CAPITAL STRUCTURE ANALYSIS OF PRABHU BANK

BY

Abhishek Prajapati
Exam Roll no.: 21800/18
T.U. Reg. No.:

A Summer Project Submitted to

Faculty of Management, Tribhuvan University
in partial fulfillment of the requirements for the degree of

Bachelor of Business Administration

At the
Thakur Ram Multiple Campus
Tribhuvan University

Birgunj
March 2023
 STUDENT DECLARATION

This is to certify that I have completed the Summer Project entitled” (title of the project)”
under the guidance of “(name of the guide)” in partial fulfilment of the requirements for
the degree of Bachelor of Business Administration at Faculty of Management, Tribhuvan
University. This is my original work and I have not submitted it earlier elsewhere.

Date: ……………………………

Abhishek Prajapati
 CERTIFICATE FROM THE SUPERVISOR

This is to certify that I have completed the Summer Project entitled “Capital Structure
Analysis of Prabhu Bank” under the guidance of “Abhishek Prajapati” in partial fulfilment
of the requirements for the degree of Bachelor of Business Administration at Faculty of
Management, Tribhuvan University. This is my original work and I have not submitted it
earlier elsewhere.

………………………

Hiralal Raut
(Supervisor)
16th march 2023
 ACKNOWLEDGEMENT

This report has been prepared for the partial fulfilment of requirement for the degree of
BBA. It is a matter of profound delight to complete this report as it helps in sharpening the
degree of our competency and expertise as learning is not just acquiring knowledge from
books but implementing in real life situations. This project work has made me familiar
with the ongoing trend of Capital Structure of Prabhu Bank. Indeed, it’s my great privilege
to complete this project work.

First of all, I would like to express my sincere gratitude to our program coordinator Mr.
Baidhyanaath and my report supervisor, Mr. Hiralal Raut for their valuable suggestions,
continuous guidance and encouragement in completing the report. Likewise, I am equally
thankful to all my teachers, family members, and friends for their moral support, help, co-
operation and their trust on me which has strengthened me in accomplishing many tasks in
every walk of my [Link], I am very grateful to the faculty of Thakur Ram Multiple
Campus for consistent guidance and co-operation. I highly acknowledge comments and
suggestions for the further improvement of the study.

Abhishek Prajapati
 Executive Summery
The Phubhu Bank Limited is an ‘A’ Class-leading commercial bank licensed by Nepal
Rastra Bank. It has gone through the range of phases of its growth course over a short
period of its subsistence. The growth of Prabhu Bank Limited was extraordinary,
especially after the merger of Grand Bank Nepal Limited (GBNL), Kist Bank Limited
(KBL), Prabhu Bikash Bank Limited (PBBL), Zenith Finance Limited (ZFL) and
Gaurishankar Development Bank Limited (GDBL) in 2016. The Bank has completed years
of the journey since the incorporation and has contained 7 different financial institutions in
its making.

A bank's capital structure refers to the way it finances its assets. A typical capital structure
of a bank includes two main components: debt and equity.

Main purposes of this study are as follow:

 The primary objective of this study is to examine the effect of capital structure on
Prabhu Bank's financial performance. This will be achieved through an analysis of
Prabhu Bank's financial statements, including its income statement, balance sheet,
and cash flow statement. The analysis will evaluate the relationships between
different components of the capital structure and the bank's overall financial
performance.

 Another objective of this study is to analyze the trends in Prabhu Bank's capital
structure over time and to identify potential areas of improvement. The analysis
will include a review of Prabhu Bank's use of debt and equity, its dividend policies,
and its financial decisions related to borrowing and investing. It will also look into
the impact of the bank's capital structure on its ability to respond to economic
changes and market conditions.

 Finally, this study will seek to identify potential risks associated with Prabhu
Bank's capital structure, including Credit risk, Operational risk, and Market risk.
The analysis will consider the bank's current assets and liabilities and its ability to
manage these risks effectively. The findings of this study will be used to make
recommendations for Prabhu Bank's future capital structure decisions and policies.

The analysis is based on the bank's financial statements from the fiscal year 2074/75 to
2078/79

The analysis suggests that Prabhu Bank has a healthy capital structure and is well-
positioned to support its growth and expansion plans. However, the bank should continue
to monitor its debt levels and ensure that it maintains a prudent level of leverage to
mitigate any potential financial risks in the future.
 ENDORSEMENT
We hereby endorse the project work report entitled “A Case Study on Capital Structure
Management of Prabhu Bank Limited” submitted by Abhishek Prajapati of Thakur Ram
Multiple Campus, Birgunj Parsa , in partial fulfillment of the requirements for the degree
of the Bachelor of Business Administration(BBA) for external evaluation.

Signature: Signature:

Dr. Baidyanath Pd. Yadav Dr.

(Chairman) (Campus Chief)

Thakur Ram Multiple Campus Thakur Ram Multiple Campus

Date: Date:
 CHAPTER -1

INTRODUCTION
1.1Context information
Capital structure refers to the way a company finances its operations and growth through a
combination of debt and equity. The concept of capital structure is essential to
understanding a company's financial health and growth prospects.

Debt represents borrowed money, such as bank loans, bonds, and other types of debt
securities. In contrast, equity represents the ownership interest of shareholders in the
company. The proportion of debt and equity used to finance a company's operations and
growth is known as its capital structure.

A company's capital structure has a significant impact on its financial performance and risk
profile. For example, a company that relies heavily on debt financing may have a lower
cost of capital due to the tax benefits associated with debt interest payments. However, it
also faces higher financial risk due to the obligation to pay back the debt and the risk of
default.

On the other hand, a company that relies more on equity financing may have a higher cost
of capital due to the absence of tax benefits and the dilution of ownership and control.
However, it also faces lower financial risk since there is no obligation to pay back the
equity financing.

The optimal capital structure for a company depends on several factors, including its
industry, growth prospects, asset structure, profitability, and tax environment. A company
must balance the advantages and disadvantages of debt and equity financing to determine
the right mix for its capital structure.

For example, companies in capital-intensive industries, such as manufacturing or

telecommunications, may rely more on debt financing due to their significant investment in
fixed assets. In contrast, companies in knowledge-intensive industries, such as software
development or biotechnology, may rely more on equity financing due to the uncertainty
surrounding their future growth prospects.

Capital structure management involves determining the right mix of debt and equity
financing to maximize the company's value and minimize its risk. It requires a thorough
analysis of the company's financial situation, market conditions, and future prospects.
When determining the optimal capital structure, companies must consider several factors,
such as the cost of debt and equity financing, the availability of financing, the risk profile
of the company, and the tax environment.

It is very difficult to give definition to any particular subject matter. it is really a difficult
task to express and give meaning of any subject in few words. So different scholars have
presented their definition or meaning of the same subject matter in different ways. there is
no similarity to get scholars definitions. in the same way the definition of Capital Structure
given by a different scholar also varies. However, we find they have included the essential
points. Some renowned scholars have defined capital structure as follows.
According to Gerstenberg, “Capital Structure of a company refers to the composition or
make up of its capitalization and it includes all long-term capital resources”.

According to James C. Van Home, “The mix of a firm’s permanent long-term financing
represented by debt, preferred stock, and common stock equity”.

According to Presana Chandra, “The composition of a firm’s financing consists of

equity, preference, and debt”.

According to R.H. Wessel , “The long term sources of funds employed in a business
enterprise”.

