CHAPTER-1 Introduction 1.1. Background of study The bank is an institution established by law, wh ich deals with money and credit is called banking. In other words, wo rds, it is obvious that an institution which deals with money, receiving it on deposits from customers, honoring customers drawings against such deposits and demand, collecting cheques cheq ues from customers, and lending or investing surplus deposits until they are required for repayment. In common sense, financial institution which deals with monetary transaction by accepting various types of deposits, distributing various types’ loans and rendering other financial services. There is several definition of a bank by different authors and scholar’s .some of them is as follows:According to Oxford Dictionary
“A bank is an establishment for the custody of money received from or on its customers, its essential duty is to pay their draft on it, its profit arises from its use of money left unemployed by them.”
According to Dr. Hart “A person or company carrying on the business of receiving money and collecting drafts, for customers subject to the obligation of honoring cheques upon them from time to time by the customers to the extent of the amounts available on their current accounts”
As per Kent “Bank is an organization whose principle operation is concerned with accumulation for the temporarily idle with money of the general public for the purpose of advancing to other expenditure.”
According to Hals bury laws of England “A banker banker is define defined d as an indivi individua duall partne partnersh rship ip or corpor corporati ation, on, whose whose sole sole or predominating business banking”.
According to the commercial bank act 2031
“A commercial bank is a bank, which deals in exchanging currency, deposits, giving loans and doing commercial transactions”. So bank is an organization, which deals with deposits, lends money and renders a wise range of financial services.
Origin of Banking The term “bank” was originated from the Latin word “BANCUS”, and the Italian word “BANCO”, the German word “BACK” and French word “BANKE”.regarding the origin & banking institution in the world, the bank established was “Bank of Venice” of Italy. The second bank established in Spain in 1401 A.D. as “the bank of Barcelona”. Then after, Bank of Geneva &Bank of England as a joint venture bank in 1401 &1694 A.D. respectively. Several national and foreign banks were established in India & other countries subsequently.
Banking in Nepal In Nepalese banking concept, the history of banking is not long. But it is found that the banking transactions are conducted in ancient time. Nepal bank limited was the first bank bank in Nepal Nepal establi establishe shed d in 1994b.s 1994b.s .later .later Nepal Nepal Rastr Rastraa Bank ,centra ,centrall
bank bank was
established in 2013 b.s with an objective to provide the policy decision, guidance and control the banking and to monitor this sector.Rastriya sector.Rastriya Banijya Bank is a government owne owned d comm commer erci cial al bank bank was was esta establ blis ishe hed d in 2022 2022b. b.s. s. NIDC( NIDC(Nep Nepal al indu indust stri rial al develo developme pment nt corpor corporati ation) on) and agricu agricultu lture re develop developmen mentt bank limit limited( ed(ADB ADBL) L) was established in 2020b.s.the joint ventures bank’s increased dramatically after restoration of democracy when the government adopted liberal and market oriented policy.
Nowadays following commercial banks are in operation 5
Agricu Agricultu lture re devel developm opment ent bank limite limited d (ADBL (ADBL))
6
Bank Bank of Asia Asia Nepa Nepall lim limit ited ed
7
Bank Bank of Katm Katman andu du limi limite ted d
8
Citi Citize zen n inter internat natio ional nal ban bank k limi limite ted d
9
Devel Develop opme ment nt cred credit it bank bank lim limit ited ed
10 Everes Everestt bank bank limite limited d 11 Global Global bank limite limited d 12 Himala Himalayan yan bank bank limi limited ted
13 Janata Janata bank limite limited d 14 Kumari Kumari bank bank limi limited ted 15 Kist Kist ban bank k limi limite ted d 16 Laxmi Laxmi bank bank limi limited ted 17 Lumbin Lumbinii bank bank limite limited d 18 Machhap Machhapuch uchhre hre bank bank limit limited ed 19 Nabi Nabill bank bank limi limite ted d 20 Nepal Nepal ban bank k limi limite ted d 21 Nepal Nepal Banglad Bangladesh esh bank bank limited limited 22 Nepal Nepal SBI SBI bank bank limi limited ted 23 Nepal Nepal invest investmen mentt bank limit limited ed 24 Nepal industr industrial ial and commercial commercial bank limited limited 25 Nepal credit credit and commerci commercial al bank limited limited 26 NMB NMB bank bank lim limit ited ed 27 Prime Prime commerc commercial ial bank bank limited limited 28 Rastri Rastriya ya Banijy Banijyaa bank limited limited 29 Siddhar Siddhartha tha bank bank lim limite ited d 30 Sunris Sunrisee bank bank limi limited ted 31 Standard Standard charter chartered ed bank bank Nepal Nepal limite limited d
Latest performance of commercial banks sub-groups The average of the listed commercial banks’ key indicators-NPA,P/E ratio,RoA ,RoE, EPS,NWPS and profit margin- since last five five years. in the five year 2004-05 and 200506 there there were were only only 17 liste listed d commer commercia ciall banks banks wherea whereass in 2006-0 2006-07,t 7,the he number number increased increased to 18 and in 2007-08 and 2008-2009, 2008-2009, there were 23 listed listed and in the mid of 2009-10 there were 26 commercial banks were listed.
Figure no.-1 Not performing assets 7 6 5 4 3 2 1 0 2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
NPA in percent
The average NPA was 1.98 percent in 2008-09 against 3.58 percent in 2007=08.NPA is an assets or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss assets. Lower the NPA better the institution. Figure no.-2 P/E ratio
70 60 50 40 30 20 10 0 2004/20 /2005
2005/20 /2006
2006/20 /2007
200 2007/2 7/2008
2008/20 /2009
P/E ratio in times
During the fiscal year 2007-08,the overpopulation of the shares have been raised the P/E ratio to an average of 65.60 times that came down to an average of 56.28 times in 2008-09.a high P/E ratio suggests that investors are expecting higher earnings growth in the future. Figure no.-3
Return on assets (RoA) 2.5 2 1.5 1 0.5
0 2004 2004/20 /2005 05
2005 2005//2006 2006
2006 2006//2007 2007
2007 2007/20 /2008 08
2008 2008/20 /2009 09
Return on total assets in percent
The averag averagee RoA,ho RoA,howeve wever,a r,almo lmost st doubled doubled in 2008-09 2008-09 to 2021 2021 percen percentt from from 1.76 percent a year ago.RoA gives an idea as to how efficient management is at using to generate profits.
