FINANCIAL ANALYSIS OF

AGRICULTURAL DEVELOPMENT BANK LIMITED

NEPAL

A Thesis
Submitted by:
Chandani Neupane
Balkumari College
Roll No. 66 (2061-063)
T.U. Regd. No. 7-1-304-163-98

Submitted to:
Office of the Dean
Faculty of Management
Tribhuvan University

In the partial fulfillment of the requirements for the degree of

Master's in Business Studies (MBS)

Narayangarh, Chitwan
November, 2008
 VIVA-VOCE SHEET
We have conducted the Viva-Voce examination of the
Thesis presented by

Chandani Neupane

Entitled
Financial Analysis of

Agricultural Development Bank Limited

and found the thesis to be the original work of the student and written according to
the prescribed format. We recommended the thesis to be accepted as partial
fulfillment of the requirement for

Master Degree in Business Studies (MBS)

VIVA-VOCE COMMITTEE

Chairperson, Research Committee: ……………………….

Member (Thesis Advisor): ……………………….

Member (External Expert): ……………………….

Date:
i
 RECOMMENDATION

This is to certify that the thesis

Submitted by
Chandani Neupane

Entitled
Financial Analysis of

Agricultural Development Bank Limited

has been prepared as approved by this department in the prescribed format of

faculty of management. This thesis is forwarded for evaluation.

.....…………….................… ….........……………
Mr. Baburam Panthi Mr. Bharat Khanal
Thesis Advisor Programme Incharge, MBS

……….....…........……
Mr. Chiranjibi Shrestha
Principal
Date:

ii
 ACKNOWLEDGEMENT

I am deeply indebted to Mr. Baburam Panthi, lecturer of Balkumari College,

Narayangarh, Chitwan for his insightful guidance and valuable suggestions for the
preparation of this dissertation. My special thanks to Mr. Bharat Prasad Khanal, Programme
Incharge of MBS, Mr. Bhim Narayan Adhikari, Programme Incharge of Day Shift and Mr.
Bishnu Hari Koirala a respected Lecturer of Central Department of Management Tribhuvan
University Kathmandu for his proper encouragement and cooperation.

I am extremely grateful to Mr. Mukesh Raj Shrestha, the Division Chief of ADBL, Mrs.
Matina Joshi, Regional Training Officer, Birendra Nagar, ADBL Narayangarh, Mr. Prakash
Aryal, Section Chief of ADBL, for their generous help and kind co-operation while
preparing this thesis.

I would like to express my hearty thanks to my family members specially my husband

Mr. Bedananda Dahal for his regular inspiration, encouragement and continuous
contributions for completion of this dissertation.

I also like to say thanks to Mr. Chandra Kanta Poudel, the librarian of Balkumari College
for providing me the required books. I would like to express my thanks to Mr Ashok
Dhungana, Mrs. Kalpana Bhusal, Mrs. Rashmi Panta and Mrs. Yamkala Subedi who
directly or indirectly help me to bring this study.

I am also grateful to Mr. Hari Adhikari (Classic Computer) for typing and printing this
dissertation.

Date: November 2008.

Chandani Neupane

Narayangarh, Chitwan
 DECLARATION

I hereby proclaim that the thesis work entitled ‘Financial Analysis of

Agricultural Development Bank, Nepal’ submitted to Balkumari College, faculty of
Management, Tribhuvan University is my original work for the partial fulfillment
of the requirement for the Master’s Degree of Business studies (M. B. S.) under
the supervision of Mr. Babu Ram Panthi lecturer (Chair Person Research
Committee) of Balkumari College Narayangarh Chitwan.

