lOMoARcPSD|22125111

PROFITABILITY RATIO ANALYSIS OF NABIL

BANK LIMITED

A Project Work Report

Submitted By

Rahul Kumar Sah

TU Regd. No: 7-2-14-298-2017
Exam Roll No: 700140110
Ramswroup Ramsagar Mutiple Campus

Submitted to

The Faculty of Management

Tribhuvan University

Janakpur

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Janakpur,Dhanusha
 DECLARATION

I hereby declare that the project work entitled “Profitability Ratio Analysis Of Nabil
Bank Limited” submitted to the Faculty of Management, Tribhuvan University,
Janakpur is an original piece of work under the supervision of [Link] LAL
KARN, faculty member, Ramswroup Ramsagar Mutiple Campus , Janakpur , and is
submitted in partial fulfillment of the requirements for the degree of Bachelor of
Business Studies (BBS). This project work report has not been submitted to any other
university or institution for the award of any degree or diploma.

…………………
Rahul Kumar Sah
May,2023

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 SUPERVISOR’S RECOMMENDATION

The project work report entitled “Profitability Ratio Analysis of Nabil Bank
Limited” submitted by Rahul Kumar Sah of Ramswroup Ramsagar Multiple
Campus, Janakpur, is prepared under my supervision as per the procedure and format
requirements laid by the Faculty of Management, Tribhuvan University, as partial
fulfillment of the requirements for the degree of Bachelor of Business Studies (BBS). I,
therefore, recommend the project work report for evaluation.

Dr. Binod Lal Karn

Supervisor
May, 2023

iii
 ENDORSEMENT

We hereby endorse the project work report entitled “Profitability Ratio Analysis of
Nabil Bank Limited” submitted by Rahul Kumar Sah of Ramswroup Ramsagar
Multiple Campus, Janakpur, in partial fulfillment of the requirements for the degree of
the BACHELOR OF BUSINESS STUDIES (BBS) for external evaluation.

……………………. ……………………….
(NAME) (NAME)
Chairman, Research Committee Campus Chief
Ramswroup Ramsagar Multiple Campus Ramswroup Ramsag Mutiple Campus
May, 2023 May, 2023

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 ACKNOWLEDGEMENT

This study attempts to examine the “Profitability Ratio of Nabil Bank limited” with
available data and information. It also deals with problem identification besides this
field study to acquire the reality of banking operation of Nabil Bank. For easier study,
the data has been presented by tables, graphs and have been interpreted using various
statistical methods. This report tries to focus on the study of Nabil Bank only.
I express my heartiest gratitude to [Link] Lal Karn for guiding and inspiring me to
do this fieldwork. I would also like to thank ……………………… (Campus Chef),
……………………… (Head of Research Department) and the entire staff members for
their kind co-operation and supports providing valuable information required for the
completion of the report.
Finally, I want to thank my colleagues for their continued moral support.

Thank You!

Rahul Kumar Sah

BBS 4th Year
Ramswroup Ramsagar Multiple Campus

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 TABLE OF CONTENTS
Title Page i
Declaration ii
Supervisor’s Recommendation iii
Endorsement iv
Acknowledgements v
Table of Contents vi
List of Tables vii
List of Figures viii
Abbreviations ix

CHAPTER I: INTRODUCTION 1
Background of the Study 1
Brief Introduction to Nabil Bank Ltd. 5
Objectives of the Study 7
Rationale/Significance of the Study 7
Literature Review 8
Methods of Study 14
Limitations of Study 15

CHAPTER II: RESULTS AND ANALYSIS 16

Data Presentation 16
Findings 29

CHAPTER III: SUMMARY AND CONCLUSION 31

Summary 31
Conclusion 32

BIBLIOGRAPHY

APPENDICES

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 LIST OF TABLES

Table 1: Profit margin ratio of Nabil Bank Ltd 17

Table 2: Exchange Gain to Total Income ratio of Nabil Bank Ltd 18

Table 3: Return on Assets ratio of Nabil Bank ltd 19

Table 4: Return on Equity of Nabil Bank Ltd 21

Table 5: Overhead to Total Income ratio of Nabil Bank Ltd 22

Table 6: Staff expenses to Income ratio of Nabil Bank Ltd 24

Table 7: Earnings per Share of Nabil Bank Ltd 25

Table 8: Dividend payout ratio of Nabil Bank Ltd 27

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 LIST OF FIGURES

Figure 1: Profit margin ratio of Nabil Bank Ltd ................................................................ 17

Figure 2: Exchange Gain to Total Income ratio of Nabil Bank Ltd .................................. 19

Figure 3: Return on Assets ratio of Nabil Bank Ltd .......................................................... 20

Figure 4: Return on Equity of Nabil Bank Ltd .................................................................. 22

Figure 5: Overhead to Total Income ratio of Nabil Bank Ltd ........................................... 23

Figure 6: Staff expenses to Income ratio of Nabil Bank Ltd ............................................. 25

Figure 7: Earnings per Share of Nabil Bank Ltd ............................................................... 26

Figure 8: Dividend payout ratio of Nabil Bank Ltd ........................................................... 28

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 ABBREVIATIONS

ABBS - Any Branch Banking System

ASBA - Application Supported by Blocked Amount
ATM - Automated Teller Machine
BFI - Banks and Financial Institutions
BS - Bikram Sambat
EPS - Earning per Share
Etc. - Etcetera
FD - Fixed Deposit
FY - Financial Year
FOM - Faculty of Management
i.e. - That is
Ltd. - Limited
NPAT - Net Profit after Tax
NRB - Nepal Rastra Bank
NRs. - Nepalese Rupees
ROA - Return on Asset
ROE - Return on Equity
SWIFT - Society for Worldwide Interbank Financial Telecommunication

