FINANCIAL PERFORMANCE OF

NEPAL BANK LIMITED

NEPAL

by:
Boby Subedi
Balkumari College
Roll No. 10(2059-061)
T.U. Regd. No. 7-1-241-139-96

A Thesis 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)

Bharatpur, Chitwan
July, 2009

1
 RECOMMENDATION

This is to certify that the thesis

Submitted by
Boby Subedi

Entitled
Financial Performance of Nepal Bank Limited
(NBL)

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:

2
 VIVA-VOCE SHEET
We have conducted the Viva-Voce examination of the
Thesis presented by

Boby Subedi

Entitled
Financial Performance of Nepal Bank Limited
(NBL)

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:
ii

3
 DECLARATION

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

Nepal Bank Limited’ 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.

Boby Subedi
Researcher
Balkumari College
Roll No. 10 (2059-
061)

Date…….…………
…

4
 ACKNOWLEDGEMENT

This thesis entitled "Financial Performance of Nepal Bank Limited" has

been prepared in the prescribed from as required by the central department of
management for the partial fulfillment of master degree in business
administration. I hope it would provide the key point to understand and
knowledge positive realistic appearance of loan management field.

I am greatly obliged to my thesis advisor Mr. Baburam Panthi, lecture in the

Balkumari College for providing continuous guidelines, valuable comments
and constructive suggestions.

I am also indebted to Asst. Lecture Mr. Bhim Narayan Adhikari for their
valuable suggestion for this work. I am also grateful to express my sincere
indebtedness to my all respected lectures and staff members of the Library of
Balkumari College.

I am extremely grateful to all the staff of Nepal Bank Limited, Head Office
Kathmandu 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

Sister Mrs. Yam Kala Subedi for her regular inspiration, encouragement and
continuous contributions for completion of this dissertation. I would like to
express my thanks to my spouse Mr. Shailendra Bhattarai who directly or
indirectly help me to bring this study.

I am also grateful to Mr. C. M. Adhikari (Classic Computer) for typing and

printing this dissertation.

Date: July 2009.

Boby Subedi

5
 Bharatpur, Chitwan

6
 TABLE OF CONTENTS

Page No.
Recommendation i
Viva-voce Sheet ii
Declaration iii
Acknowledgment iv
Table of Contents v-vi
List of Tables vii-viii
List of Figures ix
List of Appendix x
Abbreviations xi

CHAPTER ONE
INTRODUCTION 1-5
1.1 General Background 1
1.1.1 Brief Introduction of NBL 2
1.2 Statement of the Problems 3
1.3 Objective of the Study 3
1.4 Significance of the Study 4
1.5 Limitation of the Study 4
1.6 Organization of the Study 4

CHAPTER TWO
REVIEW OF LITERATURE 6-24
2.1 Introduction 6
2.2 Conceptual Review 6
2.2.1 Historical Development of Banking System in Nepal 6
2.3 Conceptual Framework of Financial Analysis 11
2.4 Review of Related Studies 13
2.4.1 Review of Articles 14
2.4.2 Review of Past Thesis 19
CHAPTER THREE
RESEARCH METHODOLOGY 25-43
3.1 Research Design 25

7
 3.2 Source and Nature of Data 26
3.3 Population and Sample 26
3.4 Data Collection Procedure 26
3.5 Data Processing 27
3.6 Method of Data Analysis 27
3.6.1 Financial Tools 28
3.6.1.1 Liquidity Ratios 28
3.6.1.2 Capital Structure Ratios 31
3.6.1.3 Profitability Ratios 32
3.6.1.4 Operating Ratio 35
3.6.1.5 Activity Ratio 37
3.6.2 Statistical Tools 39
3.6.2.1 Arithmetic Mean 39
3.6.2.2 Standard Deviation 39
3.6.2.3 Coefficient of Variation 40
3.6.2.4 Correlation 41
3.6.2.5 Coefficient of Determination 41
3.6.2.6 Trend Analysis 42

CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA 44-102
4.1 Financial Analysis 44
4.1.1 Ratio Analysis 44
4.1.2 Statistical Analysis 81
4.2 Major Findings of this Study 98

CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION 103-107
5.1 Summary 103
5.2 Recommendation 105
5.3 Conclusion 106

Bibliography 108-110
Appendixes 111-120

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 LIST OF TABLES

Table No. Titles Page No.

1.1 Share Subscription and Capital Structure of NBL 2

4.1 Current Ratio 45
4.2 Cash and Bank Balance to Total Deposit 47

4.3 Cash and Bank Balance to Current Assets Ratio 48

4.4 Current Assets to Total Deposit Ratio 50

4.5 Mandatory Balance Ratio 51

4.6 Total Debt to Total Assets Ratio 53

4.7 Total Debt to Total Equity Ratio 54

4.8 Interest Coverage Ratio 56

4.9 Net Profit to Total Assets to Return on Assets 57

4.10 Net Profit to Total Operating Ratio 59

4.11 Net Profit to Total Deposit Ratio 60

4.12 Interest Income on Investment to Total Income Ratio 62

4.13 Operating Self Sufficiency Ratio 63

4.14 Return on Equity Ratio 65

4.15 Interest Earn to Total Assets Ratio 66

4.16 Total Operating Expenses to Total Assets Ratio 67

4.17 Total Operating Income to Total Assets Ratio 69

4.18 Total Operating Expenses to Total Operating Income Ratio 70

4.19 Interest Paid on Total Deposit to Total Expenses Ratio 71

4.20 Interest paid on Borrowing to Total Expenses Ratio 73

9
4.21 Interest Expenses to Interest Income Ratio 74

4.22 Loan and Advance to Total Deposit Ratio 75

4.23 Loan and Advance to Fixed Deposit Ratio 77

4.24 Loan and Advance to Saving Deposit Ratio 78

4.25 Loan and Advance to Total Assets Ratio 79

4.26 Performing Loan to Total Assets Ratio 80

4.27 Correlation Between Loan & Advance and Total Deposit 82

4.28 Correlation Coefficient Between Investment and Total Deposit 83

4.29 Correlation Coefficient Between Net Profit and Total Deposit 84

4.30 Correlation Coefficient Between Performing Loan and Total Loan 85

4.31 Trend Analysis of Loan and Advance 86

4.32 Trend Analysis of Investment 88

4.33 Trend Analysis of Net Profit 89

4.34 Trend Analysis of Total Deposit 91

4.35 Trend Analysis of Loan Loss Provision 92

4.36 Trend Analysis of Bank Commission and Discount 94

4.37 Trend Analysis of Loan into Performing and Non-Performing Loan 95

4.38 Trend Analysis of Loan Classification as Per Quality 96

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 LIST OF FIGURES

Figure No. Titles Page No.

4.1 Current Ratio 46

4.2 Cash and Bank Balance to Total Deposit 47

4.3 Cash and Bank Balance to Current Assets Ratio 49

4.4 Current Assets to Total Deposit Ratio 50

4.5 Mandatory Balance Ratio 52

4.6 Total Debt to Total Assets Ratio 53

4.7 Total Debt to Total Equity Ratio 55

4.8 Interest Coverage Ratio 56

4.9 Net Profit to Total Assets to Return on Assets 58

4.10 Net Profit to Total Operating Ratio 59

4.11 Net Profit to Total Deposit Ratio 61

4.12 Interest Income on Investment to Total Income Ratio 62

4.13 Operating Self Sufficiency Ratio 64

4.14 Return on Equity Ratio 65

4.15 Interest Earn to Total Assets Ratio 66

4.16 Total Operating Expenses to Total Assets Ratio 68

4.17 Total Operating Income to Total Assets Ratio 69

4.18 Total Operating Expenses to Total Operating Income Ratio 70

4.19 Interest Paid on Total Deposit to Total Expenses Ratio 72

4.20 Interest paid on Borrowing to Total Expenses Ratio 73

4.21 Interest Expenses to Interest Income Ratio 74

11
4.22 Loan and Advance to Total Deposit Ratio 76

4.23 Loan and Advance to Fixed Deposit Ratio 77

4.24 Loan and Advance to Saving Deposit Ratio 78

4.25 Loan and Advance to Total Assets Ratio 79

4.26 Performing Loan to Total Assets Ratio 81

4.27 Trend Analysis of Loan and Advance 87

4.28 Trend Analysis of Investment 88

4.29 Trend Analysis of Net Profit 90

4.30 Trend Analysis of Total Deposit 91

4.31 Trend Analysis of Loan Loss Provision 93

4.32 Trend Analysis of Bank Commission and Discount 94

4.33 Trend Analysis of Loan into Performing and Non-Performing Loan 96

4.34 Trend Analysis of Loan Classification as Per Quality 97

12
 LIST OF APPENDIXES

Appendix Titles Page No.

No.
I Correlation between Loan and Advance and Total 111
Deposit
II Correlation between Investment and Total Deposit 112

III Correlation between Net Profit and Total Deposit 113

IV Correlation between Performing Loan and Total Loan 114

V Trend Value of Loan and Advance 115

VI Trend Value of Investment 116

VII Trend Value of Net Profit 117

VIII Trend Analysis of Total Deposit 118

IX Trend Value of Loan Loss Provision 119

X Trend Value of Commission and Discount 120

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 ABBREVIATIONS
A. D. - Anno Domini
AMC - Assets Management Company
ANG - Austrialia and New Zeeland Banking Group
B.S. - Bikram Sambat
C.A. - Current Assets
C.R. - Current Ratio
C.V. - Coefficient of Variation
D/P Ratio - Dividend Payout Ratio
DPS - Dividend per Share
EBIT - Earning Before Interest and Tax
EPS - Earning Per Share
F.D. - Fixed Deposit
F.Y. - Fiscal Year
GDP - Gross Domestic Product
HBL - Himalayan Bank Limited
IAS - International Accounting Standard
J.V.P. - Joint Venture Bank
L&A - Loan and Advance
NABIL - Nepal Arab Bank Limited
NBL - Nepal Bank Limited
NGBL - Nepal Griendlays Bank Limited.
NPA - Non Performing Assets
NPAT - Net Profit After Tax
NRB - Nepal Rastra Bank
P.E. - Probable Error
PBT - Profit Before Tax
r - Correlation
r2 - Coefficient of Determination
RBB - Rastriya Banijya Bank
ROE - Return on Net worth
Rs. - Rupess (Nepali Currency)
S.D. - Standard Deviation
T.D. - Total Deposit
T.U. - Tribhuvan University

14
 CHAPTER-ONE

INTRODUCTION

1.1 General Background:

A Bank is the company that provides financial services. There are a
number of banks available and which one to use really comes down to the
one with which people feel most comfortable. Their services range from
providing a facility to save money to provide loan and provide credit
cards and stock market brokering. The word “Bank” is used in the sense
of a commercial bank. It is of Germanic Origin though some persons
trace its origin to the French word “Banqui” and the Italian word
“Banca”. It referred to a bench for kipping, lending and exchanging
money or coins in the market place by money lenders and money
changers. There was no such as “Banking” before 1640, although the
practice of self-keeping and savings flourished in the temple of Babylon
as early as 200 B.C. Chanakya in his Arthashastra written in about 300
B.C. mentioned about the existence of powerful guilds of merchant
bankers who received deposits, advanced loans and issued hundies. The
Jain scriptures mention the names of two Bankers who built the famous
Dilwara Temples of Mount Abu during 1197and 1247 A.D.
The first bank called the “Bank of Venice” was established in Venice,
Italy in 1157 to Finance the monarch in this war. In bankers of Combardy
were famous in England. But the modern banking began with the English
goldsmiths only after 1640. The first bank in Nepal “Nepal Bank Ltd.”
Started in 1994 B.S. Nepal Rastra Bank (NRB), the central bank of
Nepal, was established in 1956 to discharge the Central Banking

15
responsibilities including guiding the development of the embryonic
domestic financial sector. Since then, there has been the activities of the
domestic financial institutions.
1.1.1 Brief Introduction of Nepal Bank Ltd.
No bank was operated in the country before 1994. No provision was
made in the old commercial bank act. which facilitate for private and
joint venture banks.
The new commercial bank act 1974 has however made provision to
permit foreign banks to operate in the country after the approval of the
Nepal Rastra Bank. Govt. of Nepal brought about the reform in financial
sector. Hence a number of joint venture banks come into existence. Nepal
bank Ltd (NBL) is the first commercial bank, which was establish in
1994 B.S. it is mixed economy bank in its ownership. It was established
with an authorized capital of Rs 10 million and paid up capital of Rs
0.842 million. But now it has more than Rs. 1000 million authorized
capital. It's issued and paid up capital are 500 million and Rs 380.3
million respectively. In this bank 2976 employees are working now, It
has 109 branches including one head office in Kathmandu.

Table No. 1.1

Share Subscription and Capital Structure of NBL
Subscription % Holding
Government of Nepal 41.8%
General public 49%
Employee 9.2%
Total 100%
Sources of www.nepalbank.com.np

16
1.2 Statement of the Problem
Capital formation and its proper mobilization are the major problems in
almost on under developed countries in such countries, the commercial
banks have to shoulder more responsibilities in the economic
development of the country.
NBL have succeeded to capture a considerable market share of Nepalese
financial service industry. Because, NBL has an experience of a long
period, professional attitude and computerized services. But at present
time, many financial institutions might adversely affect these banks.
Following are the major problem that have been identifying for the
purpose of this study.
1. What is financial position of NBL?
2. What is the liquidity position of NBL?
3. What is the relationship of investment, loan and advance with
total deposits and net profit?
4. What is the growth & trend of financial position of NBL?

1.3 Objectives of the Study:

The basic objective of this study is to make financial performance of
NBL. The following are the specific objectives of this study.
1. To analyze the financial position of NBL.
2. To analyze the liquidity, profitability assets utilization of NBL.
3. To analyze the relationship e.g. investment, loan and advances with
deposit and profitability.
4. To analyze the growth and trend of financial position of NBL.

17
1.4 Significance of the Study
The present study is the critical analysis of financial performance of
NBL. The NBL is managed by semi government to provide financial
services to the rural and urban population to stimulate income and
generate employment in remote and urban areas. This study will find the
strength and weakness of the bank by analyzing the opportunities and
threats of loan management in the real ground. This study will also be an
important support to the management, owner, clients and other interest
groups in analyzing the Bank's economic strength and performance
efficiency. As it is a well known fact that the commercial Banks can affect
the economic condition of the whole country. It will be helpful to the policy
maker while formulating the policy regarding NBL and people can
understand how benefit it taking by them from the semi government Banks.
This study specially evaluates the NPA situation and also provides the ideas
in order to control it.

1.5 Limitation of Study

The limitations of this study are as follow:
• This study is mainly confident to financial performance of NBL.
• This study is mostly based on the published financial statement of
NBL and Nepal Rastra bank (NRB) along with other related
journals, newspapers, magazines bulletins, text books etc.
• The data shown in this study is covers 5 years' study from 2060/61
to 2064/65 time factor is major limitation of this study, because of
this study is completed with in a short period of time.
1.6 Organization of the Study
The study of financial performance of NBL is presented in organized
form. The whole research report has been divided into five chapter. They
are as given below:

18
1. Introduction:
The first chapter consists of introduction, focus of the study,
statement of problem, objectives of the study, significance of
the study, research methodology and limitation of this study.
2. Review of literature:
The second chapter is deals conceptual framework, mainly
concept of commercial banks, role and functions of
commercial banks and review of related past thesis.
3. Research methodology:
The third chapter to research methodology which consists of
research design, population and sample, sources and types of
data, data collection and processing procedure, population
and sample and tools of hypothesis, financial ratio analysis.
4. Presentation and analysis of data:
The forth chapter focuses the presentation and analysis of
data. This consists of analysis of ratio relating to deposits
credit and investment. Similarly statistical tools such as
correlation coefficient, average, standard deviation, coeff. of
variation and text of hypothesis are used wherever and
whenever to twinkle the research work.
5. Summary, Recommendation and Conclusion:
Lastly, this chapter summarized the whole study and status
main finding and after recommendation for the improvement
in future to the banks and interested group, Bibliography and
appendix will also be shown at the end of the study.

19
 CHAPTER-TWO

REVIEW OF LITERATURE

2.1 Introduction
The first chapter highlighted the concept, problems and objectives of this
study. This chapter is basically concerned with review of literature
relevant to the financial performance of Nepal Bank Ltd. (NBL). The
main purpose of this chapter is to review the available literature on
financial performance of financial institutions. Thus, authentic and honest
attempts are being made to highlight the gist relating with the concerned
topic from various books, newspapers, magazines, research articles as
well as past thesis. To ensure the precise, lucid and concrete views about
the stated topic, the entire review work is portrayed in the point wise
breakdown as given below.