Chandani Neupane

Researcher

Balkumari College

Roll No. 66 (2061-063)

Date………………
 TABLE OF CONTENTS

Page No.
Recommendation i
Viva-voce Sheet ii

Acknowledgment iii

Table of Contents iv-vi

List of Tables vii-viii

List of Figures ix-x

List of Appendix xi

Abbreviations xii

CHAPTER ONE

INTRODUCTION 1-7

1.1 General Background 1

1.1.1 Brief Introduction of ADBL 2

1.1.2 Vision 3

1.1.3 Mission 3

1.1.4 Objectives 3

1.1.5 Main Function of the ADBL 3

1.2 Statement of the Problems 4

1.3 Objective of the Study 5

1.4 Significance of the Study 6

 1.5 Limitation of the Study 6

1.6 Organization of the Study 6

CHAPTER TWO

REVIEW OF LITERATURE 8-32

2.1 Introduction 8

2.2 Conceptual Framework 8

2.2.1 Concept of Banking 8

2.2.2 Financial Analysis 9

2.2.3 Concept of Development Banks 9

2.2.4 Main Function of ADBL 11

2.2.5 Organization and Management of the ADBL 11

2.2.6 Operational Performance 12

2.2.6.1 Business Operation under Development Financing 12

2.2.6.2 Business Operation under Commercial Banking 13

2.2.7 Major Programs of ADBL 13

2.2.7.1 Small Farmers Development Program (SFDP) 13

2.2.7.2 Reform and Restructuring Program 19

2.3 Conceptual Framework of Financial Analysis 23

2.4 Review of the Nepalese 25

2.4.1 Review of Articles 25

 2.4.2 Review of Unpublished Thesis 30

2.5 Research Gap 31

CHAPTER THREE

RESEARCH METHODOLOGY 33-50

3.1 Introduction 33

3.2 Research Design 32

3.2 Population and Sample 34

3.4 Data Collection Procedure 34

3.5 Time Period Covered 35

3.6 Method of Analysis 35

3.6.1Financial Tools/Analysis 35

3.6.2Statistical Tools 46

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA 51-116

4.1 Financial Analysis 51

4.1.1 Ratio Analysis 52

4.2 Statistical Tools 96

4.2.1 Trend Analysis of Loan Investment 96

4.2.2 Trend Analysis of Principal Collection 97

4.2.3 Trend Analysis of Outstanding 99

 4.2.4 Trend Analysis of Non-performing Interest Receivable 100

4.2.5 Trend Analysis of Net Profit After Tax 102

4.2.6 Trend Analysis of Total Deposit 103

4.2.7 Trend Analysis of Loan Loss Provision 105

4.2.8 Trend Analysis of Long-term Debt 106

4.2.9 Trend Analysis of Shareholders Equity 108

4.2.10 Trend Analysis of Non-Banking Assets 109

4.2.11 Trend Analysis of Bank Commission and Discount 111

4.3 Major Findings of the Study 112

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION 117-88

5.1 Summary 117

5.2 Recommendation 120

5.3 Conclusion 124

Bibliography 127-129

Appendixes 130-141

LIST OF TABLES
Table No. Titles Page No.