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 CHAPTER I
INTRODUCTION

Background of the Study

Profitability means ability to make profit from all the business activities of an
Organization, company, firm, or an enterprise. It shows how efficiently the Management
can make profit by using all the resources available in the market. According to Harvard
& Upton, “profitability is the ‘the ability of a given investment to earn a return from its
use.” However, the term ‘Profitability’ is not synonymous to the term ‘Efficiency’.
Profitability is an index of efficiency; and is regarded as a measure of efficiency and
management guide to greater efficiency. However, profitability is an important yardstick
for measuring the efficiency, the extent of profitability cannot be taken as a final proof of
efficiency. Sometimes satisfactory profits can mark inefficiency and conversely, a proper
degree of efficiency can be accompanied by an absence of profit. The net profit figure
simply reveals a satisfactory balance between the values receive and value given. The
change in operational efficiency is merely one of the factors on which profitability of an
enterprise largely depends. Moreover, there are many other factors besides efficiency,
which affect the profitability.
Sometimes, the terms ‘Profit’ and ‘Profitability’ are used interchangeably. But in real
sense, there is a difference between the two. Profit is an absolute term, whereas the
profitability is a relative concept. However, they are closely related and mutually
interdependent, having distinct roles in business. Profit refers to the total income earned
by the enterprise during the specified period of time, while profitability refers to the
operating efficiency of the enterprise. It is the ability of the enterprise to make profit on
sales. It is the ability of enterprise to get sufficient return on the capital and employees
used in the business operation. As Weston and Brigham rightly notes “to the financial
management profit is the test of efficiency and a measure of control, to the owners a
measure of the worth of their investment, to the creditors the margin of safety, to the
government a measure of taxable capacity and a basis of legislative action and to the

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country profit is an index of economic progress, national income generated and the rise in
the standard of living” while profitability is an outcome of profit. In other words, no
profit drives towards profitability
Firms having same amount of profit may vary in terms of profitability. That is why R.
[Link] Shrestha has rightly stated, “Profit in two separate business concern may be
identical, yet, many a times, and it usually happens that their profitability varies when
measured in terms of size of investment”.
A bank is financial institution that accepts deposit from the public and creates credit.
Leading activities can be performed either directly or indirectly through capital markets.
Due to their impotence in the financial stability of a country, banks are highly regulated in
most countries. Most nation have institutionalized a system known as fractional reserve
banking under which bank hold liquid assets equal to only a portion of their current
liabilities. In additional to their regulation intended to ensure liquidity banks are
generally subject to minimum capital requirement based on an international of set capital
standard known as the Basel accords.
The term 'bank' is derived from the Latin word 'bancus', Italian word 'banca' and French
word 'Banque' all of which mean 'a bench'. At ancient times there used to be some
moneylenders who sat in the bench for keeping, lending and exchanging of money in
the market place. Bank is a financial intermediary accepting deposit and granting loans.
In fact, a modern bank performs variety of function that is difficult to precise and
general definition of a bank
According to Prof. Kenly, "A bank is an establishment which makes to individuals such
advance of money as may be required and safely made, and to which individuals entrust
money when not required by them for use."
According to C.R. Crowther, "A bank collects money from those who have it to spare or
who are saving it out of their incomes, and it lends this money to those who require it.”

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History of Banking Sector
Banking began with the first prototype banks of merchants of the ancient world, which
made grain loans to farmers and traders who carried goods between cities. This began
around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the
Roman Empire, lenders based in temples made loans and added two important
innovations: they accepted deposits and changed money. Archaeology from this period
in ancient China and India also shows evidence of money lending activity.

The origins of modern banking can be traced to medieval and early Renaissance Italy, to
the rich cities in the center and north like Florence, Lucca, Siena, Venice and Genoa.
The Badri and Peruzzi families dominated banking in 14th-century Florence,
establishing branches in many other parts of Europe. One of the most famous Italian
banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397. The earliest
known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in
1407 at Genoa, Italy.
Modern banking practices, including fractional reserve banking and the issue of
banknotes, emerged in the 17th and 18th centuries. Merchants started to store their gold
with the goldsmiths of London, who possessed private vaults, and charged a fee for that
service. In exchange for each deposit of precious metal, the goldsmiths issued receipts
certifying the quantity and purity of the metal they held as a bailee; these receipts could
not be assigned; only the original depositor could collect the stored goods.
Gradually the goldsmiths began to lend the money out on behalf of the depositor, which
led to the development of modern banking practices; promissory notes (which evolved
into banknotes) were issued for money deposited as a loan to the goldsmith. The
goldsmith paid interest on these deposits. Since the promissory notes were payable on
demand, and the advances (loans) to the goldsmith's customers were repayable over a
longer time period, this was an early form of fractional reserve banking. The promissory
notes developed into an assignable instrument which could circulate as a safe and
convenient form of money backed by the goldsmith's promise to pay, allowing
goldsmiths to advance loans with little risk of default. Thus, the goldsmiths of London

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became the forerunners of banking by creating new money based on credit. The Bank of
England was the first to begin the permanent issue of banknotes, in 1695. The Royal
Bank of Scotland established the first overdraft facility in 1728. By the beginning of the
19th century a bankers' clearing house was established in London to allow multiple
banks to clear transactions. The Rothschilds pioneered international finance on a large
scale, financing the purchase of the Suez canal for the British government.

History of Banking Sector in Nepal

According to the history, it is found that people of our country have been involved in
business and trade since long time ago. Though the production of copper utensils had
been started during the 7th century, business relationship could not be established with
India since India was involved in the production of copper utensil. However, the craft
concerned with copper, wood and metal in our country did attract the Chinese and the
Tibetan a lot, thus resulting in the establishment of business relationship with China and
Tibet.
In 12th century there was silver coin called 'Dam'. Later on, in 14th century
'TANKADHARI' one is that dealt with the lending money to the public. It remain
objective was to earn profit, so they used to change high interest rate. To control interest
rate 'TEJARATH ADDA' was established in 19th century. It provides loans to the people
working in government offices on the basis of the security and to public on the basis
of collateral they deposit. It charges only 5% interest rate per annum. It only provides
loans but does not accept deposit.
Nepal bank Ltd is the first modern bank of Nepal. It is taken as the milestone of modern
banking of the country. Nepal bank marks the beginning of a new era in the history of
the modern banking in Nepal. This was established in 1937 A.D. Nepal Bank Ltd.
remained the only financial institution of the country until the foundation of Nepal
Rastra Bank is 1956 A. In 1957 A.D. Industrial Development Bank was established to
promote the industrialization in Nepal, which was later converted into Nepal Industrial
Development Corporation (NIDC) in 1959 A.D. Rastriya Banijya Bank, was established

