CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Financial sector is the backbone of economy of a country. It works as a facilitator for achieving

sustained economic growth through providing efficient monetary intermediation. A strong

financial system promotes investment by financing productive business opportunities, mobilizing

savings, efficiently allocatingss resources and makes easy the trade of goods and services.

McKinnon (1973) and Levine (1997) have reported that the efficacy of a financial system to

reduce information and transaction costs plays an important role in determining the rate of

savings, investment decisions, technological innovations and hence the rate of economic growth.

Banking has become an important feature, which renders service to the people in financial

matters, and its magnitude of action is extending day by day. It is a major financial institutional

system in Nepal, which accounted for more than 70% of the total assets of all the financial

institutions (Poudel, 2005).

A profitable and sound banking sector is at a better point to endure adverse upsets and adds

performance in the financial system (Athanasoglou, 2008). A competitive banking system

promotes the efficiency and therefore important for growth, but market power is necessary for

stability in the banking system (Northcott, 2004). Commercial bank holds a large share of

economic activities of a country. The function of the commercial banks has been enhanced in

Nepal to sustain the increasing need of the service sector and the economy in general (Economic

Survey, 2008). Stock market has been dominated by the commercial banks since a decade. Not

only the stock market, but the commercial banks have also been major contributors to the
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revenue of the country. They have been paying a large amount of tax every year. Performance

evaluation is the important approach for enterprises to give incentive and restraint to their

operators and it is an important channel for enterprise stakeholders to get the performance

information (Sun, 2011). The performance evaluation of a commercial bank is usually related to

how well the bank can use its assets, shareholders’ equities and liabilities, revenues and

expenses. The performance evaluation of banks is important for all parties including depositors,

investors, bank managers and regulators. The evaluation of a firm’s performance usually

employs the financial ratio method, because it provides a simple description about the firm’s

financial performance in comparison with previous periods and helps to improve its performance

of management (Linetal, 2005). Moreover, the ratio analysis assists in determining the financial

position of the bank compared to other banks.

Financial ratios based on CAMEL Framework are related to capital, assets, management,

earnings and liquidity considerations. Different ratios including return on assets (ROA), return

on equity (ROE), capital adequacy ratio (CAR)，nonperforming loan ratio (NPL), interest

expense to total loans (IETTL), net interest margin (NIM), credit to deposit ratio (CDR), were

evaluated to analyze the financial data of selected Nepalese commercial banks for the period

2005 to 2010. These ratios would help to indicate the condition of capital, assets quality,

management, earnings and liquidity position of different types of banks. Financial ratio analysis

is also used to quantitatively examine the differences in performance among public sector banks

(PVB), joint venture banks (JVB) and domestic private banks (DPB) in Nepal, and the banks are

ranked based on their financial measures and performance for each bank as a guideline for the

future trend of financial position of the banks in Nepal. Therefore, the aim of this study is to
 3

measure the best performance among the commercial banks and to find out the relationship

between bank specific factors (ratios) on the banks’ performance. Published financial statements

are the only source of information about the activities and affairs of a business entity available to

the public, shareholders, investors and creditors, and the governments. These various groups are

interested in the progress, position and prospects of such entity in various ways. But these

statements howsoever, correctly and objectively prepared, by themselves do not reveal the

significance, meaning and relationship of the information contained therein. For this purpose,

financial statements have to be carefully studied, dispassionately analyzed and intelligently

interpreted. This enables a forecasting of the prospects for future earnings, ability to pay interest,

debt maturities both current as well as long-term, and probability of sound financial and dividend

policies. According to Myers, “financial statement analysis is largely a study of relationship

among the various financial factors in business as disclosed by a single set of statements and a

study of the trend of these factors as shown in a series of statements”

However, the tools for the analysis of financial statements are the ratio analysis. This

analysis describes a particular relationship between elements of one with the other elements in a

financial report. Financial statements referred to is the balance sheet and income statement.

Balance sheet shows assets, debt and the company's capital at a given time. Income statement

reflects the results achieved by the company within a certain period (usually one year). Financial

ratio analysis of a company used to assess the situation and trends also measure the performance

of management. Through analysis of the ratio can be used as a basis to assess whether

management's performance has reached a predetermined goal or not and early knowing on trends

or trends that management performance can be anticipated earlier. The results of analysis can be

used to observe the weakness of the company during the period of time to walk, is there any
 4

weaknesses in the company can be repaired, while the results are good enough to be maintained

in the future. Further historical ratio analysis can be used for the preparation of plans and policies

in the coming years in order to determine the right policy direction.

Thus, analysis of financial statements refers to the treatment of information contained in

the financial statement in a way so as to afford a full diagnosis of the profitability and financial

position of the firm concerned. The process of analyzing financial statements involves the

rearranging, comparing and measuring the significance of financial and operating data. Such a

step helps to reveal the relative significance and effect of items of the data in relation to the time

period and/or between two organizations. Interpretation, which follows analysis of financial

statements, is an attempt to reach to logical conclusion regarding the position and progress of the

business on the basis of analysis. Thus, analysis and interpretation of financial statements are

regarded as complimentary to each other. The performance of the firm can be measured by its

financial results, i.e., by its size of earnings Riskiness and profitability are two major factors

which jointly determine the value of the concern. Financial decisions which increase risks will

decrease the value of the firm and on the other hand, financial decisions which increase the

profitability will increase value of the firm. Risk and profitability are two essential ingredients of

a business concern. There has been a considerable debate about the ultimate objective of firm

performance, whether it is profit maximization or wealth maximization. It is observed that while

considering the firm performance, the profit and wealth maximization are linked and are effected

by one-another. A company’s financial performance therefore is normally judged by a series of

ratios or figures, however there are following three ratio parameters which can be used to

evaluate financial performance, they are: a) Return on Equity b) Earnings Per Share c) Price
 5

Earnings Ratio. All three parameters are discussed in detailed along with various other ratios. On

the other hand, it is to be noted that fundamentally, the balance sheet indicates the financial

position of the company as on that point of time. However, profit and loss account is a statement,

which is prepared for a particular financial year. In Indian context, where an analyst has to rely

upon the audited financial statement for a particular company, the performance is to be judged

from the financial statement only.

1.2 Statement of the problem

The era of globalization modern free market economy introduce a window of banking acidity

that has huge impact on any countries trade and overall development. To complete the process of

banking or trading financial intermediaries and institution act like as safe gateway between two

sides. As an institution, bank has been contributing towards the development of any economy for

a long time and at the moment it is treated as an important banking industry in modern world.

Now days the functioning area of bank not limited within same geographical limit of any

country. Therefore bank has to manage large volume transaction. Industry related stakeholder

need to know about the financial performance of the bank. To analyze financial performance

ratio analysis is the most logical way to show the bank financial position. So this study has

conduct to expose restriction of the function area and process of Financial performance through

ratio analysis of HBL & EBL by comparing banks past year balance sheet, Income statement and

cash flow by generating ratio that conduct how much financial stability can be achieve. A

general belief is that a firm’s financial performance depends on certain key financial factors i.e.

turnover, profit and the variables which are found in the balance sheet of a firm, have a direct

and indirect relation with each other. By establishing a close relationship between the variables, a
 6

firm can analyze its financial performance in terms of liquidity, profitability and viability

(Ramaratnam &Jayaraman, 2010).

In Nepal many banks and financial companies have opened up within a span of few years.

Although joint venture banks have managed to perform better than other local commercial banks

within the short period of time they have been facing a neck competition against one another.

Therefore, it is necessary to analyze the profitability position of HBL and EBL. Thus, thepresent

study seeks to explore the efficiency and comparative financial performance of HBL and EBL.

Also, the profitability rate, operating expenses and dividend distribution rate among the

shareholders has been found different in the financial performance of the two joint venture banks

in different period of time. The problem of the study will ultimately find out the reasons about

difference in financial performance. A comparative analysis of financial performance of the

banks would be highly beneficial for pointing out their strength and weakness. Although joint

venture banks are considered efficient, but how far are they efficient? This question does emerge

in banking sector. At present we have twenty-six commercial banks. In spite of rapid growth,

some indicators show performance is not much encouraging towards the service coverage. In

such a situation the study tries to analyze the present performance of banks, which would give

the answers of following queries.

1) What are the comparative liquidity, profitability, turnover, leverage and assets quality

ratio among HBL and EBL banks?

2) What is the relationship of ratios among HBL and EBL through financial indicators?

3) What is the comparative financial position of HBL and EBL?

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1.3 Objective of the study

The main objectives of the study is to evaluate and analysis the financial performance of

these two joint venture banks i.e. HBL and EBL and to recommend the suitable suggestion

for improvement.

a) To determine the liquidity, profitability, turnover, leverage and assets quality ratio

of HBL and EBL banks.

b) To assess the other financial performance indicators of selected banks using

financial ratios.

c) To evaluate the comparative financial position of HBL and EBL.

1.4 Significance of the study

Financial statements provide an overview of a business financial condition in both short and long

term. Financial statement is all the relevant financial information of a business enterprise present

in a structured manner and in a form easy to understand. Therefore these financial statements are

very useful for the stakeholders, as they obtain all insight information. In assessing the

significance of various financial data, experts engage in ratio analysis, the process of determining

and evaluating financial ratios. Financial ratios are only meaningful when compared with other

information since they are most often compared with industry data, ratios helps an individual

understand a company’s performance relative to that of competitors; they are often use to trace

performance overtime. Ratio analysis can reveal much about a company and its operations.

However, there are several points to keep in mind about ratios. First financial ratios are “flags”

indicating areas of strength and weakness. One or even several ratios might be misleading but
 8

when combined with other knowledge of company’s management and economic circumstances,

ratios analysis can tell much about a corporation.

Addition, a ratio is meaningful when it is compared with some standard such as ratio trend, a

ratio trend for the specific company been analyzed, or a stated management objectives.

1.5 Need of the study

This study has been mentioned already that the research focuses only on the comparative

financial performance between HBL and EBL. This comparative financial performance

analysis gives insight into the relative financial condition and performance of these banks.

This will provide guideline for improving its performance to achieve the banks overall

objectives. Similarly, this study helps the banks to identify its hidden weakness regarding

financial administration. This study has following signification: -

a) This study explains the shareholders about the financial performance of their

respective banks.

b) The study also compels the management of respective banks for self-assessment of

what they have done in the past and guides them in their future plan and programs

1.6 Limitations of the study

The following are the limitation of the present study: -

a) This study is limited to the comparative study of financial performance of two joint

venture banks HBL and EBL.

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b) This study is based on secondary data and analyzed and evaluated of data to the latest

five years period i.e. since 2012/13 to 2016/17 ( i.e. 5 years historical data) and it can’t

be same in next 5yrs or later.

c) In this study, only selected financial and statistical tools and techniques are used so that

the interpretation from other tools can be different.

d) The findings can’t be generalized with whole population.

1.7 Organization of the study

This study has organized into the following five chapters. Prior to the body of the thesis several

pages of preliminary materials such as title pages, approval sheet, viva sheet, acknowledgements,

table of contents, list of table, list of figures and abbreviations used have been presented.

Chapter One: Introduction

This chapter includes background of the study, statement of the problems, objectives of the

study, significance of the study, need of study and limitations of the study.

Chapter Two: Review of Literature

This chapter reviews the existing literature on the concept of financial performance analysis.

It also contains reviews of journals and articles, and earlier research paper related to the

subject.

Chapter Three: Research Methodology

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This chapter expresses the way and technique of the study applied in the research process. It

includes research design, population and sample, data collection procedure and processing,

tools and method of analysis.

Chapter Four: Analysis and Interpretation of Data

In this chapter collected and processed data are presented, analyzed and interpreted with

using financial tools as well as statistical tools.

Chapter Five: Summary, Conclusion and Recommendations

In this chapter, summary of whole study, conclusions and recommendations are made.

At the end of the study, bibliography has also been incorporated.

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CHAPTER TWO

REVIEW OF LITERATURE

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 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 its collected resources then 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
 12

optional combination of the three decisions will maximize the value of the firm. The financial

performance of the banks can be measured in different ways in which it is depend upon different

independent variables which can be shown in the following figure.

ROA, ROE,
Return on net
worth, etc.

Performing
assets to total
assets ratio, P/E ratio, EPS,
loan loss DPS
coverage ratio,
etc.

Financial
Performance

Loan and
advances to Current ratio,
total deposit, Cash and bank
investment to balance to
total deposit saving ratio, etc.
ratio, etc.