According to By Schwarty , ”The capital structure of business can be measured by the

ratio of various kinds of permanent loan and equity capital to total capital.”

In summary, capital structure is a critical aspect of a company's financial management. A

company's capital structure affects its cost of capital, financial risk, and growth prospects.
By balancing the advantages and disadvantages of debt and equity financing, a company
can determine the optimal capital structure that best meets its financial goals and
objectives.
1.2 Statement of Problems
Prabhu Bank Limited may face challenges related to managing credit risk, maintaining
adequate capital and liquidity, dealing with non-performing assets, and managing
operational costs.

Credit risk is a significant concern for banks, as it refers to the potential for borrowers to
default on their loans. Inadequate credit risk management can lead to increased loan losses
and can negatively impact the bank's financial stability.

Maintaining adequate capital and liquidity is also important for banks. A lack of sufficient
capital can limit the bank's ability to lend and expand its operations. Insufficient liquidity
can also affect the bank's ability to meet its obligations and can cause reputational damage.

Non-performing assets (NPAs) refer to loans that are in default or are not being repaid on
time. The high level of NPAs can lead to increased loan loss provisions and can impact the
bank's profitability and financial health.

Finally, managing operational costs is crucial for banks to remain competitive in the
market. Banks need to invest in technology to stay relevant and offer better services to
their customers while maintaining their operational costs.

In summary, Prabhu Bank Limited, like any other bank, may face several challenges
related to credit risk, capital and liquidity management, non-performing assets, and
operational costs.

1.3 Purpose of the study

 The primary objective of this study is to examine the effect of capital structure on
Prabhu Bank's financial performance. This will be achieved through an analysis of
Prabhu Bank's financial statements, including its income statement, balance sheet,
and cash flow statement. The analysis will evaluate the relationships between
different components of the capital structure and the bank's overall financial
performance.
  Another objective of this study is to analyze the trends in Prabhu Bank's capital
structure over time and to identify potential areas of improvement. The analysis
will include a review of Prabhu Bank's use of debt and equity, its dividend policies,
and its financial decisions related to borrowing and investing. It will also look into
the impact of the bank's capital structure on its ability to respond to economic
changes and market conditions.

 Finally, this study will seek to identify potential risks associated with Prabhu
Bank's capital structure, including Credit risk, Operational risk, and Market risk.
The analysis will consider the bank's current assets and liabilities and its ability to
manage these risks effectively. The findings of this study will be used to make
recommendations for Prabhu Bank's future capital structure decisions and policies.

1.5 Significance of the study

Investigating the which is the optimal or good capital structure of commercial banks of
Nepal is the main purpose of this study. It is expected that this study will make a good
contribution to the existing literature in the academic sector. Accordingly, it will help to
extend the current literature. In addition, this study is about the subject of financial matters
and related with the applied field of the banking industry. Similarly, it will help the further
researcher, me and other management students. Therefore, the study could be beneficial to
various groups of people in following ways.
  Students: This study provides the knowledge and information about the debt and
equity, capital structure and its impact on different variable etc.

 Future Researchers: Researcher will get additional knowledge information about

research about this topic and easy find the research gab to conduct new research to
related topic. Also they will be benefited by getting secondary data in this context.
The proposed study will help to enhance the level of understanding in capital
structure for other researchers, management scholars and other stakeholders.

 Me: This study provides me the knowledge and information about the debt and
equity, capital structure, its impact on different variable, it also helps to suggest
junior friends and to conduct research for further study etc.

 Investor: To analyse the past 5 year performance of bank and forecast the future

1.6 Literature survey

1.6.1Conceptual framework
“The optimum capital structure may be defined as that capital structure or combination of
debt and equity that leads to the maximum value of the firm” (Khan and Jain; 1990:487).

“Erza Soloman expresses the optimum capital structure and its implications as: optimum
leverage can be defined as that mix of debt and equity which will maximize the market
value of the claims and ownership interest represented on the credit side of the balance
sheet” (Solomon;1969:132). Capital structure analysis is the process of find optimal capital
structure to minimize the cost and maximize the profit of organization.
Capital Structure refers to the relationship among various long-term forms of financing
which includes mainly three types securities i.e., equity shares, preference shares and
debenture (Pandey; 1998:258-259). It is sometimes known as financial plan, refers to the
22 compositions of long-term sources of funds such as debentures, long term debt,
preference share capital and equity share capital including reserves and surplus.

1.6.2 Review of Previous Thesis

Ronit Shrestha (2019) conducted research on “Study on Capital Structure Management of
Sunrise Bank Limited”
The basic objectives of his research were:
 To analyse out the financial position of sunrise bank limited in resource collections
and mobilization
 To analysis the basic problem of capital structure of sunrise bank limited.
The study has conclude the following information.
 The transactions of sunrise bank limited are in good condition.
 The net income to gross income ratio of Sunrise Bank limited are in increasing
trend. It shows that the profit of bank are in good condition.
 Earning per share of bank are in decreasing trend.
 Price earning ratio of stone Ridge bank limited are not stable. it's also in decreasing
trend.
 Net profit to loan and advance ratio of sunrise bank limited are in decreasing every
year.

Saheb Mansoor (2019) Conducted research on “ A Study on Capital Structure of Sanima

Bank Limited”
The basic objectives of his research were:
 To examine the capital structure of the sunrise bank limited
 To examine the correlation and the significance of their ratio related to capital
structure.
 To analyse the debt servicing capacity of the sample banks.
 To analyse effect of capital in structure of ROA and ROE.
The findings of this study were
 The average debt equity ratio of Sanima bank limited is 19.025% which implies
that the claims of creditors is 19.025% in compare to owner of the company.
 Long term debt to capital employed ratio highlights the portion of funds financed
by long term debt in the capital employed by the firm. The data shows Sanima
banks limited has the ratio is in Fluctuating trend. Its average ratio is 20.5% which
implies portions of funds financed by long term dept in capital employed is it
20.5% in average for the sample period.
 Debt to total assets ratio express the relationship between creditors fund and total
assets. The debt to total assets ratio of Sanima Bank Ltd. 70.43%.
  Long term debt to total debt ratio indicates what percentage of total debt is covered
by long term debt of the firm . The trend analysis of Sanima Bank Ltd. Shows the
average LTD/TD of 2.28%.
 The average interest coverage ratio of Sanima Bank limited is 0.56 which imply
number of times of interest covered by EBIT.
 The correlation between debt equity ratio with ROE and ROA is positive for
Sanima Bank Ltd.

Amroj Ansari (2020) conducted a research on “ Capital Structure of NCC Bank Limited,
Birgunj, Nepal.”
The men objectives of the research were:
 To analyse the capital structure of NCC bank limited.
 To examine the effect of equity and debt on profitability.
The conclusion of the research were:
 The liquidity position of NCC bank is not in satisfactory level, but it has the highest
investment mint in government securities to current assets ratio.
 The bank has highest ratio in investment to total deposit and government securities.
 Analysing the profitability of the bank, we found that return on loan and advance
and return on assets and equity is higher.
 Analysing the capital structure ratio of bank i.e., Debt assets ratio and debt – equity.
The researcher found that the bank is highly levered. The bank financed by more
use of debt instead of his own assets and equity. Due to the higher leverage, it may
arise the risk but the bank can on hence his Profitability position by taking the
advances of leverage.
 Through the analysis and finding we can summarise that the financial analysis of
commercial bank with a special reference to NCC bank limited is better in every
condition and profitability ratio is good.
 Through the help of the correlation analysis, we come to know that, Loan and
advances to total deposit and total investment total deposit of NCC bank are in
better performance. It gives significance relationship between these variables.