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in 1965 A.D. as the second commercial bank of Nepal. As the agriculture is the basic
occupation of major Nepalese, the development of this sector plays in the prime role in
the economy. So, separate Agricultural Development Bank was established in 1968
A.D. This is the first institution in agricultural financing. ([Link])
There are various types of bank working in modern banking system in Nepal. It includes
central, development; commercial, financial, co-operative and Micro Credit (Grameen)
banks. The NRB will classify the institutions into “A”, “B”, “C”, “D” groups on the
basis of the minimum paid-up capital and provide the suitable license to the bank or
financial institution. Group ‘A’ is for commercial bank, ‘B’ for the development bank,
‘C’ for the financial institution and ‘D’ for the Micro Finance Development Banks.
There are 21 commercial banks, 17 development banks, 17 financial companies, 64
micro credit (Grameen) development banks and 15 saving and credit co-operation
(licensed by Nepal Rastra Bank) are established so far in Nepal.

A Brief Introduction Of Nabil Bank Ltd.

Nabil Bank Ltd is the Nepal’s first ever joint venture bank that initiated its operation on
12th July 1984. Nepal bank (international) limited Ireland was its joint venture partner
at that time. It also received management support from national bank of Bangladesh,
Dhaka at the time of inauguration. Its authorized capital used to have only Rs.100
million at the starting time. Now it has ascended its capital to Rs.28 billion.
With advancement it has 135 branches on a national scale which is the utmost number
of any joint venture bank in Nepal. Nabil bank is distinguished for providing latest
technology with vastly personalized service. Most of its banking activities and services
are done through computers. Nabil Bank provides different services like ATM, debit
cards, tele-banking services, e-banking services, safe deposit locker

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services. Besides these services Nabil is the only bank to maneuver inside the
international airport of arrival and departure of cargoes. Nabil has drawing arrangement
with 170 banks in 40 countries of the world and with the exchange companies and bank
as well. The policies of His Majesty’s Governed and Nepal Rastra Bank rule and
regulation preside over Nabil Bank Ltd.
Among different commercial bank, Nabil bank is the commercial bank which collects
money from general public and invests that amount to different productive sector. It
does not accept deposit and provides loan but also transfer money from one place to
another place or person has an agent. Nabil bank is the main agent of Western Union
Money Transfer. Nabil bank is the expanding its branch according to need, want and
market of people or public.

Banking Services Rendered by Nabil Bank

Nabil Bank has been obtaining its objectives and targets through various kinds of
banking services with a large number of facilities. The services rendered by Nabil Bank
are as follows:
• Nabil Bank provides loan, advance and overdraft to the needy person and
customers against pledge and securities
• Nabil Bank performs the agency services like, payment of subscription, rent
collection, dividend collection, interest collection etc. on behalf of the
customers
• Nabil is a member of clearing house; it accepts cheque of any bank of its
customers only
• It also exchanges the foreign currency i.e., sale and purchase of currency.
Beside these, various instrumental and modern technological services are provided
by Nabil Bank which are discussed below:-
• Deposits
• Guarantees
• Credit & Debit Cards
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 • Tele Banking
• Western Union Money Transfer
• SWIFT (Society for Worldwide Inter Bank Financial Tele- communication)
• Safe Deposit Locker
• Automated Teller Machines (ATM)
• Other facilities
Objectives of the Study
The main objective of the study is to analyze financial performance of and solvency
position of this bank through use of different ratios. Other objective of this study are as
following:-
• To find out the profitability of the NABIL Bank Limited.
• To analyze the profitability
• To determine factors of profitability
• To evaluate profitability ratio of Nabil Bank Ltd.

Rationale/Significance of the study

Generally, the study gives emphasis on the welfare of students while preparing
fieldwork report; they gain knowledge through their own experience enabling them to
deal with problems relating to their studies. The study also intends to let students know
about required information by them. The following are the few points that highlights of
the significance of field work report:
• The fieldwork report may be useful for the library purpose so that any students
want to prepare a report can have some idea about it.
• It helps to increase the practical knowledge.
• The fieldwork report can be used as guideline while preparing a small project
report.
• By analyzing the problem, it provides chances to improve
• It makes the student more creative.

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Literature Review
Determinants of bank profitability can be split between those that are internal and
external. Internal determinants of bank profitability can be defined as those factors that
are influenced by the bank’s management decisions and policy objectives. Management
effects are the results of differences in
bank management objectives, policies, decisions, and actions reflected in differences in
bank including profitability. Management decisions, especially regarding loan portfolio
concentration, were an important contributing factor in bank performance. Researchers
frequently attribute good bank performance to quality management. Management quality
is assessed in terms of senior officers’ awareness and control of the bank’s polices and
performance.
Most of the ratios were significantly related to profitability, particularly capital ratios,
interest paid and received, salaries and wages.
A number of studies have included that expense control is the primary determinant of
bank profitability. Expense management offers a major and consistent opportunity for
profitability improvement. With the large size and the large differences in salaries and
wages, the efficient use of labour is a key determinant of relative profitability. Staff
expenses, as conventional wisdom proposes, is expected to be inversely related to
profitability because these cost reduce the ‘bottom line’ or the total operations of the
bank. The level of staff expenses appears to have a negative impact on banks’ ROA in
the study. There is a positive relationship between staffs and total profits. External
determinants of bank profitability are concerned with those factors which are not
influenced by specific bank’s decisions and policies, but by events outside the influence
of the bank. The steps of analysis are as follows :
i) Selection of the information relevant to the decision.
ii) Arrangement or the selected information to highlight the significant
relationship of the financial yardsticks.
iii) Interpretation and drawing of inferences and conclusions.