Debt-equity
ratio, debt-
assets ratio

Figure: Different independent variables that affect the financial performance of the bank.
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2.2 Review of Related Studies

Finance is a broad field and there are various books written in this subject. The book of M.Y.

Khan and P.K. Jain (1990) is considered to be a useful book in the financial management. The

modern approach of Khan and Jain views the term financial management in broad sense and

provides a conceptual and analytical framework for financial decision making. According to

them, “The finance function covers both acquisitions of funds as well as their allocation; hence

apart from the issues of acquiring external funds, the main concern of financial management is

the efficient and wise allocation of funds to various uses.” The major financial decisions

according to Khan and Jain are: -

• The investment decision

• The financial decision and

• The dividend policy decision.

Pandey (1997), in his book “Financial Management” defines financial management as that

managerial activity which is concerned with the planning and controlling of the firm’s financial

resources. I.M. Pandey believes that among the most crucial decision of the firm are those, which

relate to finance, and an understanding of the theory of financial management provides the

conceptual and analytical insights to make the decisions skill fully. I.M. Pandey further identifies

two kinds of finance functions: - (a) Routine and (b) Managerial finance functions.

The routine finance function do not require a great managerial ability to carry them out and they

are chiefly clerical in nature. Managerial finance functions on the other hand are so called
 14

because they require skill full planning Control and execution of financial activities. There are,

according to I.M. Pandey four important managerial finance functions: -

• Investment or long-term assets miss decision

• Financing or capital mix decision

• Dividend or profit allocation decision

• Liquidity or capital mix decision

A summary of what the study have reviewed in various books of finance have been highlighted

below. Finance is defined as the acquisition and investment of fund for the purpose of enhancing

the value and wealth of an organization. The various finance areas include investments, public

finance, corporate finance and financial institutions. The basic function of finance is to manage

the firm’s balance sheet in most efficient way. The balance sheet reflects how a firm acquired

financing through. The objective of the company must be to create value for its shareholders.

Market price of company’s stock represents its value and this can be maximized by firm’s

optimum investment, financing and dividend decisions. The capital investment decision is the

allocation of the capital to investment proposals whose benefits are to be realized in the future.

As the future benefits are not known with certainty, investment proposal necessarily involve risk.

Consequently they should be evaluated in relation to their expected return and risk. In the

financial decision, the financial manager is concerned with determining the best financing mix or

an optimum “Capital structure”. If a company can change its total valuation by varying its capital

structure, an optimal financing would exits, in which market price per share could be maximized.

In the book “Financial Management” I.M. Pandey (1997) has defined as “The finance statement

provides a summarized view of the financial operation of the firm. Therefore, something can be
 15

learnt about a firm and careful examination of the financial statements as invaluable documents

or performance reports. Thus, the analysis of financial statement is an important aid to financial

analysis or ratio analysis is main tool of financial statement analysis.

Another important decision of the firm, according to Van Horne (1994), is its Dividend policy.

The decision includes the percentage of earnings paid to stockholders in cash dividends. The

dividend payout ratio determines the amount of earnings retained in the firm and must be

evaluated in the light of the objective of maximizing shareholder’s wealth. The Financial

management involves the solution of the three major decisions altogether. They determine the

value of a company to its share holders. Van Home believes that the objective of any firm is to

maximize its value, and therefore, the firm should strive for an optimal combination of the three

inter-related decisions solved jointly. The main thing is that the financial managers relate each

decision to its effect on the valuation of the firm debt and equity resources, and it reflects the

disposition of acquired financing among the various asset accounts.

The major financial functions required for managing the bank’s balance sheet are summarized

below: -

a) Analysis and planning

b) Financial structure management &

c) Asset management

The first function financial analysis and planning is to understand the bank’s current financial

condition and plan for its future financial requirement in different economic scenarios. After

analyzing the financial needs, the second function is to manage the financial structure of the
 16

bank, which can be done by optimizing the use of debt and equity in the capital structure. While

deciding about this optimum structure, a financial manager must concentrate in minimization of

cost of funds in one hand, and maximization of value of the firm in the other. Moreover financial

structure management for a banking sector includes, a typical treasury function, which is also

called funds management this function contributes a significant portion in profits earned by

banks. The final function is the management of asset structure of the bank. Advances of credit

and investment in certain portfolios constitute the major portion of the bank’s asset. The major

financial function related to assets management is to decide for the least risky and most

profitable alternatives of investments. This can be conducted by determining returns and risks

associated with the loans and advances made by bank. All the above financial decisions or

functions as mentioned by different writers are instrumental towards effective handling of

financial management. Which includes activities beginning from rising or funds to efficient and

effective use of funds no matter either it is a baking or non-banking institution.

Ahuja (1998), “Financial Performance analysis is a study or relationship among the various

financial factor in business a disclosed by a single set of statement and a study of the trend of

these fact as shown in a series of statements. By establishing a strategic relationship between the

item of a balance sheet and income statements and other operative data, the financial analysis

unveils the meaning and signification of such items.” According to Metcalf and Tatar (1996),

“Financial Performance analysis is a process of evaluating the relationship between components

parts of a financial statement to obtain a better understanding of a firm’s position and

performance.”
 17

Similarly, Khan and Jain (1990) have defined that “The ratio analysis is defined as the systematic

use of ratio to interpret the financial performance so that the strength and weakness of firm as

well as its historical performance and current financial condition can be determined.” In the word

of Horne (1994) “Financial ratio can be derived from the balance sheet and the income

statement. They must be analyzed on a comparative basis. Ratio may also be judged in

comparison with those of similar firms in the same line of business and when appropriate, with

an industry average and we can look to future progress in this regard.”

A comparative study of financial performance is a basic process, which provides information on

profitability, liquidity position, earning capacity, efficiency in operation, sources and use of

capital, financial achievement and status of the companies. This information will help to

determine the extent of efficiency and effectiveness of the company in respect of deploying

financial resources in the profitable manner.

Azhagasahi and Gejalakshmi (2012), in their study found the impact of assets management

operational efficiency and bank size on the financial performance of the public sector and private

sector bank. The research revealed that bank with higher total capital deposits and total assets do

not always mean that they have better financial performance. The overall banking sector is

strongly influenced by assets utilization, Operational efficiency and interest income.

Dhanabhakyam& Kavitha (2012), in their research used some important ratio to analyses the

financial performance of selected public sector banks such as ratio of advances to assets, ratio of

capital to deposit, ratio of capital to working fund, ratio of demand deposit to total deposit, credit
 18

deposit ratio, return on average net worth ratio, ratio of liquid assets to working fund etc. The

ratio of advances to assets shows an increasing trend for most of the public sector bank. It shows

aggressiveness of bank in lending which ultimately result in high profitability. The ratio of

capital to deposit also indicates an increasing trend in the capital of banks. This ratio enables the

bank to meet the contingencies of repayment of deposit. The ratio of capital to deposit is in

decline. The ratio capitals to working fund also indicate that the overall efficiency of the selected

public sector banks is good. On the other hand the ratios of demand depart to total deposit is

declining. This indicates better liquidity position of bank. The credit deposit ratio of the bank

showed an increasing trend. It shows that the profitability of the banks in government. The return

on average net worth was found an increasing trend.

Kaur (2012) in a comparative study of SBI and ICICI Bank examined the financial performance

of SBI and ICICI Bank. SBI is a public sector bank and ICICI bank is a private sector bank.

Ratio analysis was applied to analyze and to compare the trends in banking business and

financial performance. Efficient portfolio decision in assets and debt is the major reason for

improving performance of the bank however operation efficiency is lacking due to the intense

competition in the global market.

Khan and Jain (2013): This research paper is a study of the modern management philosophy of

customer relationship management (CRM) which deals with the maintenance of a sound

relationship with the customers. The study is carried out in the Kerala based commercial banks.

Also this study compares the CRM between the public and private sector banks of the same

region. Kerala has been very conducive and of great benefit for the development of banking
 19

sector. The Indian banking sector is undergoing many changes and the banks are facing many

challenges. Customers switch banks and go to other banks where they find better services and

thus the find it difficult to retain their old customers.

MS. Foiza (2013): The development of electronic commerce is growing at a fast pace because of

advancing global infrastructure. To meet these demands businesses need innovative ways to

create value such as different IT infrastructure, different enterprise architectures and different

ways of thinking about doing business. By adopting technology in banks it has established the

use of different technology tools in banking. Which enables bank to reduce transaction cost,

saving money and also saving time’s E-Banking refers to deploying banking services over

electronic and communication networks directly to customers. Internet banking provides benefits

such as cost saving reaches new segment of population, efficiency, enhancement of the banks

reputation and better customer service.

Bagoria (2014): The main objective of this paper is to make a comparative study between private

sector banks and public sector banks and the adoption of various services provided by this bank.

The different services provided by these banks are M-Banking, Net banking, ATM, etc. One of

the services provided by the bank i.e. Mobile banking helps us to conduct numerous financial

transactions through mobile phone or personal digital assistant (PDA). Data analysis had been

made in private sector banks like ICICI Bank, INDUSSIND Bank, HDFC Bank, Axis Bank and

public sector banks like SBI Bank, SBBJ, IDBI and OBC Bank. These banks also provide

Mobile Banking service. The overall study showed that the transaction of Mobile banking

through public sector bank is higher than private sector.

 20

Rao (1993) in a study of Financial appraisal of Indian Automotive Tyre Industry measured and

evaluates the financial performance through inter-company and inter-sector analysis for the

period of 1981-1988 and found that the fixed assets utilization in many of the tyre undertakings

was not as productive as expected and inventory was managed fairly well. Study considered that

the tyre industry's overall profit performance was subjected to inconsistency and ineffective. Rao

(1993) has made a study about inter-company financial analysis of tea industry-retrospect and

prospect. He wished to analyses the important variable of tea industry and projected future

trends regarding sales and profit for the next 10 year periods, with a view to help the policy

makers to take appropriate decisions. He have been calculated various financial ratios for

analyzing the financial health of the industry. After the comparison of ratios, he has concluded

that the forecast of sales and profits of tea manufacturing companies showed that the Indian tea

industry has bright prospects. He has also revealed that the recent changes in the Indian

economic policies may boost up the foreign exchange earnings, which may benefit those

companies, which are exporting to hard currency areas.

Domar and Timbergen (1946)'', measured the profitability of banks for the economic

development purpose and settled the theoretical framework in expanded form which was first

introduced by Jorgenson and Nishimizudin for international economic growth comparison and

development.

Sharma (1974) said, "The expansion of banking facilities was uneven and lopsided and banks

were concentrating their operations in metropolitan cities and towns. A fairly large number of
 21

rural and semi urban centre with reasonable potentialities of growth failed to attract the attention

of commercial banks. As far as the deposit mobilization in the rural areas is concerned, much

remains to be done. This gives emphasis on the rural and semi urban growth of banks. Karkal

(1982) viewed the concept of profit and profitability the factors that the volume or areas of profit

and the techniques used in profit planning. He has suggested some measures to improve the

profitability in banks through increasing the margin between lending (advances) and borrowing

(deposits) rates, improving the efficiency of staff, and implementation of a uniform maximum

service charge. The study did not touch up the area of cost of banking services and costing

exercises in the banking industry.

2.3 Research Gap

In this study, the major areas are to disclose the financial performance relates to Nepalese

commercial banks (Joint venture).This type of research were done rarely. This study shows that

the unique feature of findings. Previous researches on the basis of financial performance of

commercial banks in Nepal.

But this research is about financial performance of joint venture bank of Nepal with sample of

Himalayan Bank Limited and Everest Bank Limited. In the previous research, there is no clear-

cut accounting and financial performance of joint venture banks. The research can help the

people who wanted to know about the overall financial standard and accounting procedure of

joint venture bank in Nepal. There are two-selected banks to find out the problem and prospects

of study. Therefore, this topic may be new as well as the researches efforts may be appreciable.
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CHAPTER THREE

RESEARCH METHODOLOGY

The rationale behind the study is to evaluate and assess the financial position or performance of

the two newly operated joint venture banks viz. Himalayan Bank Limited and Everest Bank

Limited. Thus, this chapter includes those methods and techniques used for finding out a fore

said purpose.

Research methodology refers to the various sequential steps (along with the rationale of each

step) to he adopted by a researcher in studying a problem with certain objective in view. It is a

way to systematic solve the research problem it may be understood as a science of studying how

search is done scientifically. Includes the various steps that are generally adopted by a researcher

studying his/ her research problem along with the logic behind them, it would be appropriate to

mention here that research project are not meaningful to any one unless they are in sequential

order which will be determined by the particular problem at hand therefore, this study aims at

analyzing and interpreting the purpose of comparative financial performance or appraisal of two

JVBs. This chapter focuses and deals with the following aspects or methodology.

