CHAPTER I: INTRODUCTION

1.1General Background

Bank is a financial institution which collects deposits from general public by various accounts,
advancing loan to people in different headings and incorporated with the power to issue
promissory notes with and intention of circulating money.

According to world Bank, “Bank is financial institutions that accept funds in the form of deposits
repayable on demand or in short notice.”

The term Bank is derived from the Italian Word ‘Banco’ Which means a bench or money
exchange table. Regarding the origin and Banking institution in the World, the Bank established
was ‘Bank of Venice’ of Italy. In ancient time, European money lenders use to show coins of
different countries of quantity in benches for the purpose of exchange.

A Sound banking system is important because of the key roles plays in the economy;
intermediation, maturity, transformation, facilitating payment flows, credit allocation, and
maintaining financial discipline among borrowers. Banks provide important positive externalities
as gathering of saving, allocation of resources and providers of liquidity and payment services.

In recent years due to liberal economic policy of the government many private banks are coming
into operation. The foreign joint venture banks are enjoying competitive advantages factors like
highly skilled personnel, modern and advanced technology, customer oriented modern banking
services, management enterprise and global banking network. Bank in general means an
institution that deals with money. The concept of banking had developed from the ancient history
us with the effort of ancient goldsmith who practiced storing people’s gold and valuables.

Nepal Bank Limited is the first Bank of Nepal Which was established in 1994 B.S. and later in
2012/2013 B.S. Nepal Rastra Bank, the central Bank was established. The central facilitates the
policy decision, guidance and control the banking and to monitor this sector. Nowadays many
other commercial banks are in operation.

Nabil Bank Limited (erstwhile Nepal Arab bank Limited) is the first private sector bank of
Nepal. It was established in 12th July 1984 A.D. under three technical service agreement with
Dubai bank Limited, Dubai. Likewise, it is also the first joint venture bank of Nepal. It has 50

1
percent foreign ownership. General public of Nepal holds 30 percent ownership of the Bank.
Likewise, Nepalese institution possess of 10 percent and 10 percent others share of the Bank.
Nabil Bank is the leading commercial bank of Nepal with highest profit among private banks for
several years. Currently, the bank has 92 branches and 142 ATM across Nepal. Also, there are
more than 1500 Nabil remit agents in Nepal. Nabil Bank has its head office at Durbarmargs,
Kathmandu.

Nepal Rastra Bank (NRB), in its monetary policy 2015, directed the commercial banks to meet
minimum paid-up of capital of Rs. 8 billion. Due to this, Nabil Bank has increased its paid-up
capital to Rs. 8.04 billion by F.V. 2074/75. The current capital (as of third quarter of F.V.
2075/76) is Rs. 9.01 billion. During the period, the bank has paid cash dividend totaling
(34%worth Rs.3.06

araba). were, Bonus Share (12% Worth Rs. 1.08 araba) & Cash Dividend (22% worth Rs.1.98
araba including tax amount). Then paid-up Capital after adjustment: Rs. 10.09 araba.

The bank also has a subsidiary company named-Nabil investment Banking Limited. Nabil
investment Banking is a merchant banker which performs various activities such as the issue of
shares, share registrars, mutual fund operation, portfolio management, etc.

Nabil Bank is the principal agent bank in Nepal of western Union Financial services and
facilities transfer of funds though as online computer system, instantly to location in 200
countries and territories worldwide quickly and easily.

Financial analysis is the process of identifying financial strength and weakness of the firm by
properly establishing relationship between items of balance sheet and profit and loss account.it
analyzes and interprets the figure in such a manner that it Obtains information about the
liquidity, efficiency, profitability, leverage position and growth. Financial analysis is used to
analyze whether and organization is stable, solvent, liquid or profitable enough to warrant a
monitory investment.

This study is to understand Ratio liquidity, leverage and profitability between financial data of
last Five years of Nabil Bank Limited Which will help in effective financial performance of the
banks.

2
1.2 Profile of organization

Nabil Bank limited is establishment and expansion of number of banks and other financial
institution in Nepal has created keen competition among themselves. This has created a lot of
challenge to them. The problems the commercial banks are facing in Nepal in include the
problem of resource mobilization, poor investment climate, heavy regulatory procedure uncertain
government policy, and NRB’S directive etc.

