CHAPTER-I

INTRODUCTION
1.1Background of the Study

All assets cannot be liquid. An asset is said to be liquid if it is easy to sell or convert
into cash without any loss in its value. Liquidity means how quickly we can get our hands
on our cash. In simpler terms, liquidity is to get our money whenever we need it. As it is the
most prominent issue that management of each organization should take studying and
thinking about them, it is considered as their most important duties.

Bank simply means a financial institution, which is engaged in monetary transaction.

Basically, bank work as an institution which accepts deposits and lends loan to those who
needs it. Bank provides benefits to depositors by paying fixed interest and borrower gets
chance to improve business or other work by getting financial support. The bank helps people
in every sector of economy like trade, industry, agriculture etc. therefore we call bank as a
social institution also. A bank simply carries out the work of exchanging money, providing
loan, accepting deposits, and transferring money. A bank is an organization whole principal
operation are concerned with accumulation of the temporarily ideal money of the public for
the purpose of advancing to other for expenses.

Liquidity position of a bank refers to the ability of the bank to meet its short-term
obligations. As liquidity plays a crucial role in the successful functioning of any business
firm, a study of it is of major importance to both the internal and external analysts because of
its close relationship with day-to-day operations of a business. Profitability refers to the net
income of the company (Bank) where company's revenue exceeds its expenses. Income is
generated from the activities of the companies (Bank) and expenses is the cost of resources
which are used to generate profit. Profitability is the main objective of the companies.
Businesses cannot survive in the market for the long run without profitability. So, evaluating
past profitability it has negative or inverse relationship between liquidity and profitability
because huge liquidity position decreases the profitability of the bank and vice-versa. But in
some cases, liquidity problem can create a panic to the depositor and banks can fall under
trouble of repayment of deposited money. At the liquidity shortfall banks cannot increase the
advance position it increases the profitability. So that banks try to manage the liquidity

1
position very efficiently. To increase the profitability banks, go to the risky investment
because there is a positive relationship between higher risk and higher return.

Liquidity is essential in all banks to compensate for expected and unexpected Balance Sheet
fluctuations and to provide funds for growth. The recent liquidity crises faced by banks and
financial institution have brought to the fore the need to review their existing liquidity
management policies, practices, and procurers. One of the most important tasks the
management of any bank of financial service provider faces is always ensuring adequate
liquidity, no matter what emergencies may suddenly appear.

Indicate the fact liquidity farers to the available cash for the near future, after considering the
financial obligations corresponding to that period. Liquidity risk consist in the probability
that the organization should not be able to make its payments to creditors, as result of the
changes in the proportion of long-term credits and short-term credits and the uncorrelation
with the structure of organization ’ liabilities’. Further, (Qasim and Remez) depots that
liquidity management is very important for every organization that means to pay current
obligations on business that include operating and financial expenses that are short term.
(Qazim & Remez).

1.2 Profile of Organization/Place/Event etc.

Nabil Bank Limited, the first foreign joint venture bank of Nepal with Arab Bank
International, started operations in July 1984 A.D. Nabil was incorporated with the objective
of extending international standard modern banking services to various sector of the society.
Pursuing its objective, Nabil provides a full range of commercial banking services through its
266 branches of representation. In addition to this, Nabil has presence through over 1500
Nabil Remit throughout the nation. Nabil as a pioneer introducing many innovative products
and marketing concepts in the domestic banking sector represents a milestone in the banking
history of Nepal as it started an era of modern banking with customer satisfaction measured
as a focal objective while doing business. Operation of the bank including day- to -day
operation and risk management are managed by highly qualified and experienced
management team. Bank is fully equipped with modern and state-of-art technology which
includes ATMs, credit cards and world-renewed software from Infosys Technologies System,
Bangalore, India, Internet banking and Telebanking system. Today, Nabil Bank is in a unique

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position in the banking industry of Nepal. As the nation ’s first joint venture bank it has an
unmatched 39 years of operational experience, giving it unparalleled insight into the market,
risks, opportunities, and customer needs. In conjunction to this, the bank today surges ahead
in meeting its Mission to be the “Bank of First Choice “for all its stakeholders. Nabil wants to
be an actively participating ‘good corporate citizen’ for all the communities that the bank
works in. the bank all build a carrier in banking to make Nabil Bank their first choice. The
journey is hard and filled with challenges, but it is equally fulfilling and with a multitude of
opportunities. To achieve this mission, the bank believes in delivering excellence to its
stakeholders in an array of avenues, not just one parameter like profitability or market share.
The Bank has always given due importance in maintaining harmonious relations amongst
staff at all levels. There is also a registered authorized staff union in the Bank. The
management and staff union are working closely in achieving the common goal of becoming
the Bank of the first choice,

Some of the activities performed by Nabil Banks are as follows:

1. To accept different types of deposit i.e. (current, saving, recurring and fixed accounts)
2. To grant commercial, consumer, agriculture loan, real estate loans through its
branches.
3. To issue bank guarantee on request of customer.
4. To provide electronic banking such as ATM, Debit cards, Internet banking, Mobile
banking etc.([Link]).