2.2 Conceptual Review:

It encompasses the review of text books and other reference materials
such as newspapers, magazines, research articles and journals besides
past thesis.

2.2.1 Historical Development of Banking System in Nepal:

The word bank is derived from the Italian word banco which means a
bench on which the merchants of Italy put on different types of currencies
to show that they transact their business. In French language people used
to call it banque and Englishmen did bank.

20
The history of the modern commercial bank starts from lending and
borrowing of money through the gold smiths merchants and the money
lenders. First of all the beginning of the modern banking system in the
world starts from the bank of Venice which was the first public banking
institution established in 1157. It inspire other countries too to open
banking institution like the bank of Barcelona (established in 1410); the
bank of Genoa (in 1407), the bank of Amsterdam established in Holland
(in 1607). The bank of Amsterdam occupied a very important role in 17th
century. Similarly, Banque de Frenqe was founded in 1800. In 1850 the
national park of Belgium came into existence.
Due to the lack of past historical records on banking it is quite impossible
to give a correct chronological history of development of bank in Nepal.
However the history of the development of banking and currency in
Nepal dates back to the fifth century i.e. in the Lichhavi period when the
first coin were minted it is known from the history that Guna Kama Dev
Rebuitt Kathmandu in 723 B.S. with public borrowing. After 97 years a
merchant Shankhadhar interpreted Nepali Sambat by clearing the public
debt these instances reveal that money lending was prevalent even before
8th Century.
Development of banking and currencies in Nepal became more consistent
after the Gorkha conquest in 1768 B.S. the first Rana Prime Minister
Shree Jang Bahadur brought the diplomatic relation of Nepal with the
western world especially with Britain. One of his younger brother
Rannadip Singh got interested in the problem. Tejarath Adda was
established in 1980 it used to lend the public the money on security of
gold silver and other precious metals.
Nepal Bank Ltd. the first commercial bank of Nepal was established in
1937 A.D. (30th Kartik 1994) as a semi government organization which
solved to the great extent the problem of commercial banking in Nepal. It

21
replaces Tejarath Adda. In this way Nepalese banking history has begun
systematically. At that time this bank had Rs. 10 million authorized
capital and Rs. 0.842 million paid up capital private shareholders had
majority ownership of this bank. Government had very insignificant
amount of share till 1051 ad govt. of Nepal held control over the bank
management by increasing its share up to 51% of the, total share capital
in 1952.
Nepal Rastra Bank was established in 1956 A.D. under the Nepal Rastra
Bank Act. 1955. It marked another milestone in the history of the banking
development in Nepal Rastriya Banijya Bank was established on 23, 1966
A.D. under a special Charter Ac, Rastriaya Banijya Bank Act 1965. It
was set up in the public sector with Rs. 10 million authorized capitla and
Rs. 2.5 million paid up capital. In Nepal, the establishment of agriculture
development bank was another significant achievement. It was set up in
1968 A.D. with an authorized capital of Rs. 50 million.
Government introduced financial sector reforms in 1980s through
structural adjustment policy. Govt. of Nepal allowed private sector (both
domestic and foreign) to enter into the banking business to bring about
the competition among financial institution and increase the foreign
investment. As the result of the Nepal Arab Bank Ltd. (NABIL) was
established in 1984 this bank as the first joint venture bank (JVB) of the
country, was established with a view to encourage efficient banking
services which is a preconditioned for the economic development
industrialization and growth of the country. It is registered under the
company act 2021 and executes its work in accordance with commercial
bank act 2031. It commenced the operation on 12 July 1984 with Rs. 100
million authorized capita, Rs. 50 million issued Capital and Rs. 30
million paid up capital national bank of Bangladesh financial institution

22
of Nepal and general people have 50%, 20% and 30% share in this bank
respectively.
Nepal Indosuez Bank Ltd. (NIBL) was established in 1986 with a joint
ownership of Indosuez Bank of Paris (50%) Rastriya Banijya Bank (15%)
National Insurance Corporation (15%) and Nepalese general people
(20%). It was registered on 21 January 1986 and commenced operation
on 27 February 1986 with Rs. 120 million authorized capital Rs. 60
million issued capital and Rs. 30 million paid up capital.
Nepal Griendlays Bank Ltd.(NGBL) now call standard charted bank is
the sixth commercial bank in Nepal and the third joint venture bank. It
was established and aperated in 1987 with an authorized capital of Rs
100 million issued capital of Rs 50 million and paid up capital of Rs 50%
paid up capital has shared by Griendlays bank. London 85% by Nepal
bank Ltd. And Remaining 15% by general public This is executed under
the direction of Australia and New Zeeland banking group (ANG)
No foreign bank was operated in the country before 1984 there was no
provision made in the commercial bank act 2031 that facilitates the entry
or the foreign banks into the financial system of Nepal. How ever, it has
permitted foreign banks to operate in the country by obtaining the
approval of Nepal Rastra Bank. The number of joint venture banks grew
dramatically with the introduction of liberal and market oriented
economic policy.
Himalayan Bank Ltd. (20% share owned by Habiib Bank Pakistan) was
established under the Company Act 1964 in 1992 A.D. (2049 B.S.). Its
operation started from 1993, February with the paid up capital Rs. 60
million. Its joint venture partner is Habib Bank Ltd. Pakistan.
Nepal Everest Bank Ltd. (20% Shares owned by the Punjab National
Bank of India) started its operation in 2051 B.S. It entered into joint
venture with Punjab National Bank India in January 1997 only.

23
Nepal SBI Bank Ltd. (50% share owned by State Bank of India) is a joint
venture between employees provident fund and State Bank of India. The
initial paid up capital of the Bank was Rs. 119.95 million in 2050 B.S.
Nepal Bangladesh Bank Ltd. (50% share owned by International Finance
Investment of Commercial Bank Ltd. Dhaka) was established in 2051
B.S. in technical collaboration with I.F.C.I. Bank of Bangladesh.
Bank of Kathmandu Ltd. (50% share owned by the Siam Commercial
Bank Thailand) who established as a joint venture with Syam Bank of
Thailand during the year 2051.

Concept of Commercial Bank:

Commercial banks are that financial institutions which deal in accepting
deposit of persons and institutions and giving loans against securities.
They provide working capital needs of trade, industry even to agriculture
sector. More ever, commercial banks also provide technical and
administrative assistance to industries, trades and business enterprises.
The American Institute of Banking has laid down the four major function
of the commercial bank such as receiving and handling deposits, handling
payments for its clients, making loans and investments and creating
money by extension of credit. Commercial banks are one, which
exchanges money deposit, accepts deposit, grants loan and performs
commercial banking functions.
Under the Nepal commercial bank act 2031 B.S. that has been defined
and emphasized about commercial banks they provide short term and
long term loan whenever necessary for trade and commerce. They accept
deposit from the public and provide loans in different forms they
purchase and discount the bills of exchange, promissory notes and
exchange foreign currency.

24
Commercial bank is a corporation which accepts demand deposits subject
to check and makes short term loan to business enterprises, regardless of
the scope of its other services". A Commercial banker is a dealer in
money and substitute for money such as cheques, bills of exchange. It
also provides variety of financial service. Principally, commercial banks
accept deposits and provide loans, primary to business firms commercial
banks pool together the savings of the community under different account
that seems they help in capital formation.
Function of Commercial Bank
Commercial bank perform a variety of functions which can be divided as
i) Accepting Deposits
ii) Advancing loans
iii) Credit creations
iv) Financing foreign trade
v) Agency services and
vi) Miscellaneous services

2.3 Conceptual Framework of Financial Analysis

Financial analysis as a part of the financial management is the main
indicator of the success or failure of the firm. The focus of the financial
analysis is on key figures contained in the financial statements and the
significant relationships that exit between them.
These are different persons/institutions that affect are affected by the
decision of the firm financial condition of business firm should be sound
from the pointing view of shareholders debenture holders financial
institutions and nation as whole The future of analysis will differ
depending on the interest of different group for example trade creditor are
interested in long term solving and survival. So, a financial analysis is
undertaken by outsiders, creditors and investors and also by the firm

25
itself. Thus the various parties according to the particular interest of the
analyst undertaken the type of financial analysis Management of the firm
is generally interested in every aspect of the financial analysis because
they have overall responsibility of maintaining efficient and effective
utilization of resources financial analysis is concerned with weakness of
the firm by properly establishing relationship between the items of the
balance sheet and the profit and loss a/c. [Pandey, 1991, P-109]. Financial
analysis may be of two typing vertical analysis and horizontal analysis
When financial statement like a balance sheet of a profit and loss account
at a certain period only are analyzed the analysis is called vertical
analysis. In horizontal analysis a series of statement relating to a number
of years are reviewed and analyzed. It is also known as dynamic analysis
because it measured the change of position or trend of the business over a
number of years this study is based on horizontal analysis. There are three
steps in financial analysis.
1. Selection of the information relevant to the decision under
Consideration from the total information.
2. Arrangement of the selected information in way to highlighted
significant relationships and
3. Interoperation and drawing of interferences and conclusions.
In brief financial analysis is the process of selection relation and
evaluation.

Ratio Analysis
Ratio analysis invades the methods of calculating and interoperating
financial ratios to asses the firms performance and status11 of the various
method of financial statements analysis Ratio analysis is the powerful
tool of financial analysis A ratio is designed as the indicated quotient of

26
two mathematical expression and the relationship between two items
(Variables this type of relationship can be expressed as
(i) Percentages
(ii) Fraction and
(iii) Proportion of numbers.

The ratio analysis includes a wide range of examination from a specific

aspect of a division or unit to the overall firm. The main objective of ratio
analysis is to examine various aspects of business and make sure that the
opportunity results have not deviated from the stated norms specifically
the objectives of a ratio analysis are to examine a)Liquidity Position b)
Operating efficiently c) Financial leverage d) earning power and e)
Market value of the firm. We can calculate different ratios to examine
each of these aspects however as to which aspect to examine and which
ratios to calculate depends on the concern of analysts based on the
different opportunity and financial aspect and used for their examination
ratios are classified in the following five series.
A) Liquidity Ratio To examine liquidity position
B) Profitability Ratio To examine the earning power
C) Achieving (Utilization) Ratio To examine efficiency and
utilization position
D) Leverage Ratio To examine long term financial condition and
debt servicing capacity
E) Miscellaneous Ratios the ratios calculated on the basis of
grouping and regrouping.
2.4 Review of Related Studies:
It covers review of past studies conducted by other researcher such as
review of thesis, research articles and project reports.

27
2.4.1 Review of Articles
In this section efforts have been mode to examine and review of some
relate actives in different economics journals World Bank discussion
paper, magazines, Newspaper and other related books

Bhisma Raj Dhunguna in his article "Why asset Management Company"

is considered the best option to resolve the it on performing loan
problem". [Dhungana, 2058] Pointed the best options to resolve the non
performing loan (NPCLS) summaries are as follows.

A high level of NPLS can be regarded as a serious burden to the financial

system and to the economy as well it is because the NPL in the banking
system does not generate adequate revenues for the bank readers the
profitability and it ultimately may lead to the failure the bank. High level
NPL is also the early symptom of bank failure. There might have to may
reasons behind increasing the NPL at the higher levels. Sometimes it
arises due to the external faction factors such as decrease in the market
value of the collector’s deterioration in the borrower’s repayment
capacity and economic slow down. Sometimes, it is caused by the
borrower’s misconduct and sometimes by the weakness in internal
management assertors such as, improper credit appraisal system, lack of
credit or risk management practices e.g. the bank, credit extend to non-
viable projectors and effective credit monitoring and supervision system.
If we observe the scenario in the Nepalese context many studies have
pointed vat that the second type of forces have contributed a lot to move
up the NPL level to this stage.

If these NPLS were not resolved in time, these would be inherent direct
or indirect ways in the economy. The financial institution may become

28
distrusted with additional efforts required to mange these problem loans.
In this situation, Banks may loose sight of their core activities In light of
the possibility of huge write offers on loans losers, credit risk will be
calculated at the higher side cost of credit producers will be high. As a
result Banks will not be willing to lend and the process of financial
intermediation may be affected. This will result in slowdown in the
economic growth. Due to lack of credit access to productive units of the
economy, considering these facts, this will have the cost of NPL should
be kept at the minimum level and the distressed loans should be managed
by the specialized institutions such as AMCs.

Basically, there are two approaches available to deal NPL problems. The
first is the traditional option, which allows banks to handle the NPL in its
own way especially through recovery unit. The second option is to adopt
the Assets Management Company (AMC) root.

The traditional option focuses on continuing negotiation with the

borrowers to restructure the loans into a separate loan recovery unit with
in the bank. This unit gives to priority to the loan recovery. In some
cases, banks may be in the better position to resolve NPLs as these have
international advantage through their existing loan standing advantages
through their existing loan. Standing relationship with their clients, they
can work with their borrowers who have a better understanding of the
true value of the assets and compelling them to pay back the loan. But
this approach does not work for all types of loans. The traditional option
is especially useful in dealing with same business loans or consumer
loans where the personal touch is adopted and the borrower may not feel
heavy burden in paying back to loans. The high value of these small loans

29
also makes the AMC route ineffective in terms of time and cost
associated in depositing it.

Traditional approach of resolving bad loans does not work in a crisis

situation and in big loans. In these situations timely and decisive action is
required to avert a failure of an entity. So long the market for the product
and services exist, any business or industry can be revived through
adequate and appropriate support.

The distraction of managing NPLs especially during a crisis situation

could result in financial institutions not focusing on their core activities
and as such financial intermediation in the economy could break down. It
will result in credit crunch situation causing an adverse impact on the
overall economic growth. Hence, the establishment of AMCs seems as
the only realistic option when the financial sector recovery is the
underlying objective in the financial system where financial institutions
fail to resolve the NPL problem through their own efforts. As in the most
of the countries, Nepalese financial system is largely dominated by the
banking sector. The banking sector is severely affected by the NPL
problem. It is estimated that the NPL of the Nepalese banking system is
around 16 percent. Therefore, there is no doubt that it has a serous
implication on economic performance of the country. It will be the
eclipse in the development of financial soundness in the economy, if not
controlled in time. However, traditional or AMC root can be practiced to
get recovery from that sickness of the financially system, the AMC root
may be more effective approach to get quick recovery as it has been
experienced around the world .

30
Narayan Pd. Paudel (Baisakh 14, 2053), in his article "Financial
Statement Analysis: An Approach to Evaluate Bank's Performance"
painted that, traditionally banks act as a financial intermediaries to
channel funds from excess units in the economy to effected units
resulting from the globalization of financial markets, financial
innovations and world wide liberations of capital markets, banking
business has been growing through rapid and profound structural
changes. These factors have the greatest implications on the analysis of
bank financial statements. On like other non-banking financial
companies, commercial banks to not produce any physical goods. They
produce loans and financial innovations to facilitate trade transactions.
Because special role they play in the economy, the concerned authorities
heavily regulate them. Analysis of bank financial statement is different
from that of other companies due to the special nature of assets and
liabilities structure of the banking industry.

The major current developments in financial reporting as a result of

changes in banking industries are greater public disclosure and
standardization of accounting policies. Traditionally banks have been
subject to lesser standards of disclosure than other companies.
International accounting standards had been issued IAS 30 disclosure in
the financial statements of banks and similar financial institutions. This
was made operative after 1st January 1991. Balance sheet, profit and loss
account and the accompanying notes are the most widely used aspects
financial statement of a bank. We need to understand to major
characteristics of bank's balance sheet and profit and loss account. The
bank's balance sheet is composed of financial claims of liabilities in the
form of deposits and as assets in the form of loans. Fixed assets account
for a small portion of the total assets. Financial innovations, which are

31
generally contingent in nature, are considered as balance sheet items.
Interest received on loans/advances and investment and paid on deposit
liabilities are the major component of profit and loss account. The other
source of income are fee, commission discount and services charges.

The uses of financial statement of a bank is relevant, reliable and

comparable information can be achieved from it which information can
be achieved from it which assists them in evaluating the financial position
and performance of the bank and which is useful to them in making
economic decisions. Banks regulating bodies stock analysis bank,
shareholders, directors and government needs different uses of financial
statements. In order to meet an interest in analyzing the bank financial
statement of bank, the IAS 30 requires specific disclosures on accounting
policies. In our context the disclosure requirement of a bank's financial
statements has been expressly laid town in the concerned act.
Commercial Banking Act 1974 requires the audited balance sheet and
profit and loss account to be published in the leading newspaper for the
information of general public. The purpose of the financial statement
depends on the needs of the user. The bank regulations seek to analyze to
financial statements from safety and in stable painting view and there by
protecting the economic interest depositors and general public, however
the bank analyses from shareholder's point of view. The principle
objectives of the analyzing financial statements are to identity:
- Financial adoptability (Liquidity)
- Financial performance (Profitability) and
- Financial position of the bank (slovenly)
Most of the users of financial statements are interested in accessing the
bank's overall performances i.e.; profitability which is affected by the
following factors.