Bank needs to maintenance some seasonable level of liquidity to fulfill different commitments
such as provide money to depositors when they demand for administrative expenses, for
maintaining cash reserve ratio in the central bank etc. so, liquidity is defined as the bank’s
capacity to pay cash in exchange of deposits. liquidity is crucial in in the busines like banking.
Because if the bank has the high liquidity it can no on a desired profit and if the bank has the
shortfall of the liquidity it cannot satisfy its customers. Inadequate liquidity may lead to collapse
of the bank while excess liquidity is determinant to bank’s profitability in order to remove
demerits associated with maintaining inadequate and excess liquidity, bank should maintain and
optimum level of liquidity. This possible only when bank’s liquidity need is correctly predicted.
Prediction cover inflows and outflows of liquidity. If prediction shows more outflows, bank
should be prepared to cover the shortfall by borrowing by liquidating assets. If inflow is greater
than outflows, banks should plan where to invest show that income can be increases. Banks
attach great importance short terms and long-term prediction. Prediction of liquidity need should
be in the form of primary and secondary reserve shows the bank generates income at the same
time does not compromises to liquidity. Banks got failure because of wrongly analyzed liquidity
position and wrongly predicated liquidity requirement and management policy of liquidity. Thus,
to gain the trust of the customer and be success on the operation, the bank should maintain and
forecast the liquidity need for the period and optimum of liquidity based on the past liquidity
position.

The current situation has brought a cutthroat competition in banking business. Especially the
joint venture private banks are concentrating their more profitable area. In this context the
NABIL is in critical situation because it has to give service to the mass of people where financial
benefit is low at the same time, they have weakness also in their management and operational

3
activities. The present study attempts to make assessment on the problems and recommended
solution regarding the above-mentioned ground as follows.

 What is the financial status of Nabil bank limited?

 What are the problem and prospect associated to Nabil?

1.3 Objective of the study

The basic objective of this research is to make analysis of financial performance of NBL by
using financial and Statistical tools and to recommend the suitable suggestion for improvement
of those banks to the management team owners. Analysis of financial Statements helps to
examine the efficiency and performance of an organization. Financial Statements show the
financial Strength and Weakness of the firm.

Specific Objective of the Study:

 To analyze the risk and return on equity of NABIL BANK LIMITED

 To analyze the liquidity position of NABIL BANK LIMITED
 To evaluate the financial ratios to calculate efficiencies, profitability capital structure
ratios of NABIL BANK LIMITED.

1.4 Rationale

It is fact that the banks affect the economics condition of whole country. In the absence of study
and research it is difficult to know what it the exact economic condition and follow to take
decision about it. For provided exact information in data to concern institutions, banks,
shareholders and person and also get information for taking decision for various way. The
sampling technique of this study is convenience sampling so, rationale behind selecting NABIL
BANK limited is that the finding cannot be generalized to the similar service provided by other
company. This study can be useful to the further researcher, college and university students,
financial congers and analysis, government, NGO’S INGO’S And other interested individuals
who are new generation.

1.5 LITERATURE REVIEW

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Literature review comprises upon the existing literature and research related to the present study
with a view to find out what has already been studied, literature review is a process of systematic
way of accumulation, analysis and evolution of facts or knowledge of selected topic or problems.
It provides the foundation for developing a comprehensive theoretical framework and knowledge
of the status relevant to the field of research in order to explore the relevant facts for the
reporting purpose. For this, NRB's directives, books, journals, articles, annual reports and some
related research papers have been reviewed. For the convenience I choose Financial analysis of
Nabil Bank Limited.

1.5.1 Conceptual Review

A careful review of the literature enables the researcher in discovering important variables
relevant to the present research. The independent variable of this study is different policies ruled
by Nepal Rastra Bank Limited. Similarly, the dependent variable is financial performance. The
concept of dependent and independent variable can made clearer with the help of as follows:

Financial
Dependent Variable: Performance

Structure and resource

Total capital fund
Independent Variable:
Return on equity
Return on investment
Market Price of Share

5
1.5.2 Financial Analysis

Financial analysis is the process of identifying the financial strength and weakness of the firm by
properly establishing relationship between the items of the balance sheet and loss account.
Management of the firm can undertake it or by parties outside the firm (Pandey, 1992). Focus of
the financial analysis is on the key figure contained in the financial statement and significant
relationship existed. Management of the firm is generally interested in every aspect of the
financial analysis; they are responsible for the overall efficient and effective utilization of the
available resource and financial position of the firm.

The Vertical and horizontal analysis could be done for the financial analysis. The vertical
analysis consists of financial balance sheet, Profit and loss account of a certain period of the time
only, which is known as Static analysis. Likewise, the horizontal analysis consists of a series of
statement relating to the number of years are reviewed and analyzed. It is also known as dynamic
analysis that measures the change of the position and trend of the business over the number of
years. In this study, horizontal analysis has been adopted to find out the financial indicators of
the NBL and NABIL over the period of FY 2014/15 to 2019/20. The steps of analysis are as
follows:

 Selection of the information relevant to the decision.