Suntaj Ahemad Dobi (2020): Conducted research on “Capital Structure Management of

Everest Bank Limited.”
The main objectives were:
 To examine the capital structure of the Everest bank limited.
 To analyse each the debt servicing capacity of the sample banks
  To examine the linear relationship of ROA & ROE.
Findings of this research were:
 The average debt equity ratio of Everest bank limited is 19.025% which implies is
that the claim of creditors is 19.025% in compare to owner of the company.
 Long term debt to capital employed ratio highlights the portion of bond financed by
long term debt in the capital employed by the firm. The data shows Everest bank
limited has the ratio in fluctuating trend. Its average ratio is 20.5% which implies
portion of fund financed by long term debt in the capital employed is 20.5% in
average for the sample period.
 debt to total assets ratio express the relationship between creditors fund and total
assets. The Debt to Assets of Everest Bank Ltd. 70.43%.
 Long term debt to total debt ratio indicates what percentage of total debt is covered
by long term debt of the firm. The trendy analysis of Everest bank limited shows
average LTD/TD of 2.28%.
 The average interest coverage ratio of Everest bank limited is 0.56 which imply
number of times of interest covered by its EBIT.
 The correlation between debt equity ratio with ROE and ROA is positive for
Everest bank limited.

Manisha Kumari Sarrfa (2022) conducted a research on “A Capital Structure Analysis of

Nepal Bank Limited.”
The main objectives of her research were:
 To identify optimum portfolio of the banks.
 To analyse the diversifiable and un-diversifiable risk of the selected banks.
 To study the risk and return of the sampled commercial banks and analyse their
coefficient of variation.
Major findings of her research were:
 The return is the income received on a stock investment, which is usually expressed
in percentage. Expected return on common stock of NBL is maximum 10.21% &
similarly return of C.S. of NBL is -26.32% respectively.
 Risk is measured in terms of standard deviation. On the basic of S.D., common
stock of NBL is more riskier since it has S.D. i.e. 0.5186 C.S. of NBL is low S.D.
of 0.3936 on other hand we know that C.V. is more rational basic of investment
decision, which measures the risk per unit of return. On the basic of C.V., C.S. of
NBL is best than EBL bank. NBL has -1.9704 unit of risk per 1 unit of return; But
C.S. of NBL has risk per unit of return i.e., 3.8548.
  Beta coefficient explains the sensitivity or volatility of the stock with market.
Higher the beta higher the volatility in the context, common stock of NBL is most
volatility in the context, common stock of NBL is most volatility i.e., 1.2325 and
common stock of NBL is least volatile i.e., 0.9972. We find NBL have more
aggressive type of common stock than NBL. NBL with lowest beta among two
bank's common stock.
 One of the main significances of beta is in capital assets pricing models (CAPM).
comparison between expected rate of return and required rate of return identify
whether the stock is overpriced or underprized. the required rate of return of the
stock is over pride and vice versa. This is study shows that all the stock of
commercial banks, which are analysed are underpraised. That means there is stock
value will increase in near future all the talk is in demand. So, investor can buy the
common stock of any bank.
 The portfolio risk and return between NBL and EBL is very gap. Portfolio return is
-11.06% and portfolio risk 52.24% respectively.
 Since the entire bank had positive correlation so bank doesn’t reduce any
unsystematic risk. Among them, NBL have lower correlation, so it can be
favourable for the investors.
a.

1.7 Research methods used for data collection and analysis

Capital structure refers to the way in which a company finances its operations through a
mix of debt and equity. It is an important aspect of corporate finance and has been the
subject of extensive research in the field. Capital structure analysis research methodology
is a systematic approach to studying the relationship between a company's capital structure
and its financial performance.
a. The first step in conducting capital structure analysis research is to formulate research
questions that are relevant to the research objectives. The research questions should be
clear, specific, and measurable. For example, the research question could be "What
factors influence a company's capital structure decisions?"
In this research my questions are; (I) what is the effect of capital structure on the
financial performance of Prabhu Bank Limited., (ii) What is the trend of Prabhu Bank's
Capital Structure and (iii) What is the potential risk associated with the Capital
Structure of Prabhu Bank.
b. The second step is to conduct a literature review to gain an understanding of the key
concepts and theories in the field. The literature review involves reviewing existing
research and literature on capital structure analysis. This helps researchers to identify
research gaps and formulate research questions that are relevant to the current state of
knowledge in the field.
For this research I have reviewed five(5) existing literature on Capital Structure
Analysis , i.e. (i) Ronit Shrestha literature conducted on 2019, (ii) Saheb mansoor's
literature conducted in 2019,(iii) Amroj Ansari's literature conducted in 2020, (iv)
Suntaj Ahemad Dobi's literature conducted in 2020, (v) Manisha kumari Sarraf's
literature conducted in 2022.
c. The third step is to select a research methodology that is appropriate for the research
question. The choice of methodology will depend on the research question, data
availability, and the researcher's expertise. The most common research methodologies
used in capital structure analysis research are case study analysis, regression analysis,
survey research, and comparative analysis.

d. Case study analysis is a methodology that involves analysing the capital structure of a
specific company or group of companies to identify patterns and trends in their
financing choices. This can help researchers understand the factors that influence
capital structure decisions and their impact on the company's financial performance.
Case study analysis is particularly useful when researching the impact of unique factors
on capital structure decisions, such as a company's ownership structure or industry-
specific regulations.
For this research I have studied last five years Financial report and Annual reports of
Prabhu Bank Limited. From this I have get much more ideas and knowledge about the
Prahu Bank's Capital structure and its capital structure trend over last five years .
e. Regression analysis is a statistical methodology that involves using statistical
techniques to analyze the relationship between a company's capital structure and its
financial performance. Regression analysis helps researchers to identify the optimal
mix of debt and equity financing for a given company. This methodology is useful
when researching the impact of multiple factors on capital structure decisions, such as a
company's profitability, risk, and growth opportunities.
For this research I have studied last five years Financial report and Annual reports of
Prabhu Bank Limited. From this I have get much more ideas and knowledge about the
Prahu Bank's Capital structure and its capital structure trend over last five years and
knew the relationship between Prabhu Bank's Capital Structure and its financial
performance.
f. Survey research is a methodology that involves collecting data through surveys from
companies, investors, and financial professionals to gain insights into their perceptions
of capital structure and the factors that influence their decisions. Survey research is
useful when researching the attitudes and perceptions of key stakeholders towards
capital structure decisions.
For this research I have collected data through surveys from the Prabhu Bank to gain
insights into their perceptions of capital structure and the factors that influence their
decisions.
g. Comparative analysis is a methodology that involves comparing the capital structure of
a company to its industry peers or competitors to identify differences and similarities in
their financing choices. This can help researchers understand the industry-specific
factors that influence capital structure decisions. Comparative analysis is useful when
researching the impact of industry-specific factors on capital structure decisions, such
as industry competition or regulatory environment.