32
 - The structure of balance sheet and profit and loss account,
- Operating efficiency and internal manager system
- Managerial decisions taken by the top management regarding
interest rate, exchange rate, landing policies etc.
- Environmental changes (technology, government, competition,
economy)
Ratio analysis also helps in identifying the working characteristics of a
problem of banks some of these characteristics are as follows:
- Lower average ratio of capital to total assets and to risk assets.
- Higher ratio of borrowings to shareholders trend.
- Higher ratio loan to total assets.
- Higher ratio of volatile liabilities to total income
- Lower ratio of ROA and ROE

Financial statements can give a good insight into financial health and
perform leg a bank, one should pear in mind that such analysis does not
guarantee or totally prevent bank failure or crisis because of miss-
management and fraud. The health of a bank basically lies in the hands
of its management. [Poudel, 2053 B.S.]

2.4.2 Review of Past Thesis:

Past thesis relating to loan of which are considered as relevant to this
study is reviewed herein:

Pradhan (1980) has done "A study on investment policy of Nepal Bank
Ltd." The objective of this study was to evaluate the lending policy and to
find out the ways to encourage the bank lending. This stud has covered
only five FYs 2028/029 through 2033/034 he has used Karl Pearson's
coefficient of correlation, ratio analysis and percentage analysis in this

33
study. He conceded the positive relationship between deposits and loans
and advances. But the same was not in a proportionate manner, greater
increase in deposit led to little increase in loan demand. The bank had
invested only 3% of its total investment in the priority sector. Which was
lower than the percentage (7%) imposed by Nepal Rastra Bank.

Miss. Sulochanna Musaju (1988) carried out a study on "An appraisal of

financial performance and cost behavior of Dairy Development
Corporation (DDC). Her main findings were that the liquidity ratio
indicates on inconsistency in the working capital policy of the
corporation. The earning from the operation is not adequate to meet the
interest obligation and long term solvencies of the corporation do not
make sound the assets turnover ratio. The performance of DDC was not
satisfactory. The addition in the assets could not increase the sales
adequately. The operating performance of the corporation was not
satisfactory and the enterprises could not earn the profits. All of about
indicates serious deficiency in the financial management of the corporation.

Adhikari (1993) has done a study on evaluation of the financial

performance of Nepal Bank limited. The objectives of the study was to
evaluate the financial performance of Nepal Bank Limited. This study has
been limited to the fiscal year 2038/39 through 2046/47. The loan to
deposit return on capital return on net worth per share vs market price per
share. He concluded that bank had not managed investment portfolio
efficiency. Operational efficiency was not satisfactory. Nothing was
satisfactory except liquidity position of Nepal Bank Limited during the
study period.

34
Maha Prasad Mainaly (1999) has studied on "An Evaluation of Loan
Distribution and Collection of Agricultural Development Bank". His
research objectives are as follow:

i) To study the target of loan disbursement and collection

ii) To examine the achievement of purpose wise, term wise and

development region wise loan disbursement outstanding and
collection.

iii) To analyze the relationship between targeted and achievement of

loan recovery.

iv) To provide suggestions to ADB/N on the basis of finding.

The adopted research methodologies under his research are as follows:

ƒ This study is merely concerned with the primary and secondary

data and it based on published and presented data for the loan
disbursement and collection ADB/N.

ƒ Descriptive analysis and statistical tools analysis are research

designed used by him. He defines descriptive analysis as, "It is
difficult go study he principle causes arising from borrow's side
and quantity them to relation to the weak repayment performance
of ADB/N's loan disbursement. So that some of the causes are
studied in help of descriptive analysis.

He states statistical analysis as, "This study is to see the trend situation of
loan disbursement and collection" and he further adds, in order to see the
trend of loan disbursement and collection. The Karl Person's coefficient
of correlation is used to analyze the relationship between loan
disbursement and collection.

35
His study says that both primary and secondary data are collected.
Primary data is collected from farmers of Birendra Nagar VDC
(Chitwan), who have taken loan from ADB/N. Secondary data is
collected from ADB/N in various forms.

Primary data is gathered from questionnaire sent to loan taken farmers of

ADB/N whereas journal, publication, planning and project department of
ADB/N are sources of secondary data.

Loan disbursement and collection data for ADB/N are the population of
the study whereas data for five years (fiscal years) from 1991/92 to
1995/096 are taken as simply for study for study purpose. Collected data
are arranged and tabulated there after descriptive studies are made in case
of primary date and statistical tools analysis is used for secondary data.
Karl Person's Coefficient of correlation, test of hypothesis (i.e. F test and
T test and median are used under statistical tools analysis)

Under F-test, there sets of hypothesis are tested. There is Null hypothesis
(H0) have assumed no vital difference among development region from
loan disbursement, loan outstanding and loan collection respectively side
by side vice verse as alternative hypothesis (H1).
Like wise t-test comprise two sets of hypothesis. Two Null hypotheses
have assumed no vital difference between the ratios of targeted loan
disbursement and actual loan distribution cum no vital difference between
mean ratios of targeted loan collection and actual loan collection. Side by
side vice verse as alternative hypothesis (H1).

36
Major Finding are:-
i) Though targeted loan disbursement and collection are increasing,
targeted loan collection of the bank is increasing at decline rate.
ii) According to correlation coefficient it is found that there is
significant relationship between the achievement of loan
disbursement and collection i.e. r=0.98 (where, P.E.=0.012) This
explain that increase in loan disbursement increases the collection.
iii) Both actual loan outstanding and loan collection have increasing
trend however collection of loan is found fluctuated over the
period. This collection is significant between them. i.e. r= 0.099
(where, P.E.= 0.006)
iv) Finding from purpose wise actual loan disbursement, outstanding
and collection are increasing and their correlation are significant
incase of cereal and cash crop purpose, live stock purpose where as
fluctuating in case of go down and cold purpose, farm machine and
irrigation purpose, horticulture and agro forestry product purpose,
Biogas purpose and etc.

Mr. Bedananda Dahal (2005) has done a study on financial performance

and investment activities of Agricultural Development Bank Limited in
Nepal. The Objective of the study was to identify the financial position
and investment activities of the bank and analyze the growth of trend of
financial strength (condition) and provide valuable suggestion on the base
of major finding. The study was covered the five years of period from
2054/055 to 2059/060. He has used many statistical tools like trend
analysis, mean, standard deviation and coefficient of variance. From his
study he found that the performance of ADBL is satisfactory than other
government banks.

37
Mr. Lal Bahadur Rana (2005) has done a study on "Financial
Performance and Investment Policy of Himalayan Bank Limited and
Bank of Kathmandu Limited." The objective of the study was to identify
the financial position of both these banks and en-light the share holders,
financial agencies stock exchanges and stock traders as well as its
customer, depositors and debtors. And he found that the in comparison
Himalayan Bank Ltd. performance was better than Bank of Kathmandu in
terms of liquidity, activity, profitability, capital structure, invisibility and
risk.
Miss. Chadani Neupane (2008) has done a study on “Financial Analysis
of Agricultural development Bank Limited.” The objective of the study
was to analyzed the liquidity, profitability assets utilized and risk of
ADBL, to analyze the investment position and collection of principal and
interest of ADBL, to analyze the relationship eg. Investment, loan and
advances with deposit and profitability and to analyze the growth and
trend increase in expenditure of the bank decreases the overall profit of
the organization.

38
 CHAPTER-THREE

RESEARCH METHODOLOGY

A sound research stud needs to follow a proper methodology in order to

achieve predetermined objectives. A systematic methodology is
considered as inevitable for true fair, better and superior consequences. In
fact, research is a scientific inquiry about certain phenomenon or object.
Research methodology refers in the various sequential steps to be adopted
by a researcher in studying a problem with a certain objective in view. It
is way to systematically solve the research problem. It may be understood
as a science of studying how research is done scientifically It includes the
various steps that are generally adopted by a researcher in studying
his/her research problem along with logic behind them (Kothari, 2001:39)
The basic objective of this study is to examine and to analyze the loan
management (i.e. loan disbursement and recovery) of NBL during study
period (From F.Y 2060/061 to 2064/065) and to provide recommendation
for their financial improvement. Research design nature and sources of
data, population and sample data, collection procedure.

3.1 Research Design

A research design is purely and simply the frame work or plan for a study
that guide the collection and analysis of the data. Basically the research
design has two purposes. The first purpose is to answer the research
question or test the research hypothesis. The second purpose of a research
design is to control variance the descriptive and analytical research design
have been used for the study but this study is mainly based on the

39
secondary data. So, analytical research tools are the major tools of the
study.

3.2. Source and Nature of Data:

This study is mainly based on secondary data. So the data are extracted
mainly from the following secondary sources.
i) Financial Statement of NBL.
ii) Annual Reports of NBL.
iii) Banking and financial statistics published by Rastra Bank.

In addition to above source, supporting data and information have been

collected from other secondary sources like newspaper, periodicals and
bulletins, moreover qualitative information has been collected from the
personnel of concerned bank.

3.3 Population and Sample

This is the study of NBL on Financial Performance so, it is a case study
on Financial Performance of NBL.

3.4 Data Collection Procedure:

This study is based on secondary data so, the use of secondary data is
much more extensive. The required secondary data have been extracted
from different sources mentioned in 3-3 some of the information has been
acquired from the official records of concerned banks. Frequent visits
were paid to the head office (HO) of NBL. Bhugol Park, Baneshower,
Kathmandu and central office and western regional office of Nepal Restra
Bank in order to collect the required data for this study. The annual
reports and audited financial statements of selected banks were collected

40
from the HO of respective banks, banking and financial statics were
collected from the central office of NRB.

During the visit to the Head Office of selected banks and central office of
NRB, discussions with the bank officials were held in order to explore the
qualitative information on the performance of the banks.

3.5. Data Processing:

For the purpose of study, necessary data have been collected from the
published documents audited financial statements and annual reports of
selected banks. The qualitative and supporting information have been
collected through the interaction with the concern officials of the selected
banks. First of all necessary data extracted from the published documents,
annual reports and audited financial statements were recorded in master
sheet manually. Then data were entered into the spreadsheet to work out
the financial ratios and prepare the necessary figures finally.

3.6. Method of Data Analysis:

Any analytical tools can be used in solving the problem of the study. For
the purpose of the study, all calculated primary as well as secondary data
are arranged, scanned, tabulated under various heads and then after
descriptive cum statistical analysis have been carried out to en light the
study.

Mean, standard deviation, correlation, coefficient of variation are being

calculated under statistical analysis. "Financial analysis is the stating
point for making plans before using any sophisticated forecasting and
budgeting procedure." (Pandey, 1999, P-108) Hence, ratio analysis is
used under financial analysis to attain the result after tabulating the data.

41
3.6.1 Financial Tools:
Ratio analysis:
A ratio is a quotient of two mathematical expressions. Establishment of
quantitative relation of data by the financial statement is called ratio
analysis. In other words, a financial ratio is the mathematical expression
of relationship of two accounting figures. It helps in taking decision since
it helps to establish relationship among various ratios and interpretation
there on. Inter-firm comparison between past and present rates for the
same firm gives enormous and fruitful results to test the financial
performance. Ratio helps to summarize the large quantities of financial
data and to make qualitative judgment about the firms financial
performance a single ratio in itself does not indicate favorable condition.
It should be compared with some standard.

There are various rates in this study only the ratios relived to the study are
calculated and analyzed.

3.6.1.1 Liquidity Ratios:

"Liquidity refers to pay one hand on cash when it needed without having
to sell long term assets at loss in unfavorable market." Inadequate
liquidity will result turn oil in confidence of creditors and excess liquidity
is also not sound since fund are held idle and there is no earning firm's
liquidity position would be demand as good if it were able to meet its
short-term obligation whenever they become due. The liquidity ratios are
particularly useful in credit analysis by bank and others suppliers of short
term loan. Hence Liquidity is the ability on an asset. To be the converted
into cash without price concession. (Van Horne and Woliz, 1996, P- 128)

42
The following Liquidity ratios have been calculated in order to exhibit the
liquidity position of the "NBL."

(i) Current Ratio:

It provokes about the short term solvency of the firms. It established the
relationship between current assets and current liquidities of which is
expressed as;-
Current Assets
Current Ratio=
Current Libialitie s

Current assets are those asserts, which can converted into cash within a
year and so it includes cash and bank balance investment in treasury bills
,bills purchased and discounted customer acceptance liabilities denote
current account deposit, saving account deposits margin deposits, bills
payable, call deposit, bank overdraft, intra bank reconciliation account,
provisions, customer's acceptance liabilities and so on.

For many forms of business 2:1 is considered to be an adequate ratio. A

higher ratio indicates better liquidity position. However a very high
current ratio many indicate requirements and poor credit management in
terms of over expanded account receivable. If the current ratio is less than
2:1 the solvency position of the firm is not good.

(ii) Cash and Bank Balance to Total Deposit Ratio:-

This Ratio points the Banks capacity to cover their deposits like current,
calls, saving and margin. A higher Ratio is performed since finance
company is able to cover deposits. It can be expressed as:
Cash And Bank Balance
Cash and Bank Balance to total Deposit Ratio =
Total Deposit

43
iii) Cash and Bank Balance to Current Assets Ratio:
Cash and bank balance are the most liquid assets. This ratio represents the
liquidity capacity of the firm. Higher ratio shows the better ability of the
firm to meet the daily cash requirements of the customer. But high ratio is
not so preferred to the firm because the firm has to manage cash and bank
balance to current assets ratio, in such manner that the firm may not be
paid interest on deposits and may not have liquidity crisis.

Cash And Bank Balance

Cash and Bank Balance to Current Assets Ratio =
CurrentAssets

iv) Current Assets to Total Deposit Ratio:

This ratio shows the relationship between current assets and total deposits
excluding fixed deposits, which indicates the availability of current assets
to pay out non-fixed deposits. The following table shows the current
assets, total deposit, ratio and its mean.
CurrentAss ets
Current Assets to Total Deposit Ratio =
TotalDeposit

v) Mandatory Balance Ratio

Ratio obtained by keeping balance of NRB and total deposits and
borrowing as numerator and denominator is known as mandatory balance
ratio. Its ideal standard prescribed by NRB under directives to finance
company's (2058 B.S.)

BalanceWithNRB
Mandatory Balance Ratio =
TotalDeposit

44
3.6.1.2 Capital Structure Ratio
The leverage ratio examines long-term solvency of the firm. The long
term creditors would judge the soundness of a firm on the basis of the
long term financial strength measured in term of its ability to pay the
interest regularly as well as to repay the installment of the principal on
due dates or in a lamp sum at the time of maturity. From above it is clear
that capital structure ratios are calculated to reflect the long term financial
solvency of a firm. The following ratios are calculated under it.

i) Total Debt to Total Assets:

It examines the relationship between borrowed funds and total assets. It
shows the relative extent to which the firm is using borrowed money. A
lower ratio is preferable since it reduces the distress of the creditors by
using more amount of equity on total assets. It is computed as:
Total Debt
Debt to Assets Ratio =
Total Assets

ii) Total Debt to Equity Ratio:

It examines the relationship between borrowed funds and owner's capital
(i.e. Shareholders' equity). It is the ratio of the amount invested by
outsiders to the amount invested by the owners of the business. A higher
ratio shows the large share of financing by the creditors than that of
owners. It indicates the margin of safety to the owners. A Creditors prefer
low debt-equity ratio. A low debt-equity ratio implies larger safely
margin for creditors.
Total Debt
Debt -equity ratio =
Shareholde r ' s Equity

45
The shareholders equity includes paid up capital, share premium, reserve
fund, dividend equalization fund, profit and loss account, other reserves
and funds. Likewise total debt, long term and short term debt.

iii) Interest Coverage Ratio:

It indicates the firms ability to cover interest charges. It is also identified
as time interest earned ratio. The ratio measures the debt servicing
capacity of a firm in so far as fixed on long-term loan is concerned. It is
computed as:
EBIT
Interest Coverage Ratio =
Interest Expenses

Higher interest coverage ratio is preferable to the creditors since it gives

more assurance to them. However, too high ratio may imply unused debt
capacity. In constraint, a low ratio is danger that the firm is using
excessive debt and does not have the ability to offer assured payment of
interest to the creditors.