 Agreement or the selected information to highlight the significant relationship of the
financial yardsticks.
 Interpretation and drawing of inferences and conclusion.

To evaluate the financial performance of a firm, the analysis needs certain parameters of the
company by which the quantitative relationship and its position come out. The most widely
and effective used tools of the financial analysis is the ratio analysis. The financial ratio is the

measurement of the relationship figures, expressed in mathematical way or the numerical

relationship between two variables expressed as (i) Percentage or, (ii) fraction or (iii) in
Proportion of numbers.

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 1.5.3 Ratio Analysis

Ratio analysis is the systematic used of financial information of the firm strength and
weakness as its historical performance, and current financial condition can be determined.
After Calculation various ratio, we need to compare with the certain standard and draw out
the conclusion of results. The comparison classified by Weston and Brigham into six types
visz

 Liquidity Ratio
 Leverage Ratio
 Profitability Ratio

The detail of the ratio will be discussed in the next chapter.

A Sound banking system is important because of the key role plays in the economy;
intermediation, maturity, transformation, facilitating payment flows, credit allocation, and
maintaining financial discipline among borrowers. Banks provide important positive externalities
as gathering of saving, allocation of resources and providers of liquidity and payment services
(Gillian and Soal, 2012).

Return is the difference between money received and back from an investment and the money
originally invested at the beginning (Fama, 1981). For example, if you invest Rs 100 in common
stock today and sell it for Rs 110 tomorrow, your return is Rs 10 (i.e. Rs 110 received back from
selling of shares minus Rs 100 originally invested). Return increases that investor’s wealth.
Therefore, investors invest in the expectation of positive return. Other things held constant
investor always prefer higher return to lower one as it increases their wealth.

Risk is defined as variability in return (Farma,1981). In order to achieve the Shareholders wealth
maximization goals, the financial manager should know how to assess two fundamental and key
determinants of market price of share: risk and rate of returns: Risk cannot be avoided in
financial decision making. Along with cash flows and timing, the risk and how it should be
measured. Then only becomes able to study its impact on required rate of return. Without
understanding risk, no manager is able to make financial decision effective. Therefore, all of the
major financial decisions should be viewed in terms of expected returns and returns and risk, and
their combined impact on the shareholder wealth.

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1.5.4 Review of previous works

There is various thesis prepared by various researchers in the past year. Among them some of
these are reviewed here for analysis of literatures.

1.5.5 Review of Books and Journals

Further R.S. Sayers in his books modern banking writer, “Ordinary banking business consist of
changing cash for bank deposit from one person to corporation (one depositor to another) giving
bank deposit in exchange for bill of exchange, government banks secured and unsecured
promises business man to repay.” Erich (2002) in his has described financial analysis as
“Financial analysis is the both an analysis and judgmental process that helps to answer the
question that have been properly posed to and therefore, it is mean to an end. We can stress
enough that financial is an aid that allows responsible for results to make sound decision.”

Liquidity is other financial indicator of the business enterprises I.M. Pandey says, “A firm should
ensure that it doesn’t suffer from lack of liquidity. And also, that it is not too much highly liquid
the failure of the company to meet its obligation due to lacks of sufficient liquidity result in bad
credit image. Loss of creditor confidence or even in low suits resulting in the closer of the
company. A very high degree of liquidation is also bad; idle assets nothings. The firms fund will
be unnecessarily tied up in current assets. Therefore, It is necessary to strike a proper balance
between liquidity and lack of liquid.

Liquidity is measured by the speed with which a bank asset can be converted into cash and other
current obligation. It is also important in view of survival and growth of a bank.

1.5.6 Review of Thesis

Various thesis works have done in different aspect of commercial bank such as leading policy,
interest rate structure, investment policy, resource mobilization and capital structure, etc.

Shrestha (2002) in his study, “A comparative analysis of financial performance of the selected
commercial banks.” Concluded many of the bank are of the view that political instability in the
country is mainly responsible for the decline of the lending opportunities. Few banks ascribed it
to the economic crisis that occurred in Asia pacific region. No one felt that higher rates on
interest on lending to be a major factor. At the sometimes it should target not only the urban

8
sector, it should go to rural sector also. They have to explore all the potential sectors like tourism
etc. in order to generate high rate of profit”

Gurung’s study on “A financial study of joint venture bank in Nepal.” A comparative study of
NGBL and NIBL. In this study, he has analyzed the financial performance the liquidity,
profitability and dividend payout ratio of two banks are on favorable position. But NIBL seem to
be slightly better position in term of liquidity, profitability and capital structure compare to the
NGBL. In the evidence he has concluded that the NIBL promise better future than NGBL.