Figure no. - 4 Return on equity (RoE) 45 40 35 30 25 20 15 10 5 0 2004 2004/20 /2005 05
2005 2005//2006 2006
2006 2006/20 /2007 07
2007 2007/20 /2008 08
2008 2008//2009 2009
Return on equity in percent
The average RoE stood at 24.73 percent in 2008-09.it reveals how much profit a company earned in comparison to the total amount of shareholders equity found on the
balance sheet. Figure no.-5
Profit margin 30 25 20 15 10 5 0 -5 2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
Profit margin in percent
In 2007 2007-0 -08, 8, the the aver averag agee prof profit it marg margin in of the the 23 list listed ed comm commer erci cial al banks banks was 27.09 27.09pe perc rcen entt but but in 20082008-200 2009, 9, it post posted ed a prof profit it of only only 27.86 27.86 perc percen ent. t. The The competition among commercial banks-the key player in the Nepse –and lack of market expansion pulled the profit margin down. Figure no.-6 Earning per share (EPS) 45 40 35 30 25 20 15 10 5 0 2004 004/200 /2005 5
2005 005/200 /2006 6
2006/ 006/2 2007 007
200 2007/20 7/200 08
200 2008/20 8/200 09
Earning per share in rupees The EPS has slowed due issuance rights and bonus shares. It is is generally considered to be single most important variable in determining a share’s price.
Figure no.-7
Net worth per share (NWPS) 160 155 150 145 140 135 130 125 2004/2 04/20 005
2005 005/200 /2006 6
2006 006/200 /2007 7
2007/ 007/2 2008 008
200 2008/20 8/200 09
NWPS in rupees
Due Due to the the incr increa easi sing ng righ rights ts and bonus bonus shar shares es net wort worth h per shar sharee has has slow slowed ed down.NWPS is a measurement of the net worth of the company for each share of stock that has been issued. (Sources: - Security Research Centre and services)
1.2 Introduction of Himalayan Bank Limited Himalayan bank limited is a joint venture bank with Habib bank of Pakistan, was established in 1992ad, under the company act 1964.this is the first joint venture bank managed by Nepali chief executive officer. The bank had started its operation from February 1993. The main objective of the bank is to provide modern banking facilities like banking to businessm businessman, an, industrial industrialists ists and other professionals professionals and to provide provide for commercial, commercial, agricu agricultu lture, re, and indust industria riall sector sectors. s. Despit Despitee the cut-t cut-thro hroat at compet competiti ition on in Nepales Nepalesee banking sector, Himalayan bank has been able to maintain a lead in the primary banking activities-loans and deposits. The bank’s vision Himalayan bank limited holds of a vision to become a leading bank of the country by providing premium products and services to the customers, thus ensuring attractive and sustainable returns to shareholders of the bank. The bank’s mission The bank’s mission to become preferred provider of quality financial services in the
country .there are two components in the mission of the bank; preferred provider and quality financial services; therefore we HBL that the mission will be accomplished only by the satisfying these two importants.components with the customer at focus. The bank’s objective To become the first choice is the main objective of the bank.
1.2.1 Share subscription of HBL Table no.-1 Share subscription of HBL
Promoter shareholders Habib Bank, Pakistan Financial
51% 20% 14%
institutions(employers provident fund) Nepalese
public
15%
shareholder’s Total
100%
In the above share subscription of HBL,promoters shareholders own more than 50%of total shares.Similarly,Habib Bank limited, Pakistan owns 20% total shares, financial institutions (employee provident fund )own 14% of total shares and 15%of total shares are owned owned by Nepales Nepalesee public public shareh sharehold olders ers.The .Theref refore ore,pr ,promot omoters ers of HBL own the majority of shares. 1.2.2 Capital structure of Himalayan bank limited
Capital structure of Himalayan bank is as follows: Authorized capital
= Rs.1, 00, 00, 00,000
(Divided into
[email protected] each) Capital
= Rs.81, 08, 10,000
(Divided into
[email protected] each) Paid up capital
= Rs.81, 08, 10,000
(Divided into
[email protected] each)
1.2.3 Services offered by Himalayan Bank Limited Himala Himalayan yan bank bank offers offers variou variouss types types servic services es to its valuabl valuablee custom customers ers,, which which
promotes bank competitiveness, credit worthiness and attraction. Some services and technologies, which may provide by Himalayan bank limited, are as follows:1) Accepting deposits -current deposits -fixed deposits -saving deposits 2) Granting loan - Overdraft - Demand loan -Time loan -term loan 3) Transferring funds 4) Premium saving accounting 5) Bills discounts 6) Bank guarantee 7) Issued of honors of travelers cheques 8) Inward and outward remittance 9) Issuance of bank draft and bankers cheques 10) ATM, debit card, credit card facilities 11) Inter banking services 12) Any branch banking system (ABBS) The bank is the first joint venture bank managed by Nepalese chief executive. Its head office is based in the capital city of the country, Kathmandu in “Karmachari Sanchaya Kosh Building”Thamel, Ktm.it has 26 branches out of which 910 are in Katmandu valley valley and remaining remaining 17 branches branches are outside outside the valet spread in the main cities cities of the country. The bank adopting modern technologies such as computer system in each branch, credit card, master card and visa international card etc.recently this bank has an agreement with Smart Choice Technology Pvt. Ltd. for expanding ATM network in Katmandu valley
1.3 Introduction of Nepal Bangladesh bank limited
Nepal Bangladesh bank was established in 1994 with an authorized capital Rs.240 million and paid up capital Rs.60 million as a joint venture with IFIC Bank Ltd.It has head office situated at Baneshwor Katmandu .the prime objective of this bank is to render banking sources to different sector, small entrepreneurs and the weaker society of society and every people who need banking services .during the period of 15 years of its its operat operation ion .it has accommodat accommodated ed a large large number of clients clients and has been able to provide excellent services to its clients. Bank has a network of 18 branches. The bank has earned the glory of making available the services almost all the top business houses of the leading, positions among the joint ventures in Nepal, the bank is still purshing to accommodate as many clients as far as possible. The exporters and importers of the country have established banking relationship with the bank and sub stainable stainable volume of foreign foreign business which has enhanced enhanced the bank’s pop popul ular arit ity y in the the inte intern rnat atio iona nall trad tradee fron front. t. Bank Bank has has deve develo lope ped d agen agency cy and and correspondent relationship with more than 200 prominent foreign banks in the world. This is the first only bank entrusted by the World Bank and government of Nepal to be the Power Development Fund (PDF) administrator for the development of small and middle middle level of the hydropower hydropower projects projects in the country. The bank is the first first joint venture bank, the government revenue transactions in the country.Tatopani branch is solely dealing with the government revenue account of Tatopani revenue office.