For this research I have compared the capital structure of a Prabhu Bank to its
competitors like Everest Bank, sanima bank, Sunrise Bank , Nepal Bank Limited and
NCC Bank to identify differences and similarities in their financing choices.
In conclusion, capital structure analysis research methodology involves a systematic
approach to studying the relationship between a company's capital structure and its
financial performance. The choice of methodology will depend on the research question,
data availability, and the researcher's expertise. A combination of several methodologies
may also be used to gain a comprehensive understanding of capital structure analysis.
1.8 Limitation of the study
The capital structure of a bank refers to the composition of its sources of financing,
including equity, debt, and hybrid instruments. A well-structured capital base is critical for
banks to ensure their long-term sustainability and ability to meet regulatory requirements.
The study on the topic of "capital structure analysis of Prabhu Bank" is undoubtedly a
valuable endeavor, but like all studies, it has some limitations.

a. One significant limitation of this study is its focus on only one bank, Prabhu Bank,
and its capital structure. While this study provides valuable insights into Prabhu
Bank's capital structure, it cannot be generalized to other banks in Nepal or other
countries. Each bank has a unique capital structure influenced by various factors,
such as size, business model, risk appetite, and regulatory environment. Therefore,
the study's findings may not be applicable to other banks, and its recommendations
may not be appropriate for those banks.

b. Another limitation is that the study only considers the capital structure of Prabhu
Bank at a particular point in time. The study may fail to capture the dynamic nature
of capital structures that change over time. A more comprehensive study would
consider the changes in the bank's capital structure over a more extended period,
such as five to ten years, to observe trends and determine the factors that influence
those trends.

c. The study's reliance on secondary data sources is also a limitation. The study relies
on financial statements and other publicly available documents, which may not
provide a complete picture of the bank's capital structure. For example, the study
may not capture the bank's off-balance-sheet activities, which can impact the bank's
capital structure. Therefore, the study's findings may be limited to the extent that
the available data sources provide an accurate representation of the bank's capital
structure.

d. Another limitation is the lack of consideration for external factors that may impact
the bank's capital structure. The study does not consider factors such as economic
conditions, regulatory changes, or changes in investor sentiment, which can impact
a bank's capital structure. These external factors can influence the bank's cost of
capital, risk profile, and funding availability, which can impact the bank's capital
structure. A more comprehensive study would consider these external factors and
how they impact the bank's capital structure.
 e. Finally, the study does not consider the qualitative aspects of the bank's capital
structure, such as the bank's corporate governance, management quality, and
reputation. These qualitative factors can impact the bank's cost of capital and
funding availability, which can impact the bank's capital structure. Therefore, a
more comprehensive study would consider both qualitative and quantitative factors
that influence the bank's capital structure.

In conclusion, the study on the topic of "capital structure analysis of Prabhu Bank"
provides valuable insights into the bank's capital structure. However, the study's
limitations, such as its narrow focus on one bank, reliance on secondary data sources, and
lack of consideration for external and qualitative factors, may limit the generalizability and
accuracy of the study's findings. Future studies should address these limitations to provide
a more comprehensive understanding of bank capital structures.
 CHAPTER 2
DATA PRESENTATION AND ANALYSIS

2.1Prabhu Bank Limited's Profile

Prabhu Bank Limited is a commercial bank in Nepal that was established in 2007. The
bank operates under the supervision of the Nepal Rastra Bank, the central bank of Nepal.
The bank provides various banking services such as deposit accounts, loans, remittance,
and foreign exchange services to individuals, businesses, and institutions.

Prabhu Bank Limited has a strong presence in Nepal, with over 200 branches and more
than 220 ATMs across the country. The bank has a diversified range of products and
services, including savings and current accounts, fixed deposit accounts, home and auto
loans, credit cards, and international banking services. The bank also offers online banking
services, allowing customers to access their accounts from anywhere at any time.

One of the key strengths of Prabhu Bank Limited is its commitment to customer
satisfaction. The bank has a dedicated team of professionals who work tirelessly to ensure
that their customers' needs are met. The bank's customer-centric approach has helped it to
build a loyal customer base and has contributed to its success over the years.

Another strength of Prabhu Bank Limited is its focus on technology and innovation. The
bank has invested heavily in its technology infrastructure, allowing it to offer innovative
banking solutions to its customers. For instance, the bank has introduced mobile banking
and internet banking services, making it easier for customers to access their accounts and
carry out transactions on the go.

Prabhu Bank Limited is also committed to corporate social responsibility. The bank has
initiated various programs aimed at promoting education, health, and environmental
sustainability. The bank has also been actively involved in providing financial assistance to
various social organizations and charitable institutions.

In conclusion, Prabhu Bank Limited is a reputable commercial bank in Nepal that has
established itself as a leader in the banking industry. The bank's commitment to customer
satisfaction, innovation, and corporate social responsibility has helped it to build a strong
brand and a loyal customer base. With its wide range of products and services, Prabhu
Bank Limited is well-positioned to meet the banking needs of individuals, businesses, and
institutions in Nepal.
2.2 DATA PRESENTATION
Capital structure refers to a company outstanding debt and equity. It allows a form to
understand what kind of funding the company uses to finance its overall activities and
growth. In Other words, It shows the Proportion of senior debt, subordinated debt end
equity(common and preferred) In the finding. The purpose of capital structure used to
provide an overview of the level of the companies risk. As a rule of thumb, the higher the
proportion of deft financing a company has, the higher its exposure to risk will be. The
term capital in structure refers to the percentage of capital (money) At work in a business
by type. broadly speaking, There are two forms of capital: Equity capital and debt capital.
Each type of capital has its benefits and drawbacks, end all substantial part of wise
corporate stewardship and management is attempting to find the perfect capital structure
regarding risk /reward pay off for shareholders.
Commercial banks are the suppliers of finance for Trade and Industry, which plays a vital
role in the economic and financial life of the country. they help in the formation of capital
by investing the savings in productive areas. Rural people of underdeveloped countries like
Nepal need various banking facilities to enhance its economy. ,In most of the countries,
The banks are generally concentrated in urban and semi urban sectors. They neglected
rural sector due to heavy risk and low return, which is in fact, without it, other sectors of
economy cannot be flourished. The concept of banking is developed from the history with
the effort of ancient gold Smith who developed the practises of storing peoples gold and
valuables. They received valuables and used to issue a received to the depositors. As such
a receipts are good for payment equipments to the amount mentioned, It becomes like the
modern cheques, As a medium of exchange and means of payment. The history of the
systematic development of commercial bank in Nepal as compared to other developed
countries is of recent origin. In Nepal, efforts are being made to accelerate the pace of
economic development after the adaptations of first five year plan in [Link] bank
limited, the first and oldest bank in modern banking history of Nepal, was established in
1937 AD.
The commercial bank collect the scattered saving and place them into productive channels.
They hold the deposit of many persons, government establishment and business units. they
make fonts available through their leading and investing activities to borrowers,
individuals, businesses firms and government establishment .In doing so ,They assist both
the flows of goods and services from the government. They are media through which
monetary policy is affected. These banks are resource for development. it maintains
economic confidence of various segments and extends credit to people.
This is the most important chapter of the study. in this chapter the data collected will be
analysed and presented mathematically. All the above mentioned financial and statistical
tools will be used to present the data. To analyse the financial performance in a respect to
capital structure, Various presentations and analysis have been presented in this chapter
according to analytical research design mentioned in the first chapter using various
financial and statistical tools. The findings where interpreted in relation to the research
objectives. the impact of capital structure on profitability is studies.

2.3 Data analysis

It is already stated that capital structure refers to the combination of
preferences shares, equity shares capital including reserve and surplus as well
as long term debt. Optimal capital structure refers to that combination of
funds, which maximises the EPS, value of the firm and overall cost of
capital. The analysis in this chapter are divided into following sections,
Which is directly and indirectly related to the capital structure.