The present study tries to focus on financial performance of NABIL bank limited it is clear that
there was one research work on comparative study of this bank. This is the comparative study of
bank which was not cleared in previous studies.

1.5.7 Review of Articles

Under this heading, effort has been made to examine and review some of the related article
published in different economic journal, bulletin of world bank, dissertation paper, magazine,
newspaper and other related books.

F. Morris, in his discussion paper on, “Latin American’s banking system” in the 1980’s has
concluded that most of the banks are concentrated on compliance with central bank rules and
reserve requirement credit allocation (investment decision) and interest rates. While analyzing
loan portfolio quality, operating efficiency and soundness of banks investment management has
largely been over looked.

Shree Prasad Poudel Deputy Director, NRB in his article “Government securities market rational
and development in Nepal” has concluded that the securities markets are central of the financial
system. Debt securities market in Nepal is highly dominated by government debt securities. Debt
statistic’s evidence that Nepal remained debt free nation till 1950’s. From the beginning of
1960’s foreign loan and domestic loan have been alternative mean of debt financing in Nepal as
a result total debt as percentage of GDP widened from one percent 1960’s to 654.3% in2000.

Bajracharya (2047) has mentioned in article, “monetary policy and deposit mobilization in
Nepal” has concluded that the mobilization of domestic saving is one of the monetary policies in
Nepal. For the purpose the commercial banks stood as the vital and active financial intermediary

9
for generating resources in the form of deposit of the private sector so far providing credit to the
investor in different aspect of the economy. (Bajracharya, 199;93-97)

1.5.8 Research Gap

Very few researchers have concluded research related with financial performance of banks like
paudel (2000). So, this research is concluded and mainly to analyze the financial position of
Nabil bank limited among 27 commercials and which helps bankers, investors, students,
government, INGO’S for making decision.

Paudel has not focused on the risk and return on equity and total assets so this study also tries to
find out the level of risk and return related to equity and total assets is the gap of my study and
paudel study.

1.5.8.1 RESEARCH METHODS

1.5.8.2 Types of Research

There is various type of research adopted in order to fulfill the objectives of the study. However,
this study has used quantitative research and more specifically the descriptive research design is
adopted. Descriptive techniques have been applied to interpret the data and different financial
tools such as mean, standard deviation, and ratio analysis are also used.

1.5.8.3 Population and Sample

The concept population and sample include the tools and technique while making a research.
While conducting this report, 27 commercial banks as population but among these banks NABIL
bank limited taken as sample. The sampling technique of this study is convenience sampling.
The rationale behind selecting NABIL bank limited is that the finding cannot be generalized to
the similar services provided by other company. The main function of the sample is able to allow
the results of their study can be used to derive conclusion that will apply to the entire population.

1.5.8.4 Types of Data

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The required data have been collected from the various sources; but mainly from the annual
reports of bank and financial institution covering period of five years. This study is mainly based
on secondary data. Secondary data are those data which has been already collected by other
individuals. The secondary data are collected through website, journals and annual report of the
bank.

1.5.8.5 Data Collection procedure

Data collection procedure is the systematic approach to gather and measure information. There
are primary data and secondary data but this study is based on secondary data. Secondary data
are collected through annual report, journals, and websites.

1.5.8.6 Instruments

During the report different instruments have adopted for the data collection process such
secondary. Secondary data is those data which are already collected by other. Secondary sources
are also collected through websites and published records.

1.5.8.6.1 Technique of Analysis

1.5.8.6.2 Arithmetic Mean

An arithmetic mean is the value, which represents the group of values and gives an idea about
the concentration of values in the central part of the distribution.

1.5.8.6.3 Standard deviation

Standard deviation ids defined as the positive square root of the arithmetic mean of the square of
the deviation of the given data or observation from their arithmetic mean.

1.5.8.6.4 Correlation

A statistic that describes the degree of relationship between two or more variable is called
correlation.

1.5.8.6.5 Ratio Analysis

 Liquidity Ratio
 Leverage and capital structure Ratio

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  Profitability
 Valuation Ratio

Liquidity Ratio

Liquidity ratio reflects the short-term obligation of the firm. This ratio shows that if firm need
cash amount in short period without any notice, can firms fulfill its need or how it manages the
need.