- Research design

- Population and sample

- Source of data

- Data collection procedure

- Method of data analysis

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3.1 Research design

Research design is the task of defining the research problem. In other words, "A research design

is the arrangement of conditions, for collection and analysis of data in a manner that aims to

combine relevance to the research purpose with economy in procedure. In fact, the research

design is the conceptual structure within which the research is conduct. General objective; of this

research study is to examine and evaluate the financial performance of joint venture banks

especially that of HBL and EBL in order to achieve the objective, both quantitative and

comparative research design has been followed. The study focuses on the examination of

relationship between those variables that influence-financial decisions of the sampled banks

hence; it is an ex-post facto research.

3.2 Population and sample

The population for this study comprises nine joint venture banks currently operating in the

country. All the joint venture banks perform the functions of commercial banks under rules,

regulations and directives of Nepal Rastra Bank. The sample consists of two judgmentally

selected banks- Himalayan Bank Ltd. and Everest Bank Ltd.

3.3 Nature and sources of data

Basically the research is based on secondary data. The annual report of HBL and EBL will be

used as the major sources of data and other sources of data are as follows:

• Different publications of bank.

• Financial and Economic journals.

• Various research papers.

 24

• NRB reports and bulletins and its official websites.

• Various articles published in journal and financial magazines.

• Books written by the various authors.

• Official website of HBL and EBL.

Although present study is on secondary data however, necessary suggestion are also taken from

various experts both inside the bank whenever required the necessary data is obtained from the

official website such as, published balance sheet, profit and loss account and other related

statement of accounts as well as the annual reports of the respectively banks.

3.4 Data processing

Data obtained from the, various sources cannot be directly used in their original form, further

they need to be verified and simplified for the purpose of analysis. Data information, figure and

facts so obtained need to be checked, rechecked edited and tabulated for computation. According

to the nature of data, they have been inserted in meaningful tables, which have been shown in

annexes. Homogenous data have been sorted in one table and similarly various tables have been

prepared in understandable manner. Odd data excluded from the table and by using financial and

statistical tools data have been analyzed and interpreted.

3.5 Method of data analysis

Various types of financial and statistical tools will be used for the analysis of data. With these

tools, the result processing will be more accurate and simple.

 25

3.5.1 Financial Tools

Financial tools are those, which are used for the analysis and interpretation of financial data.

These tools can be used to get the precise knowledge of a business, which in turn, are fruitful in

exploring the strengths and weaknesses of the financial policies and strategies. Following ratios

are used as financial tools in order to meet the purpose of the study.

3.5.1.1 Ratio Analysis

Ratio analysis helps to summarize the large quantities of financial data and to make quantitative

judgments about the firm's financial performance. Ratio is the expression of one figure in terms

of another. It is the expression of relationship between the mutually independent figures, in

financial analysis; ratio is used as an index of yardstick for evaluating the financial position and

performance of firm. Ratio analysis is very much powerful & widely used tool of financial

analysis. It is define as the systematic use of ratio to interpret the financial statements so that the

strength and weakness of a firm as well as its historical performance and current financial

condition can be determined. It helps the analysis to make qualitative judgment in about the

financial position and performance of the firm. Therefore, it is helps to establish relationship

among various ratios and interpret there on specially, based on comparison between two or more

firms or inters firm comparison and comparison between present and past ratios for the same

firm give enormous and fruitful results to examine the financial performance. The obsolete

accounting figure reported in the financial statement does not provide a meaningful

understanding of the performance and financial position of the firm. An accounting figure

conveys meaning when it is related to some other relevant information. Therefore, the ratio is the

relationship between two accounting figures expressed mathematically. It helps to summarize

large quantitative relationship helps to form a quality judgment. However, " A single ratio itself
 26

does not is indicate favorable or unfavorable conditions. It should be compared with some

standard.

A ratio is simply a number expressed in terms of another number and it expresses the

quantitative relation between any two variables. Ratio can be calculated between any two items

of financial statements. It means there may be as many ratios as there are the numbers of items.

However, under the ratio analysis technique, it is not practical to work out all the ratios. Hence,

only the required ratios have been worked out.

There are numerous ratios to analyze and interpret the financial form once of the enterprise or

firm. However, for our purpose, only important and relevant ratios are used to check the financial

health of two JVBs in Nepal, which are as below:

A. Liquidity Ratios

Liquidity ratios are used to judge the firm's ability to moot short-term obligation. These ratios

give insights into the present cash solvency of the firms and its ability to remain solvent in the

event of adversities. It is the comparison between short-term obligation and the short –term

resources available to meet these obligations. These ratios are calculated to find the ability of

banks to meet their short-term obligation, which are likely to mature in the short period. The

following ratios are developed and used for our purpose to find the liquidity positions of the two

joint venture banks.

Under this group following ratios were used for liquid position of the banks:

• Current Ratio

• Cash and Bank Balance to Total Deposit Ratio

 27

• Fixed Deposit to Total Deposit Ratio

i. Current Ratio

This ratio indicated the current short-term solvency position of a current ratio is the relationship

between current assets and current liabilities. It is calculated by dividing the current liabilities by

current assets, which is expressed as follows:

Current Assets
=
Current Liabilities

Current assets refer in those assets, which are convertible in cash within a year or so. They

includes, cash and Bank Balance, investment in treasury bills, money at short call, or placement,

loans and advances, bills purchased and discounted, overdrafts, other short-term loans, foreign

currency loans, bills for collection, customer's acceptance liabilities, pre-payment expenses, and

other receivable. Similarly, current- liabilities refer to those obligations maturing within a year. It

includes, current account deposits, saving account deposits, margin deposits, call deposits, intra-

bank reconciliation A/c, bills payable, bank over-draft, provisions, accrued expenses, bill for

collection, and customer's acceptance liabilities etc. A higher ratio indicates better liquidity

position. However, "A very high ratio of current assets to current liabilities may be indicative of

slack management practice, as it might signals excessive inventories for the current requirement

and poor credit management in terms of over-expanded account receivable.

Current ratio is a measure of firm's solvency. It indicates the availability of the current assets in

rupees for every one rupee of current liability. As a conventional rule, a current ratio of 2 to 1 in

considered satisfactory. However, these rules should not be blindly followed, as it is the test of
 28

quantity not quality. In spite of its shortcoming, it is a crude and quick measure of the firm's

liquidity.

ii. Cash and Bank Balance to Total Deposit Ratio

The ratio is calculated using following formula,

Cash and Bank Balance

=
Total Deposit

Total deposit consists of current deposit, saving deposit, fixed deposit, money at call and short

notice and other deposits. The ratio shows the proportion of total deposits held as most liquid

assets. High ratio shows the strong liquidity position of the bank. Too high ratio is not favorable

for the bank because it produces adverse effect on profitability due to idleness of high-interest

bearing fund.

iii. Fixed Deposit to Total Deposit Ratio

It is calculated as follow:
Fixed Deposit
=
Total Deposit

The ratio shows what percentage of total deposit has been collected in form of fixed deposit.

High ratio indicates better opportunity available to the bank to invest in sufficient profit

generating long-term loans. Low ratio means bank should invest the fund of low cost in short-

term loans.
 29

B. Leverage Ratios
Leverage or capital structure ratios are used to judge the long-term financial position of the firm.

It evaluates the financial risk of long-term creditors greater the proportion of the owner's capital

structure, lesser will be the financial risk borne by supplier of credit funds.

Debt is more risky from the firm's point of view. The firm has legal obligation to pay interest to

deft holders irrespective of the profit made or losses incurred by the firm. However, use of debt

is advantageous to shareholders in two ways:

• They can retain control on the firm with a limited stake

• Their earning in magnified when rate of return of the firm on total capital is higher than

the cost of debt.

However, the earning of shareholders reduces if the cost of debt becomes more than the overall

rate of return. In case, there is the threat of insolvency. Thus, the debt has two folded impact-

increases shareholder earning-increase risk. Therefore, a firm should maintain optimal mix of

investors and outsiders fund for the benefit owners and its stability.

Under this group, following ratios are calculated to test the optimality capital structure;

• Debt-Equity ratio

• Debt-Asset ratio

i. Debt –Equity Ratio

It is the most widely used leverage ratio to evaluate the long-term solvency of the firm. This ratio

expresses the relationship between debt capital and equity capital. The ratio is calculated by

dividing total debt by shareholder's equity. It is calculated as,

 30

Total Debt
=
Shareholder’s equity

Total debt consists of all interest bearing long-term and short-term debts. These include loans

and advances taken from other financial institutions, deposits, carrying interest etc. Shareholder's

equity includes paid-up capital, reserves and surplus and undistributed profit.

The ratio shows the mix of debt and equity in capital. It measures creditors' claims against

owners. A high ratio shows that the creditors' claims are greater than those of owners are. Such a

situation introduces inflexibility in the firms operation due to the increasing interference and

pressures from creditors' low ratio imply a greater claim of owners than creditors. In such a

situation, shareholders are less benefited if economic activities are good enough. Therefore, the

ratio should be neither too high nor too low.

ii. Debt-Asset Ratio

It represents the relationships between the debt and total assets of the firm. It is calculated as:

Total Debt
=
Total Assets

The ratio shows the contribution of creditors in financing the assets of the bank. High ratio

indicates that the greater portion of the bank's assets has been financed through outsider's fund.

The ratio should be too high per too low.

C. Turnover Ratio

Turnover ratios, also known as utilization ratios or activity ratios are employed to evaluate the

efficiency with which the firm manages and utilizes its assets. They measure how effectively the

firm uses investment and economic resources at its command. Investments are made in order to
 31

produce profitable sales. Unlike other manufacturing concerns, the bank produces loans, advance

and other innovation. So, high ratio depicts the managerial efficiency in utilizing the resources

which shows the sound and profitability position of the bank and the low ratio is the result of

insufficient utilization of resources. However, too high ratio is also not good enough as it may be

due to the insufficient liquidity.

Depending upon special nature of assets and sales made by the bank, following ratios are tested;

• Loans and advances total deposits ratio

• Investment to total deposit ratio

• Performing assets to total assets ratio

i. Loans and Advances to Total Deposit Ratio

The ratio is computed by dividing total loans and advances by total deposit liabilities.

Loans and advances

=
Total deposit

Loan and advances consist of loans, advances, cash credit overdraft, foreign bills purchased and

discounted. The ratio indicates the proportion of total deposits invested in loans and advances.

High ratio means the greater use of deposits for investing in loans and advances. However, very

high ratio shows poor liquidity position and risk in loans on the contrary; too low ratio may be

the causes of idle cash or use of fund in less productive sector.

ii. Investment to Total Deposit Ratio

The ratio obtained by dividing investment by total deposits collection in the bank.
 32

Investment
=
Total Deposit

Investment comprises investment in treasury bills, development bonds, company shares and

other type of investment. The ratio shows how efficiently the major resources of the bank have

been mobilized. High ratio indicates managerial efficiency regarding the utilization of deposits.

Low ratio is the result of less efficiency in use of funds.

iii. Performing Assets to Total Assets Ratio

It is calculated by dividing performing assets by total assets.

Performing Assets
=
Total Assets

Performing assets to total assets include those assets, which are invested for income generating

purpose. These consist of loans and advances, bills purchased and discounted investment and

money at call or short notice. The ratio measures what percentage of the assets has been funded

for income generation. High ratio indicates greater utilization of assets and hence sound

profitability position.

D. Asset Quality Ratios

As explained earlier, turnover ratios measure the turnover of economic resource in terms of

quantity. Only the investment is not of great significance, but the return from them with

minimum default in payment by debtors is significant. A firm may be in a state of enough profit

and though unable to meet liability. Therefore, asset quality ratios are intended to measure the

quality of assets contained by the bank. Following ratios are computed in this group:

• Loan loss coverage ratio

 33

• Loan loss provision to total income ratio

• Loan loss provision to total deposit ratio

i. Loan Loss Coverage Ratio

The ratio is calculated by dividing provision for loans loss by total risk assets.

Loan loss Provision

=
Total Risk Assets

For the purpose, risk assets constitute loans and advances, bills purchased and discounted. Nepal

Rastra Bank has directed commercial banks to maintain provision for loan loss based on category

of loans and risk grade. The ratio, therefore, measures whether the provision is sufficient to meet

the possible loss created by defaulted in payment of loan or not. High ratio indicates that the

major portion of loan is risky.

ii. Loan Loss Provision to Total Income Ratio

The ratio is obtained by dividing loan loss provision by total income.