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To evaluate the profitability ratio of a firm, the analyst needs a certain parameters of the
company by which the quantitative relationship and its position come out. The most
widely and effective used tool of the profitability ratio is the ratio analysis. The
profitability ratio is the measurement of relationship between two accounting figures,
expressed in mathematical way or the numerical relationship between two variables
expressed as (i) percentage or, (ii) fraction or (iii) in proportion of numbers.

Conceptual Framework
The modern financial evaluation has greatly affected the Profitability ratio of banks.
Nowadays, finance is best characterized as ever changing with new ideas and
techniques. Only efficient manager of the company can achieve the set-up goals. If a
bank does not maintain adequate equity capital, it makes the bank more risky. If a bank
has inadequate equity capital, it must be used more debt that has high fixed cost. So, any
firm must have adequate equity capital in their capital structure. The main objectives of
the bank are to collect deposits as much as possible from the customers and to mobilize
into the most profitable sector. If a bank fails to utilize its collected resources than it
cannot generate revenue. Resource mobilization management of bank includes resource
collection, investment portfolio, loans and advances, working capital, fixed assets
management etc. It measures the extent to which bank is successful to utilize its
resources. To measure the bank profitability in many aspects, we should analyze its
indicator with the help of financial statements. Profitability ratio is the process of
identifying the financial strength and weakness of the concerned bank. It is the process
of finding strength and weakness of the concerned bank.

Financial Analysis
Financial statement analysis generally begins with the calculation of set of financial ratios
designed to reveal the relative strength and weaknesses of a company as compared to
other companies in the same industry and to show weather the firm's position has been
improving or deteriorating over time.

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Ratio Analysis
Ratio analysis is the systematic use of profitability ratio information of the firm’s
strength and weakness as its historical performance, and current condition can be
determined.
After calculating various ratios, we need to compare with the certain standard and draw
out the conclusion of the result. The comparison classified by Weston and Brigham into
six types viz;
(i) Liquidity ratios
(ii) leverage ratios
(iii) Activity ratios
(iv) Profitability ratios
(v) Growth ratios
(vi) Valuation ratios

Profitability Ratio
Profitability ratios are related to profit. These ratios are designed to highlight the end
result of business activities. The operating efficiency of a firm and its ability to ensure
adequate return to its shareholders depends ultimately on the profits earned by it. In this
regards, profitability ratios are the measure of efficiency and the search for. These ratios
measure the overall effectiveness of management. It provides an incentive to achieve
efficiency. In this report, the following profitability ratios are used:
A. Profit Margin Ratio
The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a
profitability ratio that measures the amount of net income earned with each rupees of
sales generated by comparing the net income and net sales of a company. This ratio
measures how effectively a company can convert sales into net income.
B. Exchange Gain to Total Income Ratio
An exchange gain/loss is caused by a change in the exchange rate of two currencies,
such as when an invoice denominated in one currency is paid in another. The exchange
gain to total income ratio measures total income and exchange gain ratio.

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 C. Return on Assets
Return on assets, is also called return on investment, which is a ratio between net profit
and total assets. This ratio measures the rate of return earned by the firm as a whole for
all its investors. Higher ratio indicates the higher return on assets or on amount
contributed by investors on account of efficient management of assets or capital.
D. Return on Equity
This ratio is also known as return on shareholders' fund and return on net worth. It
measures the relationship between net profit after tax and shareholders' equity. The
main objective of this ratio is to find out how efficiently the funds supplied by the
shareholders are utilized. Higher ratio reflects the more profitability enjoyed by the
shareholders, whereas poor or lower ratio reflects the reverse situation.
E. Overhead to Total Income Ratio
Overhead ratio is the comparison of operating expenses and the total income which is
not related to the production of goods and service. By definition, the ratio of operating
expenses to the sum of taxable equivalent net interest income and other operating
income. The overhead ratio shows the proportion of expenses to total income which
cannot be used for production of goods and services. A company would try as much as
it can to lower these expenses without it affecting the production of goods and services
so as to maintain the competition in the industry.
Staff Expenses to Total Income Ratio
It is the ratio of Staff Expenses to Net Income. This ratio is computed to compare the
efficiency of company's staffs with the staffs of peer companies, competitors and own
historical records in term of total income. The lower of this ratio indicate more
efficiency of the staffs of the company.
A. Earnings per Share
Earnings per share (EPS), also called net income per share, is a market prospect ratio that
measures the amount of net income earned per share of stock outstanding. In other
words, this is the amount of money each share of stock would receive if all of the profits
were distributed to the outstanding shares at the end of the year. Earnings per share is
one of the most quoted statistics for publicly traded companies. It is the ratio of net

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 profit after tax between numbers of common share.
B. Dividend Payout Ratio
The dividend payout ratio measures the percentage of net income that is distributed to
shareholders in the form of dividends during the year. In other words, this ratio shows
the portion of profits the company decides to keep to fund operations and the portion of
profits that is given to its shareholders.

Review of Books and Journals

Further R.S. Sayers in his book Modern Banking Writers, “Ordinary banking business
consist of changing cash for bank deposits and bank deposits from one person to
corporation (one depositor to another) giving bank deposits in exchange for bill of
exchange, government banks, recurred and unsecured promises businessmen to repay.
“Erich A. H. in his book has described profitability ratio as “Profitability ratio is both an
analytic and judgmental process that helps to answer the questions that have been
properly posed to and therefore, it is a mean to an end. We can stress enough that
financial analysis is an aid that allows those responsible for results to make sound
decisions. “Liquidity is other financial indicator of the business enterprises. I.M.
Pandey says, "A firm should ensure that it does not suffer from lack of liquid. And also that
it is not too much highly liquid. The failure of a company to meet its obligations, due to
lack of sufficient liquidity will result in bad credit image. Loss of creditor’s confidence,
or even in low suits resulting in the closure of the company. A very high degree of
liquidity is also bad; idle assets earn nothing. The firm’s funds will be unnecessarily tied
up in current assets. Therefore, it is necessary to strike a proper balance between liquidity
and lack of liquid. “Liquidity is measured by the speed with which a bank’s assets can be
converted into cash and other current obligations. It is also important in view of survival
and growth of a bank.