 Current Ratio: It is the ratio of total current assets to current liability. Lower current ratio
creates difficulties in meeting short run commitments as they mature. If the ratio is too
 high, the bank has and excessive investment in current assets or is underutilizing short
term credit.

Leverage/capital structure ratio

Leverage ratio shows the proportion of debt capital and equity capital. It shows the long-term
Solvency of the firm. It judges the long-term financial position of the firm. Hence the leverage
ratios are calculated to measure the financial risk and the firm’s ability if using debt for the
benefits of shareholders.

 Total debt to total assets ratio: This ratio expresses the relationship between creditor’s
fund and owner’s capital. This ratio measures the share of the total assets financed by
outsider fund this ratio is calculated as
 Capital Adequacy Ratio: To operate the firm effectively and efficiently in the modern
Competitive environment adequate capital is required. This ratio is the one of the most
significant ratios used specially to assess the bank’s strength of the capital structure of the
adequacy of the capital. So capital adequacy is determined as
 Total debt to net worth ratio: This ratio measures the proportion of interest-bearing rate
and owner’s fund. This relationship describing the lenders contribution for each rupee of
owner contribution is called debt equity ratio. It is calculated as

Profitability Ratio

This ratio measures the capacity of generating revenue and search for the income of the firm.
The operating efficiency of the bank and its ability to ensure adequate return to its shareholders

12
depends ultimately on the profit earned by the bank. To measure the efficiency of the banks
following measure profitability ratio are calculated as

 Return on equity: This ratio is also called investor’s ratio. It measures the effectiveness of
the management with respect to both its operating and financial decision
 Net profit Margin: It is ratio net income after tax to gross income of the firm. In other
word how much profit a firm earned during a particular year in comparison to total
income.
 Return on total assets: It is the ratio of net profit after tax to total assets. It I s calculated
as below.

Valuation Ratio

These ratio results the overall performance of the banks measuring the combines effects risk and
return. The valuation ratio indicates the market value of the firm as compared to the book value
and measure the stock price relative to Earning. The following ratios are calculated.

 Price Earnings Ratio: Price Earnings ratio widely used by the securities analysis to the
value the firm’s performance as expect by the investors. It shows how much Investors
are willing to pay per rupee of reported profit.
 Dividend payout Ratio: The ratio measures the relationship between Earning belonging
to the ordinary shareholder and dividend paid to them. It can be calculated as

1.5.8.6.6 Limitations

Limitation means the area which is not covered by the researcher for studying or uncovered areas
of the study on related title is called limitation. The mainly focused limitation of this study is as
below.

 The finding of the study cannot be generalized because the large sample has not taken to
represent the population.
 The study mainly based on the secondary data only thus, it may not reflect the true
picture of the bank’s performance.
 Information is based on historical data covering five-year periods only.

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 CHAPTER II: RESULTS AND FINDINGS

2.1 Presentation and Analysis of Secondary Data

Subject matter and objectives of this study have been introduced in the first chapter. In order to
achieve those objectives necessary analytical tool and techniques have been discussed in unit
“Research Methodology.” In this unit relevant data have been presented and analyzed with
reference to financial performance of selected commercial Bank.

2.1.1 Liquidity ratio

Current ratio = current assets/current liabilities

Table 1

Current ratio

year Current assets Current liabilities Current ratio

2015/16 56005 53274 1.0512
2016/17 60757 57449 1.0575
2017/18 70218 66250 1.0598
2018/19 83700 79334 1.0550
2019/20 11802 106200 1.0621
Mean 1.15
Figure 1. Current Ratio

14
 120000

100000

80000

60000

40000

20000

0
2015/16 2016/17 2017/18 2018/19 2019/20

current assets current liabilities

Source: Annual Report of bank

In the table and figure of current ratio of Nabil bank limited shows more than one ratio in all
years. It means the bank has limited currents assets to pay out its Short-term obligation. If the
current ratio will down form one than bank will not be able to pay it short term liabilities. The
standard form of current ratio is 2:1. This bank has not maintained standard of this ratio even it is
not bad because it goes in increasing rate.

2.1.2 Profitability ratio and valuation ratio

Table 2

Net profit after tax

Year Net profit after tax in billion

2015/16 2.09
2016/17 2.82
2017/18 3.70
2018/19 3.98
2019/20 4.24

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Average net profit after tax 3.66

Figure 2. Net profit after tax

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2015/16 2016/17 Net profit after tax in billion2018/19
2017/18 2019/20

Source: Annual Report of Bank

Net profit after tax is the portion of income from the selling of the goods or services, so the net
profit after tax of Nabil bank limited goes on increasing rate during the period of 2015/16 to
2019/20 i.e.