2.3.1 Capital Structure Analysis:

Prabhu Bank has a well-balanced capital structure, with equity capital
comprising around 60% of its total capital and the remaining 40% in the form
of debt. The bank has maintained a consistent capital structure over the years,
indicating that it is well-managed and has a strong financial foundation.

Capital adequacy refers to the bank's ability to absorb potential losses from its
operations and maintain its financial stability. The Nepal Rastra Bank, the
country's central bank, mandates that all commercial banks maintain a
minimum capital adequacy ratio (CAR) of 11%. The CAR is calculated as a
percentage of the bank's risk-weighted assets and measures the bank's ability
to absorb potential losses from its operations.

Prabhu Bank has consistently maintained a CAR well above the mandated
minimum of 11%. As of the end of the fiscal year 2078/2079, the bank's CAR
was 14.60%, indicating that it has a strong financial cushion to absorb
potential losses from its operations. The bank's strong capital adequacy is due
to its prudent management and risk mitigation practices.
2.3.1.1Present Capital Structure and Capital adequacy of Prabhu Bank
Tire 1 Capital and Breakdown of its Components:
 SN Particular Amt in ‘000’

a Paid up Equity Share Capital 12,708,704

Share Premium
b
Statutory General Reserve
c 2,717,810
Retained Earning
d 1,032,974
Unaudited current year cumulative profit
e
Other Reserves
f
Sub-total
16,459,488
Less: Fictitious Assets
g -
Less: investment in subordinate
h 524,229
Deferred Tax Assets
i 96,155
Total Tire 1 Capital
15,839,104

Tire II Capital and Breakdown of its Components

SN Particulars Amt in ‘000’

a General loan loss provision 2,387,078

b Exchange Equalization Reserve 12,554

c Investment Adjustment Reserve 2,280

d Debenture 5,637,773

Total Tire II Capital 8,039,684

Qualifying Capital

SN Particulars Amt in ‘000’

 a Core Capital (Tire I) 15,839,104

b Supplementary Capital(Tire II) 8,039,684

Total Capital Fund (Tire I and Tire II) 23,878,788

The above table shows that The total Tire I capital is 15,839,104 ,Which
includes paid up equity share capital, share premium, Statutory general
Reserve, retained earning, Unaudited current year cumulative profit, other
reserves.
Similarly total Tire II capital is 8,039,684 which Includes General loan loss
provision, exchange equalisation reserve, Investment adjustment reserve, and
debenture.

[Link] Capital Management of Prabhu Bank Limited.

Bank has rolled out its ICAAP Policy, 2015 amended in 2017 with the following
fundamental purposes:
a. Development of policy, practises, process, system and plan to meet the regulatory
and economic capital under the pillar 2 and of Basel II capital accord.
b. Report the board about the ongoing assessment of the banks risk profile, mitigation
mechanisms being applied and estimated future capital requirements of the bank.
c. Communicate and justify the regulatory authority about the procedure and
methodology adopted for ICAAP Based on present and future risk profile of the
bank.
d. Ensuring that management exercises sound judgement and set aside adequate
capital for material risks in accordance with the overall risk.
As per ICAAP Policy, 2015, amended in 2017, tolerable risk appetite of the Bank shall be
as follows:

Risk Category Risk Appetite Level

Economic capital Allocation Low Medium High
Credit Risk 80.00% to 82.00% √
Operational Risk 4.00% to 4.20% √
Market Risk O.20% to O.35% √
Supervisory Adjustment 4.00% to 4.25% √
Other Risk O.O5% to O.10% √
Standard Risk appetite under Credit Risk, Operation Risk, Market Risk, supervisory
adjustment and Other Risk are set at 80%, 4.00%, 0.20%, 4% and 0.05% of total capital
fund respectively. Meanwhile, Maximum tolerable risk under Credit Risk, Operation Risk,
Market Risk, supervisory adjustment and Other Risk are set at 82%, 4.20%, 0.35%, 4.25%
and 0.10% total capital fund respectively.
[Link] Capital Distribution over last 5 years

Year Core Capital (%) Supplementary Total capital fund

capital (%) (%)
2017/ 18 10.82 1.04 11.86
2018/19 10.22 0.94 11.16
2019 /20 9.37 1.81 11.18
2020 /21 8.55 4.55 13.10
2121/22 8.53 4.33 12.86

14
Core Capital/Supplymentary Capital/ Total Cap-

12

10

8
ital Fund

Core Capital
6
Supplementary Capital
Total Capital Fund
4

0
2074/75 2075/76 2076/77 2077/78 2078/79

Fiscal years

Above table and figure shows the capital distribution over last five years of Prabhu bank.
With the help of table and figures we come to know that the core capital of the Prabhu
bank is in decreasing trend but the supplementary capital and total capital fund are
unstable.
[Link] Relationship between Assets and total capital fund
Total capital fund and total assets are both important financial metrics that are used to
evaluate the financial health of a company or organization.

The relationship between total capital fund and total assets can be used to assess a
company's financial leverage. A company with a high total capital fund relative to its total
assets may be considered less risky, as it has more money available to invest and a larger
cushion to absorb any losses. On the other hand, a company with a low total capital fund
relative to its total assets may be considered more riskier, as it has less money available to
invest and may be more vulnerable to financial shocks.

Overall, while the relationship between total capital fund and total assets is just one of
many factors that can be used to evaluate a company's financial health, it is an important
metric that can provide valuable insights into a company's risk profile and investment
potential.
Year Total Capital Fund (%) Total Assets
2074/75 12,125,413,213 93,858,363,000
2075/76 13,710,382,734 134,080,744,000
2076/77 15,505,381,000 168,151,208,750
2077/78 22,597,773,000 216,842,795,897
2078/79 23,878,788,000 231,970,268,000

300,000,000,000

250,000,000,000

200,000,000,000
Total Capital Fund
/Total Assets

150,000,000,000
Series 2
Total Capital Fund
100,000,000,000

50,000,000,000

0
2074/75 2075/76 2076/77 2077/78 2078/79
Fiscal Years

Above table and figure shows the relationship between total capital fund and total assists.
With the help of table and figure we come to know that the relationship between total
capital fund and total assets is positive and they are in increasing trend.
[Link] Relationship between Total Capital Fund and total Debt
The relationship between total capital funds and total debt can be used to assess a
company's financial health and leverage. A company with a high proportion of equity
capital to total capital funds will have a lower level of financial risk, as it has less debt and
therefore less interest payments to make. Conversely, a company with a high proportion of
debt capital to total capital funds will have a higher level of financial risk, as it has more
debt and therefore more interest payments to make.
The relationship between total capital funds and total debt provides important information
about a company's financial structure, risk profile, and ability to repay its debts.

Year Total Capital Fund (%) Total Debt

2074/75 12,125,413,213 7,932,937,000
2075/76 13,710,382,734 119,416,715,000
2076/77 15,505,381,000 132,342,386,908
2077/78 22,597,773,000 198,816,829,995
2078/79 23,878,788,000 212,124,449,000

600,000,000,000

500,000,000,000
Total capital fund/total debt

400,000,000,000

300,000,000,000
Total Debt
Total Capital Fund
200,000,000,000

100,000,000,000

0
2074/75 2075/76 2076/77 2077/78 2078/79
Years

Above table shows the relationship between Total capital fund and total debt .From the
above table we come to know that the relationship between Total Capital Fund and Total
Debt is positive and it is in increasing trend.