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1.3 Objective of the Study

The general purpose of the study is to discuss, examine and evaluate the liquidity
position of the concerned joint venture banking system in Nepal. Thus, this study has been
conducted to achieve the following objectives:

1. To examine the liquidity position of Nabil Bank.

2. To determine the operational efficiency of the management of the under study.

3. To find out the financial performance of Nabil Bank.

1.4 Rationale of the study

This study will focus on the liquidity position, operational efficiency, and financial
performance of Nabil Bank Ltd. From the fiscal year 2075/76 to 79/80. In this study, attempts
will be made to get knowledge about the relationship between liquidity and profitability,
operational efficiency of the management, efficient use of total assets by the management etc.
by identifying the strengths and weakness of Nabil Bank. To the study, evaluation of the bank
is made with respect to liquidity and profitability ratios. This report is partial fulfillment of
the requirement foe BBS level. It is beneficial to:

i) It may help other researchers

ii) It will provide useful feedback to bank employee, police making bodies
iii) It can be good assets of library
iv) It may help teachers, students etc.

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1.5 Review

The review of literature is a very important aspect of the research. This chapter
highlights upon the existing literature. For this, several books, dissertation, reports, handouts
and articles published in journals and newspapers are reviewed.

1.5.1 Theoretical Review

Concept of liquidity:

Liquidity refers to the degree to which an asset or security can be quickly bought or
sold the market without affecting the asset’s price. Liquidity management is so necessary for
all financial institution. In this regard, Qasim and Remez says that liquidity management is
very important for every organization that means to pay current obligations on business that
include operating and financial expenses that are short term.

Liquidity of the bank should be maintained according to the standard. Excessive

liquidity as well as lack of liquidity can be considered as bad symptoms to the firm. On other
hand the bank cannot operate its internal and other marketing functions properly. If the bank
doesn’t hold adequate liquidity, it will not be able to take advantages of favorable business
opportunities and meet emergencies such as fires or competitors marketing campaign. A very
high degree of liquidity is also bad, here assets remain idle which adds nothing to bank’s
earning. The firm’s funds will be unnecessarily tied up in current assets which could be used
otherwise. Thus, researcher can say that the skill of bank to hold adequate liquidity helped to
earn its reputation. Thus, researcher can say that it is optimum necessity of the bank to
maintain a proper balance between high liquidity and low liquidity. Liquidity is the word that
the banker uses to describe his ability to satisfy demand for cash in exchange for deposit. The
degree of liquidity depends upon the relationship between cash assets plus those assets, which
can be quickly turned into cash and the liability awaiting payment.

Hence, liquidity is the life-blood for bank, without which a bank cannot survive for
long. Banking transactions are more dependent upon the mutual faith between bankers and
customers. It is essential to maintain sufficient cash reserve in bank to maintain the public
faith.

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Types of Liquidity

There are several types of liquidity in a banking sector in our country which are
immediate liquidity, short-term liquidity, long term liquidity, contingent liquidity,economic
cyclical liquidity.

a) Immediate liquidity: When cash money is needed to pay in cheques to demandable

customers, it is called immediate liquidity.
b) Short-term liquidity: Short-term liquidity is required to meet the monthly liquidity
requirements. Based on types of clients and on the seasonal variability, the necessity
of these types of liquidity can vary.
c) Long – term liquidity: Long –term liquidity is required to meet the cash demand for
replacement of fixed asset and technical know-how.
d) Contingent Liquidity: It arises depending on the happening of some unexpected
events. It is difficult to guess this unexpected situation but not impossible though the
amount cannot be exactly predicted. Contingent liquidity is also required to face the
adverse situations created by big bank robbery, fraud of other accidents.
e) Economic cyclical liquidity: Based on good or bad economic situation, the supply
bank deposit and the demand for loan varies. Due to this variation, the liquidity
demand also varies. But it is very difficult to identify the extend of such variation.
Generally, difficult national and international events such as political instability, war,
the pressure created by the different interest groups relating to the banking activities
are the causes of economic cyclical liquidity needs. (Karki,2004:88).