Net profit after tax in different years are 2.09, 2.82, 3.70, 3.98, 4.24 & Average net profit after
tax is 3.66.

Table 3

Price Earnings Ratio

Year EPS MVPS P/E Ratio in times

2015/16 65.91 1252 17.72
2016/17 83.23 1355 16.21
2017/18 91.05 1815 19.08
2018/19 76.12 2535 33.38
16
2019/20 57.24 1910 33.37

Figure 3. P/E Ratio

Chart Title
40

35

30

25

20

15

10

0
2015/16 2016/17 2017/18 2018/19 2019/20

P/E Ratio Column1 Column2

Source: Annual Report of Bank

Price Earnings ratio is the ratio shows the relationship between market value per share to
Earnings per share. P/E ratio in all particular year is going in increasing rate they are 17.22,
16.21, 19.08, 33.88 and 33.37. It also shows the good market value and Earnings per share in
comparison to other banks during the Particulars year.

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Table 4

Net Profit to Loans and Advances

Year Net Profit/Loan & advances Ratio (%)

2015/16 3.73
2016/17 4.14
2017/18 5.04
2018/19 4.54
2019/20 3.31

Figure.4 Net Profits to Loan and advances

0
2015/16 2016/17 2017/18 2018/19 2019/20

Net Profit to Loan and advances

Source: Annual Report of Bank

The presentation of net profit to loan and advance in figure and table shows the effective
utilization of collected or available resources. It is also showing that the profit margin of the
bank is also used for providing the loan and advance to the customer and these ratios are positive
in all Particulars year i.e. 3.73, 4.14, 3.04, 4.54 and 3.31 respectively.

18
Table 5

Return on Equity

Year Return on Equity (%)

2015/16 22.73
2016/17 25.61
2017/18 22.41
2018/19 20.94
2019/20 17.76

Figure.5 Returns on Equity

30

25

20

15

10

0
2015/16 2016/17 2017/18 2018/19 2019/20

Returns on Equity

Source: Annual Report of Bank

Return on equity shows the relationship of net profit to shareholders equity. Return on equity in
the first there year is increasing rate then it goes in decreasing rate but it is providing the positive
rate of return to the shareholders. It also shows the good return to the shareholders equity in
different years equity they are 22.73, 25.61, 22.41, 20.94 and 17.76 respectively.

19
Table 6

Average Return on Assets

Year Average Return on Assets (%)

2015/16 2.06
2016/17 2.32
2017/18 2.69
2018/19 2.61
2019/20 2.11

Figure.6 Average Return on Assets

2.5

1.5

0.5

0
2015/16 2016/17 2017/18 2018/19 2019/20

Average Return on Assets

Source: Annual Report of Bank

Average Return on Assets during the first three year it goes in increasing rate and the last two
year it goes in decreasing rate but, it is providing positive rate of return on assets. It is also
indicating that the bank in properly utilizing its total assets. The average return on assets are
2.06, 2.32, 2.69, 2.61 & 2.11 respectively.

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Table 7

Earnings per share & Dividend per share

Year EPS DPS

2015/16 57.24 36.84
2016/17 59.27 45.00
2017/18 59.86 48.00
2018/19 51.84 34.00
2019/20 50.57 34.00

Figure.7 Earning Per share & Dividend per share

120

100

80

60

40

20

0
2015/16 2016/17 2017/18 2018/19 2019/20

EPS DPS

Source: Annual Report of Bank

In the table and figure shows Earnings per share and dividend per share during the first three
year it goes in increasing. Then after the last two years EPS &DPS it goes in decreasing but it is
positive. It shows the bank is Earnings positive rate of return from the investment of the loan or
deposit. EPS &DPS in different year is 57.24, 59.27, 59.86, 51.84 & 50.57 and 36.84, 45.00,
48.00, 34.00 & 34.00 respectively.

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2.1.3 Leverage and Capital Structure Ratio

Table 8

Capital Adequacy Ratio

Year Capital adequacy Ratio (%)

2015/16 11.57
2016/17 11.73
2017/18 12.90
2018/19 13.00
2019/20 12.50

Figure.8 Capital adequacy Ratio

13.5

13

12.5

12

11.5

11

10.5
2015/16 2016/17 2017/18 2018/19 2019/20

Capital adequacy Ratio

Source: Annual Report of Bank

Capital adequacy ratio is the ratio of total sum of capital (Core capital + Supplementary capital)
to risk weighted assets, it is also called capital adequacy ratio. Capital adequacy ratio of Nabil
bank limited during the five year is greater than 10% so it has maintained capital adequacy ratio

22
and reserve ratio as per the rule of NRB. Capital adequacy ratios of bank in different year are
11.57, 11.73, 12.90, 13.00 & 12.50 respectively.