3.6.1.3 Profitability Ratios:

Profit is paramount factor for firms expansion and diversification
sufficient amount of profit is to be earned by every company for
successful day-today operations cum long-run survival in the competitive
environment. The operating efficiency and its ability to ensure adequate
return to its shareholders (investors) ultimately depend upon the profit
earned by it. Profitability denotes the value created by the use of
resources is more than the total of the input resources. A higher
profitability ratio represents as symbol of good management and vice-
versa.
Some if the important profitability ratios used here as follows.

46
(i) Net profit to Total Assets Ratio (Return on Total Assets ROA)
It measures the profitability of fund invested in the bank assets. It is
computed by dividing profit by total assets excusing profit and loss
account (i.e. debt side). Higher ratio is preferable since it has more
operating efficiency of the firm and vice versa. It is expressed as:
NEt Pr ofit
Net Profit to Total Ratio=
Total Assets

ii) Net Profit after Tax to Total Operating Income Ratio:

This ratio measures the relation between net profit or net loss and total
operating income. This ratio represents the tax amount or tax ratio with
total operating income. It is calculated as:

NPAT
NPAT to OI =
TotalOpera tingIncome

iii) Net Profit to Total Deposit Ratio

Deposits are disbursed as loans and advances to public in generating
revenue. It measures the internal rate of return from the utilization of total
assets. Higher ratio represents the effective utilization of total deposit by
the Bank. It is computed as:
Net POrofit After Tax
Net Profit to Total Deposit Ratio=
Total Deposit

iv) Interest Income on Investment to Total Income Ratio

This ratio shows the relation between total interest income on investment
and total income of firm. In the financial institution, like bank interest
income. It is a vital source of earning. Total income includes the interest
income on loans too. Interest income on loans to total income ratio refers

47
how is the condition of interest income on loan to the total income. The
formula of it is given below.

Total Interest Income on Investment to Total Income Ratio =

Total Interest on Investment

Total Income

v) Operating Self-sufficiently Ratio:

This ratio shows bank's income (interest) with respect to the operating
cost. It is the preparation of efficiency i.e. income comparison with
operating cost. This can be presented as, (Higher the ratio shows bank can
earn more than cost)
Total Income
Operating Self-sufficiency Ratio =
Operating Cost

Where,
Operating Cost = Administrative expenses, interest expanses,
indirect interest expenses, loan loss provision etc.

vi) Net Profit to Net Worth or Return on Equity (ROE)

Net worth denotes the owner's claim in the assets of the bank's remain
after subtracting total external liabilities from total assets here, total assets
represent all the assets beside accumulated loss and intangible assets. The
ratio exhibits the rate of return (Net Profit) earned on Net worth ( or
shareholders fund or equity) Its computation is to be done as:
Net POrofit After Tax
Return of Net Worth=
Total Pr ofit

Net Worth = Total assets - External liabilities

48
Higher ratio represent higher efficiency in utilizing its available
resources.
vii) Interest Earned to Total Assets:
It measures the relationship between interest earned and total assets. A
higher ratio is considered as significant measure to gauge interest earning
efficiency of the firm in relation to the total assets. It is computed by
dividing interest earned to total assets. It is found out as follows:
Total Income
Interest Earned to Total Assets =
Total Assets

3.6.1.4 Operating Ratio

i) Total Operating Expenses to Total Assets Ratio:
Total operating expenses to total assets ratio measures the relationship
between the total operating expenses and total asses. This ratio can be
calculated by using the following formula.
Total Operating Expenses
Total operating expenses to total assets ratio =
Total Assets

Where,
Total operating expenses = Office expenses, staff expenses, interest
expenses and other expenses
ii) Total Operating Income to Total Assets Ratio:
This ratio is calculated to find out the ratio of operating income with total
assets of financial institution. Total operating income represents total
interest income on investment and other income. Higher ratio is better for
the firm. This ratio is calculated by using following formula.
TotalOperatingIncome
Total Operating Income to Total Assets Ratio =
Total Assets

49
iii) Total Operating expenses to total Operating Income Ratio:
This ratio shows the relationship between total operating expenses and
total operating income. This ratio finds how interrelationship is between
the operational expenses to operational income. The formula of it is given
below,
TotalOperatingExpenses
Operating Expenses to Total Income Ratio =
TotalOperatingIncome

iv) Interest Paid on Total Deposit to Total Expenses Ratio:

This ratio shows the relationship between interest expenses on deposit
and total expenses of financial institution. A total expense refers to their
sustainability of every financial institution. We all know that less expense
represents the viability of the organization and deposit is the main source
of fund collection. This ratio can be measured by using the following
formula.
Interest Paid on Total Deposit to Total Expenses Ratio =
Intrest Paid on Total Deposit
Total Expenses

v) Interest Paid on Borrowing to Total Expenses Ratio:

This ratio shows the relationship between interest paid on total debt and
total borrowing. Borrowing is the important source of fund collection i.e.,
capital structure. It is paid with interest after certain maturity period. This
ratio can be calculated by using the following formula.

Interest Paid on Borrowing to Total Expenses Ratio =

Interest Paid on Borrowings
Total Expenses

50
vi) Interest Expenses to Interest Income Ratio:
This ratio measures the utilization of outsider's fund for investment
activities. This ratio can be calculated by using the following formula.

Interest Income
Interest Expenses to Interest Income Ratio =
Interest Expenses

Higher ratio indicates that the bank has to paid higher amount of interest
on liabilities relating to interest income and vice-versa.

3.6.1.5 Activity Ratios:

Activity or turnover ratios are also called efficiency ratios. There ratios
measure the degree of effectiveness in using the resources of the firm.
The higher ratio denotes the efficiency of management in utilizing its
resources and vice versa.

The following ratios are used analyze the effectiveness of the activities of
concerned bank.

i) Loan and Advance to Total Deposit Ratio:

It measures the banks' success in utilizing the outsider's funds for
generating profit. It explains how quickly total collected funds are
converted into loan and advances. It is shown as:
Loans and Advance
Loan and Advance to Total Deposit Ratio =
Total Deposit

Higher ratio is favorable since it flashes out of the efficiency of the bank
in term of making effective loan and advances.
ii) Loan and Advances to Fixed Deposit Ratio:

51
It measures how many times the amount is used in loans and advances
against fixed deposit. Fixed deposits are interest bearing long term
obligations where as loans and advances are major sources of investment
in generating income for commercial banks. It is calculated as:
Loan and Advances
Loan and Advances to Fixed Deposits =
Fixed Deposits

Higher ratio indicates effective utilization of fixed deposit into loans and
advances.

iii) Loans and Advances to Saving Deposits:

It measures the ability of bank in mobilizing saving deposits funds into
loans and advances. Saving deposit is interest bearing short-term
obligation as well as the main source of investment in loan and advances
for generating income. A higher ratio is preferable in its case too. It is
computed as:
Lans and Advances
Loan and Advances to Saving Deposit Ratio=
Saving Depoist

iv) Loan and Advances to Total Assets Ratio:

It measures the ability in mobilizing total assets into loans and advances
for generating income. A higher ratio is considered as an adequate
symbol for effective utilization of total assts of Bank to loan and
advances of which creates opportunity to earn more and more.
It is calculated as:
Lans and Advances
Loan and Advances to Total Asset Ratio=
Total Assets

v) Performing Loan to Total assets Ratio:

It tells the percent of performing loan on total assets. It is useful to know
the fact whether the good loan is increasing or not. We can generate more
earning by increasing good loan and reducing bad and inferior loan. It

52
teaches us to invest sources of fund only on good loan ( i.e. profitable
venture). It is computed as:
Perfor min g Assets
Performing Assets Ratio=
Total Assets

3.6.2 Statistical Tools:

For supporting the study, statistical tools such as mean (average),
standard deviation, coefficient of variation, correlation and hypothesis are
used in this study.

3.6.2.1 Arithmetic Mean (Average)

"Average are statistical constants which enables us to comprehend in a
single effort the significance of the whole. (Bowley, and Gupta, 2000, p-
35). Arithmetic mean represents the entire data by a single value. It
provides the gist and gives the bird's eye view of the huge mass of
unwieldy numerical data. It is calculated as:
Σx
X=
N
Where,
X = Mean value of Arithmetic Mean
N = Number of Observations
ΣX = Sum of observations.

3.6.2.2 Standard Deviation (S.D.)

The standard deviation measures the absolute dispersion. The greater the
amount of dispersion greater the standard deviation. 'Karl Person
Introduced the concept of standard deviation and is denoted by the small
reek Letter " σ " (read as sigma).

The formulas to calculate the S.D. is given below.

Σd 2
σ=
n

53
Where,
σ = Standard deviation
Σd2 = Sum of the square deviation
n = Number of items

This topic has been presented following relationship

1. Correlation between Loan and Advances and Interest
2. Correlation between Loan and Advances and Total Deposit
3. Correlation between Performing Loan and Total Loan
4. Correlation between Loan and Advances to Total Assets.

3.6.2.3 Coefficient of Variation (C.V.)

Standard deviation is an absolute measure of dispersion. The relative
measured of dispersion based on standard deviation is known as
coefficient of variation. The coefficient of variation is the relative
measure of dispersion, comparable across distribution which is defined as
the ratio of the standard deviation to the means expressed in percent. The
small value of C.V. means high degree of consistency in the observed
distribution and vice versa. The coefficient of variation (C.V.) is given by
following formula and this gives the percentage.

σ
C.V. = × 100
X
Where,
X = Mean
σ = Standard Deviation
C.V. = Coefficient of Variation

54
3.6.2.4 Correlation (r)
Correlation is an analysis of the covariance between two or more variable
and it deals to determine the degree of relationship between the variables.
Correlation just says the degree of relationship between two or more
variables increase or decrease in one cause increase or decrease in
another then such variables are correlated variable. The reliability of the
value of coefficient of correlation is measured by probable error the
correlation coefficient between two variables describes the degree of
relationship between those two variables. It interprets whether two or
more variables are correlated positively or negatively.

This tools analysis relationship between those variable of the bank which
are helpful to make appropriate credit management policy regarding
deposit collation, investment and profit maximization. The Karl person
coefficient of correlation (r) is given by the formula.
NΣxy − ΣxΣy
rxy =
NΣx − (Σx) 2 NΣy 2 − (Σy ) 2
2

Where,
rxy = Correlation between x and y
NΣxy = product of No of observation and sum of product of x and y.
ΣxΣy = Product of Sum x and Sum y

3.6.2.5 Coefficient of Determination (R2)

It explains the variation percent derived in dependent variable due to the
any one specified variable. It denotes the fact that the independent
variable is good predictor of the behavior of the dependent variable. It is
square of correlation coefficient.

55
3.6.2.6 Trend Analysis:
Trend analysis is one of the most useful statistical tools. In financial
statement analysis, the direction of change over period of years is crucial
important. Trend analysis of ratios indicates the direction of change. This
kind of analysis is particularly applicable to the items it profit and loss
account. It is a significant tool of horizontal financial analysis. It is a
dynamic method to indicate the change and deviation in items of financial
statements. Trend analysis helps to identify the controllable in terms of
given period and future forecast can be made for on going concern.

This statistical tools in making a comparative study of the financial

statements of number of years. It describes the average relationship
between two series where the one series relates to time and other series to
the value of a variable. It is generally shows that the line of the best-fit or
straight line is obtained or not. The line of the best fit describes the
changes in a given series accompanying a unit change in time. Another
word, it gives the best possible mean values of dependent variable for a
given of independent variable. In this study trend analysis is used as time
series analysis based on time. For the calculation of time series by
following equation formula.
Yc = a + bx
Where,
Yc= The estimated value of y for given value of x obtained from the
line of regression of y on x.
a= constant value
b= slop of the trend line
x = Independent variable
a = y − bx

56
 NΣxy − ΣxΣy
b=
N Σx 2 − ( Σx ) 2

Where, Σy = sum of the observation in series y

Σxy= sum of the observation in series x & y
Σx2 = sum of the square of the observation in series x

This topic has been presented following:

ΠTrend analysis of loan and advances
ΠTrend analysis of investment
ΠTrend analysis of net profit
ΠTrend analysis of total deposit
ΠTrend analysis of loan loss provision
ΠTrend analysis of bank commission and discount

57
 CHAPTER-FOUR

PRESENTAION AND ANALYSIS OF DATA

The major objective of this study is to have a correct insight about

financial performance of NBL. The data collected for the study have been
depicted in tabular form analyzed with the help of ratio analysis, pictorial
and diagrammatic presentation, trend analysis, correlation, arithmetic
mean, standard deviation, coefficient of variation analysis is being
conducted for five year period (i.e. from 2060/061to 2064/065).

4.1 Financial Analysis

Analysis of origination through all major five types of ratios provides
view about the overall performance of the organization. Hence all the
ratios are analyzed here giving more places to financial related ratios.
Various financial ratios related to the investment management and the
fund mobilization are presented and discussed to evaluate and analyze the
performance of NBL. Some important financial ratios are only calculated
here for fund mobilization and investment policy. The ratios are designed
and calculated to highlight the relationship between financial items and
figures. It is a kind of mathematical relationship and procedure dividing
one item by another.
4.1.1 Ratio Analysis:
Ratio analysis is widely used and important tool of financial analysis.
Ratio analysis shows the mathematical relationship between two
accounting figures. Interest result about company’s financial performance
can be found out by using ratio analysis. It helps to analyze the financial

58
strength and weakness of the banks. From the help of ratio analysis, the
qualitative judgment can be done regarding financial state of a firm. It is
also concerned without output and credit decision.
A) Liquidity Ratio:
Liquidity ratios are applied to measure the ability of the banks to meet
short-term obligation. Nepal Bank Limited must maintain its satisfactory
liquidity position to satisfy the credit needs of community, to meet
demands for deposit with drawls, pay maturity obligation in time and
convert non-cash assets to cash to satisfy immediate needs without loss to
bank and consequent input on long-run profit. The liquidity ratios are
analyzed as follows:
i) Current Ratio:
This ratio measures the liquidity position of the bank. It indicates the
ability of bank to meet the current liquidity.
Table No. 4.1
Current Ratio
Rs. in Million
Year Current Assets Current Liabilities Current Ratios
060/061 32962 53177 0.62
061/062 32659 54471 0.60
062/063 21237 42220 0.50
063/064 22983 45506 0.51
064/065 25275 48062 052
Average 0.55
Standard Deviation (S.D.) 0.0497
Coefficient of Variation (C.V.) 0.0904
Source: Annual report (year 2060/061 to 064/065)

59
 Figure No. 4.1
Current Ratio

0
0 00
6 0
00
50
0
00
40 0
00
30
0
00
20 0
00
10
0 060/061 061/062 062/063 063/064 064/065

Current Assets Current Liabilities

Source: Table No. 4.1

The above table clearly shown that the current ratio of NBL is always
below the standard i.e. 2:1. It has ranged between maximum of 62% in
FY 060/061 and minimum of 50% times in FY 060/061 and the average
ratio is 55% over the study period. C.V. is not very high so there is less
fluctuation. This shows that the bank is supposed to trying to increase its
liquidity position to meet its current obligations.
The above analysis helps to conclude that the current ratio of NBL is
below than normal ratio. But it can’t say that the liquidity position of
NBL is not good because this ratio only indicates the quantity and not the
quality of assets and it doesn’t explains the types of current assets.

ii) Cash and Bank Balance to Total Deposit Ratio:

This ratio measures the ability of bank to meet future withdrawals of
deposits. Higher ratio shows the greater ability of the bank to meet the

60
demand of customers on their deposits. The following table shows the
cash and bank balance to total deposit ratio.
Table No. 4.2
Cash and Bank Balance to Total Deposit
Rs. in Million
Year Cash and Bank Balance Total Deposit Current Ratios
060/061 5861 35735 0.164
061/062 6159 35934 0.1714
062/063 7174 35830 0.20
063/064 7117 39014 0.1824
064/065 6617 41829 0.1581
Average 0.1751
Standard Deviation (S.D.) 0.0163
Coefficient of Variation (C.V.) 0.0930
Source: Annual Report (Year 2060/061 to 064/065)
Figure No. 4.2
Cash and Bank Balance to Total Deposit

0
00
45 00
0
40 00
0
35 00
0
30 00
0
25 00
0
20 00
0
15 00
0
10000
5 0
060/061 061/062 062/063 063/064 064/065

Cash and Bank Balance Total Deposit

Source: Table No. 4.2

61
The above table shows the cash and bank balance to total deposit of NBL.
It shows the ratio is increasing up to FY 060/061 to FY 062/063 and
decreasing trend in research period the highest ratio is 20% and lowest is
15.81% in FY 062/063 and FY 064/065 respectively. The mean ratio is
17.51%.
iii) Cash and Bank Balance to Current Assets Ratio:
Cash and bank balance are the most liquid assets. This ratio represents the
liquidity capacity of the firm. Higher ratio shows the better ability of the
firm to meet the daily cash requirements of the customer. But high ratio is
not so preferred to the firm because the firm has to manage cash and bank
balance to current assets ratio, in such manner that the firm may not be
paid interest on deposits and may not have liquidity crisis.
The cash & Bank balance to current assets of NBL for the period 2060/61
to 2064/065 can be presented as:
Table No. 4.3
Cash and Bank Balance to Current Assets Ratio
Rs in Million
Year Cash & Bank Balance Current Assets Ratio
060/061 5861 32962 0.1778
061/062 6159 32659 0.1886
062/063 7174 21237 0.3378
063/064 7117 22983 0.3097
064/065 6617 25275 0.2618
Average 0.2551
Standard Deviation (S.D.) 0.0634
Coefficient of Variation (C.V.) 0.2485
Source: Annual Report of NBL (Year 2060/061 to 064/065)

62
 Figure No. 4.3
Cash and Bank Balance to Current Assets Ratio

0
5 00
3 0
00
30 0
00
25 0
00
20 0
00
15 0
00
1 0 00
50
0 060/061 061/062 062/063 063/064 064/065

Cash and Bank Balance Total Current Assets

Source: Table No. 4.3

The above table shows that cash and bank balance to current assets of
NBL is increasing trend in FY 060/061 to FY 062/063 and then the
researcher found to decreasing trend upto research period. The highest
ratio is 33.78% in FY 062/063 and lowest ratio is 17.78% in FY 060/061.
The average ratio is 25.51%.

iv) Current Assets to Total Deposit Ratio:

This ratio shows the relationship between current assets and total deposits
excluding fixed deposits, which indicates the availability of current assets
to pay out non-fixed deposits. The following table shows the current
assets, total deposit, ratio and its mean.