Loan loss Provision

=
Total Income

The ratio shows what portion of total income has been held as safety cushion against the possible

bad loan. Higher ratio indicates that the greater portion of loan advanced by the bank is inferior

in quality. Low ratio means that the bank has provided most of its loans and advance in secured

sector.
 34

iii. Loan Loss Provision to Total Deposit Ratio

The ratio is obtained by dividing the provision for loan loss by total deposit in the bank.

Loan Loss Provision

=
Total Deposit

It shows the proportion of bank's income held as loan loss provision in relation to the total

deposit collected. Higher ratio means quality of assets contained by the bank in form of loan is

not much satisfactory. Low ratio is the index of utilization of resources in healthy sector.

E. Profitability Ratio

Profitability ratios are designed to highlight the end-result of the business activities, which in the

imperfect world of ours, is the sole criterion of cover all efficiency of business unit. A company

should earn profit to survive and grow over a long period. It is a fact that sufficient profit must be

earned to sustain the operations of the business, to able to obtain funds from investors for

expansion and growth; and to contribute towards the social overheads for the welfare of society.

The profitability ratios are calculated to measure the operating efficiency of the company.

Management of the company, creditors and owners are interested in the profitability of the firm.

Creditors want to get interest and repayment of principal regularly. Owners want to get a

reasonable return from their investment.

To meet the objective of study, following ratios are calculated in this group;

• Return on total assets

• Return on total equity

• Return on net worth

 35

• Total interest expenses to total interest income ratio

i. Return on Total Asset

The ratio is calculated by dividing net profit after tax by total on asset of the bank.

Net profit after tax

=
Total assets

Net profit refers to the profit deduction of interest and tax. A total asset means the assets that

appear in asset of balance sheet. It measures the efficiency of bank in utilization of the overall

assets. High ratio indicates the success of management in overall operation. Lower ratio means

insufficient operation of the bank.

ii. Return on Equity

The ratio is calculated by dividing net profit after tax by total equity of the bank.

Net profit after tax

=
Total Equity

Total equity refers to the sum of equity which is gained from common shareholders as well as

the paid up capital which is used for formation of capital. Higher ratio means the effective

utilization of the resources and it is better for the investor.

iii. Return on Net Worth

The ratio is computed by dividing net profit after tax by net worth.

Net profit after tax

=
Net Worth
 36

The ratio is tested to see the profitability of the owner's investment "reflects the extent to which

the objective of business is accomplished". The ratio is of great interest to present as well as

prospective shareholders and of great significance to management, which has the responsibility

of maximizing the owner's welfare, so higher ratio is desirable.

iv. Total Interest Expenses to Total Interest Income Ratio

The ratio is obtained by dividing total interest expenses by total interest income.

Total Interest Expenses

=
Total Interest Income

Total interest expenses consist of interest expense incurred for deposit, borrowing and loans

taken by the bank. Total interest income includes interest income received from loans, advance,

cash credit, overdrafts and government securities, interbank and other investment. The ratio

shows the percentage of interest expenses incurred in relation to the interest income realized.

Lower ratio is favorable from profitability point of view.

3.5.2 Other Indicators

Above stated ratios, throw light on various aspects of bank. Management investors and creditors

can get information regarding their interest. Some indicators are dealt here which provide more

knowledge about the performance of the bank. They are listed below.

• Earnings per share(EPS)

• Dividing per share(DPS)

• Price-Earnings ratio (P/E Ratio)

 37

1. Earnings Per Share(EPS)

It is obtained by dividing earning available to common shareholders by number of equity shares

out-standing.

Earnings Available To Common Shareholders

=
Number of Equity Shares Out-Standing

Earnings per share refers to the income available to the common shareholders on per share basis,

it enables us to compare whether the earning based on per share basis has changed over past

period or not. The investors favor high EPS. It reflects the sound profitability of the bank.

2. Divided Per Share (DPS)

It is obtained by dividing earning paid to shareholder by number of equity shares outstanding.

Earning Paid To Common Shareholders

=
Number of Equity Shares Out-Standing

The net profit after the deduction of preference dividend belongs to equity shareholders.

However, the income that really receives is the amount of earning distributed as dividend.

Dividend may be distributed in form of cash or bonus share. Dividend distribution affects the

price of share. Shareholders prefer high dividend. However, it may sometimes be wise to

distribute less amount of profit in investment opportunities are available.

3. Price-Earnings Ratio( P/E Ratio)

Market Value Per Share

=
Earnings Per Share

P/E ratio is widely used to evaluate the bank's performance as expected by investors. It

represents the investors' judgment or expectation about the growth in the banks earning. In other
 38

words, it measures how the market is responding towards the earning performance of the

concerned institution. High ratio indicates greater expectation of the market towards the

achievement of firm.

3.5.3 Statistical Tools

Various statistical tools can be used to analyze the data available to the researcher. These tools

are used in research in order to draw the reliable conclusion through the analysis of financial

data. These all data were presented through SPSS software which was used as a tool for analysis

the statistical data.

Following tools are used for are purpose.

• Arithmetic mean

• Variance

• Standard Deviation

• Student's T-test

• Coefficient of correlation

A. Arithmetic Mean

An average is a single value selected from a group of values to represent them in same way,

which is supposed to stand for whole group of which it is a pare, as typical of all the values in the

group (Waugh A.E.), Out of various measures of the central tendency, arithmetic mean is one of

the useful tools applicable here, it is easy to calculate and understand and based on all

observations.
 39

Arithmetic mean of a given set of observations is their sum divided by the number of

observation. In general, if X1, X2, X3...............Xn are the given observations, then arithmetic

mean usually denoted by X is given by,

X1 + X2 +…………. + Xn
=
n
Where, n = number of observation

B. Variance

It is a statistical measure of the variability of s set of observations. The symbol is pronounced

"Sigma Square". It is the measure of total risk. Smaller the variance, lower will be the risk of the

stock and vice versa.

n Ʃ[X1 – X1]2
σ2 x = ∑
t=1 n-1

where,

n = number of observation

X1 = average number of observation

C. Standard Deviation

It is the square root of the variance standard deviation. As the rate of returns is given in

percentage, the standard deviation of returns of assets will also be in percentage.

n Ʃ[X1 – X1]2
σx = ∑
t=1 n-1
 40

Where,

X1 = Expected return of the historical data.

n = Number of observations.

D. Student's T-test

Student's t-test is a useful statistical tool to see the significance of the difference between two

sample means, the population variances being equal but unknown (Gupta S.C.). Student's t-test is

based on the assumption that the present population from which the sample is drowning is

normal, the sample observations are independent and the population standard deviation is

unknown. The test is applied for the sample less than 30. If X 1,X2,X3…………… Xn and Y1, Y2,

Y3 ........................Yn be two independent random samples from the given normal population,

null hypothesis is set as; i.e. the sample means X and Y do not differ significantly under the

assumption that of population variance are equal but unknown. The test statistic under Ho is i.e.

S2 is in unbiased estimate of the common population variance C3 based on both samples. By

comparing the value of /t/ with the tabulated value of t for iii +rv-2 degree of freedom and at 5%

level of significance, null hypothesis is accepted or rejected. If the calculated value of t came to

be less than the tabulated value, null hypothesis is accepted otherwise, rejected.

E. Karl Person's Coefficient of Correlation

It is a statistical tool for measuring the intensity or the magnitude of linear relationship between

two series. Karl Pearson's measure, known as Pearson's correlation coefficient between two

variable and series X and Y is usually denoted by 'i' and can be obtained as Where,
 41

n ∑x y - ∑x .∑y
R=
[{∑x2 – (∑x) 2} {∑y2 – (∑y) 2}]

Where,

n = Number of observation in series

∑x = Sum of observation in series X

∑y = Sum of observation in series Y

X2 = Sum of squared observation in series X

Y2 =
Sum of squared observation in series Y

ΣXY sum of the product of observation in series X and Y value of r lies between -1 and + 1. r =

1 implies that there is a perfect positive correlation between the variable, r = 1 implies that there

is a perfect negative correlation between the variable r = 0 means the variable are uncorrelated.

But r = 0 does not always mean that the variables are uncorrelated; they may be related in some

other form such as logarithm, quadratic, exponential etc.

 42

CHAPTER FOUR

ANALYSIS AND INTERPRETATION OF DATA

This chapter deals with the analysis and interpretation of data following the researcher

methodology dealt in the chapter. In the course of analysis, data gathered from the various

sources have been inserted in the tabular form according to 'heir' homogenous nature. The

various tables prepared for the analysis purpose have been shown in annexes. Using financial

and statistical tools, the data have been analyzed the result of the analysis has been interpreted

keeping in mind the conventional standard with respect to ratio analysis, directives of NRB and

other factors while using other tools. Moreover, financial performance of the sampled banks has

especially been analyzed in cross-sectional manner. Specifically, the chapter includes analysis

and interpretation of the following.

• Ratio Analysis

• Correlation Analysis

• Hypotheses Test

4.1 Ratio, Correlation and Hypotheses Test

Ratio analysis has been adapted to evaluate the financial health, operating result and growth of

the sampled banks. In order to analyze and interpret the tabled data, the following ratios have

been used.

• Liquidity Ratio

• Leverage Ratio

• Turnover Ratio
 43

• Asset Quality Ratio

• Profitability Ratio

• Other Indicators

4.1.1 Liquidity Ratios

Liquidity ratios have been employed to test the ability of the banks to pay immediate liabilities.

These include current ratio, cash and bank balance to total deposit ratio, NRB balance to current

and saving deposit ratios, NRB balance to fixed deposit ratio and fixed deposit ratio and fixed

deposit to total deposit ratio.

i. Current Ratio

Table 4.1: Current Ratio (amount in million)

Banks HBL EBL

Current Current Current Current Current Current
Year
Assets Liabilities Ratio Assets Liabilities Ratio
2012/13 3,283.02 1,553.04 2.11 3,010.70 2,321.64 1.30
2013/14 1,972.54 1,731.59 1.14 3,725.86 2,410.95 1.55
2014/15 3,578.20 1,707.45 2.10 7,990.33 8,114.28 0.98
2015/16 3,679.32 2,163.45 1.70 9,761.38 10,564.13 0.92
2016/17 2,774.23 2,029.17 1.37 6,806.41 8,787.80 0.77
(Source: Annual Report, 2012-2017)
 44

Table 4.2: Descriptive Statistics of Current Ratio

Minimu Std.
N Mean Variance
m Deviation
Current Ratio
Std.
Statistic Statistic Statistic Statistic Statistic
Error
HBL 5 1.14 1.6840 .19356 .43282 .187
EBL 5 .77 1.1040 .14109 .31548 .100
Valid N
5
(listwise)

Table 4.3: Paired Samples Correlations of Current Ratio

N Correlation Sig.
Current Ratio HBL &
Pair 1 5 -.199 .748
Current Ratio EBL

Table 4.4: Paired Samples Test of Current Ratio

Paired Differences t df Sig.

Mean Std. Std. 95% Confidence (2-
Deviation Error Interval of the tailed)
Mean Difference
Lower Upper
Pair CR_Ratio_HBL .58000 .58417 .26125 -.14534 1.30534 2.220 4 .091
1 -
CR_Ratio_EBL

In the above table, the current ratios of HBL bank from year 2012/13 to 16/17 are 2.11, 1.14, 2.1,

1.7, & 1.37 and for EBL are 1.3, 1.55, 0.98, 0.92 & 0.77 respectively. The average and standard

deviation of HBL are 1.6840 & 0.4328 respectively. As well, the average and standard deviation
 45

of EBL are 1.1040 & 0.31548. Correlation between the two ratios is -1.99 and the calculated

value of t is 2.220.

ii. Cash and Bank Balance to Total Deposit Ratio

4.5: Cash and Bank Balance to Total Deposit Ratio (amount in millions)

Banks HBL EBL

Cash and Bank Total Ratio Cash and Bank Total Ratio
Year
Balance Deposit (%) Balance Deposit (%)
2012/13 1,221 53,072 2.30 3,011 57,720 5.22
2013/14 1,776 64,675 2.75 3,726 62,108 6.00
2014/15 2,514 73,538 3.42 7,990 83,094 9.62
2015/16 2,197 87,336 2.52 9,731 93,735 10.38
2016/17 2,774 92,881 2.99 6,806 95,094 7.16
(Source: Annual Report, 2012-2017)

Table 4.6: Descriptive Statistics of Cash and Bank Balance to Total Deposit Ratio

Cash and Bank Balance to Total Deposit N Mean Std. Variance

Ratio Deviation
HBL 5 2.796 0.43339 0.188
EBL 5 7.676 2.2471 5.049
Valid N (listwise) 5

Table 4.7: Paired Samples Correlations of Cash and Bank Balance to Total Deposit Ratio

Cash and Bank Balance to Total Deposit N Correlation Sig.