Review of Some Acts Relating to Banking in Nepal

Commercial Bank Act 2031 was formulated to facilitate the smooth run of commercial
banks. All the commercial banks are functioning under this act. This act defines the bank

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as, "A commercial bank is one which exchange money, deposits money, accepts
deposits, grants loans and performs commercial banking function and which is not a bank
meant for co-operative, agriculture, industry or for specific purpose."
The preamble of Nepal Bank Act 1994 clearly states the need of commercial bank in the
country. In absence of any bank in Nepal, the economic progress of the country was
being hampered and causing inconvenience to the people and therefore with the
objective of fulfilling that need by providing services the people and for the betterment of
the country, this law is hereby promulgated for the establishment of the bank and its
operation. A bank shall be established under the Company Act with the recommendation
of the Rastra Bank. The bank may determine the location of its head office with the
approval of the Rastra Bank. The bank shall be an autonomous corporate body with the
perpetual succession. It may sue or be sued in its own name. Subject to this Act and
other current Nepal law, the bank may acquire, use and sell movable and immovable
property. Any bank may open or shift the location of, or close branches depots or other
offices with the approval of the NRB. In case any foreign commercial bank desires to
open a branch, representative office or liaison such branch under the company Act with
the approval of NRB, and provisions of the act shall apply to such foreign bank The
NRB shall obtain the consent of His Majesty’s Government before granting approval.
While granting approval, NRB may prescribe condition according to the need, and the
foreign bank shall company with the conditions thus prescribed by the NRB.

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Methods of Study
Evaluating the profitability ratio of Nabil Bank Ltd in a micro level and to highlight the
efforts of the profitability ratio of these banks in the economy at the macro level forms
the basic objective of this research.
Research Design
Keeping in mind the objective of the study, descriptive cum analytical research
design has been followed. The study is based on the wide range of variables and
factors influencing profitability ratio of the bank. Comparative data banks are
presented in such a way to make the report informative to the reader.
Population and Sample
Among 28 commercial banks, Nabil Bank Ltd have been selected for the
present study. Financial statements of latest 5 years (2017/18 to 2021/22) have
been taken as sample for the comparative analysis of Profitability ratio. The
recommendation and suggestions, which are derived from the study, by taking
the above commercial banks as samples, will be equally useful for the other
commercial banks in Nepal.
Sources of Data
This study is based on secondary data. Secondary data can defined as the data
collected earlier for a purpose other than one currently being pursued. As a
researcher I have scanned lot of sources to get an access to secondary data
which have formed a reference base to compare the research findings.
Secondary data in this study has provided an insight and forms an outline for the
core objectives established. The various sources of secondary data used for this
study are newspapers, magazines, text books, marketing reports of the
company, internet, etc.
Techniques of Analysis
In the course of analysis, data gathered from the various sources will be inserted
in the tabular from according to their homogeneous nature. They are table, graph,
mean, standard deviation ratio and percentage.

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Limitation of the Study
This study is conducted in partial fulfillment of the requirement for the BBS 4th year.
So, it possesses some limitation of its own. One of the limitations of the study is; with
regard to tempera coverage of the study to arrive any meaningful conclusions regarding
the trend in the pattern and structure of financing a time service of fairly a long period
are needed. But this study has covered only last five financial year. Other limitations
are as follows:
• Though there are 21 commercial banks, this study covers only one Nabil Bank
Ltd.
• Being a student time and resources consentient
• Limited variable has been selected.
• Simple techniques has been used in analysis
• The qualitative factors such as growth and expansions policy of the bank
quality and general economic conditions have not been studied.

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 CHAPTER II
RESULTS AND ANALYSIS

Data Presentation
Presentation and data analysis of data is the main body of the study. Introduction,
review of literature and research methodology is presented in the previous chapter that
provide the basic inputs to analyze and interpret the data. In this chapter, data are
presented and analyzed.

Financial Analysis
Financial statement analysis generally begins with the calculation of set of financial
ratios designed to reveal the relative strength and weaknesses of a company as
compared to other companies in the same industry and to show weather the firm's
position has been improving or deteriorating over time. It helps the concerned parties to
spot out the financial strength and weakness of the firm.

Ratio Analysis
Ratio analysis is the systematic use of profitability ratio information of the firm’s
strength and weakness as its historical performance, and current condition can be
determined. It provides the trends of organization's financial performance. Ratios are
very useful, essential and powerful tools to interpret the financial performance of the
company. In this report, following ratios are used:

A. Profit Margin Ratio

It is the ratio of net profit to net sales. It is measured by this formula:

Net Profit
Profit Margin Ratio 100
Net Sales

16
Table 1: Profit margin ratio of Nabil Bank Ltd (NRP in Millions)

F/Y NPAT Total Ratio in%(x) Index (%) x2

Income
2017/18 3982 8243 48.30 100 2332.89
2018/19 4239 8924 47.50 175.97 2256.25
2019/20 3463 8267 41.89 192.63 1754.77
2020/21 4528 10832 41.80 207.77 1747.24
2021/22 4256 10354 41.10 219.90 1689.21
∑x=220.59 ∑x2=9780.36
𝑥̅ = 44.11
σ = 3.11
CV =7.05

Source: “Banking and Financial Statistics” mid July 2022

Ratio
50

48

46

44

42

40

38

36
2017/18 2018/19 2019/20 2020/21 2021/22

Ratio

Figure 1: Profit margin ratio of Nabil Bank Ltd

17
The profit margin ratio of Nabil Bank Ltd shows the different year ratios viz. 48.30 in
2017/18, 47.50 in 2018/19, 41.89 in 2019/20, 41.80 in 2020/21, and 41.10 in 2021/22
and the mean, standard deviation and coefficient of variance are 44.11, 3.11% and
7.05% receptively.
B. Exchange Gain to Total Income Ratio