A bank cannot be run without liquidity. The Nepal Rasta Bank from time to time changes
the legal provision about the liquidity. The compulsion about the commercial banks should
keep the cash in their various funds shows the importance of liquidity. The commercial banks
and financial institutions should maintain the balance of cash fund in required quantity as per
the law and the NRB. The importance of liquidity is considered very sensitive because if it
cannot maintain liquidity, it must pay fine.

Bank simply means a financial institution, which is engaged in monetary transaction.

Basically, bank work as an institution which accepts deposits and lends loan to those who
needs it. Bank provides benefits to depositors by paying fixed interest and borrower gets
chance to improve business or other work by getting financial support. The bank helps people
in every sector of economy like trade, industry, agriculture etc. Therefore, we call a bank as a

6
social institution also. A bank simply carries out the work of exchanging money, providing
loan, accepting deposits, and transferring money.

A bank is an organization whole principal whole principal operation are concerned with
accumulation of the temporality ideal money of the public for the purpose of advancing to
other for expenses. (Kent,2000)

Bank are among the most important sources of short-term working capital for businesses.
They have become increasingly active in recent years in making long-term business loans for
new plant and equipment. When businesses and consumers must make payments for purchase
of goods and services, more often they use bank. Bank provides cheques, credit or debit
cards, electronic accounts connected to a computer network for banking transactions. It is the
banker to whom they turn most frequently for advice and counseling, when they need
financial information and financial planning.

“Bank is an establishment for the custody of money received from off on behalf of its
customers. Its essential duty is to pay their drafts on it, its profits arise from its use the money
left unemployed by them,” (Thapa,2012:88).

In accordance with practicable and traceable origin development of banking institutions

in the world is the “Bank of Venice.” Initially this was established in the year 1157 A.D. as
the first banking institution in the world. The second banking institution named: Bank of
Barcelona.” In Spain was established in 1491 A.D. as a joint stock bank and later in the year
1844 A.D. it became the first central bank in the world.

People deposit their savings into bank to safeguard them, earn interest and get back
whenever they need. Therefore, banks must maintain liquidity to refund the deposit, when
accountholders withdraw their deposits.

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1.5.2 Review of previous works

There are various works related to liquidity which I have reviewed for my study.
Some of the work’s reviews are presented here.

Karki, (2015) entitled “A companies in Nepal”. His study primarily based on the
Financial performance of Finance companies i.e. universal Finance &Capital Market Ltd
(UFCM) and Nepal Housing & Merchant finance (NH &MF). Its main objectives is to find
out comparatively the actual financial position of the finance companies. In this regard he has
tried to focus on the major problems of finance companies whose stage are only at the growth
level as well as the relevant problem in the today’s context. Besides, he has also raised
relevant problems on interest rates. Other problems, which he has focused, are:

 Financial problem faced by the finance companies.

 With the very few studies on the finance companies are also shown as one of the
problems of declaring these studies.
 Nepalese finance companies seem to lack opportunities and counseling if they could
overcome these difficulties, they could easily attract the prospective entrepreneurs.
 Unfavorable economic situation is also focused on the lacking of the funds and the
smooth operation of the finance companies.

Major findings of this study are as follows:

 Two ratios i.e. current ratio and quick ratio are used to measure the liquidity positions.
The means of current ratio maintained by UFCM and NH&MF is found to be lower
than the desired standard ratio 2:1 which is not assumed as satisfactory.
 The mean of quick ratio maintained by UFCD and NH&MF are found to be in
standard norms 1:1 but quick ratio of UFCM is higher than that of NH&MF although
UFCM is in better position than NH&MF according to the loans and advances to total
deposit ratio but in term of total deposit NH&MF is better than UFCM.
 Interest is the major sources of income for both the companies but on an average
UFCM is higher than that of NH&MF. Both companies should try to invest in other
sector. Interest expenses of both companies are increasing every year but staff
expenses and operating expenses are decreasing gradually.

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 Finally, he recommended the finance companies to actively participate on the
social matters and program in which today’s finance companies are far behind. As well as he
repealed the paramount field like agriculture for the involvement of the finance companies by
opening operating different branches and to raise the rural economy by making investment in
the minimum possible low interest rate. In future companies should explore the areas by
expanding their business-like leasing, bridge financing and venture capital financing.