Ratio
Pair 1 HBL & EBL 5 .427 .474
 46

Table 4.8: Paired Samples Test of Cash and Bank Balance to Total Deposit Ratio
Cash and Paired Differences
Bank 95% Confidence
Balance to Interval of the
Total Std. Difference Sig.
Deposit Std. Error (2-
Ratio Mean Deviation Mean Lower Upper t df tailed)
Pair HBL -4.88000 2.09913 .93876 -7.48642 -2.27358 -5.198 4 .007
1 -
EBL

In the above table, cash and bank balance to total deposit ratios of HBL bank from year 2012/13

to 16/17 are 2.3, 2.75, 3.42, 2.52 & 2.99 and for EBL are 5.22, 6, 9.62, 10.38 & 7.16

respectively. The average and standard deviation of HBL are 2.7960 & 0.43339 respectively. As

well, the average and standard deviation of EBL are 7.6760 & 2.24710. Correlation between the

two ratios is 0.427 and the calculated value of t is 5.198.

iii. Fixed Deposit to Total Deposit Ratio

Table 4.9: Fixed Deposit to Total Deposit Ratio (amount in millions)

Banks HBL EBL

Fixed Total Ratio
Year Total Deposit Ratio (%) Fixed Deposit
Deposit Deposit (%)
2012/13 13,965 53,072 26.31 14,105 57,720 24.44
2013/14 13,589 64,675 21.01 14,529 62,108 23.39
2014/15 16,305 73,538 22.17 19,785 83,094 23.81
2015/16 16,764 87,336 19.19 25,999 93,735 27.74
2016/17 37,501 92,881 40.38 36,312 95,094 38.18
(Source: Annual Report, 2012-2017)
 47

Table 4.10: Descriptive Statistics of Fixed Deposit to Total Deposit Ratio

Fixed Deposit to N Mean Std. Deviation Variance
Total Deposit Ratio
Statistic Statistic Std. Error Statistic Statistic

HBL 5 25.8120 3.82524 8.55349 73.162

EBL 5 27.5120 2.77481 6.20466 38.498
Valid N (listwise) 5

Table 4.11: Paired Samples Correlations of Fixed Deposit to Total Deposit Ratio
Fixed Deposit to Total Deposit Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .875 .052

Table 4.12: Paired Samples Test of Fixed Deposit to Total Deposit Ratio
Fixed Paired Differences
Deposit to 95% Confidence
Total Std. Interval of the Sig.
Deposit Std. Error Difference (2-
Ratio Mean Deviation Mean Lower Upper t Df tailed)
Pair HBL -1.70000 4.34003 1.94092 -7.08886 3.68886 -.876 4 .431
1 - EBL

In the above table, fixed deposit to total deposit ratios of HBL bank from year 2012/13 to 16/17

are 26.31, 21.01, 22.17, 19.19 & 40.38 and for EBL are 24.44, 23.39, 23.81, 27.74 & 38.18

respectively. The average and standard deviation of HBL are 25.812 & 3.82524 respectively. As

well, the average and standard deviation of EBL are 27.512 & 2.77481. Correlation between the

two ratios is 0.875 and the calculated value of t is 0.876.

 48

4.1.2 Leverage Ratios

Leverage ratios have been analyzed and interpreted to judge the long-term financial health of the

sampled banks. These include dept-equity ratios, debt-asset ratio, debt to total capital ratio and

interest coverage ratio.

i. Debt-equity Ratio

Table 4.13: Debt-Equity Ratio (amount in millions)

Banks HBL EBL

Total Total
Year Total Debt Ratio (%) Total Debt Ratio (%)
Equity Equity
2012/13 1,489 5,300 28.09 2,085 4,828 43.18
2013/14 1,371 6,083 22.53 1,760 5,457 32.25
2014/15 933 6,959 13.40 1,560 6,890 22.63
2015/16 2,175 8,824 24.65 2,543 8,514 29.87
2016/17 808 11,475 7.04 1,666 11,545 14.43
(Source: Annual Report, 2012-2017)

Table 4.14: Descriptive Statistics of Debt-Equity Ratio

Debt-Equity Ratio N Mean Std. Deviation Variance
Statistic Statistic Std. Error Statistic Statistic

HBL 5 19.1420 3.88144 8.67917 75.328

EBL 5 28.4720 4.81591 10.76870 115.965
Valid N (listwise) 5

Table 4.15: Paired Samples Correlations of Debt-Equity Ratio

Debt-Equity Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .951 .013
 49

Table 4.16: Paired Samples Test of Debt-Equity Ratio

Debt-Equity Paired Differences
Ratio 95% Confidence
Std. Interval of the Sig.
Std. Error Difference (2-
Mean Deviation Mean Lower Upper t df tailed)
Pair HBL -9.33000 3.67408 1.64310 -13.89197 -4.76803 -5.678 4 .005
1 -
EBL

In the above table, debt-equity ratios of HBL bank from year 2012/13 to 16/17 are 28.09, 22.53,

13.40, 24.65 & 7.04 and for EBL are 43.18, 32.25, 22.63, 29.87 & 14.43 respectively. The

average and standard deviation of HBL are 19.1420 & 8.67917 respectively. As well, the average

and standard deviation of EBL are 28.4720 & 10.7687. Correlation between the two ratios is

0.951 and the calculated value of t is 5.678.

ii. Debt-Asset Ratio

Table 4.17: Debt-Assets Ratio (amount in millions)

Banks HBL EBL

Year Total Debt Total Assets Ratio (%) Total Debt Total Assets Ratio (%)

2012/13 1,489 61,114 2.44 2,085 65,741 3.17

2013/14 1,371 73,590 1.86 1,760 76,445 2.30
2014/15 933 82,802 1.13 1,560 99,167 1.57
2015/16 2,175 99,863 2.18 2,543 113,885 2.23
2016/17 808 107,255 0.75 1,666 116,510 1.43
(Source: Annual Report, 2012-2017)
 50

Table 4.18: Descriptive Statistics of Debt-Total Assets Ratio

Debt-Total Assets N Mean Std. Deviation Variance
Ratio Statistic Statistic Std. Error Statistic Statistic
HBL 5 1.6720 .31836 .71188 .507
EBL 5 2.1400 .31013 .69347 .481
Valid N (listwise) 5

Table 4.19: Paired Samples Correlations of Debt-Total Assets Ratio

Debt-Total Assets Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .927 .023

Table 4.20: Paired Samples Test of Debt-Total Assets Ratio

Paired Differences
95% Confidence
Debt-Total Assets
Std. Interval of the Sig.
Ratio
Std. Error Difference (2-
Mean Deviation Mean Lower Upper t df tailed)
Pair HBL - EBL -.46800 .26920 .12039 -.80226 -.13374 -3.887 4 .018
1

In the above table, debt-total assets ratios of HBL bank from year 2012/13 to 16/17 are 2.44,

1.86, 1.13, 2.18 & 0.75 and for EBL are 3.17, 2.3 1.57, 2.23 & 1.43 respectively. The average

and standard deviation of HBL are 1.6720 & 0.71188 respectively. As well, the average and

standard deviation of EBL are 2.14 & 0.69347. Correlation between the two ratios is 0.927 and

the calculated value of t is 3.887.

 51

4.1.3 Turnover Ratio

Turnover ratios have been used to evaluate the efficiency with have managed and utilized their

assets. These, include loans and advances to total deposit ratio, loans and advances to fixed

deposit ratio, loans and advances saving deposit ratio, investment total deposit ratio, performing

assets to total ratio and performing assets to total debt ratio.

i. Loans and Advances to Total Deposit Ratio

Table 4.21: Loan and Advances to Total Deposit Ratio (amount in millions)

Banks HBL EBL

Loans and Total Ratio Loans and Total Ratio
Year
Advances Deposit (%) Advances Deposit (%)
2012/13 39,724 53,072 74.85 45,393 57,720 78.64
2013/14 45,320 64,675 70.07 47,572 62,108 76.60
2014/15 53,476 73,538 72.72 54,482 83,094 65.57
2015/16 67,746 87,336 77.57 67,955 93,735 72.50
2016/17 76,394 92,881 82.25 77,288 95,094 81.27
(Source: Annual Report, 2012-2017)

Table 4.22: Descriptive Statistics of Loan and Advances to Total Deposit Ratio
Loan and Advances N Mean Std. Deviation Variance
to Total Deposit Statistic Statistic Std. Error Statistic Statistic
Ratio
HBL 5 75.4920 2.09145 4.67661 21.871
EBL 5 74.9160 2.74100 6.12907 37.566
Valid N (listwise) 5
 52

Table 4.23: Paired Samples Correlations of Loan and Advances to Total Deposit Ratio
Loan and Advances to Total Deposit Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .456 .440

Table 4.24: Paired Samples Test of Loan and Advances to Total Deposit Ratio
Paired Differences
Loan and
95% Confidence
Advances to
Std. Interval of the Sig.
Total Deposit
Std. Error Difference (2-
Ratio
Mean Deviation Mean Lower Upper t df tailed)
Pair HBL – .57600 5.76918 2.58006 -6.58739 7.73939 .223 4 .834
1 EBL

In the above table, loan and advances to total deposit ratios of HBL bank from year 2012/13 to

16/17 are 74.85, 70.07, 72.72, 77.57 & 82.25 and for EBL are 78.64, 78.60, 65.57, 72.50 &

81.27 respectively. The average and standard deviation of ratios of HBL are 75.49 & 4.67

respectively. As well, the average and standard deviation of ratios of EBL are 74.92 & 6.13.

Correlation between the two ratios is 0.456 and the calculated value of t is 0.223.
 53

ii. Investment to Total Deposit Ratio

Table 4.25: Investment to Total Deposit Ratio (amount in millions)

Banks HBL EBL

Year Investments Total Deposit Ratio (%) Investments Total Deposit Ratio (%)

2012/13 12,992 53,072 24.48 9,264 57,720 16.05

2013/14 19,842 64,675 30.68 6,504 62,108 10.47
2014/15 17,113 73,538 23.27 15,103 83,094 18.18
2015/16 19,306 87,336 22.11 18,199 93,735 19.41
2016/17 17,929 92,881 19.30 11,965 95,094 12.58
(Source: Annual Report, 2012-2017)

Table 4.26: Descriptive Statistics of Investment to Total Deposit Ratio

Investment to Total N Mean Std. Deviation Variance
Deposit Ratio Statistic Statistic Std. Error Statistic Statistic
HBL 5 23.9680 1.88471 4.21434 17.761
EBL 5 15.3380 1.68031 3.75730 14.117
Valid N (listwise) 5

Table 4.27: Paired Samples Correlations of Investment to Total Deposit Ratio

Investment to Total Deposit Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 -.458 .438
 54

Table 4.28: Paired Samples Test of Investment to Total Deposit Ratio

Paired Differences
95% Confidence
Investment to Total
Std. Interval of the Sig.
Deposit Ratio
Std. Error Difference (2-
Mean Deviation Mean Lower Upper t df tailed)
Pair HBL - EBL 8.63000 6.80957 3.04533 .17480 17.08520 2.834 4 .047
1

In the above table, investment to total deposit ratios of HBL bank from year 2012/13 to 16/17 are

24.448, 30.68, 23.27, 22.11 & 19.3 and for EBL are 16.05, 10.47, 18.18, 19.41 & 12.58

respectively. The average and standard deviation of ratios of HBL are 23.97 & 4.21 respectively.