The bank’s vision NB banks banks holds a vision vision to become become
a leading leading bank of the countr country y by provid providing ing
pre premi mium um produ product ctss and and serv servic ices es to the the cust custom omer ers, s, thus thus ensu ensuri ring ng attr attrac acti tive ve and and substantial returns to the stakeholders of the banks.
The bank’s mission The bank mission is to provide their clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make unique position in giving quality services to all institutions and individuals.
The bank’s objective To become a legend and first selection bank is the objective of the bank.
1.3.1 Share subscription of Nepal Bangladesh bank limited
Table no.:-2 Share subscription of NB Bank
Promoter shareholders IFIC Bank, Pakistan Financ Financial ial insti institut tution ions(e s(empl mploye oyers rs
51% 20% 14%
provident fund) Nepalese public shareholder’s Total
15% 100%
1.3.2 Capital structure of Nepal Bangladesh bank limited Capital structure of Nepal Bangladesh bank limited is as follows:Authorized capital (Divided in to
[email protected] each)
=Rs.24, 00, 00,000
Issued capital (Divided in to
[email protected] each)
=Rs.6, 00, 00,000
Paid up capital (Divided in to
[email protected] each)
=Rs.6, 00, 00,000
1.3.3 Products and services of Nepal Bangladesh bank Nepal Bangladesh bank limited provides following services and products:32 Loan Loan and advan advance ce 33 Depos Deposit it sche scheme me 34 Automa Automated ted teller teller machine machine(AT (ATM) M) 35 Educ Educat atio ion n loa loan n 36 Hous Housin ing g loan loan 37 Hire purchase purchase loan loan for for profess professional ionalss 38 Saving Saving plus plus depos deposit it schem schemee 39 Lock Locker er fac facil ilit ity y 40 Any branch banking banking system system(ABBS (ABBS))
1.4 Statements of Problems The problem of the study lies on the issues related to the strength and weakness of “a
comparative evaluation of financial performance of Himalayan bank limited and Nepal Bangladesh bank limited”. It also tries to seek the answers to the following questions:What is the comparative evaluation financial performance of the bank in terms of liquidity, EPS, DPS, payout ratio, debt management and profitability ratio over fiver different years?
1.5 Objective of study Each activity of human being is driven to world the following objective; 41 To evaluate evaluate liquidity, liquidity, leverage, leverage, capital capital adequacy adequacy and profitabil profitability ity ratios ratios
of
Nepal Bangladesh bank and Himalayan bank limited. 42 To study the the comparative comparative cash cash flow stateme statement nt of banks. banks. 43 To make make necess necessary ary suggesti suggestions ons and recomm recommend endati ations ons for effect effective ive financi financial al performance in future.
1.6 Limitations of study The major limitations of this research are related with the ratio analysis of financial per perfo form rman ance ce of Nepal Nepal Bang Bangla lade desh sh bank bank and and Hima Himala laya yan n bank bank limi limite ted. d. Vario Various us limitations have been faced while preparing this report which is expressed below: 44 This study study is conducted conducted mainly based based on secondary type type of data i.e. annual reports reports and textbooks factors. 45 Study conducted conducted to five years years beginning beginning from fiscal fiscal year 059/060 to 064/065. 064/065. 46 This study study only explains explains about about ratio ratio and cash flow statemen statements ts of two banks. banks. 47 Study and and results results of two banks may may or may not be applicable applicable to others others banks. 48 This study study is only conducte conducted d only within within Katmandu Katmandu valley. valley.
1.7 Concept of cash flow statement Cash flow statements indicates where funds came from during the year (from sales, receivable or sales of property) and where they are spent (for purchase of equipment, payment of dividends reducing accounts payable) cash flow statements shows 49 How the firm’s firm’s operation operation have affecte affected d its liquidity liquidity.. 50 The The rela relati tion onsh ship ip among among cash cash flow flow from from opera operati ting ng,, inve invest stin ing g and and fina financ ncin ing g activities.
1.8 Significance Significance of study
Mainly the study covers the financial analysis, which covers the liquidity, profitability, solvency and efficiency ratios of the bank over five different years. The comparative study with five years from data of the bank has been analyzed so far. Hence, it has been own import importance ance and signif significa icance nce for policy policy makers makers,, profes professio sional nals, s, shareh sharehold olders ers,, management and general public.
1.9 Organization of study This study has been divided in to five chapters. Chapter:-1 Introduction Chapter:-2 Research Methodology Chapter:-3 Presentation and Analysis Of data Chapter:-4 Summary, Conclusion and Recommendation
INTRODUCTION This This
chapte chapterr covers covers the general general backgroun background d of the general general perfor performan mance ce analysi analysis, s,
introduction of the organization, statement of problem, objective and limitations of the study and organization of the research study of Himalayan bank limited and Nepal Bangladesh bank limited.
