL, Nepal is 0.98989,
which is positively correlated. Here, coefficient is nearer to 1 which indicates that the
correlation seems to be nearly perfectly positive. It can be said that an increase in total assets
increases net profit and vice-versa.

Table 4.21
4.2.1.4 Calculation of correlation coefficient(r) between net Ifit in million (X) and book
net worth in million(Y) of ADBL, Nepal

Year X Y XY X2 Y2
2016/17 297 1,636 486,548 88,404 2,677,804
2017/18 365 2,597 948,727 133,482 6,743,105
2018/19 419 2,835 1,188,431 175,694 8,038,775
2019/20 333 2,847 948,575 111,005 8,105,914
2020/21 353 31,505 11,113,547 124,435 992,572,441
Total (Ʃ) 1,768 41,421 14,685,828 633,020 1,018,138,039
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

r=NΣXY-ΣXΣY/√NΣX^2-(ΣX)^2*√NΣY^2-(ΣY)^2

r= 0.95998

The correlation coefficient between net profit and net worth of ADBL, Nepal is 0.95998,
which is positively correlated. Here, coefficient is nearer to 1 which indicates that the
correlation seems to be nearly perfectly positive. It can be said that an increase in net worth
increases net profit and vice-versa.

54
 Table 4.22

4.2.1.5 Calculation of correlation coefficient( r) between net profit in million (X)

deposits in million(Y) of ADBL, Nepal

Year X Y XY X2 Y2
2016/17 297 9,952 2,958,871 88,404 99,033,027
2017/18 365 10,418 3,806,198 133,482 108,532,557
2018/19 419 11,888 4,983,170 175,694 141,336,249
2019/20 333 14,363 4,785,326 111,005 206,291,532
2020/21 353 16,281 5,743,357 124,435 265,087,018
Total (Ʃ) 1,768 62,902 22,276,922 633,020 820,280,383
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

r=NΣXY-ΣXΣY/√NΣX^2-(ΣX)^2*√NΣY^2-(ΣY)^2

r= 0.98777

The correlation coefficient between net profit and deposits of ADBL, Nepal is 0.98777,
which is positively correlated. Here, coefficient is nearer to 1 which indicates that the
correlation seems to be nearly perfectly positive. It can be said that an increase in deposits
increases net profit and vice-versa.

Table 4.23

4.2.1.6 Calculation of correlation coefficient(r) between net Ifit in million (X) and loans
and advances in million(Y) of ADBL, Nepal
Year X Y XY X2 Y2
2016/17 297 9,318 2,770,634 88,404 86,833,343
2017/18 365 9,810 3,583,969 133,482 96,228,939
2018/19 419 10,947 4,588,444 175,694 119,832,084
2019/20 333 12,185 4,059,703 111,005 148,472,748
2020/21 353 15,060 5,312,413 124,435 226,798,648
Total (Ʃ) 1,768 57,320 20,315,163 633,020 678,165,762
Source: Annual Reports of ADBL, Nepal FY 2016/17 to 2020/21

55
r=NΣXY-ΣXΣY/√NΣX^2-(ΣX)^2*√NΣY^2-(ΣY)^2

r= 0.98745

The correlation coefficient between net profit and loans and advances of ADBL, Nepal is
0.98745, which is positively correlated. Here, coefficient is nearer to 1 which indicates that
the correlation seems to be nearly perfectly positive. It can be said that an increase in loans
and advances increases net profit and vice-versa.

4.2.2 TEST OF HYPOTHESIS

In hypothesis testing, two opposing hypotheses about a population are formed Viz. Null
Hypothesis (H0) and Alternative Hypothesis (H1). The Null hypothesis is the statement
which asserts that there is no difference between the sample statistic and population
parameter and is the one which is tested, while the alternative hypothesis is the statement
which stands true if the null hypothesis is rejected.

As proposed in the first chapter, the calculated values of correlation coefficients presented in
Table 4.18 to 4.23 are tested by using t-test.

4.2.2.1 Test of hypothesis 1 : Hypothesis between Net Profit and Number of Employees

H0: Net profit and number of employees of ADBL are not correlated.