63
 Table No. 4.4
Current Assets to Total Deposit Ratio
(in Rs. 00000)
Year Ratio Current Assets Total Deposit
2060/61 0.9224 32962 35735
2061/62 0.9088 32659 35934
2062/63 0.5927 21237 35829
063/064 0.5890 22983 39014
064/065 0.6042 25275 41829
Average 0.7234
S.D. 0.1576
C.V. 0.2190
Source: Annual Report of NBL (Year 2060/061 to 064/065)

Figure No. 4.4

Current Assets to Total Deposit Ratio

0
00
45 00
0
40 00
0
35 00
0
30 00
0
25 00
0
20 00
0
15 00
0
10000
5 0
060/061 061/062 062/063 063/064 064/065

Total Deposit Total Current Assets

Source: Table No. 4.4

64
The above table shows that current assets to total deposit ratio of NBL.
The above table shows the fluctuating trend in ratio. The highest ratio is
92.24% in FY 060/061 and lowest one is 58.90% in FY 063/064. The
average ratio is 72.34%.

v) Mandatory Balance Ratio

Ratio obtained by keeping balance of NRB and total deposits and
borrowing as numerator and denominator is known as mandatory balance
ratio.
Table No. 4.5
Mandatory Balance Ratio
Rs in Million
Year Balance at NRB Total Deposit & Ratio
Borrowing
060/061 4232 35735 0.1184
061/062 4509 37181 0.1213
062/063 5354 37547 0.1425
063/064 5225 40619 0.1286
064/065 4431 43649 0.1015
Average 0.1225
Standard Deviation (S.D.) 0.176
Coefficient of Variation (C.V.) 0.1442
Source: Annual Report (Year 2060/061 to 064/065)

65
 Figure No. 4.5
Mandatory Balance Ratio

0
5 00
4 00
0
4 000 0
35 00
0
3 000 0
25 00
0
20 00
0
15 00
0
10000
5 0
060/061 061/062 062/063 063/064 064/065

Balance With NBL Total Deposit Borrowing

Source: Table No. 4.5

According to above table NBL has the following mandatory balance ratio
during the study period is 11.84%, 12.13%, 14.25%, 12.86% and 10.15%
respectively over research period from this above analysis NBL's
manufactory ratio is over than 1%.

B) Capital Structure Ratio:

The capital structure ratio examines long-term solvency of the firm. The
long term creditors would judge the soundness of a firm on the basis of
the long term financial strength measured in term of its ability to pay the
interest regularly as well as to repay the installment of the principal on
due dates or in a lamp sum at the time of maturity. From above it is clear
that capital structure ratios are calculated to reflect the long term financial
solvency of a firm. The following ratios are calculated under it.

i) Total Debt to Total Assets Ratio:

It examines the relationship between borrowed funds and total assets. It
shows the relative extent to which the firm is using borrowed money. A

66
lower ratio is preferable since it reduces the distress of the creditors by
using more amount of equity on total assets. Higher the debt ratio higher
financial risk as well as increasing claims of outsider in total assets.
Conventionally a ratio of 1:2 is considered satisfactory.
Table No. 4.6
Debt to Total Assets Ratio
Rs in Million
Year Ratio Total Debt Total Assets
060/061 1.20 53176 44162
061/062 1.16 54471 47045
062/063 1.18 42220 35918
063/064 1.16 45506 39259
064/065 1.04 43650 42053
Average 1.15

Source: Annual Report (Year 2060/061 to 064/065)

Figure No. 4.6

Total Debt to Total Assets Ratio

0
00
60
0
00
50
0
00
40
0
00
30
0
00
20
0
00
10
0 060/061 061/062 062/063 063/064 064/065

Total Debt Total Assets

Source: Table No. 4.6

67
The above table shows that debt financing of NBL is excessively high or
in other words they have excessively geared capital structure. In five
years research period the maximum is 120% and minimum is 104% in FY
060/061 and 064/065 respectively. The average ratio is 115%.

ii) Total Debt to Equity Ratio:

It examines the relationship between borrowed funds and owner's capital
(i.e. Shareholders' equity). It is the ratio of the amount invested by
outsiders to the amount invested by the owners of the business. A higher
ratio shows the large share of financing by the creditors than that of
owners. It indicates the margin of safety to the owners.

Table No. 4.7

Total Debt to Equity Ratio
Rs in Million
Year Total Debt Total equity Ratio
060/061 53176 -9015 -5.90
061/062 54471 -7426 -7.33
062/063 42220 -6302 -6.70
063/064 45506 -6248 -7.28
064/065 43650 -6008 -7.27
Average -6.90
Source: Annual Report (Year 2060/061 to 064/065)

68
 Figure No. 4.7
Total Debt to Total Equity Ratio

0
00
60 0
00
50 0
00
40 0
00
30 0
00
20 0
00
10 0
0
00 060/061 061/062 062/063 063/064 064/065
-10

Total Debt Total Equity

Source: Table No. 4.7

The above table shows that the total debt to total equity ratio of NBL is in
negative form and generally a ratio of 50:50 is considered to be good
depending upon the type of the organization. The analysis indicates that
the bank is highly leveraged because the claim of the outsiders exceeds
than those of the owners over the bank assets.

iii) Interest Coverage Ratio:

It indicates the firms ability to cover interest charges. It is also identified
as time interest earned ratio. The ratio measures the debt servicing
capacity of a firm in so far as fixed on long-term loan is concerned.

69
 Table No. 4.8
Interest Coverage Ratio
Rs in Million
Year EBIT Interest Expenses Ratio
060/061 1736 1026 1.69
061/062 2479 749 3.31
062/063 1982 774 2.56
063/064 1000 773 1.30
064/065 1012 773 1.31
Average 2.034
Source: Annual Report (Year 2060/061 to 064/065)

Figure No. 4.8

Interest Coverage Ratio

00
25
00
20
00
15
00
10
0
50
0 060/061 061/062 062/063 063/064 064/065

EBIT Interest Expenses

Source: Table No. 4.8

Interest coverage ratio of NBL are 1.69, 3.31, 2.56, 1.30 and 1.31 times in
during the study period. It range is between 1.31 to 3.31 times and this
tell that debt servicing capacity of this bank is high.

70
Higher interest coverage rates is preferable to the creditors since it gives
more assurance to them.

C) Profitability Ratio
The major performance indicator of any firm is profit. The objective of
every firm is to make good return. Any organization has desire to earn
high profit which helps to survive the firm and indicates the efficient
operation of the firm.

i) Return on Assets Ratio:

This ratio measures the overall profitability of all working fund i.e. total
assets. A firm has to earn satisfactory return on working fund for its
survival. It measures the productivity of the assets.

Table No. 4.9

Net Profit to Total Assets to Return on Assets (ROA)
Rs in Million
Year Net Profit Total Assets Ratio
060/061 710 44162 0.0161
061/062 1730 47045 0.0367
062/063 1207 35919 0.0336
063/064 227 39259 0.0058
064/065 239 42053 0.0057
Average 0.0196
Standard Deviation (S.D.) 0.0133
Coefficient of Variation (C.V.) 0.6783
Source: Annual Report (Year 2060/061 to 064/065)

71
 Figure No. 4.9
Net Profit to Total Assets to Return on Assets (ROA)
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
060/061 061/062 062/063 063/064 064/065
Net Profit Total Assets

Source: Table No. 4.9

The above table shows that the Net profit to total assets ratio of NBL
various from maximum 3.67% to minimum 0.57% with an average
1.96% during the study period. The analysis indicates that the bank has
not been able to generate surplus by utilizing assets efficiently.

ii) Net Profit after Tax to Total Operating Income Ratio:

This ratio measures the relation between net profit or net loss and total
operating income. This ratio represents the tax amount or tax ratio with
total operating income.

72
 Table No. 4.10
Net Profit After Tax to Total Operating Income Ratio of NBL
Rs in Million
Year Net Profit After Tax Total Operating Income Ratio
060/061 710 2230 0.32
061/062 1730 1563 1.11
062/063 1207 1715 0.70
063/064 227 1545 0.15
064/065 239 1829 0.13
Average 0.482
S.D. 0.3747
C.V. 0.7808
Source: Annual Report (Year 2060/061 to 064/065)

Figure No. 4.10

Net Profit After Tax to Total Operating Income Ratio of NBL

2500

2000

1500

1000

500

0
060/061 061/062 062/063 063/064 064/065
Net Profit After Tax Total Operating Income

Source: Table No. 4.10

73
Above table shows the net profit after tax to total operating income ratio
of NBL for five different fiscal years. There is highest ratio is 111% in
FY 061/062 and lowest ratio is 13% in FY 064/065. The mean average
ratio is 48.2%. There is increase in ratio in FY 061/062 and then
decreasing trend upto FY 064/065.

ii) Net Profit to Total Deposit Ratio

Deposits are disbursed as loans and advances to public in generating
revenue. It measures the internal rate of return from the utilization of total
assets.
Table No. 4.11
Net Profit to Total Deposit Ratio
Rs in Million
Year Net Profit Total Deposit Ratio
060/061 710 35735 0.0199
061/062 1730 35934 0.0481
062/063 1207 35830 0.0337
063/064 227 39014 0.0058
064/065 239 41829 0.0057
Average 0.0227
Standard Deviation (S.D.) 0.0163
Coefficient of Variation (C.V.) 0.7192
Source: Annual report (year 2060/061 to 064/065)

74
 Figure No. 4.11
Net Profit to Total Deposit Ratio
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
060/061 061/062 062/063 063/064 064/065
Net Profit Total Deposit

Source: Table No. 4.11

The above table shows that the net profit to total deposit ratio of NBL
various from maximum 4.81% in FY 061/062 to minimum 0.57% in FY
064/065 with an average 2.27% during the study period. On the 2nd year
net profit ratio is maximum and after it is decreasing. The table shows
that the bank is not able to generate profit by using it’s deposits.

iii) Interest Income on Investment to Total Income Ratio

Given figure shows that the total interest income on investment to total
income ratio in five years period.

75
 Table No. 4.12
Interest Income on Investment to Total Income Ratio
Rs in Million
Year Interest on Investment Total Income Ratio
060/061 516 3982 0.1296
061/062 451 4171 0.1081
062/063 617 2489 0.2479
063/064 573 2317 0.2473
064/065 588 2601 0.2260
Average 0.1918
Standard Deviation (S.D.) 0.0613
Coefficient of Variation (C.V.) 0.3227
Source: Annual report (year 2060/061 to 064/065)

Figure No. 4.12

Interest Income on Investment to Total Income Ratio
4500
4000
3500
3000
2500
2000
1500
1000
500
0
060/061 061/062 062/063 063/064 064/065
Interest on Investment Total Income

Source: Table No. 4.12

The above table shows that the total interest on investment to total
income ratio is in fluctuating trend the highest ratio is 24.79% and lowest
one is 10.81% in FY 063/064 and 061/062 respectively. The ratio is

76
12.96%, 24.73%, 22.60% in FY 060/061, 063/064, 064/065 respectively.
The average ratio is 19.18%.

iv) Operating Self-Sufficiency Ratio:

This ratio shows NBL income (interest) with respect to the operating cost.
Operating cost includes administrative expenses, interest expenses,
indirect interest expenses, loan loss provision, etc.

Table No. 4.13

Operating Self-Sufficiency Ratio of NBL
Rs in Million
Year Operating Cost Total Income Ratio
060/061 3192 3982 1.25
061/062 2437 4171 1.71
062/063 2275 2489 1.09
063/064 2228 2317 1.04
064/065 2379 2601 1.09
Average 1.236
Standard Deviation (S.D.) 0.2473
Coefficient of Variation (C.V.) 0.1995
Source: Annual report (year 2060/061 to 064/065)

77
 Figure No. 4.13
Operating Self-Sufficiency Ratio of NBL
4500
4000
3500
3000
2500
2000
1500
1000
500
0
060/061 061/062 062/063 063/064 064/065
Operating Cost Total Income

Source: Table No. 4.13

In above table, total income is fluctuating trend. The highest total income
is Rs. 4171 million in FY 061/062 and lower total income in Rs. 2317
million in FY 063/064. But the operating cost is also fluctuating so there
is a fluctuation in operating self sufficiency ratio. The highest ratio is
171% and the lowest ratio is 104% in FY 061/062 and 063/064
respectively. The average ratio is 1.24%.

v) Net Profit to Net Worth or Return on Equity (ROE)

Net worth denotes the owner's claim in the assets of the bank's remain
after subtracting total external liabilities from total assets here, total assets
represent all the assets beside accumulated loss and intangible assets.

78
 Table No. 4.14
Net Profit to Net Worth or Return on Equity
Rs in Million
Year Net Profit Net Worth Ratio
060/061 710 -9831 -0.0788
061/062 1730 -9015 -0.2323
062/063 1207 -7426 -0.1916
063/064 227 -6301 -0.0363
064/065 239 -6248 -0.0382
Average -0.1154
Source: Annual report (year 2060/061 to 064/065)

Figure No. 4.14

Net Profit to Net Worth or Return on Equity
2000

-2000

-4000

-6000

-8000

-10000
060/061 061/062 062/063 063/064 064/065
Net Profit Net Worth

Source: Table No. 4.14

The above table shows that the net profit to net worth ratio of NBL varies
from maximum -3.63% to minimum -23.23% with an average -11.54%.
during the study period, This analysis indicates that profit earning in
relation to its share holders equity is in worst position.

79
vi) Interest Earned to Total Assets Ratio:
It measures the relationship between interest earned and total assets. A
higher ratio is considered as significant measure to gauge interest earning
efficiency of the firm in relation to the total assets.
Table No. 4.15
Interest Earned to Total Assets Ratio
Rs in Million
Year Interest Earned Total Assts Ratio
060/061 1825 44162 0.0413
061/062 1987 47045 0.0422
062/063 2049 35919 0.0570
063/064 1849 39259 0.0471
064/065 2095 42053 0.0498
Average 0.0475
Standard Deviation (S.D.) 0.0075
Coefficient of Variation (C.V.) 0.1578
Source: Annual report (year 2060/061 to 064/065)
Figure No. 4.15
Interest Earned to Total Assets Ratio
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
060/061 061/062 062/063 063/064 064/065
Interest Earned Total Assets

Source: Table No. 4.15

80
The above table shows that the interest earned to total assets ratio of NBL
is 4.13%, 4.22%, 5.70%, 4.71%, 4.98% in FY 060/ 061, 061/062,
062/063, 063/064, 064/065 respectively. The average ratio is 4.75%.