RESEARCH METHODOLOGY This chapter focuses the research design, sample data analysis tools and their using techniques.
PRESENTATION AND ANALYSIS OF DATA This chapter concern with measurement of financial performance using ratio analysis tools and their trend analysis.
SUMMARY, CONCLUSION AND RECOMMENDATION This chapter gives summarization, conclusion and recommendation of the study.
CHAPTER-2 RESEARCH METHODLOGY 51 Research Research methodolo methodology gy Resear Research ch methodo methodolog logy y refers refers to the various various sequen sequentia tiall steps steps to be adopted adopted by a researcher in studying a problem with certain objectives in view. This chapter explains the methodology used for this research in the following order.
52 Resear Research ch design design Financial tools are used to ensure the relationship between variables in terms of ratio, perce percenta ntage ge and times. times. Here Here for this this resear research ch work work both both analyt analytica icall and descri descripti ptive ve research design is applied.
53 Population Population and sampli sampling ng The study is done to taking an account of two organizations i.e. Himalayan bank limi limite ted d and and Nepa Nepall Bang Bangla lade desh sh bank bank limi limite ted. d. In this this stud study, y, over overal alll fina financ ncia iall performances of both banks are taken into consideration. The reason selecting these banks as sample for many study are predominant. 54 Conven Convenien ience ce access accessibi ibilit lity. y. 55 Easy Easy data data availa availabil bility ity.. 56 Good record record of banks banks and and recognit recognition. ion. 57 Welcom Welcomee environ environmen mentt of banks. banks. The joint ventures commercial banks, established year and head office of population are given below: Table no.:-3
List of joint ventures commercial banks Commercial Banks
Established
Head Office
S.N 1 2
Nepal Arab bank limited Nepal investment bank
year 2041-03-29 2042-11-16
Katmandu Katmandu
3
limited Standard
2043-10-13
Katmandu
chartered
Nepal limited
bank
4 5
Himalayan bank limited 2049-10-05 Nepal SBI ba bank limited 2050-03-23 Nep Nepal al Bang Bangla lade desh sh bank bank 2051-02-23
Katmandu Katmandu Katmandu
6 7 8 9
limited Bank of Katmandu limited Everest bank limited Nepal credit and commerce
2021-11-28 2051-07-01 2053-06-28
Katmandu Katmandu Siddharthna
10
bank limited Lumbini bank limited
2055-04-01
gar Narayangad
2055-04-05
h Biratnagar
11
Nepal
industrial
and
12
commercial bank limited Machhchhapuchhre bank
2057-06-17
Pokhara
13 14
limited Kumari bank limited Laxmi bank limited
2056-08-24 2058-06-11
Katmandu Katmandu
2058-06-12
Katmandu
15 Siddhartha bank limited Sources- Newspaper and Magazines
58 Source Sourcess of data data The research is based on primary as well as secondary data. Primary data collected are personally collected through questionnaires, direct observations and interviews, which have conducted with the concerned staffs and customers of the concerned banks. The secondary data are collected from annual report of banks, broachers, balance sheet and from the website.
59 Method Method of data data analysi analysiss “The term data analysis refers to the computation of certain measures along with searching for patterns of relationship that exit among data group. thus in the process of analys analysis, is, relati relations onship hip of differ different ent suppor supporti ting ng or confli conflicti cting ng with with origin original al or new hypothesis and should be subjected to statistical lest of significant to determine with what validity can be said to indicate any conclusion.” Analysis may be categorized as descriptive analysis and inferential analysis. To achieve the predetermined objective of the research, certain tools are used. The tools are categorized as; 1. Financial tools
2. Stastical tools 3. Graphical tools In this study, following statistical tools are used to analysis the financial performance of the bank:-
Profitability ratio Profitability is ultimately in terms of rate of return earned by the liquidity by the equity investors who are the owner of the business. Profitability is the final result of the bank. There are five measures of profitability, called profit margin, net interest, the spread, the return on assets, and the return on equity. This ratio tools helps to analyzed income rela relati tions ons to reso resour urce cess commi committ tted ed is to meas measur uree prof profit itab abil ilit ity y from from the the fina financ ncia iall statements.
Liquidity ratio It means the ability to meet cash obligation as they come due. Liquidity is the probably most difficult aspect of the financial performances of the institutions to measures. This report gives out the correct comparison of the maturities of assets and liabilities.
Leverage ratio It is used to know the long term financial positions of the financial instituitions.these ratios are also called capital structure ratios. These ratios indicate the proportions of debt and equity in the capital structure of a bank. 1. Liquidity ratios Current ratio
= Current assets/Current liabilities
Cash and bank balance to total deposit ratio (cash reserve ratio) =Cash and bank balance /Total deposits
2. Debt management ratios Total debt ratio
= Total debt/Total assets
Interest coverage ratio
=EBIT/Total interest charge (times)
3. Profitability ratios Return on total assets
=Net profit/Total assets
Return on net worth ratio
=Net profit/Net worth
Return on total capital
=Net profit after interests and taxes/Total capital
4. Other indicators Earning per ratio (EPS)
=Net profit/No. of shares
Dividend per share (DPS)
=Earn paid to shareholders/No. of shares
Dividend payout ratio (DPR) =Dividend per share/Earning share/Earning per share
CHAPTER-3 PRESENTATION AND ANALYSIS OF DATA 60 Presentation and analysis of data This chapter thesis work presents presents the data, facts, figures and their interpretati interpretation. on. This thesis work is based on the secondary data. The relevant data collected from secondary sources are presented and analyzed by using financial, statical and graphical tools and techni techniques ques.. To compar comparee the financ financial ial perfor performan mance ce of Nepal Nepal Banglad Bangladesh esh bank and Himala Himalayan yan bank, bank, ratio ratio analys analyses es has been used. used. We have have also also compar compared ed the data collected from various using ratios formulas.