H1: Net profit and number of employees of ADBL are correlated

Calculation of t value for hypothesis test (source: table 4.18)

t=r*√n-2/√1-r^2

= 0.97293*√5-2/√1-(0.97293)^2 = 7.2919

Number of observations (n) =5

Correlation coefficient(r)= 0.97293(as I Table 4.18)

H0: p=0, i.e., net profit and number of employees of ADBL are not correlated.

H1:P≠o (two –tailed), i.e., net profit and number of employees of ADBL are correlated.

56
Level of significance (a) =5%=0.05

Test statistics under null hypothesis is

t=7.2919

Degree of freedom (doff.)=n-2 =5-2=3

Table value, at 5% level of significance at degree of freedom of at 3%:

t0.05=3.18 (taken from t-table)

tcal=7.2919 > t 0.05=3.18

Since calculated t is greater than the table value, H0 is rejected. Thus, it is concluded that
net profit and number of employees of ADBL are correlated.

4.2.2.2 Test of hypothesis 2 : Hypothesis between Net Profit and Number of Branches

H0: Net profit and number of branches of ADBL are not correlated.

H1: Net profit and number of branches of ADBL are correlated.

Calculation of t value for hypothesis test (source: table 4.19)

t=r*√n-2/√1-r^2

= 7.5748

Number of observations (n)=5

Correlation coefficient(r)= 0.974848

H0I=0, i.e., net profit and number of branches of ADBL are not correlated.

H1:P≠o (two –tailed), i.e., net profit and number of branches of ADBL are correlated.

Level of significance (a) =5%=0.05

Test statistics under null hypothesis is

t=7.5748

57
Degree of freedom (doff.)=n-2 =5-2=3

Table value, at 5% level of significance at degree of freedom of at 3%:

t0.05=3.18 (taken from t-table)

tcal= 7.5748 > t 0.05=3.18

Since calculated t is greater than the table value, H0 is rejected. Thus, it is concluded that net
profit and number of branches of ADBL are correlated.

4.2.2.3 Test of hypothesis 3 : Hypothesis between Net Profit and Total Assets

H0: Net profit and total assets of ADBL are not correlated.

H1: Net profit and total assets of ADBL are correlated.

Calculation of t value for hypothesis test (source: table 4.20)

t=r*√n-2/√1-r^2

t=12.0883

Number of observations (n)=5

Correlation coefficient(r)= 0.98989

H0:I,i.e., net profit and total assets of ADBL are not correlated.

H1:P≠o(two –tailed),i.e., net profit and total assets of ADBL are correlated.

Level of significance (a) =5%=0.05

Test statistics under null hypothesis is

t= 12.0883

Degree of freedom (doff.)=n-2 =5-2=3

Table value, at 5% level of significance at degree of freedom of at 3%:

t0.05=3.18 (taken from t-table)

58
t cal= 12.083 > t 0.05=3.18

Since calculated t is greater than the table value, H0 is rejected. Thus, it is concluded that net
profit and total assets of ADBL are correlated.

4.2.2.4 Test of hypothesis 4 : Hypothesis between Net Profit and Net Worth

H0: Net profit and net worth of ADBL are not correlated.

H1: Net profit and net worth of ADBL are correlated

Calculation of t value for hypothesis test (source: table 4.21)

t=r*√n-2/√1-r^2

t=5.9308

Number of observations (n) =5

Correlation coefficient(r) = 0.95998

H0I0,i.e., net profit and net worth of ADBL are not correlated.

H1:P≠o (two –tailed),i.e., net profit and net worth of ADBL are correlated.

Level of significance (a) =5%=0.05

Test statistics under null hypothesis is

t=5.9368

Degree of freedom (doff.)=n-2 =5-2=3

Table value, at 5% level of significance at degree of freedom of at 3%:

t0.05=3.18 (taken from t-table)

t cal= 5.9368 > t0.05=3.18

Since calculated t is greater than the table value, H0 is rejected. Thus, it is concluded that net
profit and net worth of ADBL are correlated.