The exchange gain to total income ratio measures total income and exchange gain
ratio, it is measure by this formula:
Exchange
Exchange Gain to Total Income Ratio 100
Gain Total Income

Table 2: Exchange Gain to Total Income ratio of Nabil Bank Ltd (in Millions)

F/Y Exchange gain Total Income Ratio in%(x) Index (%) x2

2017/18 154.2 1639.1 9.41 100 85.55

2018/19 144.1 1427.4 10.09 107.23 101.81

2019/20 157.3 1426.4 11.03 117.22 121.66

2020/21 184.9 1510.7 12.24 130.07 149.82

2021/22 185.5 1743.5 10.64 113.07 113.21

∑x = 53.41 ∑x2=575.05

𝑥̅ = 10.68

σ = 0.95
CV = 8.9

Source: “Banking and Financial Statistics” mid July 2022

18
 Ratio
14

12 12.24
11.03
10.64
10 10.09
9.41
8

0
2017/18 2018/19 2019/20 2020/21 2021/22

Ratio

Figure 2: Exchange Gain to Total Income ratio of Nabil Bank Ltd

The exchange gain to income ratio of Nabil Bank shows the different year ratios viz.
9.41 in 2017/18,
10.09 in 2018/19, 11.03 in 2019/20, 12.24 in 2020/21 and 10.64 in 2021/22 and the mean,
standard deviation and coefficient of variance are 10.68, 0.95% and 8.9% receptively.

C. Return on Assets

It is the ratio of net income to total assets measures the return on total assets (ROA) after
interest and taxes. It is measured by this formula

NPAT
Return on Assests 100
Total Assets

19
Table 3: Return on Assets ratio of Nabil Bank Ltd ( in Millions)

F/Y NPAT Total Assets Ratio in%(x) Index (%) x2

2017/18 271.6 17629.2 1.54 100 2.37

2018/19 416.2 16562.5 2.51 163 6.3

2019/20 455.3 16745.5 2.72 176.62 7.4

2020/21 520.1 17064.1 3.05 198.05 9.3

2021/22 635.3 22330 2.85 185.07 8.12

∑x = 12.67 ∑x2=33.49

𝑥̅ = 2.53

σ = 0.53

CV = 21

Source: “Banking and Financial Statistics” mid July 2022

3.05
2.85
2.72
2.51

1.54

2017/18 2018/19 2019/20 2020/21 2021/22

Ratio

Figure 3: Return on Assets ratio of Nabil Bank Ltd

20
The return on assets ratio show the different year ratios viz. 1.54 in 2017/18, 2.51 in
2018/19, 2.72 in 2019/20, 3.05 in 2020/21, and 2.85 in 2021/22 and the mean, standard
deviation and coefficient of variance are 2.53, 0.53% and 21% receptively.

D. Return on Equity

It is the ratio of Net Income after Tax to common equity measures the return on equity
(ROE) or Rate of return on the stockholder investment.
NPAT
Return On Equity (ROE) 100
Equity

Table 4: Return on Equity of Nabil Bank Ltd ( in Millions)

F/Y NPAT Equity Ratio in%(x) Index (%) x2

2017/18 271.6 1146.4 23.69 100 561.22

2018/19 416.2 1314.2 31.67 133.70 1003

2019/20 455.3 11481.7 30.73 129.72 944.33

2020/21 520.1 1657.6 31.38 134.57 984.70

2021/22 635.3 1875 33.88 143.01 1147.85

∑x=151.35 ∑x2=4641.10

𝑥̅ = 30.27

σ =3.46

CV=11.42

Source: “Banking and Financial Statistics” mid July 2022

21
 RATIO
Ratio

40

35

30

25

20

15

10

0
2017/18 2018/19 2019/20 2020/21 2021/22

Figure 4: Return on Equity of Nabil Bank Ltd

The return on Equity ratio show the different year ratios viz. 23.69 in 2017/18, 31.67 in
2018/19,
30.73 in 2019/20, 31.38 in 2020/21, and 33.88 in 2021/22 and the mean, standard
deviation and coefficient of variance are 30.27, 3.46% and 11.42% receptively.

E. Overhead to Total Income Ratio

It is the ratio of Overhead to Net Income, measured by the following formula;

Overhead
Overhead to Total Income Ratio = 100
Total Income

22
Table 5: Overhead to Total Income ratio of Nabil Bank Ltd (in Millions)

F/Y NPAT Total Income Ratio in%(x) Index (%) x2

2017/18 134.3 1639.1 8.19 100 67.08
2018/19 166.2 1427.4 11.64 142.12 135.49
2019/20 153.4 1426.4 10.75 131.26 115.56
2020/21 190.3 1510.7 12.60 153.85 158.76
2021/22 182.7 1743.5 10.48 127.96 109.83
∑x=53.66 ∑x2=586.72
𝑥̅ =10.73
σ =1.47

CV=13.72
Source: “Banking and Financial Statistics” mid July 2022

12.6
11.64
10.64 10.48
8.19

2017/18 2018/19 2019/20 2020/21 2021/22

Ratio

Figure 5: Overhead to Total Income ratio of Nabil Bank Ltd

23
The Overhead to Total Income ratio shows the different year ratios viz. 8.19 in 2017/18,
11.64 in 2018/19, 10.75 in 2019/20, 12.60 in 2020/21, and 10.48 in 2021/22 and the
mean, standard deviation and coefficient of variance are 10.73%, 1.47% and 13.72%
receptively.