Shrestha, (2016) made a thesis report entitle “Liquidity Management of Nabil

Bank Ltd” The main objective of the study is to examine the liquidity and profitability
position of the commercial Banks of Nepal. The other specific objectives of the study are:

 To analyze financial ratios and liquidity trend of NABIL,

 To analyze Liquidity profile of NABIL,
 To analyze the problems of Liquidity management in Nepalese commercial Banks,
 To identify factors affecting the liquidity position and its management in Nepalese
commercial banks.

The major findings of this study are as follows:

 NABIL is facing maturity mismatching management problem but normal in liquidity

position. It has also excess assets over liability in short period and manages maturity
matching of assets and liabilities in over the one-year period.
 Cash Ans bank balance to current deposit ratios of NABIL is significantly low. This
implies that the liquidity position NABIL is in moderate.
 Liquid fund to total deposit ratio of NABIL is consistent and high is shows the strong
capacity to meet he short term obligations.
 NABIL has maintained adequate balance with NRB which is high than required CRR
limit.

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1.6 Method

Research methodology focuses to the various sequential steps adapted by researcher

in studying a problem with certain objective in view.

Financial analysis is a major tools of research analysis. This is useful to reflect the
liquidity position of the Nabil Bank. The objective of this study is to analyze the liquidity
position of Nabil Bank. To accomplish the objective the study follows the following
methodology is applied here.

1.6.1 Research Design

The research design is less descriptive but more prescriptive because the historical
secondary data have been mainly employed for analysis. For the analytical purpose, some
questions have been asked to the concerned personnel. Secondary data includes the annual
reports published by the relative bank. Materials have been processed through various
processes like editing, tabulating, calculating and result have been interpreted in the form of
ratio percentage for clear view.

1.6.2 Population and sample

There are 20 commercial banks operating in Nepal. Among 20 commercial banks,

Nabil bank has been selected for the present study. It will be lengthy, time consuming and
vague while taking into consideration of 20 commercial banks. Financial statements of
selected bank’s latest five years (2075/076 to 2079/080) have been taken as a sample for the
financial performance. The recommendation and suggestion, which is derived from the study,
by taking the Nabil bank as a sample, will be equally useful for the other commercial banks
in Nepal. The names of the sample development banks were Nabil bank limited. The
predetermined objectives that are set up for the study, secondary source of date is included.

1.6.3 Source of Data

Mainly the study is conducted because of secondary data. The sources of secondary
data are those which have already been published, which have been collected by other
people. Here the secondary data include the balance sheets of the concerned bank covering
fiscal year 2075/076 to 2079/080, literature in collage, journal published by various
institution, etc.

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1.6.4 Data Processing Procedure

The obtained data are presented in various tables, diagrams, and charts with supporting
interpretation. Those detail calculation that cannot be shown in the body part are presented in
the appendices at the end.

1.6.5 Analysis of Tools and Techniques

Since historical data both financial and statistical tools are used to analyze different
variables.

 Financial Tools
a) Liquidity ratio
b) Activity turnover ratio
c) Profitability ratio

 Statistical Tools
a) Mean/Average
b) Standard deviation
c) Coefficient of variation

1.7 Limitations of the study

In the context of Nepal, problem of reliable data is the major problem for research
study. There is considerable place for arguing about its accuracy and reliability. Every study
has limitations due to different factors of institutions, time taken reliability of statistical data,
tools. The following limitations are pointed out in this study of liquidity of Nabil Bank.

1. The study analyzed only the liquidity of the selected bank and hence it does not cover
the other aspects of the bank.
2. The study focused only 1 bank which is oldest joint venture bank in Nepal.
3. This study covered the analysis of only 5 years data from 2075/076 to 2079/080;
hence, the conclusion drawn confirms to the above periods only.
4. This study mainly conducted based on secondary data. Therefore, the study has
limitation of the secondary data.

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 CHAPTETR-II
RESULT AND ANALYSIS

To achieve the objective set-in chapter one, data are presented and analyzed in this
chapter. Overall, this chapter is related to quantity analysis of various ratios.

This chapter is also called the central nervous system, which helps to provide conclusion
after detailed analysis, so that proper recommendation can be given at the end of study. The
gist of research work present in the form major findings, vital issues, and recommendation in
the third chapter. In this way this chapter makes proper linkage and associates with every
chapter.