[Link] Relationship between Total Capital fund and total Equity:

Total equity refers to the portion of a company's assets that is owned by its shareholders. It
represents the value of the company's assets after all of its liabilities have been paid off.
Equity can be raised through the sale of stocks or other ownership stakes in the company.

In general, total capital fund and total equity are related in that they both represent sources
of financial strength for a company. However, the two are not directly interchangeable.
Total equity is a subset of total capital fund, meaning that it is included in the calculation
of total capital fund but does not encompass all of the sources of funding that a company
may have available.
Year Total Capital Fund (%) Total Equity
 2074/75 12,125,413,213 12,925,426,000
2075/76 13,710,382,734 14,664,029,000
2076/77 15,505,381,000 15,808,821,842
2077/78 22,597,773,000 18,025,965,995
2078/79 23,878,788,000 19,845,819,000

60,000,000,000

50,000,000,000
Total capital fund/Total equity

40,000,000,000

30,000,000,000
Total Equity
Total capital fund
20,000,000,000

10,000,000,000

0
2074/75 2075/76 2076/77 2077/78 2078/79
years

Above table and figure shows the relationship between Total capital fund and total Equity.
From the above table and figure we come to know that the relationship between total
capital fund and total equity is positive and it is also in increasing trend.

[Link] Relationship between total capital fund and total income:

there may be a positive relationship between total capital fund and total income. For
example, a business that has a large amount of capital available for investment may be able
to generate higher income by investing in new products, technologies, or marketing
strategies. Similarly, an individual with a large amount of savings or investment capital
may be able to generate higher income through interest, dividends, or capital gains.

However, the relationship between total capital fund and total income can also be
influenced by a number of other factors, such as market conditions, economic trends, and
individual financial strategies. Therefore, it is important to consider these factors when
assessing the relationship between total capital fund and total income in a particular
situation.
Years Total Capital Fund (%) Total income
2074/75 12,125,413,213 3,339,467,000
2075/76 13,710,382,734 1,835,062,000
2076/77 15,505,381,000 5,331,520,476
 2077/78 22,597,773,000 7,416,179,251
2078/79 23,878,788,000 7,992,067,000

Total capital fund and Total income

35,000,000,000

30,000,000,000
Total capital fund/ Total income

25,000,000,000

20,000,000,000

15,000,000,000

10,000,000,000

5,000,000,000

0
2074/75 2075/76 2076/77 2077/78 2078/79

Total Capital Fund Total Income

Above table and figure shows the relationship between Total capital fund and Total
Income . from the above table and figure we come to know that the relationship between
Total capital fund and Total Income is positive and it is also in increasing trend.
[Link] Relationship between Total capital fund and Total Expenses
If total expenses are greater than total capital funds, it can lead to financial difficulties for
the organization. This is because the organization will be spending more money than it has
available, which can result in a deficit or even bankruptcy if the situation is not addressed.

On the other hand, if total capital funds are greater than total expenses, it can be an
indication that the organization has sufficient financial resources to cover its expenses and
potentially invest in future growth.

It's important to note that having a surplus of capital funds does not necessarily mean that
an organization is financially healthy. It's also important to carefully manage expenses to
ensure that they align with the organization's priorities and goals.

Fascial years Total Capital Fund Total Expenses

2074/75 12,125,413,213 4,574,470,000
2075/76 13,710,382,734 1,053,985,000
2076/77 15,505,381,000 3,507,949,559
2077/78 22,597,773,000 4,108,424,420
2078/79 23,878,788,000 138,312,516
 30,000,000,000

25,000,000,000
Total capital fund/Total Expenses

20,000,000,000

15,000,000,000 Total Expenses

Total Capital Fund
10,000,000,000

5,000,000,000

0
2074/75 2075/76 2076/77 2077/78 2978/79
Years
Above table and figure shows the relationship between Total Capital fund and Total
Expenses. From the above table and figure we come to know that the relationship between
Total capital fund and Total Expenses is unstable , in 2075/76 total expenses decreased and
than for two years it increased and than again it decreases in year 2078/79.
[Link] Net Profit over last 5 years
Net profit over gross income is a financial ratio that measures the percentage of gross
income that represents a company's net profit after all expenses have been deducted. The
formula for calculating net profit over gross income is:

Net Profit / Gross Income x 100%

Net profit is the amount of revenue that remains after all expenses, including cost of goods
sold, operating expenses, and taxes, have been deducted. Gross income, on the other hand,
is the total revenue generated by a company from all sources before any expenses are
deducted.

The net profit over gross income ratio is an important measure of a company's profitability
and efficiency in managing its expenses. A higher ratio indicates that a company is able to
generate a greater profit from its gross income, while a lower ratio may suggest that the
company is struggling to control its expenses and maintain profitability.

It is important to note that the net profit over gross income ratio should not be used in
isolation, but should be analyzed in conjunction with other financial metrics and industry
benchmarks to provide a more complete picture of a company's financial health.

Fascial Years Net profit/Gross Income

 2074/75 25.69
2075/76 31.77
2076/77 20.11
2077/78 11.70
2078/79 10.06

Net Profit/Gross Income

35

30
Net Profit/Gross Income

25

20
Net Profit/Gross Income
15

10

0
2074/75 2075/76 2076/77 2077/78 2078/79
Years

Above table and figure shows the trend of Net Profit over Gross income of last five years.
From the above table and figure we come to know that in 2074/75 Net Profit has increased
but than after it is continuously in decreasing trend .

[Link] Debt to Equity Ratio over last 5 Years

The debt-to-equity ratio (D/E) is a financial metric that compares a company's total debt to
its total equity. It is calculated by dividing the total debt of a company by its total equity.

D/E Ratio = Total Debt / Total Equity

The ratio represents the proportion of a company's financing that comes from debt
compared to equity. A higher ratio indicates that the company has more debt relative to its
equity, which can indicate a higher level of financial risk, as the company may have a
higher debt burden that needs to be serviced.

On the other hand, a lower D/E ratio suggests that the company has a lower debt burden
and is more reliant on equity financing. This can indicate a lower level of financial risk, as
the company may have more financial flexibility and a stronger balance sheet.
The optimal D/E ratio can vary by industry and company, and it is important to consider
other financial metrics and qualitative factors when evaluating a company's financial
health.
 Fascial Years Debt to Equity Ratio

2074/75 9.23%
2075/76 8.14%
2076/77 8.37%
2077/78 11.029%
2078/79 10.68%

Debt to equity ratio

40
35
30
25
Debt to Equity ratio

20 Debt to equity ratio

15
10
5
0
2074/75 2075/76 2076/77 2077/78 2078/79

Years

Above table and figure shows the Debt-to-Equity ratio trend of Prabhu Bank over last five
years. In above table in can see that in 2075/76 it decreases and than it increases for two
years and than again it decreases in year 2078/79.
[Link] Dividend Policy over last five year
Dividend policy refers to the approach a company takes in deciding how much of its
profits it will distribute to shareholders as dividends and how frequently it will make such
distributions. Companies can either pay out dividends regularly or irregularly, or they may
choose to retain their profits and reinvest them in the business.
Prabhu Bank Limited is a commercial bank based in Nepal. The bank's dividend policy is
determined by its board of directors, who consider various factors such as the bank's
financial performance, cash flow requirements, regulatory requirements, and shareholder
expectations.