D) Operating Ratio:

i) Total Operating Expenses to Total Assets Ratio:

This ratio helps the relation between the total operating expenses and the
total assets.
Table No. 4.16
Total Operating Expenses to Total Assets Ratio of NBL
Rs in Million
Year Total Operating Expenses Total Assts Ratio
060/061 3192 44162 0.0723
061/062 2437 47045 0.0518
062/063 2275 35919 0.0633
063/064 2228 39259 0.0567
064/065 2379 42053 0.0565
Average 0.060
Source: Annual report (year 2060/061 to 064/065)

81
 Figure No. 4.16
Total Operating Expenses to Total Assets Ratio of NBL
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
060/061 061/062 062/063 063/064 064/065
Total Operating Expenses Total Assets

Source: Table No. 4.16

The above table shows that there is a fluctuation in ratios. The ratios are
not in increasing or decreasing trend i.e. fluctuating trend. The ratio gives
the mixed result in different years. The highest ratio is 7.23% in FY
060/61. The lower ratio is 5.18% in FY 061/62. The average of the ratio
is 6%.

ii) Total Operating Income to Total Assets Ratio:

This ratio is calculated to find out the ratio of operating income with total
assets. Operating income represents the achievement of the profit of the
organization.

82
 Table No. 4.17
Total Operating Income to Total Assets Ratio of NBL
Rs in Million
Year Total Operating Income Total Assts Ratio
060/061 2230 44162 0.0505
061/062 1563 47045 0.0332
062/063 1715 35919 0.0477
063/064 1545 39259 0.0394
064/065 1829 42053 0.0435
Average 0.0428
Source: Annual report (year 2060/061 to 064/065)
Figure No. 4.17
Total Operating Income to Total Assets Ratio of NBL
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
060/061 061/062 062/063 063/064 064/065
Total Operating Income Total Assets

Source: Table No. 4.17

The above table 4.17 shows the operating income to total assets ratio.
This ratio says the outcomes of utilizing the assets in the banking
business. Higher ratio shows the higher position of profit using in total
assets. Similarly, the lower ratio reflects the lower position of the profit
by using total assets. The higher ratio is 5.05% and lower ratio is 3.32%

83
in FY 060/061 and 061/062 respectively. The ratio of above table is
fluctuating trend. The average ratio is 4.28%.
iii) Total Operating Expenses to Total Operating Income Ratio:
This ratio shows the comparison of total operating income with total
operating expenses. This ratio finds what is the relation between the
operational expenses and the operating income.
Table No. 4.18
Total Operating Expenses to Total Operating Income Ratio of NBL
Rs in Million
Year Total Operating Expenses Total Operating Income Ratio
060/061 3192 2230 1.43
061/062 2437 1563 1.56
062/063 2275 1715 1.33
063/064 2228 1545 1.44
064/065 2379 1829 1.30
Average 1.412
Source: Annual report (year 2060/061 to 064/065)
Figure No. 4.18
Total Operating Expenses to Total Operating Income Ratio of NBL
3500

3000

2500

2000

1500

1000

500

0
060/061 061/062 062/063 063/064 064/065
Total Operating Income Total Operating Expenses

Source: Table No. 4.18

84
The above table shows the higher ratio is 156% and lower one is 130% in
FY 061/062, 062/063 respectively. In during the research period the ratio
is higher than 100%. The ratio crosses 100% expenses will be high and
the bank will avoid the loss. The average of the ratio is 141.2%.

iv) Interest Paid on Total Deposit to Total Expenses Ratio:

This ratio is related with interest expenses of NBL. Total expenses of
every organization refer to maximize the profit of the organization i.e.
less expenses represents the viability of the organization. The bank has to
pay interest on deposits. Deposits are the most important source of fund
collection. All banking wings of the NBL are involving to collect fund by
means of deposit accepting from the depositors with certain interest in
some maturity periods.
Table No. 4.19
Interest Paid on Total Deposit to Total Expenses Ratio of NBL
Rs. in Million
Year Interest Paid on Total Total Expenses Ratio
Deposit
060/061 1002 3271 0.3063
061/062 740 2441 0.3031
062/063 762 2215 0.3440
063/064 758 2377 0.3188
064/065 756 2745 0.2754
Average 0.3095
Source: Annual report (year 2060/061 to 064/065)

85
 Figure No. 4.19
Interest Paid on Total Deposit to Total Expenses Ratio of NBL
3500

3000

2500

2000

1500

1000

500

0
060/061 061/062 062/063 063/064 064/065
Interest Paid on Total Deposit Total Expenses

Source: Table No. 4.19

From above presentation shows the interest on deposit to total expenses

ratio is in Fluctuating trend of NBL. The highest ratio is 34040% in FY
062/063. The lowest one is 27.54% in FY 064/065. This means that in FY
062/063, contribution on the expenses of deposit is higher than the other
years this ratio finds the contribution of the deposit expenses with the
total expenses. The average of ratio is 30.95% of the study period.

v) Interest Paid on Borrowing to Total Expenses Ratio:-

Borrowing are the main source of capital for any organization borrowing
capital to be paid with interest within the certain maturity periods interest
is also an expenses to the organization.

86
 Table No. 4.20
Interest Paid on Borrowing to Total Expenses Ratio of NBL
Rs. in Million
Year Interest Paid on Borrowing Total Expenses Ratio
060/061 1.45 3271 0.0004
061/062 8.5 2441 0.0035
062/063 11.47 2215 0.0051
063/064 12.75 2377 0.0054
064/065 15 2745 0.0055
Average 0.0047
Source: Annual report (year 2060/061 to 064/065)
Figure No. 4.20
Interest Paid on Borrowing to Total Expenses Ratio of NBL
3500

3000

2500

2000

1500

1000

500

0
060/061 061/062 062/063 063/064 064/065
Interest Paid on Borrowing Total Expenses

Source: Table No. 4.20

The above table shows the total interest expenses on borrowing to total
expenses of NBL. The highest and lowest ratio is 0.55% and 0.04% in FY
064/065 and 060/061 respectively. The average ratio is 0.47%. It is
increasing trend.

87
vi) Interest Expenses to Interest Income Ratio:
This ratio is the relationship between interest expenses and interest
income. Interest expenses means the amount which the bank has to pay to
its depositors, Borrowings, on provident fund and rebate on interest from
it's investment on bonds on loan and advance to employed the following
table shows this ratio of NBL for different periods.
Table No. 4.21
Interest Expenses to Interest Income Ratio of NBL
Rs. in Million
Year Interest Expenses Interest Income Ratio
060/061 1026 1825 0.56
061/062 749 1987 0.38
062/063 774 2049 0.37
063/064 773 1849 0.42
064/065 773 2095 0.37
Average 0.422
Source: Annual report (year 2060/061 to 064/065)
Figure No. 4.21
Interest Expenses to Interest Income Ratio of NBL
2500

2000

1500

1000

500

0
060/061 061/062 062/063 063/064 064/065
Interest Expenses Interest Income

Source: Table No. 4.21

88
The above table shows the interest expenses and interest income of NBL.
The highest ratio is 56% and lowest on is 37% in FY 060/061 and
062/063 respectively. The ratio is fluctuating trend. The ratio is 38%,
42% and 37% in FY 061/062, 063/064, 064/065 respectively. The
average of the ratio is 42.2%.

B) Analysis of Activity Ratios:

A analysis of loan and advances to total deposit ratio:

i) Loan and Advance to Total Deposit

It measures the banks' success in utilizing the outsider's funds for
generating profit. It explains how quickly total collected funds are
converted into loan and advances.

Table No. 4.22

Loan and Advances to Total Deposits
Year Loan and Advances Total Deposit Ratio
060/061 8882 35735 0.2485
061/062 8219 35934 0.2287
062/063 9756 35830 0.2723
063/064 11058 39014 0.2834
064/065 13252 41830 0.3168
Average 0.2699
Source: Annual Report (Year 2060/061 to 064/065)

89
 Figure No. 4.22
Loan and Advances to Total Deposits
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
060/061 061/062 062/063 063/064 064/065
Loan & Advance Total Deposit

Source: Table No. 4.22

The above table sows that the loan and advances to total deposit ratio of
NBL various from maximum 31.68% to minimum 22.87% in FY 064/065
and 061/062 respectively. The average ratio is 26.99% during the study
period. The analysis shows that bank is no utilizing its total deposit by
extending loans and generating profit.

ii) Loans and Advances to Fixed Deposit Ratio:

It measures how many times the amount is used in loans and advances
against fixed deposit. Fixed deposits are interest bearing long term
obligations where as loans and advances are major sources of investment
in generating income for commercial banks.

90
 Table No. 4.23
Loan and Advances to Fixed Deposits Ratio
Rs in Million
Year Loan and Advances Fixed Deposit Ratio
060/061 8882 7816 1.136
061/062 8219 6191 1.33
062/063 9756 5222 1.86
063/064 11058 5393 2.05
064/065 13252 4758 1.78
Average 0.0183
Source: Annual Report (Year 2060/061 to 064/065)

Figure No. 4.23

Loan and Advances to Fixed Deposits
14000

12000

10000

8000

6000

4000

2000

0
060/061 061/062 062/063 063/064 064/065
Loan & Advance Fixed Deposit

Source: Table No. 4.23

The above table shows that loan & advances to fixed deposit ratio of
NBL various from maximum 2.78% to minimum 113% in FY 064/065
and 060/061 respectively. The average of 183% during the study period.
It shows that loan and advance to fixed deposit ratio has increasing trend.
It means NBL has utilization of fixed deposit.

91
iii) Loan & Advances to Saving Deposit
It measures the ability of bank in mobilizing saving deposits funds into
loans and advances. Saving deposit is interest bearing short-term
obligation as well as the main source of investment in loan and advances
for generating income.
Table No. 4.24
Loan and Advances to Saving Deposit
Rs in Million
Year Loan and Advances Saving Deposit Ratio
060/061 8882 22204 0.40
061/062 8219 23489 0.35
062/063 9756 24123 0.40
063/064 11058 26427 0.42
064/065 13252 28565 0.46
Average 0.4067
Source: Annual Report (Year 2060/061 to 064/065)

Figure No. 4.24

Loan and Advances to Saving Deposit
30000

25000

20000

15000

10000

5000

0
060/061 061/062 062/063 063/064 064/065
Loan & Advances Saving Deposit

Source: Table No. 4.24

92
The above table shows that the loan and advances to saving deposit ratio
of NBL various from maximum 46% to minimum 35% in FY 064/065,
061/062 respectively. The average ratio is 40.67% during the study
period. The analysis shows that the bank is not able to provide loan and
advances from its saving deposit.
iv) Loan and Advances to Total Assets Ratio
Table No. 4.25
Loan and Advances to Total Assets Ratio
Rs in Million
Year Loan and Advances Total Assets Ratio
060/061 8882 44162 0.2011
061/062 8219 47045 0.1747
062/063 9756 35919 0.2716
063/064 11058 39259 0.2816
064/065 13252 42053 0.3151
Average 0.2488
Source: Annual Report (Year 2060/061 to 064/065)

Figure No. 4.25

Loan and Advances to Total Assets Ratio
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
060/061 061/062 062/063 063/064 064/065
Loan & Advances Total Assets

Source: Table No. 4.25

93
The above table shows that the loan and advances to total asset ratio of
NBL. The maximum ratio is 31.51% and the minimum ratio is 17.47% in
FY 064/065 and 061/062 respectively. The average ratio is 24.88%
during the study period.

v) Performing Loan to Total Assets

It tells the percent of performing loan on total assets. It is useful to know
the fact whether the good loan is increasing or not. We can generate more
earning by increasing good loan and reducing bad and inferior loan.

Table No. 4.26

Performing Loan to Total Assets Ratio
Rs in Million
Year Performing Loan Total Assets Ratio
060/061 8298 44162 0.1879
061/062 8494 47045 0.1806
062/063 10179 35919 0.2834
063/064 11900 39259 0.3032
064/065 13698 42053 0.3257
Average 0.2562
Source: Annual Report (Year 2060/061 to 064/065)

94
 Figure No. 4.26
Performing Loan to Total Assets Ratio
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
060/061 061/062 062/063 063/064 064/065
Performing Loan Total Assets

Source: Table No. 4.26

From this table shows that performing assets to total asset ratio of NBL
are 18.79%, 18.06%, 28.34%, 30.32% and 32.57% in FY 060/061,
061/062, 062/063, 063/064 and 064/065 respectively and the average
ratio is 25.62% during the research period. This table shows that
performing loan to total assets ratio is in increasing trend.

4.1.2 Statistical Analysis

Statistical tool is one of the important tools to analyze the data. There are
various tools for the analysis of tabulated data such as mean, standard
deviation regression analysis, correlation analysis, trend analysis, various
types of tests etc.

A) Correlation Analysis:
Correlation is an analysis of the covariance between two or more variable
and it deals to determine the degree of relationship between the variables.
Correlation just says the degree of relationship between two or more

95
variables increase or decrease in one cause increase or decrease in
another then such variables are correlated variable
i) Correlation between Loan & Advances and Total Deposit

Table No. 4.27

Correlation between Loan & Advances and Total Deposit
Rs in Million
Year Loan & Advances (x) Total Deposit (y)
060/061 8882 35735
061/062 8219 35934
062/063 9756 35830
063/064 11058 39014
064/065 13252 41830
r 0.9547
P.E. 0.0268
6 (P.E) 0.1606
r2 0.9115
Source: Annual Report (Year 2060/061 to 064/065)

The analysis shows that the coefficient of correlation between loan &
advances and Total Deposit is 0.9547, which means there is a positive
correlation between them. Since the value of 'r' lies between 0.7 to 0.999.
So there is a high degree of correlation. Correlation between these two
variable is significant as r (0.9547) is greater then 6 times P.E(i.e 0.1606).
Total deposit is mainly affected by loan & advances.

96
ii) Correlation coefficient between Investment & Total Deposit
Table No. 4.28
Correlation coefficient between Investment & Total Deposit
Rs in Million
Year Investment (x) Total Deposit (y)
060/061 11005 35735
061/062 14199 35934
062/063 14450 35830
063/064 16072 39014
064/065 16571 41830
r 0.8096
P.E. 0.1041
6 (P.E) 0.6248
r2 0.6557
Source: Annual Report (Year 2060/061 to 064/065)

The analysis shows that the coefficient of correlation between investment

and total deposit is 0.8096, which means there is a positive correlation
between them. Since the value of 'r' lies between 0.7 to 0.999. So there is
a high degree of correlation. Correlation between these two variable is
significant as r (0.8096) is greater then 6 times P.E(i.e 0.6248). Total
deposit is mainly affected by investment.

97
iii) Correlation coefficient between Net profit & Total Deposit

Table No. 4.29

Correlation coefficient between Net Profit & Total Deposit
Rs in Million
Year Net Profit (x) Total Deposit (y)
060/061 710 35735
061/062 1730 35934
062/063 1207 35830
063/064 227 39014
064/065 239 41830
r -0.7213
P.E. 0.1451
6 (P.E) 0.8707
r2 0.5202
Source: Annual Report (Year 2060/061 to 064/065)

The analysis shows that the coefficient of correlation between net profit
and total deposit is -0.7213, which means there is a negative correlation
between them.

In above table means NBL net profit seems to increase in total deposit
then decrease in Net Profit.

98
iv) Correlation Coefficient between Performing Loan & Total Loan
Table No. 4.30
Correlation Coefficient between Performing Loan & Total Loan
Rs in Million
Year Performing Loan (x) Total Loan (y)
060/061 8298 17938
061/062 8494 16866
062/063 10179 12441
063/064 11900 13756
064/065 13688 15749
r -0.4250
P.E. 0.2478
6 (P.E) 1.48
r2 0.1807
Source: Annual Report (Year 2060/061 to 064/065)

The analysis shows that the coefficient of correlation between performing

loan and total loan is -0.4250, which means there is a negative correlation
between them. r2 is 0.1807 and probable error is 0.2478.

B) Trend Analysis
Trend analysis is one of the most useful statistical tools. In financial
statement analysis, the direction of change over period of years is crucial
important. Trend analysis of ratios indicates the direction of change. This
kind of analysis is particularly applicable to the items it profit and loss
account. It is a significant tool of horizontal financial analysis. It is a
dynamic method to indicate the change and deviation in items of financial
statements. Trend analysis helps to identify the controllable in terms of
given period and future forecast can be made for on going concern.

99
i) Trend Analysis of Loan and Advances:
In this topic the trend values of Loan and Advances for 5 fiscal years
have been calculated. The table shows trend and actual values of Loan
and Advances for 5 years from FY 2060/061 to FY 2064/065.

Table No. 4.31

Trend Value of Loan and Advance
Loan and Advances (y) = 10233+2031.9x
Rs. In Million
Year Year (X) Trend Value App. Trend Actual Value
060/061 1 12264.9 12265 8882
061/062 2 14296.8 14297 8219
062/063 3 16328.7 16329 9756
063/064 4 18360.6 18361 11058
064/065 5 20392.5 20393 13252
065/066 6 22424
066/067 7 24456
067/068 8 26488
068/069 9 28520
069/070 10 30552
Source: Annual Report (Year 2060/061 to 064/065)

100
 Figure No. 4.27
Trend Value of Loan and Advance

35000
Trend Value Actual Value
30000

25000

20000
Amount

15000

10000

5000

0
060/061 061/062 062/063 063/064 064/065 065/066 066/067 067/068 068/069 069/070

Year
Source: Table 4.31

The above table No. 4.31 and figure No. 4.27 shows that the Loan and
Advances is in increasing trend. The actual value is also in increasing
trend during 5 fiscal years period.