59
4.2.2.5 Test of hypothesis 5 : Hypothesis between Net Profit and Deposits

H0: Net profit and deposits of ADBL are not correlated.

H1: Net profit and deposits of ADBL are correlated.

Calculation of t value for hypothesis test (source: table 4.22)

t=r*√n-2/√1-r^2

= 10.9728

Number of observations (n) =5

Correlation coefficient(r) = 0.98777

H0I0,i.e., net profit and of deposits ADBL are not correlated.

H1:P≠o (two –tailed), i.e., net profit and deposits of ADBL are correlated.

Level of significance (a) =5%=0.05

Test statistics under null hypothesis is

t= 109728

Degree of freedom (doff.)=n-2 =5-2=3

Table value, at 5% level of significance at degree of freedom at 3%:

t0.05=3.18 ( taken from t-table)

tCal= 10.9728 > t 0.05=3.18

Since calculated t is greater than the table value, H0 is rejected. Thus, it is concluded that net
profit and deposits are not correlated.

4.2.2.6 Test of hypothesis 6: Hypothesis between Net Profit and Loans and Advances

H0: Net profit and loans and advances of ADBL are not correlated.

H1: Net profit and loans and advances of ADBL are correlated.

60
Calculation of t value for hypothesis test (source: table 4.23)

t=r*√n-2/√1-r^2

t=10.8294

Number of observations (n) =5

Correlation coefficient(r) = 0.98745

H0: p=0, i.e., net profit and profit and loans and advances ADBL are not correlated.

H1:P≠o (two –tailed), i.e., net profit and loans and advances of ADBL are correlated.

Level of significance (a) =5%=0.05

Test statistics under null hypothesis is

t= 108294

Degree of freedom (doff.)=n-2 =5-2=3

Table value, at 5% level of significance at degree of freedom of at 3%:

t0.05=3.18 (taken from t-table)

tcal =10.8294 > t 0.05=3.18

Since calculated t is greater than the table value, H0 is rejected. Thus, it is concluded that net
profit and loans and advances of ADBL are correlated.

61
 CHAPTER – V

SUMMARY OF MAJOR FINDINGS, CONCLUSION AND

RECOMMENDATIONS

The research is about the study on financial performances of ADBL & this is a final chapter
of the study that consists of the summary of previous topics. In this chapter, summary
conclusion and recommendation are included. All the summary and conclusion are made
according to obtained data from analysis. Recommendation has made which would be
beneficial for the management of the bank and other stakeholder.

5.1 Summary

This study has conducted with a view to examine and evaluate the performance of ADBL,
which is working as one of the leading commercial bank of the country. Banks, which deal
with commercial activities, are known as cImmercial banks. These financiaI institutes help to
integrate every financial activity of the community. Banking sector plays an important role in
the economic development of the country. It provides an effective payment and credit system,
which facilitates the channeling of funds from the surplus and deficit in the economy.
Investment operation of commercial banks is a very risky one. For this, financial performance
of commercial banks have to pay due consideration while investment, mobilization of fund
and use of resources. A healthy development of any commercial bank depends upon its
financial performance. A good financial performance of a bank attracts both the borrowers
and the lenders, which helps to increase the volume of quality deposits and investment.

A bank always puts in effort to maximize its profitability. The profit is excess of income over
expenses. To maximize profit, income should be reasonably excess over expenses. The major
source of income of a bank is interest income from loans, investments and fee based income.
As loan and advances dominate the asset side of the balance sheet of any bank; similarly,
earnings from such loan and advances occupy a major space in income statement of the bank.
However, it is very impIrtant to be reminded that most of the bank failures in the world are
due to the shrinkage in the value of loan and advances. Hence, loan is known as risky asset
and investment operation of commercial banks, is a very risky one. Risk of non-performing

62
loans erodes even existing capital. Considering the importance of lending to the individual
banks and also to the society it serves, it is imperative that the bank meticulously plans its
credit operations. The main goal of the bank as a commercial organization is to maximize the
surplus by the efficient use of its funds and resources. In spite of being a commercial
institution, it has a responsibility (obligation) to provide social service oriented contribution
for the social economic upliftment of the country by providing specially considered loans and
advances towards less privileged sectors.