F. Staff Expenses to Total Income Ratio

It is the ratio of Staff Expenses to Net Income. This ratio compare the efficiency of
company's staffs with the staffs of peer companies, competitors and own historical
records in term of total income. The lower of this ratio indicate more efficiency of the
staffs of the company. It is measured by the formula
Staff Expense
Staff Expenses to Total Income Ratio = 100
Total Income

Table 6: Staff expenses to Income ratio of Nabil Bank Ltd ( in Millions)

F/Y Staff Expenses Total Income Ratio in%(x) Index (%) x2

2017/18 144.9 1639.1 8.84 100 78.15

2018/19 210.6 1427.4 14.75 166.85 217.56
2019/20 180.8 1426.4 12.67 143.33 160.53
2020/21 199.5 1510.7 13.21 149.43 174.50
2021/22 219.8 1743.5 12.61 142.65 159.01
∑x=62.08 ∑x2=789.75
𝑥̅=12.42
σ =1.95
CV=15.69

Source: “Banking and Financial Statistics” mid July 2022

24
 Ratio
16

14

12

10

0
2017/18 2018/19 2019/20 2020/21 2021/22

Ratio

Figure 6: Staff expenses to Income ratio of Nabil Bank Ltd

The staff expenses to total income ratio show the different year ratios viz. 8.84 in
2017/18, 14.75 in 2018/19, 12.67 in 2019/20, 13.21 in 2020/21, and 12.61 in 2021/22
and the mean, standard deviation and coefficient of variance are 12.42, 1.95% and
15.69% receptively.

G. Earnings per Share:

It is the ratio of Net Profit after Tax to No. of Common Share. It is calculated by this
formula,

NPAT
Earnings per Share (EPS) = × 100
[Link] Common Share

25
Table 7: Earning Per Share of Nabil Bank Ltd

F/Y NPAT No. of Ratio in%(x) Index (%) x2

Common
Shares
2017/18 271638612 4916544 55.25 100 3052.56
2018/19 416235811 4916544 84.66 153.23 7167.32
2019/20 455311222 4916544 92.61 167.62 8576.61
2020/21 520114085 4916544 105.49 190.93 11128.14
2021/22 635262349 4916544 129.21 233.86 16695.22
∑x=467.22 ∑x2=46619.85
𝑥̅ = 93.44
σ = 24.33
CV=26.04

Source: “Banking and Financial Statistics” mid July 2022

Ratio
140
129.21
120
100 105.49
92.61
80 84.66

60 55.25
40
20
0
2017/18 2018/19 2019/20 2020/2021 2021/22

Ratio

Figure 7: Earnings per Share of Nabil Bank Ltd

26
Earnings per Share show the different year earnings per share viz. 55.25 in 2017/18,
84.66 in 2018/19, 92.61 in 2019/20, 105.49 in 2020/21, and 129.21 in 2021/22 and the
mean, standard deviation and coefficient of variance are 93.44, 24.33% and 26.04%
receptively.

H. Dividend Payout Ratio

It is the ratio of dividend to net income. It is calculated by the following formula:

Dividend
Dividend Payout Ratio 100
Net Income

Table 8: Dividend payout ratio of Nabil Bank Ltd

F/Y Dividend NPAT Ratio in%(x) Index (%) x2

2017/18 5.25 271.6 1.93 100.00 3.74
2018/19 10.50 416.2 2.52 130.51 6.36
2019/20 15.75 455.3 3.46 178.96 11.97
2020/21 21.00 520.1 4.04 208.88 16.30
2021/22 11.5 635.3 3.31 171.01 10.93
∑x=15.26 ∑x =49.30
2

𝑥̅ = 3.05
σ = 0.75
CV=24.59

Source: “Banking and Financial Statistics” mid July 2022

27
 4.04

3.46
3.31

2.52

1.93

2017/18 2018/19 2019/20 2020/21 2021/22

Ratio

Figure 8: Dividend payout ratio of Nabil Bank Ltd

Dividend payout ratio show the different year ratio viz. 1.93 in 2017/18, 2.52 in
2018/19, 3.46 in 2019/20, 4.04 in 2020/21, and 3.31 in 2021/22 and the mean, standard
deviation and coefficient of variance are 3.05, 0.75% and 24.59% receptively.

28
Findings

In this fieldwork report, we study about Nabil Bank Ltd is profitability position and we
found the financial position of Nabil Bank Ltd is better. In compliance with analysis,
the following finding as made:
• The gross margin ratio shows an increasing trend as compared to the base year,
which is beneficial to the bank. The min. index value is 175.97 as that of 2021/22
and the max index value is 219.90 as that of 2021/22.
• The exchange gain to total income ratio shows an increasing trend as compared
to the base year, which is beneficial to the bank. The min. index value is 107.23
as that of 2017/18 and the max index value is 130.07 as that of 2021/22.
• The return on assets of Nabil Bank Ltd shows an increasing trend and has
max. Index value of
198.05 in the year 2021/22 as compared to base year 2017/18 i.e. 100. It shows
that, Nabil Bank Ltd is successful in deriving benefit from the assets it has used.
• The trend of return on equity (ROE) is increasing. It shows that the bank is able
to satisfy its shareholders to the fullest. The max return index is 143.01 which is
43.01% more than that of the base year 2017/18. Thus, it is able to achieve the
goal of wealth maximization too.
• The Overhead to Total Income ratio shows a fluctuating trend. The max. Index
value is
153.85 as that of 2021/22 and the min. increased index value is 127.96 as in
2017/18. This shows the operational efficiency of Nabil Bank Ltd is
satisfactory.
• The Staff Expenses to Total Income ratio of Nabil Bank Ltd has increased by
66.85% in the year 2017/18. The minimum increased level of Staff Expenses
compared to Total Income is 42.65%, during the recent year 2020/21 It shows
that Nabil Bank Ltd is successful in cutting down extra unnecessary expenses
related to staffs.
• The earning per share of Nabil Bank Ltd increase continuously during the year

29
 2017/18 to 2019/21 and maximum earning per share is 129.21 and the least price
is 55.25. This shows the return of each equity shareholder is in satisfactory
condition.
• Dividend payout ratio shows increasing trends as compared to base year. The
min. index value is 130.51 as that of 2018/19 and the max index value is 208.88
as that of 2019/20.
The position of profit over different years i.e. (2017/18 to 2021/22) shows the profit of
Nabil decreased continually for the first three years and then it is rising rapidly. During
2019/20, the level of profit decreased to 1426.4 million. At 2021/22, the peak level of
profit is 1743.5 million.
• The position of income of Nabil Bank over different year i.e. (2017/18 to
2021/22) shows that income composition of Nabil Bank is no more difference.
• The position of expenses of Nabil Bank over different year i.e. (2017/18 to
2021/22) shows that expenses of Nabil Bank is no more difference.