61 Liquid Liquidity ity ratio ratio Liqu Liquid idit ity y of a firm firm refe refers rs to the the soun sound d solv solvenc ency y posit positio ion n of a firm firm to meet meet its its obliga obligatio tions. ns. Liquid Liquidity ity ratio ratio measur measures es the abilit ability y of a firm firm to meet meet its short-te short-term rm obligations.liquiidity of a bank should be considered as the most important factor its existence. It shows the capability of payment of current liability. High ratio indicates the liability to pay and low ratio shows scarcity of liquid assets. In this ratio we have calculated:
62 Curren Currentt ratio ratio Current ratio is the measure of the firm’s short-term solvency .current ratio is also known as “working capital ratio” it indicates the availability of current assets in rupees for ever one rupee of current liabilities .ratio greater than unity refers that firm has more current assets than the liabilities .current ratio is simply the ratio of current assets and current liabilities. The proportion of current ratio of 2:1 is supposed to be an idle. This conventional rule is based on the assumption that even it the current assets are decreased by half the form can meet its obligations. The standard of 2:1is not hard and fast rule for current ratio. The ratio of the firm depends upon the kind of the business it does as well. If the firm is a service tendering firm it is considered to be enough to be 1; 1ratio. It can be computed by using following formula, Current ratio= current assets/current liabilities (times)
Table no. - 4
Current ratio in million(Rs.)
Bank year
Himalayan bank Current Current
Rati
Nepal Bangladesh bank Current Current
ratio
Assets
Liabiliti
os
Assets
(time
es
(tim 19,99,36
s)
2060/2
1,92,98,89
18,30,23
es) 1.05:
061 2061/2
3 2,09,97,00
0 1,98,14,
1 1.06:
8 2,12,71,
062 2062/2
4 2,39,68,10
319 2,22,92,
1 1.08:
063 2063/2
3 2,54,30,14
091 2343789
064
4
2064/2
2,45,75,52
2630294
Liabilities
1,62,55,024
1.23:
14181,310
1 1.50:
964 2,80,01,
2,08,96,,59
1 1.34:
1 1.09:
430 2,13,51,
0 1,14,18,096
1 1.87:
1
840
1.09:
2,78,89,
1 1,29,28,536
2.16:
065 1 8 1 597 1 By tabl tablee no.1, no.1, we can can see see the the curr curren entt rati ratios os of HBL HBL from from the the year year 206/2 206/2061 061 to 2064/2065 are 1.05, 1.06, 1.08, 1.09 & of NB for those years are 1.23, 1.5, 1.34, 1.87& 2.15.both banks have current ratio lower than the standard ratio 2:1.So, both banks should increase its current assets.however, looking at above table we can see that NB bank has higher current current ratio. ratio. Hence, the liquidity liquidity position position of NB bank in comparison comparison to HBL.
Figure no.-8
Current ratio
63 Cash and Bank Bank balance balance to total deposit deposit ratio ratio The table shows the comparative cash and bank balance to deposit ratio (excluding fixed deposit).cash and bank balance to total deposit measures the percentage of cash and bank balance maintained by NB bank and HBL bank in order to honor the cheques presented by its depositors excluding fixed deposits .a high ratio represents the greater ability to meet their all type or prompt demand of cash payment. but too high ratio of cash and bank balance to total deposits may be unsuitable and harmful because it affects their profitability position and also too low ratio is unfavorable as capital will be tied up and opportunity cost will be higher .this is computed by using following formula, Cash Cash and bank bank balan balance ce to total total depo deposit sit (cas (cash h reser reserve ve ratio ratio)) =cash =cash and and bank bank balance/total deposit.
Table no.-5
Cash and Bank balance to total deposit (cash reserve ratio) (In million Rs.)
Banks Y ea r
Himalayan bank Cash Total &
Deposit
Bank
Rati
Nepal Bangladesh bank Cash & Total
Ratio
o
Bank
Deposit
(%)
(%)
Balance
8.19
11,89,048
16,58,07
7.18
27,95,996
3 2,90,68,9
9.62
27,12,150
28 2,71,62,2
9.99
22,82,676.5
15 2,16,74,0
10.53
24,00,763.7
46 2,39,76,4
10.01
Balanc 2060/20
e 14,35,
1,75,32,
61 2061/20
157 12,64,
404 1,86,19,
62 2062/20
672 19,79,
375 2,10,07,
63 2063/20
209 20,01,
379 22,10,33
64 2064/20
184 20,14,
3 2,48,14,
65
471
012
6.79 9.42 9.09 8.12
33
This ratio shows the ability of banks funds to meet their deposits. Dividing cash and bank balance calculate this ratio by total deposit. High ratio shows the good liquidity position. the ratio of HBL from 060/2061 to 2064/2065 is 8.19,6.79,9.42,9.09 and 8.12 and NB Bank is 7.18,9.62,9.99, 7.18,9.62,9.99,10.53 10.53 and 10.01.by 10.01.by looking at the above table one can say that the the NB Bank is in good liquidity liquidity position position because because of higher cash and bank bank balance to total deposit ratio.
Figure no.-9
Presentation of cash and bank balance to total deposit ratio in Line diagram
64 Debt management ratio Leverage of capital structures ratios are used to judge the long term financial position of the banks. It evaluates the financial risk. Greater the portion of equity capital in capi capita tall less lesser er will will be the the risk risk.. Debt Debt is more more risk riskil ily y but but it is adva advant ntag ageo eous us to shareholders. In this ratio, we calculate total debt ratio, debt equity ratio and debt to total capital ratio.
3.3.1 Total Total debt ratio ratio This ratio reflects the external obligation of the firm in relation to the total assets. It indicates the financial contribution of outsiders and owners on total assets of the firm. It also measures the financial security of outsiders.generallly creditors prefer a low debt ratio where as, owners prefer high debt ratio in order to magnify their earnings on the one hand and to maintain their concentrated control over the Firm Firm.. Highe Higherr the the rati ratio o depi depict ctss highe higherr the the cont contri ribu buti tion on of debt debt in tota totall asse assets ts consequently higher the risk association. Total debt ratio=total debt/total assets Table no.-6
Total debt to total assets ratio (In million Rs.)