Performance evaluation of ADBL is done on the basis of financial statement from 2016/17 to
2020/21. To approach the result, some financial and statistical tools have been used. As
financial tools, ratio analysis has been used particularly. In the same way, statistical tool,
coefficient of correlation analysis between selected research variable have been used to
accomplish the objectives. This study is mainly based on the secondary data that have been
first processed and analyzed. From this analysis of performance of the banks, the following
findings and conclusion are made:

5.2 A brief summary about major finding of the study

Based on the analysis of data, the main findings of the study are discussed below:

A) Ratio Analyses
From the analysis of various ratios, the following findings can be categorized:

Profitability Indicators
1. The average net profit per branch for five years study period from fiscal year
2016/17 to 2020/21 was Rs.1.35 crore and per year net profit per branch has been
increasing in first three financial year from 2016/17 to 2018/19. There is increase in
net profit from Rs 1.19 crore to Rs 1.59 crore while increasing the number of
branches. But in the financial year 2019/20 and 2020/21, net profit per branch has
decreased than previous years despite of increasing the number of branches. It is due
to the direct impact of COVID in financial sector. Still it is assumed that the average
net profit per branch per year is satisfactory.

2. After the study of return on assets ratio (ROA), it is found that the average ratio
for five years period was 2.22 % approximately. ROA increased from 2.15 % to 2.71
% to 2.77% from fiscal year 2016/17 to 2017/18 to 2018/19 respectively. During first

63
 three financial years it shows the higher profitability and efficiency of investment on
total assets. ROA decreased from 2.77 percent to 1.86 percent to 1.59% in the
financial year from 2018/19 to 2019/20 to 2020/21 respectively, which indicates the
decreasing in profitability of bank and less efficiency of investment on total assets.

3. The Return on Equity (ROE) is also one of the important ratios. ROE decreased
from 18.17 % to 14.07% to 11.70% from fiscal year 2016/17 to 2019/20. It shows
the profitability of bank getting lower year to year and again there is significant fall
on ROE from 11.70% to 1.12% on FY 2020/21 due to the direct impact of second
wave of COVID in financial sector. It shows poor performance and less utilization of
common share holders’ equity. Average ROE between financial year 2016/17 to
2020/21 was 11.97 % which indicates there was less profitability and less efficiency.

4. Net Profit to Total Deposit Ratio, higher ratio shows better performance. It was
slightly increased from 2.99 percent to 3.51% to 3.53 percent from fiscal year
2016/17 to 2017/18 to 2018/19 respectively, it indicates better mobilization of
deposits but again there is a fall in ratios from 3.53% to 2.32% to 2.17% on FY
2017/18 to 2018/19 to 2019/20 which shows bad performance and less mobilization
of deposits than previous year. The average of net profit to total deposit ratio from
financial year 2016/17 to 2020/21 was 2.90%.

5. Return on Loans and Advances Ratio (ROL), generally high ratio reflects higher
efficiency to the utilization of outsider’s fund and vice-versa. It was increased from
2.91 percent to 3.65 % to 3.75 percent from fiscal year 2016/17 to 2017/18 to
2018/19 respectively, which shows the higher efficiency and better utilization of
fund in the initial 2 years of study period. But there was fall in ratios from 3.75
percent to 2.7 to 2.33 percent from fiscal year 2018/19 to 2019/20 to 2020/21, which
indicates the lower efficiency & less utilization of fund. The Average of Return on
Loan Ratio from financial 2016/17 to 2020/21 was 3.07%.

6. The interest income ratio is a profitability indicator of the bank. It is calculated by

dividing interest income to total assets. Higher ratio shows better efficiency and vice-
versa. Interest income ratio increased from 8.74 percent to 10.35 from fiscal year
2016/17 to 2017/18, which indicates increase in profitability. But it was decreased

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 from 10.21 percent to 8.82 to 6.80 percent from fiscal year 2018/19 to 2019/20 to
2020/21 simultaneously which indicates poor performance and decrease in
profitability. The average Interest Income Ratio from financial 2016/17 to 2020/21
was 8.98%.