On regarding mathematical presentation part this chapter presents the various ratios that
affect performance such as: liquidity ratio, activity turnover ratio, profitability ratio. These
ratios are the sub-indicator of financial position of a company that compare with help of
statistical tool via trend analysis, mean, standard deviation and co-efficient of variation.

2.1 Liquidity Ratio

2.1.1 Current Ratio

This indicates the current short term solvency position of bank. Higher current ratio indicates
better liquidity position. In other words, current ratio represents a margin of safety, i.e. a
‘cushion’ of protection for creditors and the highest the current ratio, greater the margin of
safety, larger the amount of current assets in relation to current ratio, greater the margin of
safety, larger the amount of current assets in relation to current liabilities, more the bank
ability to meet its current obligations.

The composition of current assets or the main components of current assets of Nabil Bank are
cash and bank balance, loan and advance, government securities and other assets.

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Table 2.1 Current ratio
(Rs. In millions)

Fiscal Year Current Assets Current Liabilities Ratio

2075/76 157862.543 140391.714 1.12 Source:
2076/77 198056.6388 177950.209 1.11 Annual
2077/78 233853.4697 211824.371 1.10 Report
2078/79 285767.446 257208.1173 1.11 of Nabil
2079/80 408375.1323 366836.3536 1.11 Bank
Average Ratio or Mean (M) 1.11

The figure below shows the Current Ratio of Nabil Bank indifferent years.

Figure 2.1 Current Ratio

Current Ratio
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
2075/76 2076/77 2077/78 2078/79 2079/80

Current Assets Current Liabilities Ratio

The above table no. 2.1 depicts that the current ratio of Nabil Bank is fluctuating. In the
year 2075/76 current ratio was 1.12 and in the year 2075/56 is decreased to 1.11. in the year
2076/77 it also decreased and the ratio was 1.10. in the year 2077/78 and 2078/79 current

13
ratio is equal and the ratio was 1.11. Highest current ratio was in the year 2075/76 which was
1.12 and the lowest was in the year 2076/77 which was 1.10. The average current ratio is
1.11.

2.1.2 Quick ratio

Quick ratio establishes a relationship between quick or liquid assets and current liabilities. An
asset is liquid if it can be converted into cash immediately or reasonable soon without a loss
of original value. Cash is a most liquid asset. Other assets which are relatively liquid and
included in quick assets are book debts and marketable securities.

For this study, cash and bank balance and government securities are included in quick assets.

Table 2.2 Quick Ratio

(Rs. In millions)

Fiscal Year Quick Assets Current Liabilities Ratio

2075/76 25731.29625 140277.8737 0.18
2076/77 29887.7729 169615.1365 0.17
2077/78 35312.036 199024.2943 0.18
2078/79 25482.0331 241497.7913 0.11
2079/80 33595.8827 347960.7729 0.096
Average ratio or mean (M): 0.15

Source: Annual Report of Nabil Bank

The figure below shows the Quick Ratio of Nabil Bank
Figure 2.2 Quick Ratio

Quick Ratio

400000
300000
Ratio
200000
100000 Quick
As-
0
2075/76 2076/77 2077/78 2078/79 2079/80 sets
14
Quick Assets Current Liabilities Ratio
 The above table no. 2.2 depict that the quick ratio of Nabil Bank is always
fluctuating over the study period. In the year 2075/76 the ratio is 0.18 and in the year 2076/77
it decreased to 0.17 and increased in the year 2077/78 to 0.18 again. And then lost points and
reached 0.11 in the year 2078/79 and lower in year 2079/80 i.e. 0.096. By analyzing the
above table, we can figure out that the highest quick ratio was in the year 2075/76 and
2077/78. And the lowest was in the year 2079/80. The average ratio is 0.15. The yearly quick
ratio in 2075/76, 2076/77, 2077/78 is higher than average ratio. In two years of study period
i.e. 2078/79 and 2079/80 the yearly ratio of Nabil Bank is less than average ratio.

2.2 Activity Turnover/ Utility Ratio

2.2.1 Cash and Bank Balance to Total Deposit ratio (%)

This ratio is employed to measure whether banker’s cash sufficient to cover unexpected
demand made by depositor. It is calculated by dividing cash and bank balance by total
deposit.