As well, the average and standard deviation of ratios of EBL are 15.34 & 3.76. Correlation

between the two ratios is -0.458 and the calculated value of t is 2.834.

iii. Performing Assets to Total Assets Ratio

Table 4.29: Performing Assets to Total Assets Ratio (amount in millions)

Banks HBL EBL

Performing Total Ratio Performing Total Ratio
Year
Assets Assets (%) Assets Assets (%)
2012/13 54,778 61,114 89.63 52,567 65,741 79.96
2013/14 65,659 73,590 89.22 54,076 76,445 70.74
2014/15 81,230 82,802 98.10 69,585 99,167 70.17
2015/16 88,534 99,863 88.66 86,154 113,885 75.65
2016/17 94,324 107,255 87.94 89,252 116,510 76.60
(Source: Annual Report, 2012-2017)
 55

Table 4.30: Descriptive Statistics of Performing Assets to Total Assets Ratio

Performing Assets to N Mean Std. Deviation Variance
Total Assets Ratio Statistic Statistic Std. Error Statistic Statistic
HBL 5 90.7100 1.86914 4.17953 17.469
EBL 5 74.6240 1.84870 4.13382 17.088
Valid N (listwise) 5

Table 4.31: Paired Samples Correlations of Performing Assets to Total Assets Ratio
Performing Assets to Total Assets Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 -.586 .300

Table 4.32: Paired Samples Test of Performing Assets to Total Assets Ratio
Performing Paired Differences
Assets to 95% Confidence
Total Std. Interval of the Sig.
Assets Std. Error Difference (2-
Ratio Mean Deviation Mean Lower Upper t df tailed)
Pair HBL 16.08600 7.40208 3.31031 6.89511 25.27689 4.859 4 .008
1 -
EBL

In the above table, performing assets to total assets ratios of HBL bank from year 2012/13 to

16/17 are 89.63, 89.22, 98.1, 88.66 & 87.94 and for EBL are 79.96, 70.74, 70.17, 75.65 & 70.60

respectively. The average and standard deviation of ratios of HBL are 90.71 & 4.18 respectively.

As well, the average and standard deviation of ratios of EBL are 70.62 & 4.13. Correlation

between the two ratios is -0.586 and the calculated value of t is 4.859.
 56

4.1.5 Asset Quality Ratio

Asset quality ratios intend to measure the quality of assets owned by the banks. These include

loan loss coverage ratio, loan loss provision to total income ratio, loan provision to total deposit

ratio and accrued interest to total interest income ratio.

i. Loan Loss Coverage Ratio

Table 4.33: Loan Loss Coverage Ratio (amount in millions)

Banks HBL EBL

Loan loss Total Risk Loan loss Total Risk
Year Ratio (%) Ratio (%)
provision Assets provision Assets
2012/13 1,334 55,521 2.40 805 49,834 1.61

2013/14 1,129 63,729 1.77 878 56,780 1.55

2014/15 1,952 72,184 2.70 881 63,451 1.39

2015/16 1,355 90,507 1.50 956 79,712 1.20

2016/17 1,247 103,797 1.20 997 88,930 1.12

(Source: Annual Report, 2012-2017)

Table 4.34: Descriptive Statistics of Loan Loss Coverage Ratio

Loan Loss Coverage N Mean Std. Deviation Variance
Ratio Statistic Statistic Std. Error Statistic Statistic
HBL 5 1.9140 .27892 .62368 .389
EBL 5 1.3740 .09532 .21314 .045
Valid N (listwise) 5

Table 4.35: Paired Samples Correlations of Loan Loss Coverage Ratio

Loan Loss Coverage Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .668 .218
 57

Table 4.36: Paired Samples Test of Loan Loss Coverage Ratio

Paired Differences
95% Confidence
Loan Loss
Std. Interval of the Sig.
Coverage Ratio
Std. Error Difference (2-
Mean Deviation Mean Lower Upper t Df tailed)
Pair HBL - .54000 .50671 .22661 -.08916 1.16916 2.383 4 .076
1 EBL

In the above table, loan loss coverage ratios of HBL bank from year 2012/13 to 16/17 are 2.4,

1.7, 2.7, 1.5 & 1.2 and for EBL are 1.61, 1.55, 1.39, 1.2 & 1.12 respectively. The average and

standard deviation of ratios of HBL are 1.91 & 0.62 respectively. As well, the average and

standard deviation of ratios of EBL are 1.37 & 2.1. Correlation between the two ratios is 0.668

and the calculated value of t is 2.383.

ii. Loan Loss Provision to Total Income Ratio

Table 4.37: Loan Loss Provision to Total Income Ratio (amount in millions)

Banks HBL EBL

Loan loss Total Ratio Loan loss Total Ratio
Year
provision Income (%) provision Income (%)
2012/13 1,334 944 141.32 805 1,471 54.69
2013/14 1,129 961 117.50 878 1,550 56.67
2014/15 1,952 1,728 112.94 881 1,574 55.96
2015/16 1,355 1,936 69.99 956 1,730 55.28
2016/17 1,247 2,178 57.24 997 2,006 49.69
(Source: Annual Report, 2012-2017)
 58

Table 4.38: Descriptive Statistics of Loan Loss Provision to Total Income Ratio
Loan Loss Provision N Mean Std. Deviation Variance
to Total Income Statistic Statistic Std. Error Statistic Statistic
Ratio
HBL 5 99.7980 15.66820 35.03516 1227.462
EBL 5 54.4580 1.23718 2.76642 7.653
Valid N (listwise) 5

Table 4.39: Paired Samples Correlations of Loan Loss Provision to Total Income Ratio
Loan Loss Provision to Total Income Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .637 .248

Table 4.40: Paired Samples Test of Loan Loss Provision to Total Income Ratio
Loan Loss Paired Differences
Provision 95% Confidence
to Total Interval of the Sig.
Income Std. Std. Error Difference (2-
Ratio Mean Deviation Mean Lower Upper t df tailed)
Pair HBL 45.34000 33.34132 14.91069 3.94128 86.73872 3.041 4 .038
1 -
EBL

In the above table, loan loss provision to total income ratios of HBL bank from year 2012/13 to

16/17 are 141.32, 117.50, 112.94, 69.99 & 57.24 and for EBL are 54.69, 56.67, 55.96, 55.28 &

49.69 respectively. The average and standard deviation of ratios of HBL are 99.80 & 35.04

respectively. As well, the average and standard deviation of ratios of EBL are 54.46 & 2.77.

Correlation between the two ratios is 0.637 and the calculated value of t is 3.041.
 59

iii. Loan Loss Provision to Total Deposit Ratio

Table 4.41: Loan Loss Provision to Total Deposit Ratio (amount in millions)

Banks HBL EBL

Loan loss Total Ratio Loan loss Total Ratio
Year
provision Deposit (%) provision Deposit (%)
2012/13 1,334 53,072 2.51 805 57,720 1.39
2013/14 1,129 64,675 1.75 878 62,108 1.41
2014/15 1,952 73,538 2.65 881 83,094 1.06
2015/16 1,355 87,336 1.55 956 93,735 1.02
2016/17 1,247 92,881 1.34 997 95,094 1.05
(Source: Annual Report, 2012-2017)

Table 4.42: Descriptive Statistics of Loan Loss Provision to Total Deposit Ratio
Loan Loss Provision N Mean Std. Deviation Variance
to Total Deposit Statistic Statistic Std. Error Statistic Statistic
Ratio
HBL 5 1.9600 .26222 .58634 .344
EBL 5 1.1860 .08767 .19604 .038
Valid N (listwise) 5

Table 4.43: Paired Samples Correlations of Loan Loss Provision to Total Deposit Ratio
Loan Loss Provision to Total Deposit Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .284 .643
 60

Table 4.44: Paired Samples Test of Loan Loss Provision to Total Deposit Ratio
Paired Differences
Loan Loss Provision
95% Confidence
to
Std. Interval of the Sig.
Std. Error Difference (2-
Total Deposit Ratio
Mean Deviation Mean Lower Upper t df tailed)
Pair HBL - EBL .77400 .56297 .25177 .07499 1.47301 3.074 4 .037
1

In the above table, loan loss provision to total deposit ratios of HBL bank from year 2012/13 to

16/17 are 2.51, 1.75, 2.65, 1.55 & 1.34 and for EBL are 1.39, 1.41, 1.06, 1.02 & 1.05

respectively. The average and standard deviation of ratios of HBL are 1.96 & 0.59 respectively.

As well, the average and standard deviation of ratios of EBL are 1.19 & 0.20. Correlation

between the two ratios is 0.284 and the calculated value of t is 3.074.

4.1.6 Profitability Ratio

Profitability ratios have been employed to measure the operating efficiency of the sampled

banks. For the purpose return on asset, return on net worth return on total deposit total interest

expenses to total interest income ratio interest earned to total asset ratio, staff expenses to total

income ratio and office operation expenses to total income ratio have been analyzed and

interpreted.
 61

i. Return on Total Asset

Table 4.45: Return On Total Assets Ratio (amount in millions)

Banks HBL EBL

Net Profit After Total Ratio Net Profit After Total Ratio
Year
Tax Assets (%) Tax Assets (%)
2012/13 944 61,114 1.54 1,471 65,741 2.24
2013/14 961 73,590 1.31 1,550 76,445 2.03
2014/15 1,728 82,802 2.09 1,574 99,167 1.59
2015/16 1,936 99,863 1.94 1,730 113,885 1.52
2016/17 2,178 107,255 2.03 2,006 116,510 1.72
(Source: Annual Report, 2012-2017)

Table 4.46: Descriptive Statistics of Return On Total Assets Ratio

Return On Total N Mean Std. Deviation Variance
Assets Ratio Statistic Statistic Std. Error Statistic Statistic
HBL 5 1.7820 .15210 .34010 .116
EBL 5 1.8200 .13664 .30553 .093
Valid N (listwise) 5

Table 4.47: Paired Samples Correlations of Return On Total Assets Ratio

Return On Total Assets Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 -.827 .084
 62

Table 4.48: Paired Samples Test of Return On Total Assets Ratio

Paired Differences
95% Confidence
Return On Total
Std. Interval of the Sig.
Assets Ratio
Std. Error Difference (2-
Mean Deviation Mean Lower Upper t Df tailed)
Pair HBL - -.03800 .61719 .27601 -.80434 .72834 -.138 4 .897
1 EBL

In the above table, return on total assets ratios of HBL bank from year 2012/13 to 16/17 are 1.54,

1.31, 2.09, 1.94 & 2.03 and for EBL are 2.24, 2.03, 1.59, 1.52 & 1.72 respectively. The average

and standard deviation of ratios of HBL are 1.78 & 0.34 respectively. As well, the average and

standard deviation of ratios of EBL are 1.82 & 0.31. Correlation between the two ratios is -0.827

and the calculated value of t is 0.138.

ii. Return on Total Equity

Table 4.49: Return On Total Equity (amount in millions)

Banks HBL EBL

Net Profit After Total Ratio Net Profit After Total Ratio
Year
Tax Equity (%) Tax Equity (%)
2012/13 944 5,300 17.81 1,471 4,828 30.47
2013/14 961 6,083 15.79 1,550 5,457 28.40
2014/15 1,728 6,959 24.83 1,574 6,890 22.85
2015/16 1,936 8,824 21.94 1,730 8,514 20.32
2016/17 2,178 11,475 18.98 2,006 11,545 17.38
(Source: Annual Report)
 63

Table 4.50: Descriptive Statistics of Return On Total Equity

Return on Total N Mean Std. Deviation Variance
Equity Statistic Statistic Std. Error Statistic Statistic
HBL 5 19.8700 1.59010 3.55558 12.642
EBL 5 23.8840 2.44789 5.47364 29.961
Valid N (listwise) 5

Table 4.51: Paired Samples Correlations of Return On Total Equity

Return on Total Equity N Correlation Sig.
Pair 1 HBL & EBL 5 -.497 .394

Table 4.52: Paired Samples Test of Return On Total Equity

Paired Differences
95% Confidence
Return on Std. Interval of the Sig.
Total Std. Error Difference (2-
Equity Mean Deviation Mean Lower Upper T df tailed)
Pair HBL -4.01400 7.87133 3.52017 -13.78755 5.75955 -1.140 4 .318
1 –
EBL

In the above table, return on total equity ratios of HBL bank from year 2012/13 to 16/17 are

17.81, 15.79, 24.83, 21.94 & 18.98 and for EBL are 30.47, 28.40, 22.85, 20.32 & 17.38

respectively. The average and standard deviation of ratios of HBL are 19.87& 3.56 respectively.