7. The interest expenses ratio is also the profitability indicator which shows the
relationship between interest expenses and total assets. Decreasing interest expenses
ratio is favorable. Decrease in interest expenses ratio indicates higher profitability and
better performance. Interest expenses ratio increased from 3.29 percent to 5.17 % to
5.19 percent from fiscal year 2016/17 to 2017/18 to 2018/19 respectively, which
indicates poor performance and decrease in profitability. From FY 2019/20 to
2020/21 it was slightly decreased from 5.08 percent to 3.71 percent, which indicates
profitability and good performance than previous year. The average Interest Income
Ratio from financial 2016/17 to 2020/21 was 4.49%.

8. The net interest margin ratio is profitability and efficiency indicator of the bank.
Increasing net interest margin ratio is favorable. Higher ratio shows better efficiency
and vice-versa. From fiscal year 2016/17 to 2020/21 Net Interest Margin decreased
from 5.44% to 5.18% tI 5.02% tI 3.75 to 3.09 whiII indicIIes decrease in profitability,
less efficiency and poor performance. The average net margin ratio from financial
2016/17 to 2020/21 was 4.50%.

9. The intermediation cost (operating expenses) ratio is another profitability indicator

which seems to be better if it is decreased. Decrease in operating expenses ratio
indicates higher profitability and vice-versa. From fiscal year 2016/17 to 2017/18, the
Operating Expenses Ratio is increased from 7.02 % to 8.17 percent which indicates
decrease in profitability. From fiscal year 2017/18 to 2020/21 the ratios decreased
from 8.17 percent to 7.82% to 7.71% to 5.86 percent, which indicates increase in
profitability and improve in efficiency and the average operating expenses ratio from
financial 2016/17 to 2020/21 was 7.32%.

10. As per the analysis of net profit margin of bank it can be said that the ratio is
satisfactory even if it has been little bit fluctuating. It is an indicator of profitability
and efficiency. Higher ratio shows better efficiency and vice-versa. It is calculated by
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 dividing net profit after tax to total income of the bank. From fiscal year 2016/17 to
2017/18 to 2018/19 net profit margin increased from 18.8 percent to 23.76 percent to
24.25%, which indicates increase in profitability and efficiency. From fiscal year
2018/19 to 2019/20 the NPM decreased from 24.25 percent to 18.27 percent which
indicates poor performance. In FY 2020/21 the NPM slightly increased to 19.37
percent and the average net profit margin ratio from financial 2016/17 to 2020/21 was
20.75%.

Capital Market Indicators

1. Earnings Per Share EPS is the first capital market indicator which shows the
performance of share holders’ wealth. An increase in EPS indicates higher earning
and higher efficiency and decrease in EPS indicates decrease in profitability and
efficiency. The EPS decreased from fiscal year 2016/17 to 2017/18 from Rs.71.54
to Rs. 47.17 which indicates decrease in profitability and efficiency. The EPS
increased from Rs.31.59 to Rs.36.91 to Rs.42.88 from fiscal year 2016/17 to 2017/18
to 2018/19 respectively. It indicates better utilization of common shareholders fund
and better efficiency. But from FY 2018/19 to 2019/20 to 2020/21 there was
decrease in EPS that is from Rs. 42.88 to Rs.31.45 to Rs 29.13 which indicates
decrease in profitability & efficiency and less utilization of shareholders fund and
the average EPS from financial 2016/17 to 2020/21 was Rs. 34.39.

2. P/E ratio is the next indicator of the capital market. An increase in P/E ratio
indicates higher market price and higher risk and vice-versa. The P/E ratio decreased
from fiscal year 2016/17 to 2017/18 from 13.77 to 8.51 times which indicates
decrease in market price per share. From fiscal year 2017/18 to 2018/19 to 2019/20
to 2020/21 the P/E ratio increased from 8.51 times to 9.54 to 12.24 to 16.44 times
simultaneously which indicates increase in market price per share, higher the degree
of liquidity and higher the corporate image of a bank and the average Price/Earnings
Ratio from financial 2016/17 to 2020/21 was 12.10 times.