Bank Y ea r
Himalayan bank Total Total Debt
Assets
2060/206
1,83,02,3
1,95,00,5
1
00
72
Ratio
Nepal Bangladesh bank Total Total
Rati
(%)
Debt
Assets
o
1,81,19,2
1,96,95,5
(%) 92.
77
78
00
93.86
2061/206
1,98,14,3
2,13,15,8
2 2062/206
19 2,22,92,0
48 2,41,97,9
3 2063/206
91 2,34,37,8
74 2,57,29,7
4 2064/206
59 2,63,02,9
87 2,88,71,3
5
48
43
92.96
1,96,16,1
2,15,29,0
91.
92.12
76 2,20,69,1
06 24,439,9
91 90.
91.09
70 2,32,03,4
54 2,59,87,0
30 89.
91.10
80 2,60,39,9
85 2,91,60,0
29 89.
19
56
30
This ratio is calculated by dividing total debt by total assets. A high ratio shows the contribution of creditor in financing the assets of bank. this ratio shows that both banks have comparativel comparatively y equale.T equale.The he ratio ratio of HBL are 93.89,92.96,92. 93.89,92.96,92.12,91.0 12,91.09 9 and 91.1 likes likes this this the the
ratio ratio of NB Bank Bank
are 92,91. 92,91.12, 12,90.3 90.3,89. ,89.29, 29,89.3 89.3.bot .both h banks banks have
proportion of assets investing by debt but Himalayan bank has more risk in relation to NB bank due to higher debt ratio.
Figure no.-10
Presentation of total debt ratio in line diagram
65 Interest Interest coverag coveragee ratio ratio This ratio is also called time interest ratio (TIE).Time interest ratio measures the extent to which operating income can decline before the firm is unable to meet its annual intere interest st costs. costs. failure failure to meet meet this this obliga obligatio tion n can bring bring legal legal action action by the firm’ firm’ss creditors, possibly resulting in bankruipty.this ratio by dividing earnings before interest and taxes(EBIT)by the charges can be presented below, Interest coverage ratio=EBIT/total interest charge (times) Table no.-7
Interest coverage ratio (In million Rs.)
Banks Y ea r
Himalayan bank EBIT
2060/206
11,65,88
1 2061/206
0 9,27,180
Nepal Bangladesh bank
Total
Ratio
interest
(times)
charge 7 34 518
1.59 1.60
5,78,134
2
EBIT
Total in interest
Ratio
charge
(times)
1,17,73
7,30,845.40
1.61
8.80 9,36,4
5,75,243.30
1.63
51.80
2062/20
9,14,15
5,54,1
63 2063/20
6 9,12,11
28 4,91,5
64 2064/20
7 10,84,5
43 5,61,9
1.65
9,23,2
5,51,357.40
1.67
1.86
97.56 9,21,2
4,89,085.30
1.88
1.93
38.17 19,53
5,59,154.20
1.96
65 06 64 1.06 The interest coverage ratio is calculated by dividing EBIT by interest expenses. And it can be shown in times. The table shows the HBL and NB bank have more than Rs.1 EBIT for 1 rupee payment of interest. The higher the ratio will be more favorable for
the organization. The times interest on ratio of both banks are in increasing trend which indicate that the EBIT of both banks are good to cover the interest expenses. Figure no.-11
Presentation of interest coverage ratio 66 Profitability ratio Profit is the difference between revenue and expenses. A profit is necessary for the survival of the company and also meets the expectation of shareholders. It is the measure of the performance of any business, heather it is doing well or not. It is calculated to measure the operating efficiency of the firm. Profitability ratio shows the combined effects of liquidity management and debt management on operating result. Major types of profitability ratio are as under:
67 Return Return on total total assets assets This ratio measures the profitability of all invested in the firm’s assets. This ratio provides the necessary foundation for a company to deliver a good return on equity. A company with out a good return on total assets finds it almost impossible to generate a satisfactory ROE. In this study ROA is computed to measure the profitability of all the financial resources in bank assets and calculated be applying the following formula; Return on total assets=net profit/total assets Table no.-8
Net profit of total assets ratio (In million Rs.)
Banks year
2060/20 61 2061/20 62 2062/20 63
Himalayan bank Net Total profit 2,77,039 2,35,023 2,12,132
assets 1,95,00,572 2,13,15,848 2,41,97,974
Rati
Nepal Bangladesh bank Net Total
Rati
o
profit
o
assets
(%) 1.4207
2,82,579.7
1,96 1,96,9 ,95, 5,57 578 8
(%) 1.43 1.4347 47
1.1026
8 2,39,723.4
2,15 2,15,2 ,29, 9,00 006 6
1.11 1.1135 35
0.8767
6 2,16,374.6
2,44 2,44,3 ,39, 9,95 954 4
0.88 0.8853 53
4
2063/20 64 2064/20
2,63,052 3,08,277
2,57,29,787 2,88,71,343
1.0240
2,68,313.0
2,55 2,55,9 ,98, 8,08 085 5
1.04 1.0485 85
1.0678
4 3,14,442.5
2,91 2,91,6 ,60, 0,05 056 6
1.07 1.0783 83
65
4
Return on total assets is obtained by dividing net income after tax by total assets. This ratio measures the efficiency of bank in utilization of o verall assets. High ratio indicates the the succ succes esss of mana manage geme ment nt in over overal alll oper operat atio ion n all all low low rati ratio o mean meanss inef ineffi fici cient ent operation of bank. these ratios of HBL of 5 years 1.42,1.1,0.87,1.0024 & 1.0678 in percentage same as NB bank are 1.43,1.11,.89,1.03 &1.08. From the above table one can tell that RoA of NB bank is good because it has higher RoA. Figure no.-12
Presentation of net profit to total asset ratio in line diagram
68 Return Return on net net worth worth ratio ratio
This ratio indicates that how the firms have been utilizing the owners fund. The key objective of any enterprises is t maximize the owner’s wealth. Higher this ratio is the consequences consequences of sound management management and efficiency efficiency of the management. management. The net profit is obtained from P/L account and net worth is the sum of paid up capital, reserves, surplus and undistributed profit. In another way it can be calculated by subtracting total liabilities by total assets. Higher the ratio indicates higher the return and lower the ratio indicates lower the return. This can be computed from the following formula, Return on net worth=net profit/net worth Table no.-9
Return on net worth ratio (in million Rs.)