From the above analysis, it is found that the Loan and Advances of NBL
is better because the calculated trend values of Loan and Advances are
fitted in trend line gives upward sloping.

ii) Trend Analysis of Investment

In this topic the trend value of investment of 5 fiscal years have been
calculated. The table shows trend and actual value of investment for 5
years from FY 2060/061 to FY 2064/065.

101
 Table No. 4.32
Trend Value of Investment
Investment (y) = 14451.4+1308.5x
Rs. In Million
Year Year (X) Trend Value App. Trend Actual Value
060/061 1 15759.4 15759 11005
061/062 2 17068.4 17068 14199
062/063 3 18375.4 18375 14490
063/064 4 19683.4 19683 16072
064/065 5 20991.4 20991 16571
065/066 6 22300
066/067 7 23608
067/068 8 24917
068/069 9 26225
069/070 10 27534
Source: Annual Report (Year 2060/061 to 064/065)
Figure No. 4.28
Trend Value of Investment

30000
Trend Value Actual Value
25000

20000
Amount

15000

10000

5000

0
060/061 061/062 062/063 063/064 064/065 065/066 066/067 067/068 068/069 069/070

Year
Source: Table 4.32

102
The above table No. 4.32 and figure No. 4.28 shows that the investment
is in increasing trend. The actual value is also in increasing trend during 5
fiscal years period.

From the above analysis, it is found that the landing position of NBL is
better because the calculated trend values of investment are fitted in trend
line gives upward sloping.

iii) Trend Analysis of Net Profit:

In this topic, the trend values of Net Profit for 5 years have been
calculated. The table shows trend and actual values of Net Profit for 5
years from FY 2060/061 to FY 2064/065.

Table No. 4.33

Trend Value of Net Profit
Net Profit (y) = 822.6+(-244.5)x
Rs. In Million
Year Year (X) Trend Value App. Trend Actual Value
060/061 1 578.1 578 710
061/062 2 333.6 334 1730
062/063 3 89.1 89 1207
063/064 4 -155.4 -155 227
064/065 5 -399.9 -400 239
065/066 6 -644
066/067 7 -889
067/068 8 -1133
068/069 9 -1378
069/070 10 -1622
Source: Annual Report (Year 2060/061 to 064/065)

103
 Figure No. 4.29
Trend Value of Net Profit

2000
Trend Value Actual Value
1500

1000

500
Amount

0
060/061 061/062 062/063 063/064 064/065 065/066 066/067 067/068 068/069 069/070
-500

-1000

-1500

-2000

Year
Source: Table 4.33

The above table No. 4.33 and figure No. 4.29 shows that the net profit of
the NBL the trend value is in decreasing trend and there is a fluctuation in
actual value. Net profit of the NBL in actual value is Rs. 710, Rs. 1730,
Rs. 1207, Rs. 227 & Rs. 239 million in FY 060/061, 061/062, 062/063,
063/064 and 064/065 respectively.
From above analysis we know that the total income is less then the total
expenditure. Decrement in trend value of net profit shows bad image of
NBL.

iv) Trend Analysis of Total Deposits:

In this topic, the trend values of Deposits for 5 fiscal years have been
calculated. The table shows trend and actual values of Deposits for 5
years from FY 2060/61 to FY 2064/065.

104
 Table No. 4.34
Trend Value of Total Deposit
Total Deposit (y) = 37668.4+1526.8x
Rs. In Million
Year Year (X) Trend Value App. Trend Actual Value
060/061 1 39195.2 39195 35735
061/062 2 40722 40722 35934
062/063 3 42248.8 42249 35830
063/064 4 43775.6 43776 39014
064/065 5 45302.4 45302 41829
065/066 6 46829
066/067 7 48356
067/068 8 49883
068/069 9 51410
069/070 10 52936
Source: Annual Report (Year 2060/061 to 064/065)

Figure No. 4.30

Trend Value of Total Deposit

60000
Trend Value Actual Value
50000

40000

30000
Amount

20000

10000

0
060/061 061/062 062/063 063/064 064/065 065/066 066/067 067/068 068/069 069/070

Year
Source: Table 4.34

105
According to the table and figure the actual value deposit is in increasing
the deposit in trend value is also increasing per year.
The total deposit increased from Rs. 35735 million to Rs. 41829 million
from FY 060/061 to 061/062 respectively. Where as trend value of total
deposit is also increasing from Rs. 39195 million to Rs. 52936 million
during research period.
From the above trend analysis, we can say that NBL's deposit collection
position is better than before.

v) Trend Analysis of Loan Loss Provision

In this topic, the trend values of loan loss provision for 5 fiscal years have
been calculated. The table shows trend and actual values of loan loss
provision for 5 years from FY 2060/61 to FY 2064/065.
Table No. 4.35
Trend Value of Loan Loss Provision
Loan Loss Provision (y) = 5112.6+(-1905)x
Rs. In Million
Year Year (X) Trend Value App. Trend Actual Value
060/061 1 3207.6 3208 9056
061/062 2 1302.6 1303 8648
062/063 3 -602.6 -603 2655
063/064 4 -2504.4 -2504 2698
064/065 5 -4412.4 -4412 2506
065/066 6 -6317
066/067 7 -8222
067/068 8 -10127
068/069 9 -12032
069/070 10 -13937
Source: Annual Report (Year 2060/061 to 064/065)

106
 Figure No. 4.31
Trend Value of Loan Loss Provision

15000
Trend Value Actual Value
10000

5000

0
Amount

060/061 061/062 062/063 063/064 064/065 065/066 066/067 067/068 068/069 069/070

-5000

-10000

-15000

-20000

Year
Source: Table 4.35

According to the table No. 4.35 and figure No. 4.31 the loan loss
provision of NBL is decreasing trend in both values (ie. actual and trend
value). The loan loss provision of NBL in actual value is decreased from
Rs. 9056 million to Rs. 2506 million similarly, the trend value decreased
year by year from Rs. 3208 M. to Rs -4412 M.

vi) Trend Analysis of Bank Commission and discount

In this topic, the trend values of bank commission and discount for 5
fiscal years have been calculated. The table shows trend and actual values
of bank commission and discount for 5 years from FY 2060/61 to FY
2064/065.

107
 Table No. 4.36
Trend Value of Bank Commission and Discount
Bank Commission and Discount(y) = 201.8+(-1.1)x
Rs. In Million
Year Year (X) Trend Value App. Trend Actual Value
060/061 1 200.7 201 232
061/062 2 199.6 200 188
062/063 3 198.5 199 178
063/064 4 197.4 197 181
064/065 5 196.3 196 230
065/066 6 195
066/067 7 194
067/068 8 193
068/069 9 192
069/070 10 191
Source: Annual Report (Year 2060/061 to 064/065)
Figure No. 4.32
Trend Value of Bank Commission and Discount

250
Trend Value
Actual Value

200

150
Amount

100

50

0
060/061 061/062 062/063 063/064 064/065 065/066 066/067 067/068 068/069 069/070

Year
Source: Table 4.36

108
The above table shows the bank commission and discount of NBL is
decreasing trend is trend value and fluctuation of actual value.
The bank commission and discount decrease from Rs. 232 million to Rs.
181 million in FY 060/061 to 064/065 in actual value. But last year it is
increase in Rs. 230 million.

C. Analysis of Loan Due Classified as Per Performance:

Table No. 4.37
Classification of Loan into Performing & Non Performing Loan of NBL
Rs. In Million
Years Performing Non Performing Total
Amount % on Total Loan Amount % on Total Loan
060/061 8298 46.25% 9640 53.74% 17938
061/062 8494 50.36% 8372 49.63% 16866
062/063 10179 81.81% 2262 18.18% 12441
063/064 11900 86.50% 1856 13.49% 13756
064/065 13688 86.91% 2061 13.09% 15749
Source: Annual Report (Year 2060/061 to 064/065)

From the above table it is clear that the percentage of performing loan on
total loan of NBL during research period is found as 46.25%, 50.36%,
81.81%, 86.50% and 86.91% respectively during the research period.
This table shows that the performing loan percentage was sharply
increased during the research period. This is clear that loan of NBL was
going to good position and NBL loan disbursed is good policy.

The above calculation is plotted in the following figure

109
 Figure No. 4.33
Trend Analysis of Loan into Performing & Non Performing Loan of NBL

16000
14000
12000
10000
8000
6000
4000
2000
0
060/061 061/062 062/063 063/064 064/065
Performing Non Performing

Source: Table No. 4.37

The above figure shows trend of performing assets or loan (i.e. includes
only good loan) side non-performing loans (i.e. indicating low quality
loan, doubtful loan and bad loan)

D. Analysis of Loan Classification as Per Quality

Table No. 4.38

Analysis of Loan Classification as Per Quality
Years Good Loan Substandard Doubtful Bad Loan
Loan Loan
Amount % Amount % Amount % Amount %
060/061 8298 46.25 233 1.3 1280 7.12 8127 45.30
061/062 8494 50.36 130 0.8 64 0.4 8177 48.48
062/063 10179 81.81 47 0.4 88 0.7 2127 17.10
063/064 11900 86.50 17 0.2 30 0.2 1809 13.15
064/065 13688 86.91 64 0.4 21 0.1 1976 12.55
Source: Annual Report (Year 2060/061 to 064/065)

110
According to above table shows that classification of loan as per quality,
good loan, substandard loan, doubtful loan & bad loan of NBL. It has
good loan is 46.25%, 50.36%, 81.81%, 86.50% and 86.91 respectively.
The substandard loan is 1.3%, 0.8%, 0.4%, 0.1% and 0.4% respectively.
Doubtful loan is 7.12%, 0.4%, 0.7%, 0.2% and 0.1% and Bad loan is
45.30%, 48.48%, 17.10%, 13.15% and 12.55% respectively.

Figure No. 4.34

Trend Analysis of Loan Classification as Per Quality of NBL
16000
14000
12000
10000
8000
6000
4000
2000
0
060/061 061/062 062/063 063/064 064/065

Good Loan Sub Standard Loan

Doubtful Loan Bad Loan

Source: Table No. 4.38

The above figure shows that on x-axis research period (year) and on y
axis amount of loan. This figure throws light on the fact that in all years
good loan (performing loan) occupies major chunk of loan flown. Good
loan curves ranges in between Rs. 8298 million to 13688 million.

Indicating bad loan occupies vital position after good loan during 5 year
period.

111
4.2 Major Finding of This Study

1) Liquidity Ratio:
¾ The current ratio of NBL is always below the standard i.e., 2:1. It
has range 0.51 minimum to 0.62 maximum over the study period.
The ratio is decreasing on FY 062/063 than increasing trend.
Which shows that bank is trying to increase its liquidity position to
meet its current obligatory.
¾ The cash & bank balance to total deposit ratio is in fluctuating
trend the cash & bank balance maximum Rs 7174 million to
minimum Rs 5861 million and the deposit increased from 35735
million to Rs 41829 million. The ratio range is 15.81% to 20% and
the average ratio is 17.51%.
¾ The current assets to total deposit ratio is in fluctuating trend the
highest ratio is 92.24% in FY 060/061 and lowest one is 58.90% in
FY 063/064. The average ratio is 72.34%.
¾ The cash & bank balance to current assets is in increasing trend in
FY 060/061 to FY 062/063 and then decreasing trend up to FY
064/065. It has range 17.78% to 33.78%.
¾ The mandatory balance ratio during the study period is 11.84%,
12.13%, 14.25%, 12.86% and 10.15% respectively. It is in
fluctuating trend.

2) Capital Structure Ratio:

¾ Debt to total asset ratio is in decreasing trend. It is 120% to 104%
in FY 060/061 to 064/065 respectively. The average ratio is 115%
¾ The total debt to total equity ratio of NBL is in negative form the
average ratio is -6.90.

112
 ¾ The interest coverage ratios of NBL are 1.69, 3.31, 2.56, 1.30 and
1.31 respectively during the research period.

3) Profitability Ratio:
¾ Return on assets ratio is in decreasing trend. It is maximum 3.67%
to minimum 0.57% with an average 1.96% during five years
research period.
¾ Net profit after tax is in fluctuating trend in study period. The
maximum profit is Rs. 1730 million in 061/062 and minimum
profit is Rs. 227 million on FY 063/064. The highest NPAT to total
operating income ratio is 111% in FY 061/062 and 13% in FY
064/065 respectively. The average ratio is 48.2%.
¾ The net profit to total deposit rates of NBL various from maximum
4.8% to minimum 0.57% in FY 061/062 and 064/065 respectively.
The average ratio is 2.27%. The bank is not able to generate profit
by using its deposit.
¾ The total interest income on investment to total income ratio is in
fluctuating trend. The calculated highest ratio is 24.79% and the
lowest one is 10.81%. The average ratio is 19.18%.
¾ The operating self sufficiency ratio is in fluctuating trend. The
highest ratio is 171% and lowest is 104% in FY 061/062 and
063/064 respectively. The average ratio is 124%
¾ The net profit to net worth ratio of NBL various form maximum
-3.63% to minimum -23.23% with an average -11.54% during the
research period.
¾ The interest earned to total asset ratio is 4.13%, 4.22%, 5.70%,
4.71% and 4.98% in FY 060/061, 061/062, 062/063, 063/064, and
064/065 respectively. The average ratio is 4.75%.

113
4) Operating Ratio:

¾ The Total operating expenses to total asset ratio is in fluctuating

trend. The highest ratio is 7.23% and lowest one is 5.18% in FY
060/061 and FY 061/062. The average ratio is 6%.
¾ The operating income to total assets ratio is in fluctuating trend.
The highest ratio is 5.05% and lowest one is 3.32% in FY 060/061
and FY 061/062 respectively. The average ratio is 4.28%.
¾ Total operating expenses to total operating income ratio is in
fluctuating trend. The higher ratio is 156% and lower one is 130%
in FY 061/062 and 062/063 respectively. The average of the ratio
is 141.2%
¾ Interest paid on total deposit to total expenses ratio is in fluctuating
trend of NBL. The highest ratio is 34.40% in FY 062/063and the
lowest one is 27.54% in FY 064/065. The average ratio is 30.95%.
¾ The interest paid on borrowing to total expenses ratio is in
increasing trend. The highest ratio is 0.55% and lowest one is
0.04% in FY 064/065 and 060/061 respectively. The average ratio
is 0.47%.
¾ The interest expenses to interest income ratio is in fluctuating
trend. The highest ratio is 56% and lowest one is 37% in FY
060/061 and 062/063 respectively. The average ratio is 42.2%.
5) Activity Ratio:
¾ The loan and advances to total deposit is various form maximum
31.68% and minimum 22.87% in FY 064/065 and 061/062
respectively. The average ratio is 26.99%.
¾ The loan and advances to fixed deposit is in increasing trend. The
maximum ratio is 278% and minimum ratio is 113% in FY
064/065 and 060/061 respectively. The average ratio is 183 %.

114
 ¾ The loan and advances to saving deposit ratio are 40%, 35%, 40%,
42% and 46% in FY 060/061, 061/062, 062/063, 063/064 and
064/065 respectively. The average ratio is 40.67%. It is in
increasing trend.
¾ The loan and total asset in increasing trend. The maximum ratio is
31.51% and the minimum ratio is 17.47% in FY 064/065 and
061/062 respectively. The average ratio is 24.88%.
¾ The performance loan to total assets ratio of NBL are 18.79%,
18.06%, 28.34%, 30.32% and 32.57% in FY 060/061, 061/062,
062/063, 063/064, 064/065 respectively. The average ratio is
25.62%.
6) Finding and Relative Study:
¾ The correlation between loan and advances & total deposit in
0.9547 which means the positive correlation between them since
the value of 'r' lies between 0.7 to 0.99 so; there is a high degree of
correlation.
¾ The analysis shows that correlation coefficient between investment
& total deposit is 0.8096 which means there is a high degree of
positive correlation.
¾ The analysis shows that the coefficient of correlation between total
deposit and Net profit is -0.7213 which is highest negative
correlation between them. NBL net profit seems to increase in total
deposit then decrease in net profit.
¾ The analysis shows that the coefficient correlation between
performance loan and total loan is -0.4250 which means there is a
negative correlation between them.