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Productivity Indicator
The average net profit per employee is the productivity indicator of the financial
institutions. Net profit per employee in thousands of rupees increased from Rs. 1130 to
Rs. 1488 to Rs. 1816 from fiscal year 2016/17 to 2017/18 to 2018/19 respectively,
which indicates increase in productivity and employee performance. But from fiscal
year 2018/19 to 2019/20 to 2020/21 it was decreased from Rs. 1816 to Rs. 1655 to Rs
1469 simultaneously, which indicates decrease in productivity, decreases in employee
performance and may be lack of skilled manpower in specific field of bank and the
average net profit per employee from financial 2016/17 to 2020/21 was Rs. 1512 in
thousands.

Financial Stability Indicator

Capital Adequacy Ratio is the financial indicator of the financial institutions.
According to Nepal Rastra Bank norms and bench mark standard the minimum capital
adequacy ratio should be 10 percent. The Capital Adequacy Ratios of ADBL Bank for
study period 2016/17 to 2020/21 were 20.41%, 20.33%, 20.37%, 19.29% & 16.94%
respectively and which is more than 10% that indicates better financial stability and
the average Capital Adequacy Ratio from financial year 2016/17 to 2020/21 was 19%
which is also more than NRB norms.

Assets Quality Indicator

Non-Performing Assets (NPA’s) ratio is the indicator of the quality of assets. Higher
NPA’s indicate the deteriorating quality of assets. From fiscal year 2016/17 to 2019/20
the NPAS decreased from 5.85 percent to 4.36 percent, which indicates increase in the
quality of assets and better performance. But there was increasing in NPA’s Ratio
from 4.36 percent to 4.60 percent from financial year 2019/20 to 2020/21, which
shows deteriorating quality of assets and the average of non-performing assets ratio
from financial 2016/17 to 2020/21 was 5.12%.

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Coefficient of Correlation Analysis:

Coefficient of correlation analysis between different variables reveals that:

1) From the analysis of correlation coefficient between net profit and number of
employees r is 0.97293, which shows strong positive correlation between these two
variables.
2) After studying the correlation coefficient between net profit and number of branches,
value of (r) is 0.97484. It shows strong positive relationship between two variables.
3) As per the analysis of coefficient of correlation between Net profit and total assets, (r)
is 0.98989, Ich indicates strong positive correlation between these two variables.
4) As per the analysis of coefficient of correlation between Net profit and net worth, (r) is
0.95998, Ich indicates strong positive correlation between these two variables.
5) As per the analysis of coefficient of correlation between Net profit and deposits, (r) is
= 0.98777Ihich indicates strong positive correlation between these two variables
6) As per the analysis of coefficient of correlation between Net profit and loans and
advances, (r) is 0.98745, which indicates strong positive correlation between these two
variables.

Hypothesis test analyses:

Hypothesis test analysis between different variables reveals that:

In all the six relationship between selected variables have tested by using student t-test. There
is strong positive correlation between all relationships due to the value of r is nearer to 1.
Since calculated value of t is greater than tabulated values there is significant relationship
between selected variables.

5.3 CONCLUSION

In conclusion it can be said that the performance evaluation is the most important part of all
financial institutions .On the basis of ratio analyses, correlation coefficient between selected
research variables and hypothesis test the following conclusions are made:

Profitability indicators include net profit per branch, ROA, ROE, net profit to deposits ratio,
ROL (Return on Loan), interest income ratio, interest expenses ratio, net interest margin,

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ICAR (Intermediation Cost to Asset Ratio) and NPM (Net Profit Margin). Out of these net
profit per branch is satisfactory. The ROA, ROE, net profit to deposits, ROL and net profit
margin are also satisfactory. EPS and P/E ratios are capital market indicators. EPS is
satisfactory due to the increase ratio is higher than decreasing ratio. Net profit per employee,
capital adequacy and non-performing assets indicate productivity, financial stability and assets
quality. The net profit per employee has been increasing every year except fiscal employees.
Even if capital adequacy ratio has been fluctuating but it is more than standard .Therefore, it
can be said that it is above than central bank norms and also satisfactory. The NPA’s has been
decreasing; it indicates the better performance.