Table 9

Gross Loan & advances

Year Gross Loan & advances in billion

2015/16 67.16
2016/17 77.73
2017/18 94.09
2018/19 112.40
2019/20 132.49

Figure.9 Gross Loan & advance

140

120

100

80

60

40

20

0
2015/16 2016/17 2017/18 2018/19 2019/2020

Gross Loan & advance

Source: Annual Report of Bank

The presentation of Gross loan and advance in table & figure shows the effective utilization of
collected or available resources. The Bank is also used for providing the loan and advance to the

23
customer and these ratios are positive in all Particulars year i.e. 67.16, 77.73, 94.09, 112.40 &
132.49 respectively.

Table 10

Total Debt to Net worth Ratio

Year Total Debt Net worth Total Debt to Net worth

2015/16 106500 9486 11.2270
2016/17 116889 14458 8.0847
2017/18 127319 16699 7.6243
2018/19 148490 20586 7.2131
2019/20 177950 23189 7.6738

Figure.10 Total Debts to Net worth

12

10

0
2015/16 2016/17 2017/18 2018/19 2019/20

Total Debt to Net worth

Source: Annual Report of Bank

Total debt to net worth is the ratio of total liability to total shareholder’s equity. In other word it
indicates the portion of total debt to net worth higher ratio is not good for bank, lowest outside
fund ratio is preferable. Total debt to net worth ratio in different year is 11.2270, 8.0847, 7.6443,

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7.2131 & 7.6738 respectively. It shows the bank itself has enough capital they needn’t outside
capital externally due to the more risky.

Table 11

Calculation of correlation coefficient between return on assets (x) and return on equity(y)

Year X Y X2 Y2 XY
2015/16 2.06 22.73 4.2436 516.6529 46.8238
2016/17 2.32 25.61 5.3824 655.8721 59.4152
2017/18 2.69 22.41 7.2361 502.2081 60.2829
2018/19 2.61 20.94 6.8121 438.4836 54.6534
2019/20 2.11 17.76 4.4521 315.4176 37.4736
Total 11.79 109.45 28.1263 2428.6343 258.6489

= 5×258.6489-11.79×109.45

√ 5 ×28.1263−(11.79)2√ 5 ×2428.6343−(109.45)2

= 0.1732

The Correlation Coefficient between return on total assets and return on equity shows the highly
positive correlated. It shows the better performance of the bank.

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Table 12

Calculation of standard deviation of return on equity

Year X (%) x-mean (x-mean)2

2015/16 22.73 0.8398 0.7052
2016/17 25.61 3.7198 13.8369
2017/18 22.41 0.5198 0.2702
2018/19 20.94 -0.9502 0.9028
2019/20 17.76 -4.1302 17.0585
Mean = 21.8902%

S.D. = 2.56%

Table 13

Calculation of S.D. of Average return on assets

Year X (%) x- mean (x-mean)2

2015/16 2.06 -0.298 0.088804
2016/17 2.32 -0.038 0.001444
2017/18 2.69 0.332 0.110224
2018/19 2.61 0.252 0.063504
2019/20 2.11 -0.248 0.061504

Mean =2.358%

S.D. =0.255%

Return on equity is more risky than return on average return on assets because return on equity’s
standard deviation and mean is also more than average return on assets. It shows positive
relationship risk and return.

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2.2 Major Findings of the study

The major findings of the study from the analysis of secondary data are as follows.