30
 CHAPTER III
SUMMARY AND CONCLUSION

Summary
Nepal is one of the least developed countries of the world. For most of the developing
process, it is financially depending upon the foreign countries. It is economically too
weak. Thus, the economic condition of the people is weak. In Nepal 85% of the people
are depended upon agricultural sector which is unable to provide full employment to
the people. Nepal government has to activate people in the nation’s development
through overall industrialization of nation. For this purpose, development of sound
banking system is essential.
The commercial banks are of foremost importance to a country because of their roles as
a strong pillar for the economic development of a nation. With the wave of the
globalization and advancement in technologies, without the strong base of commercial
banking platform, the economic development of a nation is bound to be paralyzed.
Thus, it would be very legitimate to say that the commercial banks are of a more
importance to a developing country like Nepal and Nabil Bank Ltd being the pioneer
financial institutions of Nepal, has undouble filled such gap to a great extent.
In Nepalese banking sector, commercial banks including ventures banks are operating
at present. In the absences of modern banking any country cannot develop the
economic activity. Therefore, it is essential to find out whether or not the banks are
serving an important contribution to develop sectors of economy. Profitability ratio is
said to be general business of fund, which shows the bank ability to meet cash
requirement. In this record, this study has been based upon the objective to evaluate the
profitability ratio of Nabil Bank Ltd.
Basically, banks are proliferating, cutthroat competition is prevailing plus there is an
unhealthy competition. So, in this competitive banking scenario, Nabil Bank Ltd. is
retaining and maintaining its strengths and proving itself as a benchmark in the
Nepalese banking industry.

31
The financial performance of Nabil Bank Ltd. reveals that it is in sound financial
position. Nabil Bank Ltd earns the profit every year in increasing trend. The bank is
very much in line with its desire objective and goals. The bank has been able to
successfully overcome all the economic and competitive barriers to establish it as
financially feasible unit. The investors of Nabil Bank Ltd, are receiving sufficient rate
of return on their investment and the creditors are also satisfied. Nabil Bank Ltd has
been playing an important role in financial economic sector of the country. It has
fulfilled its objectives for which it has made at the time of the establishment.

Conclusion
With some commercial banks and development banks operating in Nepal, the market
seems over crowed and the banks are now finding a tough competition among
themselves. Since the entry barriers are not so high due to the government’s liberal
policy, this competition is expected to be more intense in the near future, as there is
always the possibility of a new player entering this sector. Nabil Bank has not
maintained a balanced ratio among its deposit liabilities. Consequently, the bank does
not seem to be able to utilize its high cost resources in high yielding investment
portfolio. The investment portfolio of the bank has not been managed so efficiently as
to maximize the returns there from. The operational efficiency of the bank is found
unsatisfactory because of the series of operational loss over the period. Lower market
value is a reflection of a weaker profitability ratio of the bank.
On the basis of this study, the following conclusion can be made:

• The overall results are satisfactory. But in some case the Nabil Bank Ltd should
take certain steps to improve the bank current financial condition. Therefore,
some recommendations are being put forward for its improvement along with its
development of the country.
• The proportion of the saving deposit account is high in total deposit liability.
So, it is recommended that the bank should utilize the amount collected from

32
 the saving deposit account carefully. It should be invested in the higher yielding
areas.
• The cash and bank balance in the Nabil Bank Ltd is satisfactory. It is higher a bit
though. Bank should analyze the opportunities for short term investment.

• Bank should not spend too much in the fixed assets because it yields only a
nominal portion, almost no yield.
• The profitability ratio shows the profitability position of Nabil Bank is
satisfactory. It should give continuity to this growth trend in future.
• These ratios show that Nabil Bank is more efficient in mobilizing the resources
of owners and its operational efficiency is also satisfactory.
• The bank has been successful in winning the trust of the customer, as volume of
expenses is no more difference and it's growing slowly than previous years.
There is general rise and fall in expenses level during different years. It should
give basic priority to the customers and personnel first and then the
organizational objectives, which will help to develop effective value chain in
the organization.
• Branches existing in some limited areas will not enable a bank to boost up its
campaign of deposit mobilization and credit disbursement as desired.
Therefore, Nabil Bank is recommended to open new branches at certain places
every year after making feasibility of studies. And also, it has launched various
ideas as Nabil Prepaid card, extended banking hours, etc. so as to collect
maximum amount of funds from general public.
• Besides these, all the other functions of the company are satisfactory, no
comments upon it.

33
 BIBLIOGRAPHY

Adhikari, Devraj, Pandey, Dhrubalal.(2020). Business Research Methods. Kathmandu:

Asmita Publication.
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Asia Publication
Joshi, S. (2009). Banking and Insurance Management. Kathamandu: Taleju Prakashan
Gup, B. E., Kolari, J. W.(2016). Commercial Banking. New Delhi: Wiley India.
Paudel, Rajan, B.,Baral, Keshar, J., Joshi, Padam, R., Gautam, Rishi, R., Rana, Surya,
B.(2020).
Fundamentals of Corporate Finance. Kathmandu: Asmita [Link], Rajan, B.,
Baral, Keshar, J., Joshi, Padam, R., Gautam, Rishi, R., Rana, Surya, B.(2021).
Fundamentals of Financial Markets and Institutions. Kathmandu: Asmita Publications.
Paudel, Rajan, B., Kehar J. Baral, Rishi Raj Gautam, Gyan B. Dahal. Surya B.
R.(2008).
Fundamental of Financial Management. Kathmandu: Asmita Publications.

Website accessed

[Link]

[Link]

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[Link]

Journal
“Banking and Financial Statistics” Nabil Bank Ltd mid July 2022

Report
Annual report of Nabil Bank Ltd., 2017 to 2022
35