115
7) Finding of Trend Analysis:
¾ The trend analysis of loan & advances is better because the
calculated trend values of loan & advances are fitted in trend lines
gives upward sloping.
¾ The trend analysis of investment is found that the lending position
of NBL is better because the calculated trend values of investment
are fitted in trend gives upward sloping.
¾ The trend analysis of net profit is in decreasing trend and there is a
fluctuation in actual value.
¾ The trend analysis of total deposit is better because the trend line of
total deposit is upward sloping.
¾ The analysis shows that the loan loss provision is in decreasing
trend. The actual value also in decreasing trend.
¾ Bank commission & discount is in fluctuating trend in actual value
and trend value is in decreasing trend.
¾ The analysis shows that the performance percentage was sharply
increase and non-performing loan is sharply decreased in during
five year research period. This is clear that loan of NBL was going
to good position.
¾ The analysis shows that classification loan as per quality is good
loan, substandard loan, doubtful loan and bad loan of NBL.

116
 CHAPTER FIVE

SUMMARY, RECOMMENDATION AND CONCLUSION

5.1 Summary

Bank provides certain services for its customs and in return receives
payment in one form or other. It tries to earn a profit for its stock owners.
The development of modern banking in Nepal dates back to 1937 in
which year NBL was set up under the Nepal Bank act, 1937. Bank
provides opportunity to people for participation in the development
process of the nation helps national economy to secure proper growth. At
present more than 20 commercial banks are operating their transition in
Nepal. Joint venture are mode of trading through partnership among
nations and also a form of negotiation between various group of
industries are orders to achieve mutual exchange of goods and services
for sharing comparative advantages. No foreign bank was operated in the
country before 1984 the new commercial bank act 1974 had a provision
to permit foreign bank operate in the country. In 1980's government
introduce financial sector reform program which facilities the
establishment of joint venture banks.

The basic objectives of this study are to analyze the liquidity,

profitability, assets utilization of NBL, to evaluate the liquidity position
of NBL, to analyzed the relationship eg. Investment, loan & advance with
deposit and profitability and to analyzed the growth and trend of financial
position of NBL.

117
To make this study more effective, related literatures have been reviewed.
The review of literature provides the foundation of knowledge in order to
under take this research more precisely. This section also includes
concept of banking. Under this chapter the researcher has reviewed
research paper, annual reports of NBL, related unpublished thesis and
various published and unpublished articles from the internet in order to
study and analysis the conclusion of the research.

Research methodology has been to solve the research problems with the
help of various tools and techniques. This study includes the various
financial as well as statistical tools to analyze the data in order to come
the decisions. The different tools, which are studied under financial
analysis, are liquidity ratio, activity ratio, profitability ratio, capital
structure ratio and operating ratios. On the other hand the different
statistical tools that have been applied in the research are mean, standard
deviation, trend, C.V. and correlation. This study is mainly conducted on
the basis of secondary data collected from annual reports, financial
statement of NBL etc. The five years financial statement has been
examined for the purpose of this study.

The presentation and analysis of data has been made through comparative
analytical and their interpretation, which is done in chapter four by
applying the wide varieties of methodology as stated in chapter three. It
includes the various financial and statistical tools. Incase of financial
tools ratio analysis is done which consist liquidity ratio, activity ratio,
profitability ratio, capital structure ratio and operating ratios. Various
statistical tools such as arithmetic mean, standard deviation, coefficient of
variance and correlation have been applied to fulfill the objective of this
study.

118
5.2 Recommendation:
From the study of financial statements or financial analysis of the bank
the following suggestions or recommendations, in particular are made to
improve the weaknesses of the bank or its performance efficiency in the
years to come.

¾ Maintain the proper mix of debt and equity:

As the capital structure ratio of the bank is highly leveraged, NBL
is required the maintain the improve on optimum mix of debt and
owners equity by increasing equity base in order to avoid financial
risk. It is the job of management to maintain a proper balance
between these two aspects.
¾ Apply current and fixed assets properly:
Since NBL is not maintaining adequate liquidity position, the bank
is suggested to manage its current assets properly.
¾ Concentrate on Agriculture Sector:
Since Nepal is an agricultural country, bank should give more
emphasis on the sector of agriculture product (like financing
tractors, seeds, fertilizers, and irrigational project), poultry farming,
cattle farming etc.
¾ Decrease operational expenses:
For the growth and survival of any firm, profit is the essential
factor. But NBL is seem to be unable to earn satisfactory level of
profit over the study period. In this context, the bank is
recommended to earn more operational profit either by increasing
their operational efficiency or decreasing their operational
expenses as far as possible.

119
 ¾ Attract people by low interest rate:
NBL should attract more low interest bearing savings and current
deposit to minimize its cost of fund and increase profit margin by
investing the same as loan and advances.
5.3 Conclusion:
¾ NBL is Number one bank in Nepal. It has been able to maintain
good position in the banking industry of the country. There has
been as on going effort and commitment in enhancing its financial
position. The bank is contributing to the development of the
banking sector of the country by its active banking service.
¾ Banking plays an indispensable role in the process of development.
They not only influence the structure of the economy but also its
development process. Commercial banks collect scattered saving
from the people and provide resources as loan and advances to the
people who need then. This captivity build industrial environment
in the country create employment and investment opportunity for
the people and consequently economy of the country secures
proper growth.
¾ The present state has been undertaken to examine and evaluate the
financial management of the NBL. The researcher has used
necessary financial and statistical tools to the study effective and
informative. This study has covered five years data of NBL from
the fiscal year 2060/061 to 2064/065.
¾ NBL has been able to maintain good position in the banking
industry of the country there has been an ongoing effort and
commitment in enhancing its financial position. The bank is
contributing to the development of the banking sector of the
country by its active banking service.

120
¾ It has been a good partner to the industrial businessman and
general public by providing banking services and facilities. Now it
has 44 ABBS (any branch banking system) and it has plan ABBS
to all computer facilities branches.
¾ Analyzing the credit sector and bank guarantee the bank is trying to
avoid unnecessary risk. By mobilizing its fund more in loan and
advances, the bank would have increase its profit, but from the
tabulated figures it is evident that NBL had also preformed to
invert in secure sector like government securities.
¾ Profitability ratio indicates degree of failure in achieving desired
profit level the result indicates that is not able to generate profit by
utilizing deposits. So additional efficiency is required to increase
its earnings. The analysis indicates that profit earning in relation to
shareholder's quality of NBL is in bad condition which exhibits
worst utilization of shareholder's equity. Overall it can be
concluded that NBL is not able to earn a positive profit.
¾ Finally it can be concluded that the financial performance of NBL
during the study period of five year is not satisfactory. The bank
has tried to maintain a good position among the commercial banks
in Nepal and is still pursuing to accommodate as many clients as
far as possible.

121
 BIBLIOGRAPHY

A) Books:
¾ Bajracharya, B.C. (2053), Business Statistics and Mathematics,
Kathmandu: MK Publishers & Distributors.
¾ Bhandari, Dilli Raj (2003), Banking and Insurance Management,
Kathmandu, Ayush Prakashan.
¾ Dangol, R.M., (1997), "Management Accounting", 3rd Edition,
Kathmandu: Taleju Prakashan.
¾ Encyclopedia, The World Book, American Grolier Incorporated,
1986.
¾ Gupta, S.C. (2000), Fundamental of Statistics, (5th Ed.), New
Delhi: Himalayan Publishing House.
¾ Jha J. C. and Raj Bahak R. Pd. (1990), Banking and Currency in
Nepal, 2nd Ed., Kathmandu, Pragati Prakashan.
¾ Joshi, P.R. (2060), Research Methodology (2nd Ed.), Kathmandu:
Buddha Academic Enterprises Pvt. Ltd.
¾ Oxford Advanced Learner Dictionary, P: 83-84.
¾ Pandey, I.M.,(1999),"Financial Management", 8th Editing,
Vikash Publication House Pvt. Ltd. , New Delhi.
¾ Poudel, Narayan Pd.,(2053),"Financial Statement Analysis: An
Approach to Evaluate Bank's Performance", Nepal
Rastra Bank, Samachar.
¾ Vaidya, Shakespeare, (2001),"Banking & Insurance
Management", Kathmandu

122
B) Unpublished Thesis:
¾ Adhikari, Dev R., Evaluating the Financial Performance of
Nepal Bank Ltd., MBA Thesis TU, 1993.
¾ Bedananda Dahal, (2005), Financial Performance and Investment
Activities of Agricultural Development Bank, MBS
Thesis TU.
¾ Bhattarai, Kamal, (2005) A Study of Loan Management of
Kathmandu Finance Ltd., MBS Thesis TU.
¾ Chhetry, Prakash, (2006), Loan Management of Finance
Companies, MBS Thesis TU.
¾ Dhungana, Bhishma Raj, (2058), “Why asset Management
Company” MBS Thesis TU.
¾ Harish Chandra Sharma, (2007), Financial Performance of Nepal
Bank Ltd., MBS Thesis TU.
¾ Maha Prasad Mainaly, (1999), An Evaluation of Loan
Distribution and Collection of Agriculture
Development Bank, MBS Thesis TU.
¾ Musaju, Sulochana, (1988), “An Appraisal of Financial
Performance an Cost Behavior of Diary
Development Corporation.(DDC)”, MBS Thesis T.U.
¾ Neupane, Chadani, (2008), “Financial Analysis of Agricultural
Development Bank Ltd.”, MBS Thesis T.U.
¾ Paudel, Ramji, (1997), A Comparative Analysis of Financial
Performance between Nepal Bank Ltd. and Nepal
Griendlays Bank Ltd., MBA Thesis TU.

123
 ¾ Pradhan, Nirmal M., (1980), A Comparative Analysis of
Investment Policy of Nepal Bank Ltd., MBA Thesis
TU.
¾ Rana, Lal Bahadur, (2005), “Financial Performance an
Investment Policy of Himalayan Bank Ltd. & Bank
of Kathmandu Ltd.”, MBS Thesis T.U.
¾ Regmi, Phanindra Raj (2039), A Study of Lending Policy of
ADB/N in Nepal with Regards to Poultry Farming in
Kathmandu District, An Unpublished Master's
Degree Thesis, Shankar Dev Campus T.U.

Website:
www.nepalbank.com.np

124
 Appendix-I
Correlation between Loan and Advance and Total Deposit

Year X Y x- x = u y- y = v u2 v2 uv
2060/061 8882 35735 -1351 -2334 1825201 5447556 3153234
2061/062 8219 35934 -2014 -1635 4056196 2673225 3292890
2062/063 9756 35830 -477 -1739 227529 3024121 829503
2063/064 11050 39014 825 1445 680625 2088025 1192125
2064/065 13252 41830 3019 4216 9114361 18156121 12863959
X =10233 Y =37569 Σu =15903912
2
Σv =31389048
2
Σuv=21331711

Σuv
r =
Σu 2 Σv 2
21331711
=
15903912 × 31389048
21331711
=
22342978
= 0.9547
2
r = 0.9115
1− r2
Probable Error (PE) = 0.6745 ×
N
1 − 0.9115
= 0.6745 ×
5

= 0.0268

125
 Appendix-II
Correlation between Investment and Total Deposit

Year X Y x- x = u y- y = v u2 v2 uv
2060/061 11005 35735 -3355 -2334 11256025 5447556 7830570
2061/062 14199 35934 -161 -1635 25921 2673225 263235
2062/063 14450 35830 90 -1739 8100 3024121 -156510
2063/064 16072 39014 1712 1445 2930944 2088025 2473840
2064/065 16571 41830 2211 4216 4888521 18156121 9421071
X =14360 Y =37569 Σu =19109511
2
Σv =31389048
2
Σuv=19832206

Σuv
r =
Σu 2 Σv 2
19832206
=
19109511 × 31389048
19832206
=
24491414
= 0.8098
2
r = 0.6557
1− r2
Probable Error (PE) = 0.6745 ×
N
1 − 0.6557
= 0.6745 ×
5
= 0.1041
6 P.E. = 0.6248

126
 Appendix-III
Correlation between Netprofit and Total Deposit

Year X Y x- x = u y- y = v u2 v2 uv
2060/061 710 35735 -113 -2334 12769 5447556 263742
2061/062 1730 35934 907 -1635 822649 2673225 -1482945
2062/063 1207 35830 384 -1739 147456 3024121 -607776
2063/064 227 39014 -596 1445 355216 2088025 -861220
2064/065 239 41830 -584 4216 341056 18156121 -2488424
X =823 Y =37569 Σu =1679146
2
Σv =31389048
2
Σuv=-5236623

Σuv
r =
Σu 2 Σv 2
− 5236623
=
1679146 × 31389048
− 5236623
=
7259945
= 0.7213
2
r = 0.5202
1− r2
Probable Error (PE) = 0.6745 ×
N
1 − 0.5202
= 0.6745 ×
5
= 0.1451
6 P.E. = 0.8707

127
 Appendix-IV
Correlation between Performing Loan and Total Loan

Year X Y x- x = u y- y = v u2 v2 uv
2060/061 8298 17938 -2214 2588 4901796 6697744 -5729832
2061/062 8494 16866 -2018 1516 4072324 2298256 -3059288
2062/063 10179 12441 -333 -2909 110889 8462281 968697
2063/064 11900 13756 1388 -1594 1926544 2540836 -2212472
2064/065 13688 15749 3176 399 10086976 159201 1267224
X =10512 Y =15350 Σu =21098529
2
Σv =20158318
2
Σuv=-8765671
Σuv
r =
Σu 2 Σv 2
− 8765671
=
21098529 × 20158318
− 8765671
=
20623066
= 0.4250
2
r = 0.1807
1− r2
Probable Error (PE) = 0.6745 ×
N
1 − 0.1807
= 0.6745 ×
5
= 0.2478
6 P.E. = 1.4868

128
 Appendix-V
Trend Value of Loan and Advance
Year (x) Loan & x(x-3) x2 xy
Advance (y)
1 8882 -2 4 -35528
2 8219 -1 1 -8219
3 9756 0 0 0
4 11058 1 1 11058
5 13252 2 4 53008
∑y=51167 ∑x=0 ∑x2=10 ∑xy=20319

Σy 51167
a= = = 10233.4
n 5
Σxy 20319
b= = = 2031.9
Σx 2 10

y = 10233.4 +2031.9x

129
 Appendix-VI
Trend Value of Investment
Year (x) Investment (y) x(x-3) x2 xy
1 11005 -2 4 -22010
2 14119 -1 1 -14119
3 14490 0 0 0
4 16072 1 1 16072
5 16571 2 4 33142
∑y=72257 ∑x=0 ∑x2=10 ∑xy=13085

Σy 72257
a= = = 14451.4
n 5
Σxy 13085
b= = = 1308.5
Σx 2 10

y = 14451.4 +1308.5x

130
 Appendix-VII
Trend Value of Net Profit
Year (x) Net Profit (y) x(x-3) x2 xy
1 710 -2 4 -1420
2 1730 -1 1 -1730
3 1207 0 0 0
4 227 1 1 227
5 239 2 4 478
∑y=4113 ∑x=0 ∑x2=10 ∑xy=-2445

Σy 4113
a= = = 822.6
n 5
Σxy − 2445
b= = = 244.5
Σx 2 10

y = 822.6 + (-244.5)x

131
 Appendix-VIII
Trend Analysis of Total Deposit
Year (x) Total Deposit (y) x(x-3) x2 xy
1 35735 -2 4 -71470
2 35934 -1 1 -35934
3 35830 0 0 0
4 39014 1 1 39014
5 41829 2 4 83658
∑y=188342 ∑x=0 ∑x2=10 ∑xy=15268

Σy 188342
a= = = 37668.4
n 5
Σxy 15268
b= = = 1526.8
Σx 2 10

y = 37668.4 +1526.8x

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 Appendix-IX
Trend Value of Loan Loss Provision
Year (x) Loan Loss x(x-3) x2 xy
Provision (y)
1 9056 -2 4 -18112
2 8648 -1 1 -8648
3 2655 0 0 0
4 2698 1 1 2698
5 2506 2 4 5012
∑y=25563 ∑x=0 ∑x2=10 ∑xy=-19050

Σy 25563
a= = = 5112.6
n 5
Σxy − 19050
b= = = -1905
Σx 2 10

y = 5112.6 + (-1905)x

133
 Appendix-X
Trend Value of Commission and Discount
Year (x) Commission & x(x-3) x2 xy
Discount (y)
1 232 -2 4 -464
2 188 -1 1 -188
3 178 0 0 0
4 181 1 1 181
5 230 2 4 460
∑y=1009 ∑x=0 ∑x2=10 ∑xy=-11

Σy 1009
a= = = 201.8
n 5
Σxy − 11
b= = = -1.1
Σx 2 10

y = 201.8 + (-1.1) x

134