4.1 Current Ratio of ADBL 53

4.2 Quick Ratio of ADBL 54

4.3 Bank Balance to Total Deposit Ratio 56

4.4 Total Deposit to Current Assets Ratio 57

4.5 Cash and Bank Balance to Current Assets Ratio 59

4.6 Long-term Debt to Total Capital Ratio 60

4.7 Long-term Debt to Shareholder's Equity Ratio 62

4.8 Long-term Debt to Total Assets Ratio 63

4.9 Shareholder's Equity to Total Assets Ratio 64

4.10 Return on Assets Ratio 66

4.11 Net Profit to Outstanding Ratio 68

4.12 Net Profit After Tax to Total Operating Income Ratio 69

4.13 Overhead Cost Ratio 71

4.14 Total Interest Income on Investment to Total Income Ratio 72

4.15 Operating Self-sufficiency Ratio 74

4.16 Operating Cost Ratio 75

4.17 Total Operating Income to Total Assets Ratio 77

4.18 Total Operating Expenses to Total Assets Ratio 78

4.19 Total Operating Expenses to Total Operation Income Ratio 80

4.20 Interest Paid on Total Deposit to Total Expenses Ratio 81

4.21 Interest Paid on Borrowing to Total Expenses Ratio 83

4.22 Interest Expenses to Interest Income Ratio 84

4.23 Total Non-banking Assets to Total Assets Ratio 86

4.24 Overdue to Outstanding Ratio 88

4.25 Non-performing Loan to Outstanding Ratio 89

4.26 Non-performing Interest to Total Outstanding Ratio 91

2.27 Non-performing Assets to Total Assets Ratio 92

2.28 Loan Loss Provision to Loan Outstanding Ratio 94

2.29 Trend Value of Loan Investment 96

2.30 Trend Value of Principal Collection 98

4.31 Trend Value of Outstanding 99

4.32 Trend Value of Non-performing Interest Receivable 101

4.33 Trend Value of Net Profit After Tax 102

4.34 Trend Value of Total Deposit 104

4.35 Trend Value of Loan Loss Provision 105

4.36 Trend Value of Long Term Debt 107

4.37 Trend Value of Shareholder's Equity 108

4.38 Trend Value of Non-banking Assets 110

4.39 Trend Value of Bank Commission and Discount 111

 LIST OF FIGURES

Figure No. Titles Page No.

4.1 Current Ratio of ADBL 53

4.2 Quick Ratio of ADBL 55

4.3 Bank Balance to Total Deposit 56

4.4 Total Deposit to Current Assets 58

4.5 Cash and Bank Balance to Current Assets 59

4.6 Long-term Debt to Total Capital 61

4.7 Long-term Debt to Shareholder's Equity 62

4.8 Long-term Debt to Total Assets 63

4.9 Shareholder's Equity to Total Assets 65

4.10 Return on Assets 67

4.11 Net Profit to Outstanding 68

4.12 Net Profit After Tax to Total Operating Income 70

4.13 Administrative Expenses Overhead Cost 71

4.14 Total Interest Income on Investment to Total Income 73

4.15 Operating Self-sufficiency Ratio 74

4.16 Total Operating Cost and Total Loan Portfolio 76

4.17 Total Operating Income to Total Assets 77

4.18 Total Operating Expenses to Total Assets 79

4.19 Total Operating Expenses to Total Operation Income 80

4.20 Interest on Total Deposit to Total Expenses 82

4.21 Interest Paid on Borrowing to Total Expenses 83

4.22 Interest Expenses to Interest Income Ratio 85

4.23 Total Non-banking Assets to Total Assets 87

4.24 Overdue to Outstanding 88

4.25 Non-performing Loan to Outstanding 90

4.26 Non-performing Interest to Total Outstanding 91

2.27 Non-performing Assets to Total Assets 93

2.28 Loan Loss Provision to Loan Outstanding 94

2.29 Trend Value of Loan Investment 97

2.30 Trend Value of Principal Collection 98

4.31 Trend Value of Outstanding 100

4.32 Trend Value of Non-performing Interest Receivable 101

4.33 Trend Value of Net Profit After Tax 103

4.34 Trend Value of Total Deposit 104

4.35 Trend Value of Loan Loss Provision 106

4.36 Trend Value of Long Term Debt 107

4.37 Trend Value of Shareholder's Equity 109

4.38 Trend Value of Non-banking Assets 110

4.39 Trend Value of Bank Commission and Discount 112

 LIST OF APPENDIXES

Appendix No. Titles Page No.

I Balance Sheet 130-136

II Profit and Loss Account 137-40

III Statement 141

 ABBREVIATIONS

ACTI = Agricultural Credit Training Institute

ACTRI = Agricultural Credit Training & Research Institute

ADB/N = Agricultural Development Bank Nepal

AMC = Asset Management Company

APP. = Appendix

B.S. = Bikram Sambat

CSIP = Community Surface Irrigation Program

CTI = Center Training Institute

FY = Fiscal Year

GTZ = German Agency for Technical Co-operation

HMG/N = His Majesty’s Government of Nepal

IAS = International Accounting Standards

LRSC = Land Reform Savings Corporation

NBA = Non Banking Assets

NBL = Nepal Bank Limited

NIDC = Nepal Industrial Development Corporation

NPA = Non Performing Assets

NPI = Non Performing Interest

NPL = Non Performing Loan

NRB = Nepal Rastra Bank

SFCL = Small Farmers Co-operative Limited

SFDP = Small Farmers’ Development program

SFs = Small Farmers

SKBBL = Sana Kishan Bikash Bank Limited

SPOs = Sub- Project Offices

TRC = Regional Training Center

TU = Tribhuvan University