Prabhu Bank's dividend policy reflects its commitment to creating value for its
shareholders while also ensuring the bank's long-term financial sustainability. By paying
out dividends, the bank aims to reward its shareholders for their investment and maintain
their confidence in the bank's performance. Overall, Prabhu Bank's dividend policy
demonstrates its focus on balancing the interests of its shareholders, customers, and other
stakeholders.

Fascial years Dividend (%)

2074/75 8.42
2075/76 16.84
2076/77 10.52
2077/78 12.63
2078/79 8.00

Dividend
18
16
14
12
10
Dividend

Dividend
8
6
4
2
0
2074/75 2075/76 2076/77 2077/78 2078/79
Years

Above table and figures shows the Dividend distribution over last five years . In above
table and figure we can see that the dividend given by the Prabhu bank every year is
unstable. In 2075/76 it increases, in 2076/77 it decreases, again in 2077/78 it increases
and in 2078/79 it again decreases.

[Link] Borrowings over last 5 years

Borrowing represent the amount of money that the company has borrowed through various
sources.

Fascial Years Borrowing

2074/75 -
2075/76 1,100,399,000
2076/77 495,179,567
2077/78 -
2078/79 24,995,014

Borrowing
1200000000
1000000000
800000000
Borrowings

600000000 Borrowing
400000000
200000000
0
2074/75 2075/76 2076/77 2077/78 2078/79
Years

Above table and figure shows the Borrowing trend of Prabhu Bank over last five years.
From the above table and figure we come to know that the Borrowing trend of Prabhu bank
is in decreasing trend. Although in year2074/75 and 2077/78 no any Borrowings were
made.
[Link] Increase in Financial Investment over last 5 years
Financial investment refers to the process of allocating funds to financial assets such as
stocks, bonds, and mutual funds, with the objective of earning a return on investment. An
increase in financial investment can be attributed to various factors such as economic
growth, low-interest rates, market optimism, and increased investor confidence. Financial
investment can have a positive impact on the economy by increasing liquidity, boosting job
creation, and promoting economic growth.

The increase in financial investment can also have a downside, such as an increase in
market volatility and the possibility of financial bubbles. Investors must conduct thorough
research and analysis before making any investment decisions to avoid potential risks. It is
essential to have a diversified investment portfolio to minimize the risk of losses and
maximize the potential for returns. Overall, an increase in financial investment can be
beneficial for both investors and the economy, but it is crucial to exercise caution and
make informed decisions.
 Years Increase in financial
investment
2074/75 -
2075/76 6,700,153,000
2076/77 5,497,710,298
2077/8 11,269,539,441
2078/79 8,763,125,490

Increase in financial investment

12000000000

10000000000

8000000000
Increase in Financial investment

6000000000 Increase in financial investment

4000000000

2000000000

0
2074/752075/762076/772077/782078/79
Years

Above table and figure shows the Increases in financial investment trend of Prabhu Bank
over last five years. Above table and figure shows that there was no increment in financial
investment in 2074/75 and than it increases. After that it decreases in 2076/77 and than it
increases next year but again it decreases in year 2078/79.
[Link] Credit Risk over last 5 Years
Credit risk is the likelihood that a borrower may default on their financial obligation,
resulting in the lender losing some or all of the principal and interest payments. The risk is
determined by factors such as the borrower's credit history, financial stability, and market
conditions. Lenders often use credit risk models to assess the risk and determine the
interest rate, loan amount, and repayment terms.

Credit risk can be classified into two types: default risk and credit spread risk. Default risk
refers to the risk of non-repayment of debt, while credit spread risk refers to the risk of
changes in market conditions, leading to an increase in the credit spread, resulting in a
higher cost of borrowing. Managing credit risk is crucial for lenders and investors to avoid
potential losses and maintain a healthy financial position. Proper risk management
practices, including diversification, credit scoring, and credit monitoring, can help mitigate
credit risk.

Years Credit risk (of total risk)

2074/75 92.32%
2075/76 92.43
2076/77 91
2077/78 92
2078/79 90

Credit Risk
93
92.5
92
91.5
Credit Risk

91
Credit Risk
90.5
90
89.5
89
88.5
2074/75 2075/76 2076/77 2077/78 2078/79
Years

Above table and figure shows the Credit risk trend of Prabhu bank. It shows that Credit
risk is almost between 90 to 93 % every year. In 2078/79 bank is able to manage credit
risk in 90% which is lowest ever in last five years.

[Link] Operational Risk over last 5 years

Operational risk refers to the risk of loss resulting from inadequate or failed internal
processes, people, systems, or external events. It is a type of risk that arises from the day-
to-day operations of an organization and can lead to financial, reputational, or legal harm.

Examples of operational risk include:

Internal fraud, such as embezzlement or theft by employees

External fraud, such as cyber attacks or hacking
Human error, such as mistakes made by employees or faulty systems
System failures, such as technology malfunctions or power outages
Legal and regulatory risks, such as violations of laws or regulations
Damage to physical assets, such as natural disasters or accidents

Managing operational risk involves identifying potential risks, assessing the likelihood and
impact of those risks, and implementing measures to mitigate them. This can include
implementing controls, such as segregation of duties, monitoring systems, and disaster
recovery plans. It is important for organizations to have a comprehensive and effective
operational risk management framework in place to ensure the long-term success and
sustainability of the organization.

Years Operational Risk (of total

risk )
2074/75 4.59 %
2075/76 4.34
2076/77 3.79
2077/78 3.92
2078/79 4.6

Operational Risk
5
4.5
4
3.5
Operational Risk

3
2.5 Operational Risk
2
1.5
1
0.5
0
2074/75 2075/76 2076/77 2077/78 2078/79
Years
Above table and figure shows the Operational risk trend of Prabhu bank. It shows that the
Operational risk of Prabhu bank decreases from 2074/75 to 2076/77 and than it increases
for two years 2077/78 and 2078/79.

[Link] Market Risk over last 5 years

Market risk refers to the potential for losses resulting from fluctuations in financial market
prices, such as stocks, bonds, currencies, and commodities. Market risk is inherent in all
investments, and it cannot be entirely eliminated.

Investors face market risk due to various factors such as changes in economic conditions,
geopolitical events, interest rate fluctuations, and corporate earnings reports. These factors
ca7n affect the prices of securities, leading to gains or losses for investors.

Investors can manage market risk by diversifying their portfolios, investing in a mix of
assets that are not highly correlated with each other. Additionally, investors can use
hedging strategies such as buying options or futures contracts to offset potential losses.

Institutions such as banks, insurance companies, and mutual funds also face market risk
due to their investments in financial markets. They manage this risk by setting limits on
their exposure to particular asset classes or market segments, and by monitoring their
portfolios regularly.

Years Market risk (of total risk)

2074/75 0.17 %
2075/76 0.31
2076/77 0.33
2077/78 0.084
2078/79 0.17
 Market Risk
0.35
0.3
0.25
Markret Risk

0.2
0.15 Market Risk
0.1
0.05
0
2074/75 2075/76 2076/77 2077/78 2078/79
Years

Above table and figure shows the Market risk trend of Prabhu Bank. Which is increases for
three years from 2074/75 to 2076/77 and than it decreases and than it again increases in
year 2078/79.

