NON PERFORMING ASSETS WITH SPECIAL

REFERENCE TO NABIL BANK LIMITED & NEPAL

INVESTMENT BANK LIMITED

By
PUSHPA LAMSAL
Shanker Dev Campus
T.U. Regd. No. 7-1-49-747-98
Campus Roll No. : 766/060

A Thesis Submitted to:

Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirement for the Degree of

Master’s in Business Studies (M.B.S)

Kathmandu, Nepal
June, 2009
 RECOMMENDATION
This is to certify that the Thesis

Submitted by:
PUSHPA LAMSAL

Entitled:
NON PERFORMING ASSETS WITH SPECIAL REFERENCE TO
NABIL BANK LIMITED & NEPAL INVESTMENT BANK LIMITED
has been prepared as approved by this Department in the prescribed format of the
Faculty of Management. This thesis is forwarded for examination.

Supervisor,

……………..………. ..…………….…….……
Ruchila Pandey Dr. Kamal Deep Dhakal
(Reader) (Campus Chief)
 VIVA-VOCE SHEET

We have conducted the viva –voce examination of the thesis presented

by
PUSHPA LAMSAL

Entitled:
NON PERFORMING ASSETS WITH SPECIAL REFERENCE TO
NABIL BANK LIMITED & NEPAL INVESTMENT BANK LIMITED
And found the thesis to be the original work of the student and written
according to the prescribed format. We recommend the thesis to
be accepted as partial fulfillment of the requirement for the
Degree of Master’s in Business Studies (M.B.S)

Viva-Voce Committee

Head, Research Department …………………….………

Member (Thesis Supervisor) …..………………………..

Member (External Expert) …..………………………..…

 TRIBHUVAN UNIVERSITY

Faculty of Management

Shanker Dev Campus

DECLARATION

I hereby declare that the work reported in this thesis entitled “NON
PERFORMING ASSETS WITH SPECIAL REFERENCE TO NABIL
BANK LIMITED & NEPAL INVESTMENT BANK LIMITED”
submitted to Office of the Dean, Faculty of Management, Tribhuvan University, is
my original work done in the form of partial fulfillment of the requirement for the
Degree of Master’s in Business Studies (M.B.S) under the supervision of Ruchila
Pandey, Reader, of Shanker Dev Campus.

………………………………
PUSHPA LAMSAL
Researcher
T.U. Regd. No. 7-1-49-747-98
Campus Roll No. : 766/060
 ACKNOWLEDGEMENT

This thesis entitled “Non Performing Assets with Special Reference to Nepal Arab
Bank Limited and Nepal Investment Bank Limited”, has been prepared and submitted
to ‘Office of the Dean, Faculty of Management, Tribhuvan University’ as a partial
fulfillment of the requirements of Masters of Business Studies (MBS) program offered by
Tribhuvan University.

With due respect, I express my humble gratitude to my thesis supervisor Mrs. Ruchila
Pandey, Reader, Shanker Dev Campus, for her guidance and kind supervision extended
to complete this thesis on time. I would also like to thank Prof. Bishweshor Man
Shrestha, Head of Research Department, Shanker Dev Campus, for his valuable
suggestions and directions.

I want to express my sincere thank to friends and staffs member of Nepal Arab Bank
Limited and Nepal Investment Bank Limited for their kind cooperation while providing
data without which the completion of the thesis could be impossible. In addition, I would
like to thank Mr. Rajan Prasad Khanal, Branch Manager, Mr. Ram Sharan Pandey, Credit
Incharge and Miss. Sangita Kafle, Operation Incharge, of NCC Bank Ltd.,
Siddharthanagar Branch for their suggestions and cooperations.

I am thankful to my friend Miss. Sharmila Parajuli and Mr. Prakash Dhakal for computer
assistance. Finally, I must express deep gratitude to my parents and my Husband Mr.
Bashu Dev Bhandari, for their continuous support and encouragement in my efforts.

Pushpa Lamsal

Date: June , 2009

 1.1 TABLE OF CONTENTS

Acknowledgement
Table of Contents
List of Tables
List of Figures
Abbreviations
Page No.
1.2 CHAPTER – I: INTRODUCTION
1.3 1.1 Background of the Study
1
1.4 1.2 Focus of the Study
3
1.5 1.3 Statement of the Problem
4
1.6 1.4 Objective of the Study
5
1.7 1.5 Significance of the Study
5
1.8 1.6 Limitation of the Study
6
1.9 1.7 Organization of the Study
7

1.10 CHAPTER – II: REVIEW OF LITERATURE

2.1 Conceptual frame work 8
2.1.1 Loan and Advances 8
 2.1.2 Performing loan 8
2.1.3 Non-Performing Assets/Loan 9
2.1.3.1 International Definition of Non Performing Assets 10
2.1.3.2 Causes of occurring NPA 11
2.1.3.3 Effect of NPAs 12
2.1.4 Loan Loss Provision 17
2.1.5 Principles of lending loan and advances 17

1.10.12.2 Review of NRB Directives

19
1.10.22.2.1 NRB Directives Relating to Loan Classification and
21
1.10.3 Loan Loss Provision