 Analysis of liquidity ratio indicates that the bank has same level of current assets to pay
out its short-term obligation so the financial position of the bank on the basis of liquidity
ratio is good.
 Analysis of the leverage ratio indicates that the bank is using excess debt capital in
comparison to its shareholders funds, because total debt to total shareholder equity is
greater than one in all year so lower this ratio is assumed to be better.
 Analysis of capital adequacy ratio which shows more than 10% all particular year, it
means the bank has enough capital to pay it depositor and further loan management as
ruled by NRB so it indicate better performance of Nabil Bank.
 Analysis of gross loan & advance indicates the increasing in every year.
 Analysis of profitability ratio indicates the constant and increasing rate of return in all
particular year.
 Analysis of net profit after tax shows the constant and increasing ratio during the all-
Particulars year means company is able for utilizing its all resources successfully higher
net profit after tax is better. And net profit after tax of Nabil Bank is good.
 Analysis of price Earnings ratio indicates the market value of share is how large is
comparison to EPS. In every year P/E ratio is greater than one means there is no more
fluctuation in Earnings per share.
 Analysis of the return on equity and assets indicates that the bank has each year positive
return on shareholder equity and it is constant increasing at some rate so on the basis this
ratio its financial position is better than other bank.
 Analysis of dividend payout ratio indicate that the bank is paying each year positive
return to its stockholder and as per the data it is constant and in increasing rate. It
indicates the strong financial position.
 To analyze the activities turnover position, loan and advance to total deposit ratio, total
investment to total deposit ratio, loan and advances to fixed ratio has been calculated.
analysis of activities ratio indicates better turnover position of Nabil Bank. This implies
that Nabil is efficiently utilizing its deposit on loan and advance and others.

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 Highly positive correlation between return between return on total assets and return on
equity.
 Return on equity is higher than total assets so equity is more risky than other assets.

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 CHAPTER III

SUMMARY AND CONCLUSION

3.1 Summary

In recent years due to liberal economics policy of the government many private banks are
coming into operation. The foreign joint venture banks are enjoying competitive advantageous
factors like highly skilled personnel, modern and advanced technology, customer oriented
modern banking services, management enterprises and global banking network. From the
summary of the main findings of the analysis of financial performance of Nabil bank limited
following discussions can be advanced to overcome of weakness and inefficiency and improve
the performance of this bank. The liquidity position is more than the minimum requirement
criteria of NRB to 3% of its total deposit only. In this changing context and the situation of
securities environment and Nabil Bank has to maximize cash position in their vault for the sake
of securities and utilization of its fund in income generating sector. Nabil must strengthen the
liquidity position. Excessive use of debt capital by these banks enhances the rate of return on its
shareholders funds high leverage cost of capital can be considered as positive development.

In My study all ratios show the better performance of NABIL BANK limited than other banks
such as liquidity, profitability, leverage & activity ratio and correlation coefficient also shows the
positive high degree of relationship between return on equity and net profit margin. But in
Poudel study only financial ratios are compared with other banks even NABIL BANK’S
performance was good.

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3.2 Conclusion

With some commercial banks and development banks operating in Nepal, the market seems over
crowed and the banks are now finding a tough competition among themselves. Since the entry
barriers are not so high due to the government’s liberal policy, this competition is expected to be
more intense in the near future, as there is always the possibility of a new player entering this
sector. NABIL Bank has not maintained a balanced ratio among its deposit liabilities.
Consequently, the bank does not seem to be able to utilize its high-cost resources in high
yielding investment portfolio. The investment portfolio of the bank has not been managed so
efficiently as to maximize the returns there from. The operational efficiency of the bank is found
unsatisfactory because of the series of operational loss over the period. Lower market value is a
reflection of a weaker profitability ratio of the bank.

On the basis of this study, the following conclusion can be made:

 The overall results are satisfactory. But in some case the NABIL Bank Ltd should take
certain steps to improve the bank current financial condition. Therefore, some
recommendations are being put forward for its improvement along with its development
of the country.
 The proportion of the saving deposit account is high in total deposit liability. So, it is
recommended that the bank should utilize the amount collected from the saving deposit
account carefully. It should be invested in the higher yielding areas.
 The cash and bank balance in the NABIL Bank Ltd is satisfactory. It is higher a bit
though. Bank should analyze the opportunities for short term investment
 Bank should not spend too much in the fixed assets because it yields only a nominal
portion, almost no yield.
 The profitability ratio shows the profitability position of NABIL is satisfactory. It should
give continuity to this growth trend in future.
 These ratios show that NABIL is more efficient in mobilizing the resources of owners
and its operational efficiency is also satisfactory.
 The bank has been successful in winning the trust of the customer, as volume of expenses
is no more difference and it's growing slowly than previous years. There is general rise
and fall in expenses level during different years. It should give basic priority to the

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 customers and personnel first and then the organizational objectives, which will help to
develop effective value chain in the organization.
 Branches existing in some limited areas will not enable a bank to boost up its campaign
of deposit mobilization and credit disbursement as desired. Therefore, NABIL is
recommended to open new branches at certain places every year after making feasibility
of studies. And also, it has launched various ideas as NABIL PREPAID card, extended
banking hours, etc. so as to collect maximum amount of funds from general public.
 Besides these, all the other functions of the company are satisfactory, no comments upon
it.

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1