[Link] Total Core capital to Risk weighted exposer (TCC/RWE)

Total core Years TCC/RWE capital to risk-

weighted 2074/75 12.66 % exposure
2075/76 11.58 (TCC/RWE) is
a financial 2076/77 9.37 ratio that
measures a 2077/78 8.55 bank's capital
adequacy 2078/79 12.86 by comparing
the amount of a bank's core
capital to its risk-weighted assets. The ratio is used to assess a bank's ability to absorb
losses and meet its obligations. The higher the TCC/RWE ratio, the better capitalized the
bank is and the more capable it is of withstanding financial stress.

To calculate the TCC/RWE ratio, the bank's total core capital is divided by its risk-
weighted assets. Core capital includes the bank's common stock, retained earnings, and
certain types of preferred stock. Risk-weighted assets are determined by multiplying the
bank's assets by a risk weight factor based on the level of risk associated with each type of
asset.
A TCRWCE ratio of at least 8% is generally considered to be the minimum required by
regulators for a bank to be considered well-capitalized.
 TCC/RWE
14
12
10
8
TCC/RWE

TCC/RWE
6
4
2
0
2074/75 2075/76 2076/77 2077/78 2078/79
Years

Above table and figure shows the TCC/RWE trend of Prabhu Bank over last five years. It
decreases for four years continuously and than it increases in year 2078/79.

[Link] Total Capital Fund to Risk weighted exposer (TC/FRWE)

Total Capital Fund to Risk Weighted Exposures (TCF/RWE) is a measure of a bank's
capital adequacy, which compares its capital reserves to its risk-weighted assets.
TCF/RWE is calculated by dividing the bank's total capital fund by its risk-weighted
assets.

Total Capital Fund (TCF) is the sum of a bank's Tier 1 and Tier 2 capital. Tier 1 capital
consists of common equity and retained earnings, while Tier 2 capital includes
subordinated debt and other forms of hybrid capital.

Risk-weighted assets (RWE) are the total assets of a bank, weighted by the level of risk
associated with each asset. For example, loans to individuals with good credit ratings are
considered less risky than loans to individuals with poor credit ratings, so they are assigned
a lower risk weight.

The TCF/RWE ratio is an important metric used by regulators to assess a bank's financial
strength and its ability to absorb losses. A higher TCF/RWE ratio indicates that a bank has
more capital to absorb potential losses, which makes it more resilient and less likely to fail.
Generally, regulators require banks to maintain a TCF/RWE ratio of at least 8%.

Years TCF/RWE
2074/75 11.33 %
 2075/76 10.48
2076/77 11.18
2077/78 13.10
2078/79 8.53

TCF/RWE
14
12
TCF/RWE

10
8
6 TCF/RWE
4
2
0
2074/75 2075/76 2076/77 2077/78 2078/79
Years

Above table and figure shows the TCF/RWE trend of Prabhu Bank. It decreases in
2075/76 and than it increases for two years and than it increases in 2077/78 there after it
again decreases in year 2078/79.

[Link] Findings and discussion

a. Core Capital of Prabhu Bank is in decreasing trend and, supplementary capital and
Total capital fund is unstable.
b. The relationship between Total capital fund and Total Assets is positive and they
are in increasing trend.
c. The relationship between Total capital fund and Total debt is positive and they are
in increasing trend.
d. The relationship between Total capital fund and Total Equity is positive and they
are in increasing trend.
e. The relationship between Total capital fund and Total income is positive and they
are in increasing trend.
f. The relationship between Total capital fund and Total expenses of Prabhu Bank is
unstable.
g. The Net profit over Gross income of Prabhu bank after 2074/75 is in decreasing
trend.
h. Debt to equity ratio of Prabhu bank is unstable. Some year it increases and some
years it decreases.
i. Dividend distribution of Prabhu bank is also in decreasing trend. Some years it
increases and some years it decreases.
 j. Borrowing trend of Prabhu bank over last five year is in decreasing trend.
k. Increase in financial investment of Prabhu Bank over last five years is unstable.
Some years it increases and some years it decreases.
l. Risk associated with the Prabhu bank like Credit risk, Market risk, Operational risk
over last five years are also unstable.
m. Total core capital to risk weighted exposer and Total capital fund to risk weighted
exposer are also unstable.

Chapter III
Conclusion and Action Implications
3.1 Conclusion
a. Core capital is decreasing every year. It can weaken Prabhu bank's capital
structure and increase its risk profile, potentially leading to regulatory
intervention and making it more difficult and expensive for the bank to raise
additional capital in the future.
b. The positive and increasing relationship between Total capital fund and Total
Assets suggest that the Prabhu bank is growing and expanding its operations,
which would require additional capital to finance its activities.
c. The relationship between total capital fund and total debt is positive and
increasing, it indicates that the Prabhu bank is relying more on debt financing to
fund its operations and growth, which can have several effects on its capital
structure like; Higher leverage, increased risk, Lower cost of capital and so on.
d. The positive and increasing relationship between total capital fund and total
equity would suggest that the Prabhu bank is becoming more conservative in its
financing choices and is likely to have a stronger capital structure.
e. The positive and increasing relationship between total capital fund and total
income suggests that the Prabhu bank is performing well and has a strong
financial position, which can have positive effects on its capital structure.
f. The unstable relationship between total capital fund and total expenses can
negatively impact a bank's capital structure and its ability to raise capital and
lend.
g. After 2074/75 net profit over gross income is in a decreasing trend, it may
indicate that the Prabhu bank is experiencing challenges generating sufficient
profits from its operations. This may be due to various factors such as
increasing expenses, declining revenues, or poor management practices.
h. A debt-to-equity ratio between 8% to 11% over the last 5 years suggests that the
bank has maintained a relatively conservative capital structure. This means that
the Prabhu bank has relied more on equity and less on debt financing to finance
its operations and growth.
i. If dividend distribution over the last 5 years is unstable, it may have an impact
on the capital structure of Prabhu bank in several ways like decrease investors
confidence, reduced retained earning, Regulatory concern etc.
 j. A decrease in borrowing can have both positive and negative effects on Prabhu
bank's capital structure, depending on the bank's overall financial situation and
its ability to manage its funding sources.
k. Prabhu bank's credit risk, operational risk, and market risk fallen within the
above-mentioned table and figures, it need to hold a higher amount of capital to
cover potential losses. This could lead to a higher capital. lThe TCC/RWE ratio
is between 8.55% to 12.86% over the last 5 years, it indicates that the bank has
maintained a healthy level of capital to support its operations and absorb
potential losses.
l. The TCF/RWE ratio is between 10.48% to 13.10% over the last 5 years, it
indicates that the CAR of the bank is within the regulatory requirements set by
the relevant authorities.
3.2 Action Implications
a. The Prabhu bank should analyse the reasons which decrease the core capital,
implement measures to increase core capital, review the bank’s risk
management practices, developed a capital management plan and communicate
with stakeholders.
b. To address the issue like unstable relationship between total capital fund and
total expenses, Prabhu bank should Review the current capital structure,
improve bank's financial performance, increase capital reserves, Manage risk,
and Seek professional advice.
c. To increase the Net profit over Gross income Prabhu bank should decrease
expenses, increase revenue and manage a good management practice.
d. To improve dividend distribution system, Prabhu bank should take the
following actions
 Review the bank’s dividend policy
 Communicate with shareholders
 Improve financial performance
 Seek regulatory guidelines
Consider alternative forms of capital

References
Manish Kumar Sarraf (2022), A project report on Capital Structure Analysis of Nepal
Bank Limited, Birgunj, Parsa:

[Link]
structure-definition/33279