2.3 Review of Journals and Articles 25

2.4 Review of Master Thesis 32

1.11 CHAPTER – III: RESEARCH METHODOLOGY

3.1 Research Design 40
3.2 Sources of Data 40
3.3 Population and Sample 40
3.4 Data Processing Procedures & Analysis 41
3.4.1 Financial Tools 41
3.4.2 Statistical Tools 43
 1.12 CHAPTER – IV: DATA PRESENTATION AND
ANALYSIS
1.13 4.1 Secondary Data Analysis
47
4.1.1 Composition of Loan and Advances 47
4.1.2 Composition of Non-Performing Assets 49
4.1.3 Non-Performing Assets/Loan to Performing Loan 51
4.1.4 Non-Performing Assets to Total Assets 53
4.1.5 Non-Performing Assets to Total Deposit 54
4.1.6 Loan Loss Provision to Total Loans and Advances 56
4.1.7 Loan Loss Provision to Non-performing Assets 58
4.1.8 Net profit to Non-Performing Assets 60
4.1.9 Simple Correlation and Regression Analysis 61

1.13.14.1.9.1 Correlation between NPA and Total Deposits 61

1.13.24.1.9.2 Regression Line of NPA on TD 62
1.13.34.1.9.3 Correlation between Net Profit and Non-performing Assets 63
1.13.44.1.9.4 Regression line of NP on NPA 64

4.1.10 Relationship of Net Profit with NPA and PL

65
4.1.10.1 Multiple Correlations between NP, NPA and PL
65
4.1.10.2 Multiple Regression Equation of NP on NPA and PL 66
4.1.11 Trend Analysis 67
4.1.11.1 Trend Analysis of Sub-Standard Loan 67
4.1.11.2 Trend Analysis of Doubtful Loan 69
4.1.11.3 Trend Analysis of Loss Loan 70
4.1.11.4 Trend Analysis of Non Performing Assets 71
4.2 Primary Data Analysis 73
4.2.1 Loan Floatation Basis 73
4.2.2 Internal Reasons for Turning Bad Loan 74
4.2.3 External Reasons for Turning Bad Loan 75
4.2.4 Sector Covering More Default Loan 77
4.2.5 Effect of NPA on Financial Health of Bank 78
4.2.6 Degree of Effect of NPA on Banking Industry 79
4.2.7 Best measures to resolve NPA Problem 80
4.2.8 Best Time to Follow up after Due date 81
1.14 4.3 Major Findings
83
1.15
1.16 CHAPTER – V: SUMMARY, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary 86
5.2 Conclusion 87
5.3 Recommendations 89

BIBLIOGRAPHY
APPENDIX
 1.16.1 LIST OF FIGURES

No. Details Page No.

1.16.2 4.1 Composition of Loan and Advances of NABIL Bank

49
1.16.3 4.2 Composition of Loan and Advances of NIBL Bank
49

4.3 Composition of Non-Performing Assets of NABIL 51

4.4 Composition of Non-Performing Assets of NIBL 51
4.5 Non-Performing Assets to Performing Loan 53
4.6 Non-Performing Assets to Total Assets 54
4.7 Non-Performing Assets to Total Deposits 56
4.8 Loan Loss Provision to Total Loans and Advances 58
4.9 Loan Loss Provision to Non-performing Assets 59
4.10 Net profit to Non-Performing Assets 61
4.11 Trend Analysis of Sub-Standard Loan 68
4.12 Trend Analysis of Doubtful Loan 70
4.13 Trend Analysis of Loan Loss 71
4.14 Trend Analysis of Non Performing Assets 72
4.15 Loan Floatation Basis 74
4.16 Internal Reasons for Turning Bad Loan 75
4.17 External Reasons for Turning Bad Loan 77
4.18 Sector Covering More Default Loan 78
4.19 Effect of NPA on Financial Health of Bank 79
4.20 Degree of Effect of NPA on Banking Industry 80
4.21 Best measures to resolve NPA Problem 81
4.22 Best Time to Follow up after Due date 82
 1.16.4 LIST OF TABLES

No. Details Page No.

3.1 Sample Bank 41

1.16.5 4.1 Composition of Loan and Advances

47

4.2 Composition of Non-Performing Assets 50

4.3 Non-Performing Assets to Performing Loan 52
4.4 Non-Performing Assets to Total Assets 53
4.5 Non-Performing Assets to Total Deposits 55
4.6 Loan Loss Provision to Total Loans and Advances 56
4.7 Loan Loss Provision to Non-performing Assets 58
4.8 Net profit to Non-Performing Assets 60
4.9 Correlation Coefficient between NPA and TD 61
4.10 Regression Analysis of NPA on TD 62
4.11 Correlation Coefficient between NP and NPA 63
4.12 Regression Analysis of NP on NPA 64
4.13 Multiple Correlations between NP, NPA and PL
65
4.14 Multiple Regression Line of NP on NPA and PL 66
4.15 Trend Analysis of Sub-Standard Loan 68
4.16 Trend Analysis of Doubtful Loan
69
4.17 Trend Analysis of LL 70
4.18 Trend Analysis of Non Performing Assets 72
4.19 Loan Floatation Basis 73
4.20 Internal Reasons for Turning Bad Loan 74
4.21 External Reasons for Turning Bad Loan 76
4.22 Sector Covering More Default Loan 77
4.23 Effect of NPA on Financial Health of Bank 78
4.24 Degree of Effect of NPA on Banking Industry 79
4.25 Best measures to resolve NPA Problem 80
4.26 Best Time to Follow up after Due date 82