Table 2.3: Cash and Bank Balance to Total Deposit Ratio (%)

(Rs. In millions)

Fiscal Year Cash and bank balance Total Deposit Ratio

2075/76 15324.63533 134810.6696 11.36%
2076/77 18671.52535 162953.9995 11.46%
2077/78 24820.66119 190806.4690 13.01%
2078/79 15309.80831 223474.7703 6.85%
2079/80 24088.77856 326222.3103 7.38%
Average ratio or mean (M): 10.012%
Source: Annual Report of Nabil Bank

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The figure below shows the Cash and Bank Balence to Total Depsit Ratio of Nabil Bank

Fegure 2.3 Cash and Bank Balance to Total Deposit Ratio

350000

300000

250000

200000
Cash and bank balance
Total Deposit
150000 Ratio

100000

50000

0
2075/76 2076/77 2077/78 2078/79 2079/80

Above the table 2.3 shows the capacity of Nabil Bank to meet unanticipated calls on
total deposits. Measuring average ratio, we can say that only 5.67% of its total deposit can be
fulfilled at the sudden demand of the money. But the large amount of idle cash and bank
balance badly affects the profitability of bank.

Fixed deposits are also included in this calculation which has the fixed maturity
date and these moneys are not demanded immediately and bank is not responsible to pay
those moneys until its maturity.

By analyzing the above table we can say that in the year 2075/76 the ratio was
11.36% andin the year 2076/77 it increased and reached 11.46% and again in the year
2077/78 it increased and reached 13.01%. then after in the year 2078/79 it decreased and
reached 6.85% then again in the year 2079/80 it increased and reached 7.83%. Cash and bank

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balance to total deposit ratio was highest in the year 2077/78 i.e. 13.01% where as it was
lowest in the year 2078/79 i.e. 6.85%. In the year 2078/79 and 2079/80 the ratio is lower than
the average ratio. And in the year 2075/76,2076/77 and 2077/78 it was higher than average
ratio.

2.2.2 Loan and Advance to Total Deposit Ratio (%)

This ratio measures the extent to which bankers are successful in utilizing the outsider’s fund
for the profit generating purpose. In other word how quickly total deposits collected are
converted into loan and advances given to the client to earn income.

Table 2.4 Loan and Advance to Total Deposit (%)

(Rs. in millions)
Fiscal Year Loan and Advance Total Deposit Ratio (%)
2075/76 113625.1549 134810.6696 84.28%
2076/77 133558.1549 162953.9995 81.96%
2077/78 153890.4385 19086.4690 80.65%
2078/79 206622.9873 223474.7703 92.45%
2079/80 310572.5912 326222.3103 95.02%
Average Ratio or Mean (M): 86.87%

Source: Annual Report of Nabil Bank

The figure below shows the loan and Advance to Total Deposit ratio of Nabil Bank

Fegure 2.4 Loan and Advance to Total Deposit

350000 326222.3103
310572.5912
300000

250000 223474.7703
206622.9873
200000 162953.9995153890.4385
134810.6696133558.1549
150000113625.1549

100000

50000 19086.469
0.8428 0.8196 0.8065 0.9245 0.9502
0
2075/76 2076/77 2077/78 2078/79 2079/80

Loan and Advance Total Deposit Ratio (%)

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 The table no 2.4 depicts that loan and advance of Nabil Bank is decreasing in second 2
years and then increasing in last 2 years. In the year 2075/76 it was 84.28% in the year
2076/77 and 2077/78 it was 81.96% and 80.65% continuously.

Thereafter continuously increased it was 92.45% in the year 2078/79 and 95.02% in the
year 2079/80. The average ratio is Nabil Bank was 86.87% higher than its yearly ratio of first
three years and lower than its last two years.

The above given ratio shows the percentage of total deposit invested in main income
generating assets ( i.e. loans and advances). Measuring the ratio Nabil Bank is unable to meet
its full level (i.e. 100%).

2.3 Profitability Ratios

2.3.1 Return on Assets (%)

This ratio is useful in meaning the profitability of financial resource invested in the firm’s
assets. The return on assets or profit to assets ratio is calculated by dividing the amount of net
profit by the amount of total assets employed.

Table 2.5 Return on Assets

([Link] million)
Fscal Year NPAT Total Assets Ratio(%)
2075/76 3981.89295 160978.071 2.47%
2076/77 4238.8535 201138.8214 2.10%
2077/78 3463.240 237680.0295 1.45%
2078/79 4527.55 291238.9464 1.56%
2079/80 4256.024 419818.1009 1.01%
Average ratio or Mean (M): 1.72
Source: Annual Report of Nabil Bank

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The figure below shows the return on Assets (%) of Nabil Bank.