The correlation coefficient between selected variables is nearer to 1.It shows the strong
positive correlation. It can be concluded that:

 An increase in number of employees increases net profit and vice-versa.

 An increase in number of branches increases net profit and vice-versa.
 An increase in total assets increases net profit and vice-versa.
 An increase in net worth increases net profit and vice-versa.
 An increase in deposits increases net profit and vice-versa.
 An increase in loans and advances increases net profit and vice-versa.

5.4 RECOMMENDATION

A clear financial picture of ADBL can be viewed from all above presentation. Now, some
valuable and timely suggestions and recommendation can be advanced to overcome
weakness, inefficiency and to improve present financial position of the bank. On the basis of
findings mentioned above some of recommendation have been drawn as follows:-

 As the profitability /earnings indicators, capital market indicators and productivity

indicators have been increasing during the study period and there are strong positive
correlations between selected six variables, it can be recommended to increase in
Investment in total assets, equity capital, deposits, loans and advances.
 capital adequacy ratio is a little bit above than NRB standard, it is recommended to
increase in capital fund which will ultimately increase in capital adequacy ratio.

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 ADBL need to bring in newer schemes to mobilize their deposits in extending credit
and investment.
 ADBL banks should try to increase their profitability by investing in more profitable
sectors, and by increasing the quality of their extended credits. They should have to
investigate thoroughly the wide range of investment opportunities in the market in
order to improve their profitability situation. Especially, As formation of price is a
very complex process, some extremely outstanding sectors such as management
efficiency, profitability status, future perspective, bank’s investment strategy, etc.
should be improved.
 ADBL should maintain the level NPA’s as per NRB direction.
 Being large network of ADBL, bank cannot perform better job due to old
infrastructure, human resource mobilization policy, government ownership, depend on
aide etc. so bank recommended to consider in this topic.
 Future ahead, the ADBL should improve its weaknesses by adopting the innovative
approach to marketing. In the light of growing competition in the banking sector, the
business of the bank should be customer oriented. It should strengthen and activate its
marketing function as it is an effective tool to attract and retain the customers. For the
purpose, the bank should develop an innovative approach to bank marketing and
formulate new strategies of serving customers in a more convenient and satisfactory
way by optimally utilizing the modern technology and offering new facilities to the
customers at competitive prices.
 Since operating expenses or intermediation cost to assets ratio (ICAR) has been
fluctuating during the study period, it will be recommended to reduce operating
expenses by increasing staff productivity and to reduce other expenses.

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 REFERENCES

1. Annual Report of Agricultural Development Bank for Financial Year 2016/17

2. Annual Report of Agricultural Development Bank for Financial Year 2017/18
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4. Annual Report of Agricultural Development Bank for Financial Year 2019/20
5. Annual Report of Agricultural Development Bank for Financial Year 2020/21
6. Nepal Rastra Bank, Annual Bank Supervision Report from 2016/17 to 2020/21
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 18. Pathania and Singh, 1998. “A Study of Performance of HP State Cooperative Bank”.
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Websites

http://www.adbl.gov.np

http://www.nrb.org.np

http://www.tucl.org.np

http://www Sharesansar.com

http://www.dhitopatra.com

http://www .Merolagani.com

http://www.nepalstock.com

https://www.investopedia.com

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 APPENDIX – I
Agricultural Development Bank Limited
MAJOR INDICATORS for Five Years from FY 2016/17 to 2020/21

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 APPENDIX – II

Agricultural Development Bank Limited

BALANCE SHEET for Five Years from FY 2016/17 to 2020/21

Sources: Annual Reports of ADBL 2016-17 to 2020-21

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 APPENDIX – III
Agricultural Development Bank Limited
INCOME STATEMENT for Five Years from FY 2016/17 to 2020/21

Sources: Annual Reports of ADBL 2016-17 to 2020-21

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