As well, the average and standard deviation of ratios of EBL are 23.88 & 5.47. Correlation

between the two ratios is -0.497 and the calculated value of t is 1.140.
 64

iii. Return on Net Worth

Table 4.53: Return On Net Worth Ratio (amount in millions)

Banks HBL EBL

Net Profit After Net Ratio Net Profit After Net Ratio
Year
Tax Worth (%) Tax Worth (%)
2012/13 944 2,898 32.56 1,471 1,921 76.57
2013/14 961 3,333 28.83 1,550 2,137 72.50
2014/15 1,728 4,499 38.41 1,574 2,743 57.40
2015/16 1,936 5,849 33.10 1,730 4,606 37.56
2016/17 2,178 8,115 26.84 2,006 7,733 25.94
(Source: Annual Report, 2012-2017)

Table 4.54: Descriptive Statistics of Return On Net Worth Ratio

Return On Net N Mean Std. Deviation Variance
Worth Ratio Statistic Statistic Std. Error Statistic Statistic
HBL 5 31.9480 1.99089 4.45176 19.818
EBL 5 53.9940 9.80013 21.91376 480.213
Valid N (listwise) 5

Table 4.55: Paired Samples Correlations of Return On Net Worth Ratio

Return On Net Worth Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .263 .669
 65

Table 56: Paired Samples Test of Return On Net Worth Ratio

Paired Differences
Return On 95% Confidence
Net Worth Std. Interval of the Sig.
Ratio Std. Error Difference (2-
Mean Deviation Mean Lower Upper T df tailed)
Pair HBL -22.04600 21.18455 9.47402 -48.35009 4.25809 -2.327 4 .081
1 -
EBL

In the above table, return on total equity ratios of HBL bank from year 2012/13 to 16/17 are

32.56, 28.83, 38.41, 33.1 & 26.84 and for EBL are 76.57, 72.5, 57.4, 37.56 & 25.94

respectively. The average and standard deviation of ratios of HBL are 31.95 & 4.45 respectively.

As well, the average and standard deviation of ratios of EBL are 53.99 & 21.91. Correlation

between the two ratios is 0.263 and the calculated value of t is 2.327.

iv. Total Interest Expenses to Total Interest Income Ratio

Table 4.57: Total Interest Expenses to Total Interest Income Ratio (amount in millions)

Banks HBL EBL

Total Total
Total Interest Total Interest
Year Interest Ratio (%) Interest Ratio (%)
Expenses Expenses
Income Income
2012/13 2,119 4,627 45.79 2,179 4,937 44.14
2013/14 2,249 4,743 47.41 2,259 4,996 45.21
2014/15 1,954 4,628 42.23 2,117 5,178 40.89
2015/16 1,566 5,016 31.22 1,828 5,057 36.16
2016/17 3,173 6,939 45.74 3,010 6,147 48.96
(Source: Annual Report, 2012-2017)
 66

Table 4.58: Descriptive Statistics of Total Interest Expenses to Total Interest Income ratio
Total Interest N Mean Std. Deviation Variance
Expenses to Total Statistic Statistic Std. Error Statistic Statistic
Interest Income ratio
HBL 5 42.4780 2.93887 6.57150 43.185
EBL 5 43.0720 2.15542 4.81968 23.229
Valid N (listwise) 5

Table 4.59: Paired Samples Correlations of Total Interest Expenses to Total Interest
Income ratio
Total Interest Expenses to Total Interest N Correlation Sig.
Income ratio
Pair 1 HBL & EBL 5 .881 .048

Table 4.60: Paired Samples Test of Total Interest Expenses to Total Interest Income Ratio
Paired Differences
Total Interest
95% Confidence
Expenses to
Std. Interval of the Sig.
Total Interest
Std. Error Difference (2-
Income ratio
Mean Deviation Mean Lower Upper t Df tailed)
Pair HBL – -.59400 3.25446 1.45544 -4.63494 3.44694 -.408 4 .704
1 EBL

In the above table, total interest expenses to total income ratios of HBL bank from year 2012/13

to 16/17 are 45.79, 47.41, 42.23, 31.22 & 45.74 and for EBL are 44.14, 45.21, 40.89, 36.16 &

48.96 respectively. The average and standard deviation of ratios of HBL are 42.48 & 6.57

respectively. As well, the average and standard deviation of ratios of EBL are 43.07 & 4.82.

Correlation between the two ratios is 0.881 and the calculated value of t is 0.408.
 67

4.1.7 Others Indicators

Besides the above- analyzed ratios, some indicators have been tested to have the broader

knowledge of financial performance of the banks. For this, EPS, DPS, and P/E ratio have been

analyzed.

i. Earnings Per Share (EPS)

Table 4.61: Earnings Per Share (EPS)

Banks HBL EBL

No. Of No. Of
Ratio Ratio
Year EAT (NPR) Outstanding EAT (NPR) Outstanding
(NPR) (NPR)
Shares Shares
2012/13 943,700,000 27,600,000 34.19 1,471,120,000 16,011,264 91.88
2013/14 960,840,000 28,980,000 33.16 1,549,700,000 18,012,391 86.04
2014/15 1,728,160,000 33,327,000 51.85 1,574,350,000 20,173,877 78.04
2015/16 1,935,910,000 44,991,450 43.03 1,730,210,000 26,226,041 65.97
2016/17 2,178,230,000 64,916,235 33.55 2,006,230,000 45,264,269 44.32
(Source: Annual Report, 2012-2017)

Table 4.62: Descriptive Statistics of Earnings Per Share(EPS)

EPS N Mean Std. Deviation Variance
Statistic Statistic Std. Error Statistic Statistic
HBL 5 39.1560 3.66187 8.18819 67.046
HBL 5 73.2500 1.66573 18.86497 54.38503
Valid N (listwise) 5

Table 4.63: Paired Samples Correlations of Earnings Per Share(EPS)

EPS N Correlation Sig.
Pair 1 HBL & EBL 5 .041 .947
 68

Table 4.64: Paired Samples Test of Earnings Per Share(EPS)

Paired Differences
95% Confidence
EPS Std. Interval of the Sig.
Std. Error Difference (2-
Mean Deviation Mean Lower Upper T df tailed)
Pair HBL -34.09400 20.25203 9.05698 -59.24022 -8.94778 -3.764 4 .020
1 -
EBL

In the above table, the EPS of HBL bank from year 2012/13 to 16/17 are 34.19, 33.16, 51.85,

43.03 & 45.74 and for EBL are 44.14, 45.21, 40.89, 36.16 & 48.96 respectively. The average and

standard deviation of ratios of HBL are 39.16 & 8.19 respectively. As well, the average and

standard deviation of ratios of EBL are 73.25 & 18.86. Correlation between the two ratios is

0.041 and the calculated value of t is 3.764.

ii. Dividend Per Share (DPS)

Table 4.65: Dividend Per Share (DPS)

Banks HBL EBL

No. Of No. Of
Dividend Ratio Ratio
Year Outstanding Dividend Paid Outstanding
Paid (NPR) (NPR)
Shares Shares
2012/13 276,000,000 27,600,000 10.00 820,190,186 16,011,264 51.23
2013/14 175,404,348 28,980,000 6.05 920,395,772 18,012,391 51.10
2014/15 236,197,105 33,327,000 7.09 141,122,877 20,173,877 7.00
2015/16 71,039,132 44,991,450 1.58 1,064,495,939 26,226,041 40.59
2016/17 85,416,782 64,916,235 1.32 110,422,513 45,264,269 2.44
(Source: Annual Report, 2012-2017)
 69

Table 4.66: Descriptive Statistics of Dividend Per Share (DPS)

DPS N Mean Std. Deviation Variance
Statistic Statistic Std. Error Statistic Statistic
HBL 5 5.2080 1.66573 3.72468 13.873
EBL 5 30.4720 10.71333 23.95574 573.878
Valid N (listwise) 5

Table 4.67: Paired Samples Correlations of Dividend Per Share (DPS)

DPS N Correlation Sig.
Pair 1 HBL & EBL 5 .406 .498

Table 4.68: Paired Samples Test of Dividend Per Share (DPS)

Paired Differences
95% Confidence
DPS Interval of the Sig.
Std. Std. Error Difference (2-
Mean Deviation Mean Lower Upper T df tailed)
Pair HBL -25.26400 22.69972 10.15162 -53.44943 2.92143 -2.489 4 .068
1 -
EBL

In the above table, the DPS of HBL bank from year 2012/13 to 16/17 are 10, 6.05, 7.09, 1.58 &

1.32 and for EBL are 51.23, 51.10, 7, 40.59 & 2.44 respectively. The average and standard

deviation of ratios of HBL are 5.21 & 3.72 respectively. As well, the average and standard

deviation of ratios of EBL are 30.47 & 23.96. Correlation between the two ratios is 0.406 and the

calculated value of t is 2.489.

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iii. Price-Earnings Ratio(P/E Ratio)

Table 4.69: Price Earnings Ratio- P/E Ratio

Banks HBL EBL

Year MVPS EPS Ratio (NPR) MVPS EPS Ratio (NPR)
2012/13 700 34.19 20.47 1,591 91.88 17.32
2013/14 941 33.16 28.38 2,631 86.04 30.58
2014/15 813 51.85 15.68 2,120 78.04 27.17
2015/16 1,500 43.03 34.86 3,385 65.97 51.31
2016/17 886 33.55 26.41 1,353 44.32 30.53
(Source: Annual Report, 2012-2017)

Table 4.70: Descriptive Statistics of Price Earnings Ratio- P/E Ratio

Price Earnings Ratio- N Mean Std. Deviation Variance
P/E Ratio Statistic Statistic Std. Error Statistic Statistic
HBL 5 25.1600 3.30066 7.38050 54.472
EBL 5 31.3820 5.54065 12.38926 153.494
Valid N (listwise) 5

Table 4.71: Paired Samples Correlations of Price Earnings Ratio- P/E Ratio
Price Earnings Ratio- P/E Ratio N Correlation Sig.
Pair 1 HBL & EBL 5 .808 .098
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Table 4.72: Paired Samples Test of Price Earnings Ratio- P/E Ratio
Paired Differences
Price
95% Confidence
Earnings
Std. Interval of the Sig.
Ratio- P/E
Std. Error Difference (2-
Ratio
Mean Deviation Mean Lower Upper t df tailed)
Pair HBL -6.22200 7.75875 3.46982 -15.85577 3.41177 -1.793 4 .147
1 -
EBL

In the above table, the P/E Ratio of HBL bank from year 2012/13 to 16/17 are 20.47, 28.38,

15.68, 34.86 & 26.41 and for EBL are 17.32, 30.58, 27.17, 51.31 & 30.53 respectively. The

average and standard deviation of ratios of HBL are 25.16 & 7.39 respectively. As well, the

average and standard deviation of ratios of EBL are 31.38 & 12.39. Correlation between the two

ratios is 0.808 and the calculated value of t is 1.793.

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4.2 Major findings

The following findings have been derived from the analysis and interpretation of date.

1. Liquidity Position

• In case of current ratio EBL is below than the normal standard but HBL is slightly better

than HBL. The average ratio and standard deviation of HBL is higher than EBL which

means HBL maintained its accounts receivable and payable better than EBL. There is

negative correlation between the ratios which means if one ratio decreases the other one

will increases. The calculated value of t is 2.220 < 2.776; therefore null hypothesis has

been accepted.

• In term of Cash and bank balance to deposit ratio the average ratio of EBL is 7.68%,

which is higher than HBL of 2.80%. And with comparing to average ratio, EBL is more

profitable because the liquidity position of EBL is better than that of HBL. Correlation

between the two ratios is positive which means if one increases, the other will also

increases. The calculated value of t is 5.198 > 2.776; therefore null hypothesis has been

rejected.

• Mean fixed deposit to the total deposit ratio came higher in EBL. It means that EBL can

grasp the opportunity of investing the fund in more profitable sectors like long term

loans. On the other hand, EBL can utilize less cost bearing fund in current assets and

hence to strengthen the liquidity position. Correlation between the two ratios is positive

which means if one increases, the other will also increases. The calculated value of t is

0.876 < 2.776; therefore null hypotheses have been accepted.

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2. Leverage ratio or Capital Structure ratio

• The total debt to shareholders equity ratio expresses the relationship between debt capital

and equity capital, and reflects the relative claim of them on the assets of the firm. The

average ratio comes higher in EBL than HBL, which means EBL has greater contribution

at a firm’s financing by debt. High total debt to equity ratio refers that the use of debts by

the banks helps to enhance the rate of return of shareholders fund. Correlation between

the two ratios is positive which means if one increases, the other will also increases. The

calculated value of t is 5.678 > 2.776; therefore null hypotheses have been rejected.

• While comparing total debt to total assets ratio, the average ratio of EBL is higher than

that of HBL. This ratio shows the proportion of total assets that is financed by long-term

debt capital of firm. Therefore, EBL has greater proportion of debt in total assets than

HBL. Correlation between the two ratios is positive which means if one increases, the

other will also increases. The calculated value of t is 3.887 > 2.776; therefore null

hypotheses have been rejected.

3. Turnover Ratio

• The average loans and advances to total deposit ratio is slightly higher in HBL than EBL.

It shows both banks have efficiently used the deposit in loans. Correlation between the

two ratios is positive which means if one increases, the other will also increases. The

calculated value of t is 0.223 < 2.776; therefore null hypotheses have been accepted.