Fegure 2.5 Return on Assets

450000
400000
350000
300000
250000 NPAT
200000 Total Assets
Ratio(%)
150000
100000
50000
0 Ratio(%)
Total Assets
2075/76
2076/77 NPAT
2077/78
2078/79
2079/80

The above table no 2.5 depicts that the overall profitability ratio i.e. net profit to total
assets ratio of Nabil Bank is very low but increasing gradually. In the year 2075/76 it was
2.47%, in the year 2076/77 it decreased it was 2.10%, in the year 2077/78 it decreased to
1.45%, And in the year 2078/79 it increased to 1.55% than after in the year 2079/80
decreased to 1.01%. The average ratio of return on assets is 1.72%. in the year 2075/76 the
ratio is higher than average ratio and in the year 2077/78,2078/79 and 2079/80 the ratio is
lower than average ratio.

The ratio is highest in the year 2075/76 i.e. 2.47% and lowest in 2079/80 i.e. 1.01%.

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2.3.2 Return on Shareholder Equity (%)

A return on shareholder equity is calculated to see the profitability of the owner

investment. It is the most vital tools judge whether a concern has earned satisfactory return its
owner or not the shareholders equity will include common share of capital, share premium,
reserves and surplus less accumulated losses, preference share capital. It is computed by
dividing net profit after taxes to shareholder equity.

Table 2.6 Return on Shareholder Equity (%)

([Link] million)

Fiscal Year Npat Total shareholder equity Ratio (%)

2075/76 3981.892 20586.35 19.34%

2076/77 4238.8535 23188.6123 18.27%

2077/78 3463.240 25855.65856 13.39%
2078/79 4527.55 34010.295 13.31%

2079/80 4256.024 52981.744 8.03%

Average Ratio or Mean (M): 14.47%

Source: Annual Report of Nabil Bank

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The figure below shows the return on Assets (%) of Nabil Bank.

Fegure 2.6 Return on Assets

60000

50000

40000

Npat
30000
Total shareholder equity
Ratio (%)
20000

10000

0
2075/76 2076/77 2077/78 2078/79 2079/80

The above table 2.6 depicts that net profit after tax increasing during the study period
as well as total capital employed is increasing. In the year 2075/76 it was 19.34%, in 2076/77
it decreased to 18.27%, in the year 2077/78 it was decreasing again and reached 13.39%,
similarly in the year 2078/79 and 2079/80 also decreasing it was 13.31% and 8.03%
continuously.

In the year 2075/076 ratio is highest i.e. 19.34% where as it is lowest in the year 2079/80
i.e. 8.03%. The average ratio is 14.47% in the year 2075/76 and 2076/77 the ratio is above
average and in the year 2077/78, 078/079 and 2079/080 it is below average ratio

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2.4 Major Findings

The major findings of this study during the period of five years of Nabil Bank from the
analysis are summarized below.

 The major components of current assets of Nabil bank are cash and bank balance,
loan and advance, government securities and other assets. The liquidity position of
Nabil bank reviles that the current ratio of the bank is below the normal standard i.e.
2:1, which indicates unsatisfactory liquidity position. In other words from the working
capital point of view Nabil bank is following an aggressive working capital policy.
The current ratio of Nabil bank is ranging between 1.10 to 1.12: it is able to maintain
its current ratio of 1.11 in an average. It shows the increase in current ratio for the first
year, decreases in the all year. The current ratio trend value of Nabil bank is positive;
it has a rising trend which indicates that it will rise in the future as well.
 The major components of quick assets of Nabil bank are cash and bank balance,
government securities. The liquidity position of Nabil bank reviles that the quick ratio
of the bank is normal standard i.e. 1:1, which indicates unsatisfactory liquidity
position. Quick ratio is the ratio between quick assets and the current liabilities, which
should be equal. In other word from the working capital policy. The bank is trying to
reduce its idle cash and bank balance for the investments. The quick ratio of Nabil
bank is ranging between 0.096 to 0.18; it is able to maintain its current ratio of 0.15 in
an average. It shows the increase in first year and decreasing the second year again
increasing the third year and decreasing the fourth and fifth year regularly. The
current ratio trend value if Nabil bank is negative, it has a falling trend which
indicates that it will fall in the future as well.
 The major components of quick assets of Nabil bank are cash and bank balance,
government securities. The liquidity position of Nabil bank reviles that the quick ratio
of the bank is below the normal standard i.e. 1:1, which indicates unsatisfactory
liquidity position. Quick ratio is the ratio between quick assets and the current
liabilities, which should be equal. In other words from the working capital point of
view Nabil bank is following an aggressive working capital policy. The bank is trying
to reduce its idle cash and bank balance for the investment. The quick ratio of Nabil

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 bank is ranging between 0.096 to 0.18; it is able to maintain its current ratio of 0.15
in an average. It shows the increase in quick ratio for the first year, decrease in second
year and increase again in third year similarly in the fourth and fifth year decreasing.
The current ratio trend value if Nabil bank is negative, it has a falling trend which
indicates that it will fall in the future as well.