Banks year
2060/206
Himalayan bank Net Net profit 2,77,03
Rati
Nepal Bangladesh bank Net Net
Rati
worth
o
profit
worth
o
11,98,29
(%) 23.1
12,34,240.
(%) 22.9
2,82,579.7
1 2061/206
9 2,35,02
2 15,01,52
2 15.6
8 2,39,723.4
80 15,46,574.
0 15.5
2 2062/206
3 2,12,13
9 19,05,88
5 11.1
6 2,16,374.6
90 19,63,059.
0 11.0
3 2063/206
2 2,63,05
3 22,91,92
3 11.4
4 2,68,313.0
50 23,60,685.
2 11.3
4 2064/206
2 3,08,27
8 25,68,39
8 12.0
4 3,14,442.5
80 26,45,446.
7 11.8
5
7
5
0
2
90
9
Return on net worth of HBL are 23.12,15.65,11.13,11.48 &12.like the above ratio of NB bank are 22.90,15.50,11.02,11.37&11.89.comparing both banks HBL has greater profitability on net worth than NB bank due du e to higher ratio. Figure no.-13
Presentation of net profit to net worth ratio in line diagram 69 Return on total capital This ratio is calculated by dividing net income after tax by total capital .it is tasted to see how the company employ their capital and can earn. More earning is expected by the company so high ratio desirable.
Return on total capital=Net profit after interest and taxes/Total capital Table no.-10
Return on total capital (In million Rs.)
Banks year
2060/2061 2061/2062 2062/2063 2063/2064 2064/2065
Himalayan bank Ne t Total
Rati
profit
capital
o
3,00,000 3,90,000 4,29,000 5,36,250 6,43,500
(%) 92.35 60.26 49.45 49.05 47.91
2,77,039 2,35,023 2,12,132 2,63,052 3,08,277
Nepal Bangladesh bank Net profit Total Ratio
2,82,879.78 2,39,723.46 2,16,374.64 2,68,313.04 3,14,442.54
capital
(%)
3,30,000 4,29,000 4,71,900 5,89,875 7,07,850
85.63 55.88 45.85 45.49 44.42
Returns on total capital of HBL of 5 years are 92.35, 60.26, 49.45, 49.05 &47.91. Same ratios of NB bank are 85.63, 55.88, 45.85, 45.49 &44.42.comparing both banks HBL has high return to total capital i.e. utilize their capital in more productive sectors.
Figure no.-14 Presentation of return on total capital in line diagram
70 Others Others indicat indicators ors Others indicators like payout ratio, dividend yield ratio are calculated. Higher ratio or higher values of these indicators shown good performance of any organization. 71 Earning per share (EPS ) EPS indicate the income distributed .high EPS indicates good performance and low EPS indicates low performance. EPS=net profit/no. of shares Table no.11
Earning per share (EPS) (In million Rs.)
Banks year 2060/206 1 2061/206 2 2062/206 3 2063/206 4 2064/206
Himalayan ba bank Net No. No. of profit 2,77,039 2,35,023 2,12,132 2,63,052 3,08,277
shares 3,000 4,290 5,362 6,435 6,435
5
Nepal Bangladesh bank Net profit No. of EPS
EPS 92.35
2,82,579.7
shares 3,300.00
60.26
8 2,39,723.4
4,290.00
55.88
49.45
6 2,16,374.6
4,719.00
45.85
49.06
4 2,68,313.0
5,898.75
45.49
47.91
4 3,14,442.5
7,078.50
44.42
85.63
4 The earning per share of HBL are 92.34,6.26,49.44,49.05&47.906 for the fiscal year 2060/2061 to 2064/2065 and of NB bank are 85.63,55.879,45.85,45.49 &44.42.from the above table we can see the EPS of HBL’s is good because it has higher EPS.it is enough to attract the investor.
Figure no-15
Presentation of earning per share in line diagram
72 Dividend Dividend per share share (DPS) (DPS) Dividend Dividend per share indicates indicates the earning paid to ordinary shareholders. shareholders. High DPS can satisfy the shareholders and low DPS can unsatisfy the shareholders. DPS= earn paid to shareholders/no. of shares Table no.12
Dividend per share (in million Rs.)
banks year
Himalayan bank Earn paid to No.