• The investment to total deposit ratio measures the efficient utilization of deposit into

assets. HBL has higher ratio than EBL, which means HBL has utilized its long-term

capital in investment more efficiently than EBL. Correlation between the two ratios is
 74

negative i.e. -0.458, which means if one increases, the other one will decreases. The

calculated value of t is 2.834 > 2.776; therefore null hypotheses have been rejected.

• Performing assets to total assets ratio measures the assets which are being used in

productivity out of total assets. This ratio is higher in HBL than EBL which regards that

HBL has more efficiently used the assets in its operation than EBL. Correlation between

the two ratios is negative i.e. -0.586, which means if one increases, the other one will

decreases. The calculated value of t is 4.859 > 2.776; therefore null hypotheses have been

rejected.

4. Assets Quality Ratio

• Loan loss coverage ratio is the indication of margin coverage for future bad debt. It helps

the banks to cover the money from future loss. The mean ratio of HBL is greater than

EBL, which indicates HBL is more conscious from future losses. Correlation between the

two ratios is positive i.e. 0.668 which means if one increases, the other will also

increases. The calculated value of t is 2.383 <2.776; therefore null hypotheses have been

accepted.

• Loan loss provision to total income ratio defines the proportion of loss provision in total

income earned. The mean ratio of HBL is higher than the EBL which defines that HBL

has maintained the good assets margin in net income. Correlation between the two ratios

is positive i.e. 0.637 which means if one increases, the other will also increases and vice

versa. The calculated value of t is 3.041 >2.776; therefore null hypotheses have been

rejected i.e. alternative hypotheses have been accepted.

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• Loan loss provision to total deposit ratio is minimal in both banks. Even though, the ratio

of HBL is greater than EBL i.e. 1.96 > 1.19. From this figure, it seems that HBL is

reserving more loss provision based upon total deposit. Correlation between the two

ratios is positive i.e. 0.284 which means if one increases, the other will also increases and

vice versa. The calculated value of t is 3.074 >2.776; therefore null hypotheses have been

rejected i.e. alternative hypotheses have been accepted.

5. Profitability Ratio

Profitability ratio is measurement of efficiency and the search for it provides the degree of

success in achieving desired profit.

• Profitability in term of Net Profit to total assets ratio of EBL is found higher than that of

EBL. The average rate of return of EBL is higher than that of EBL, which concludes that

EBL has used total assets efficiently. Correlation between the two ratios is negative i.e. -

0.827 which means if one increases, the other will decreases and vice versa. The

calculated value of t is 0.138 <2.776; therefore null hypotheses have been accepted i.e.

alternative hypotheses have been rejected.

• Return on equity measures the relationship between earning available to equity

shareholder and equity shareholder’s fund. The mean ratio of EBL is higher than HBL,

which tells that EBL has used its funds supplied by shareholders efficiently. Correlation

between the two ratios is negative i.e. -0.497 which means if one increases, the other will

decreases and vice versa. The calculated value of t is 1.140 <2.776; therefore null

hypotheses have been accepted i.e. alternative hypotheses have been rejected.
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• Return on net worth measures the owner’s welfare. The mean ratio of EBL is higher than

HBL which means EBL has bitterly achieved the objectives of the business. Correlation

between the two ratios is positive i.e. 0.263 which means if one increases, the other will

also increases and vice versa. The calculated value of t is 2.327< 2.776; therefore null

hypotheses have been accepted i.e. alternative hypotheses have been rejected.

• Total interest expenses to total interest income ratio measures the earnings from cash

mobilization. The mean ratio of EBL is slightly greater than HBL which means both bank

has mobilized its assets and liabilities efficiently. Correlation between the two ratios is

positive i.e. 0.881 which means if one increases, the other will also increases and vice

versa. The calculated value of t is 0.408< 2.776; therefore null hypotheses have been

accepted i.e. alternative hypotheses have been rejected.

6. Other Indicators

• EPS measures the earning availability to equity shareholder on a per share basis. The

mean ratio of EBL is higher than the HBL; therefore, EBL is better than HBL.

Correlation between the two ratios is positive i.e. 0.041 which means if one increases, the

other will also increases and vice versa. The calculated value of t is 3.764 > 2.776;

therefore null hypotheses have been rejected i.e. alternative hypotheses have been

accepted.

• DPS shows the relationship between total amount of dividend paid to equity shareholder

and number of equity shares. The mean ratio of EBL is higher than the HBL; therefore,

EBL is better than HBL. Correlation between the two ratios is positive i.e. 0.406 which

means if one increases, the other will also increases and vice versa. The calculated value
 77

of t is 2.489 < 2.776; therefore null hypotheses have been accepted i.e. alternative

hypotheses have been rejected.

• P/E ratio represents the amount which investors are willing to pay for each rupee of the

firm’s earnings. EBL has higher mean ratio than HBL which means investor has greater

confidence in investing for future in EBL. Correlation between the two ratios is positive

i.e. 0.098 which means if one increases, the other will also increases and vice versa. The

calculated value of t is 1.793 < 2.776; therefore null hypotheses have been accepted i.e.

alternative hypotheses have been rejected.

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CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

This chapter is dedicated to provide conclusions after comparatively analyzing the financial

performance of two joint venture banks named EBL and HBL. It also tries to provide some

recommendations to the concerned banks from the conclusion derived from the study.

5.1 Summary

Banks, which deal with commercial activities, are known as commercial banks. These financial

institutes help to integrate every financial activity of the community. The main objective of a

commercial bank is to play a vital role in the development of good trade. Commercial banks are

mechanisms of mobilizing funds in returnable resources. They offer financial support to all types

of business through providing various types of loans and other financial services. Commercial

banks aid the economic development of the nation. Integrated and speedy developed of the

country is possible only when competitive banking service reach every nooks and corners of the

country. Today number of commercial bank are concentrated in only few places because lack of

development of infrastructure in remote places. Government must give attention toward remote

places. Bank plays vital role in the economic development of nations. So today it is challenging

for government to formulate the new banking policy rationally in remote area. Actually more

than 60% of total areas of Nepal is covered with rural areas. For the economic development of

rural areas it is necessary to provide banking services in rural areas. The research work entitled

the comparative study on financial performance analysis of commercials banks include the

following banks: -
 79

• Everest Bank Ltd.

• Himalayan Bank Ltd.

The research work should have reached the destiny where we satisfy with the queries of research

problems which were specified in the statement of the problem in the introductory chapter. To

conduct the research work, the researcher consulted mainly the secondary sources such as

documents published by concerned banks and also consulted the personalities of the related bank

as primary sources where as necessary. Before presenting and analyzing the data, there was also

need to review of related books, prior research on the topic. Obviously, it helped the researcher

to construct conceptual framework and to analyze and interpret the secondary data according to

objective set forth previously. Then the research work was analyzed and interpreted by financial

tools such as liquidity ratio, activity turnover ratio, leverage ratio, earning per share, profitability

ratio and dividend per share as well as statistical tools such as mean, standard deviation, T-test.

In this way, the researcher analyzed and presented the 4 th chapter, which was the main body of

the research work. On the basis of data analysis and presentation, the researcher extracted some

major findings. It has been explained along with the data analysis and presentation. So, on the

basis of major findings the researcher reached in the conclusions keeping in the previously set

objectives in mind. Ultimately, the researcher will recommend on the research problem to its

stakeholders.

To know the real performance of banks, the researcher observed and analyzed the comparative

performance analysis of two commercial banks for five years period. It is hoped that the

comparative performance analysis of the commercial banks will give a rational result and

represent the overall banking scenario in terms of performance analysis.

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5.2 Conclusion

Establishment of commercial banks especially joint venture banks have continued in response to

the economic liberalization policies of the government. So, now in Nepal there are twenty six

(research period) commercial banks competing with each other in their business. These joint

venture banks are mainly concentrated themselves on financing foreign trade, commerce and

industry. This study has been mentioned already that the research concentrates. The researcher

has evaluated data for the least 5 years period i.e. 2012/13to 2016/17. The researcher has

analyzed the data by using financial tools like ratio analysis as well as statistical tools like mean,

standard deviation, hypothesis etc.

The liquidity ratio measures the ability of a firm to meet its short-term obligations and select the

short-term financial solvency of a firm. The liquidity position of the banks in term of current

ratios shows that the ratios of EBL is always below the normal standard (i.e. 2:1), whereas HBL

average ratio fluctuates over and below the normal. It shows that the liquidity position in term of

current assets to current liabilities of HBL is better than EBL. So, it is concluded that HBL is

better short-term solvency position as compared with EBL. The Liquidity position of cash and

bank balance to deposit ratio of EBL is higher than that of HBL (i.e. 2.8% > 7.68%). So, it is

concluded that EBL has sufficient cash and bank balance to deposit than that of EBL. Likewise,

the liquidity position of EBL in terms of fixed deposit to total deposit ratio is found higher than

HBL (i.e. 3.83% > 2.77% in an average). So, in total HBL is better than EBL in liquidity

position. From the t-test, there is no significance relationship in liquidity between HBL and EBL.

The capital structure position in terms of total debt to equity ratio of EBL is higher than that of

HBL (i.e. 28.47 > 19.14). The average of total debt to equity ratio implies that the proportion of
 81

equity capital in the total capitalization is higher in EBL. It seems relatively more leverage. Thus,

EBL has more risky and aggressive capital structure than HBL. Total debt to total assets ratio

implies a banks success in exploiting debts to be more profitable as well as its riskier capital

structure. The average of total debt to total assets ratio of EBL is higher than HBL, which

implies that EBL has better debt financing position than that of HBL. From this analysis, capital

structure ratio has clearly referred that total debt to equity and total assets are slightly higher for

EBL as compared to HBL. From the t-test, it is concluded that there is significance relationship

in leverage, between HBL and EBL.

The turnover in terms of loan and advances to total deposit ratio of HBL is slightly higher than

that of HBL (i.e. 75.49% > 74.92% in an average) which means that HBL is utilizing its

collected resources in the form of total deposits much more efficiently, which definitely lead to

the increase income and thus, making an increment profit for the organization. In term of

investment by total deposit ratio, HBL seems better than that of EBL (23.97% > 15.34%).

Performing assets to total assets ratio of HBL is higher than EBL (i.e. 90.71% > 74.62%). Thus,

it can be concluded that HBL has better utilization of assets and deposit in production. From the

t-test, one alternative hypothesis has been accepted and two null hypotheses have been accepted.

In average, there is no significance relationship in turnover between HBL and EBL.

The activity turnover ratio is used to examine the efficiency with which the firm manages and

utilizes its assets. The mean ratio of loan loss coverage ratio of HBL is higher than EBL i.e.1.91

> 1.37, loan loss provision to total income ratio of HBL is higher than EBL i.e. 99.80 > 54.46

and loan loss provision to total deposit ratio of HBL is higher than EBL i.e. 1.96 > 1.18. Since,

lower ratio is preferred in assets quality ratio, thus EBL has better utilization of resources in
 82

healthy area. As from the t-test, one null hypothesis has been accepted and two alternative

hypotheses have been accepted. In average, there is significance relationship in quality of assets

between HBL and EBL.

Profitability ratio is measurement of efficiency. It provides the degree of success in achieving

desired profit. Profitability in terms of net profit to total assets ratio, net profit to equity ratio,

return on net worth ratio and interest expenses to interest expenses ratio, EBL average ratio is

always greater than that of HBL. The interest expenses to interest income ratio is preferable

when it is low but there is only slight difference between HBL and EBL. Thus, it can be

concluded that EBL is getting good return from its investment than HBL. From the t-test, there is

no significance relationship in profitability between HBL and EBL.

Other indicators such EPS, DPS & P/E ratio was also measured. In case of EPS, HBL is earning

more than EBL which found better performance in HBL but in case of DPS and P/E ratio, EBL

has higher ratios than HBL, which indicate better performance of EBL. From the t-test, there is

no significance relationship in market indicators between HBL and EBL.

5.3 Recommendation

Based on the summary and conclusion, the following suggestions and recommendations are

forwarded: -
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1. Implication to Managers

• The liquidity position in terms of current ratio of both banks is below than normal

standard. Thus, both banks should increase the level of current assets and decrease the

level of current liabilities.

• The turnover of the commercial banks is the main factor of income generating activity.

So, it is recommended that EBL should invest its deposit and assets in profit generating

sector.

2. Implication to Researcher

• The research has covered limited tools and techniques for analysis. Thus, to get more

accurate result, the further research should cover more analysis techniques.