 Return on assets comprises net profit after tax and total that return on assets. it assets.
It shows the percentage of return that a firm gets from the total assets. It shows how
well the firm is doing. Here in the study it shows that return on assets is increasing
continuously up to the final year. But the trend shows the negative trend which
reflects that it is going to fall in the future, which is not a good sign for the company.

 The return on shareholder’s equity consists of ratio between net profit after tax and
shareholder’s equity. The ratio ranges between 8.03% to 19.34% average ratio is
around 14.47%. the ratio has an increasing trend. A return on shareholder’s equity is
calculated to see the profitability of the owner’s investment. Higher ratio shows that
profitableness of the owner’s investment is increasing. It shows whether a concern
firm has earned satisfactory return or not.

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 CHAPTER-II

SUMMARY AND CONCLUSION

3.1 Summary

Joint venture banks have been helpful in transferring foreign investment and advance
technology from one country to another. The liberal trade and investment policies have
facilitated joint venture banks to invest in Nepal. Establishment of joint venture banks is a
positive sign in the developing countries like Nepal.

There are various joint venture banks established in the country and Nabil Bank is the first
joint venture bank. After the implementation of the open market policy, joint venture bank.
After the implementation of the open market policy, joint venture bank were open as private
banks. In the competitive financial market, performances of the joint venture banks are quite
satisfactory.

It is very important to know whether or not the banks serving an important contribution to
development of different sectors of the economy. Liquidity is said to be the general business
of fund which due banks ability to satisfy its customer’s demand for cash in exchange of their
deposits. In this record the study has been based upon the objective to evaluate the liquidity
position of Nabil bank.

The study is based upon the secondary data and only covers study period od five year from
2075/76 to 79/80.

To come to the conclusion various research method are applied. Research design is less
descriptive but more prescriptive. Bank’s materials have been processed through various
processes like editing, tabulating, calculating and result have been interpreted in the from of
ratio percentage for clear view.

The major finding through the study is that has satisfactory liquidity position. It is in danger
only in the case of unexpected demand, and threats are only analyzed which is surely going to
help the bank for performance.

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3.2 Conclusion

Nepal is developing country. It needs to strengthen its economic structure to achieve

rapid overall national development. Commercial bank plays vital role in the economic growth
of any country. And in Nepal too, they have been proved as prime mover of the economic
development. Numbers of commercial banks and development banks are operating in Nepal.
The market seems over crowed and the banks are now finding a tough competition among
themselves.

A bank’s performance cannot be judge solely in term of the profit it has earned by
maintaining adequate liquidity and safety, but it should also be evaluated on the ground of the
contribution it has made to the community, to the government as well as national economy. It
means the bank should come forward with the national priorities like more fund mobilization
and service to maximum customer, development skill and expertise in the local staff earning
satisfactory profit and discharging their accountability toward the government. Commercial
bank should have a satisfactory profit goal, but not maximum one.

In conclusion, Nabil bank is highly successful in creating banking habits among the
Nepalese people, and holds the deposits of million people. We found that the bank has
maintained the adequate liquidity to meet the demand of its depositors. The current ratio and
quick ratio were found close to the desired standard ratio. Cash and bank balance is also
found to be in increasing position. Nowadays, the bank is issuing more loans, which means
more profit to the company, which is a good sign for the company. It has found to be invested
in large sector and its net profit after tax is also increasing every year. It has even increased
the shareholder’s equity during the study period.

Obviously, it has been following the NRB guidelines with respect to liquidity up to
now. The liquidity of a Nabil Bank mostly meets the standard measure and found to be
satisfactory.

Therefore, we could say that Nabil Bank has been serving better and has done the good job.
And it will do better in future as well.

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 BIBLIOGRAPHY

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Master’s Degree Dissertation, Submitted to Faculty of Management, Tribhuvan
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Shrestha, H. (2016). The efficiency of liquidity monitoring forecasting frame work the Nepal
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 Appendics-1

Nabil Bank Ltd. Achham Branch

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