DPS
Nepal Bangladesh bank Earn paid No. No. of DPS
shareholder
of
to
s
share
sharehold
2060/2061 2061/2062 2062/2063 2063/2064
22,500 97,500 5,645 0
s 3,000 4,290 5,362 6,435
2064/2065
74,511
6,435
shares
7.50 25.00 1.3159 0
ers 33,909.57 45,547.46 71,403.63 23,343.23
3,300.00 4,290.00 4,719.00 5,898.75
10.28 10.62 15.13 3.96
11.579
40,877.30
7,078.50
5.77
The The divi divide dend nd per per shar sharee of HBL HBL is 7.50, 7.50,25, 25,1. 1.31 3159, 59,0 0 &11.5 &11.597 97.f .for or the the fisc fiscal al year year 2060/2061 to2064/2065 & NB bank are 10.28,10.62,15.13,3.96 &5.77.from the table we can say that HBL paid higher dividend dividend for the fiscal year 2061/2062 2061/2062 &2064/2065 &2064/2065 &NB bank paid more dividend for remaining fiscal years.so,we can say that both banks have satisfactory DPS Figure no.-16
Presentation of dividend per share in line diagram
73 Dividend Dividend payout payout ratio Generally most of the firms retain some portion of the earnings to strengthen the financial position of the firm and to avail fund for the future purpose. This ratio simply shows the ratio of proportion of earnings distributed to shareholders as dividend and proportion of earnings retained in the firm for the future purpose as retained earnings. Higher the ratio reflects higher the proportion of earnings is distributed as dividends. Dividend payout ratio= dividend per share/earnings per share
Table no.-13
Dividend yield ratio Banks year
Himalayan bank DPS EPS
2060/2061 7 .5 0 92.35 2061/2062 25.00 60.26 2062/2063 1.3159 49.45 2063/2064 0 49.06 2064/2065 40877.30 47.91 Dividend payout ratio of HBL for
Ratio
Nepal Bangladesh bank DPS EPS Ratio
(%) (%) 8.12 10.28 85.63 12.01 41.49 10.62 55.88 19.01 42.66 15.13 45.85 33.00 0 3.96 45.49 8.71 24.17 5.77 44.42 12.99 5years are 8.12.,41.49.42.66,0 &24.17.similarly,
DPR of NB bank is 12.01,19.01,33.00,8.71 &12.99.the DPR of HBL is higher than for the fiscal year 2061/062 &2062/063 whereas in other fiscal year NB bank has higher DPR. Figure no.-17
Presentation of dividend payout ratio in line diagram 74 Find Findin ings gs The current ratios of both banks are less than the generally accepted standard of 2:1.however the current ratio never falls below the ratio 2:1. So, current ratios of both banks have satisfactory. But the current ratio of Nepal Bangladesh bank is higher so it has stronger liquidity position. 75 Cash and bank balance balance to total total deposit of NB NB bank is higher higher than that of Himalay Himalayan an bank which is not good because higher liquidity position shows the greater amount of idle money, which cannot generate the revenue. 76 Both bank’s bank’s proportion proportion of total debt is very very high in overall overall assets. The higher higher debt gener generat ates es the the highe higherr EPS, EPS, whic which h is quite quite good good but but from from the the view view poin pointt of organization, both banks are in risk. 77 Return on total total assets of NB bank bank is slightly slightly higher than than that of HBL, which which also shows that the both banks are a re earning equal profit ratio. 78 The return return on net worth worth of both both banks are almost almost equal equal where as return return on total capital of HBL is higher than NB bank, it shows that the profitability rate of HBL is
good due to sound performance. 79 EPS of HBL is is higher than than NB bank where where as DPS of is is higher than than HBL.both HBL.both the banks have regularity in the payment of dividend but NB pays more amount of dividend than HBL bank. 80 The no. of outstanding outstanding shares of HBL is increasi increasing ng every year to minimize minimize the risk that is caused by the high amount of debt.
CHAPTER-4 Summary, conclusion and recommendation 81 Su Summ mmar ary y In the last two decades, the financial scenario of Nepal has dramatically changed. The vast development industrial sector or due to the presence of different kinds of risk in the economy brings so many banking institutions from private as well as public sector in Nepal. The first banking of Nepal, Nepal bank limited from government sector was established in 1994. Presently Presently 27 commercial commercial banks banks are in operation operation in the country, among among 24 banks are listed in NEPSE.out of 27 commercial banks, two joint ventures are selected as the sample banks for this thesis work. The objectives, functions, policies and strategies of joint ventures banks have been emphasized and the performances of the two sample banks have been analyzed. The main purpose of selecting these two banks is, they have been offering all kinds of available facilities available in banking sectors in the country. The study is mainly based on the secondary data publicly available in the NEPSE data base and the annual report of respective banks. for the study, the five year’s data of the banks have been pooled starting from FY 2060/2061 to 2064/2065.the collected data of the banks for the study purpose are thoroughly processed, tabulated for the required format; different measures of the data have been calculated using different statistical tools and financial tools with the best effort.
82 Conclu Conclusi sion on While going through the study, it is found that both banks have sound performance but Nepal Bangladesh bank has more sound performance than Himalayan bank. All the debt management ratio and profitability ratio of Nepal Bangladesh bank are slightly better than of Himalayan bank ltd. Liquidity ratio of b oth banks is not so good. At last, from the study of NB bank and Himalayan bank, we can conclude that the banks are performing their business with the fast success in Nepal. However liquidity ratio and debt ratio of NB bank is higher. But when we take in to consideration EPS and DPS, the Himalayn bank has higher EPS but lower DPS.So, Himalayan bank is
better in terms of EPS but Nepal Bangladesh b ank is better in terms of DPS.
83 Recomme Recommendati ndation on Based on the analysis conducted on previous chapters, some shorts are found. Thus, following recommendations could be possibly helpful to improve their future financial performance. 84 Profit Profit is essential essential for the survival survival and growth of banks. As per the findings, findings, profits profits of both both of the sample sampled d banks banks are not at satisf satisfact actory ory level.th level.there erefor fore, e, they they are suggested to generate higher profit for the survival and growth of the firm. 85 Investors Investors of any firm are always always fascinati fascinating ng towards the EPS and DPS of the firm. firm. Here Here is the the obse observ rved ed that that the the EPS EPS and and DPS DPS of Hima Himala laya yan n bank bank are are quit quitee low.therefore, the bank should think to improve these financial indicators so that it could convey the right message in the market. 86 In order to be able able to pay the liabiliti liabilities es both the banks should should have to increase increase their their current assets by investing in marketable securities because their current ratios are less than the conventional standard 2.1. 87 In both banks the proportio proportion n of total debt is very high high in their overall overall assets. assets. It will be riskier. The proportion of total debt must be reduced. If not possible, they should increase their share in order to rescues from their risk. 88 Cash Cash and bank balance balance to total total deposit deposit ratios ratios or Nepal Nepal Banglades Bangladesh h bank bank is much higher than its necessity. So it should its cash and bank balance and should invest them in to earning assets to increase income.
