TABLE OF CONTENTS

Tittle Page ………………………………………………………………………….………….. i

Declaration …………………………………………………………………..……………….. ii
Supervisor’s Recommendation ……………………………………………….……………. iii
Endorsement ……………………………………………………………………….…………. iv
Acknowledgement …………………………………………………………….………………. v
Table of Contents ……………………………………………………………………………. vi
Table of Figures ………………………………………………………………….…………. vii
Abbreviations ………………………………………………………………….……………. viii

CHAPTER-I: INTRODUTCION
Background1
Profile of NABIL and EBL2
Objectives3
Rationale3
Literature Review3
Methods6
Limitations12

CHAPTER-II: RESULTS AND FINGINGS

Data Presentation
Analysis Effect of Liquidity and Loan
Findings

CHAPTER-II: SUMMARY AND CONCLUSION

Summary
Conclusion

BIBLIOGRAPHY
APPENDIX

vi
 LIST OF TABLES
Page No.
Table 2.1 Loan and Advances to Current Asset Ratio 13
Table 2.2 Loan and Advances to Total Working Fund Ratio 15
Table 2.3 Return on Loan and Advances Ratio 16
Table 2.4 Total Interest Earned to Total Loan and Advances Ratio 17
Table 2.5 Non-Performing Loans to Total Loans and Advances Ratio 18
Table 2.6 Loan Loss Provision to Total Loan and Advances Ratio 20
Table 2.7 Correlation between Total Deposit and Loan and Advances 21
Table 2.8 Correlation between Net Profit to Loan and Advances 22
Table 2.9 Correlation between Non performing Loan and Loan & Advances 22

vii
 LIST OF FIGURES
Page No.
Figure 2.1 Loan and Advances to Current Asset Ratio 14
Figure 2.2 Loan and Advances to Total Working Fund Ratio 15
Figure 2.3 Return on Loan and Advances Ratio 16
Figure 2.4 Total Interest Earned to Total Loan and Advances Ratio 18
Figure 2.5 Non-Performing Loans to Total Loans and Advances Ratio 19
Figure 2.6 Loan Loss Provision to Total Loan and Advances Ratio 20

viii
 1

CHAPTER-I
INTRODUCTION

1.1 Background
Loan management means disbursement of deposit fund in beneficial sectors as well as
priority sector as per NRB directive and recover them in time properly. It is most
important task for the bank or financial institutions. A bank should invest those
sectors where the investment wouldn’t bad debt. If the fund would turn in to bad debt,
the bank will lose huge amount of fund. So, the bank should manage appropriate
amount of loan loss provision. It reduces the high amount loss in one single time
period. Thus, loan management is one of very essential as well as crucial task.

Loan management, to make it simple, refers to fund and working capital management.
However, most people have some miss concepts. They only consider credit
management is a short-term process. In fact, if it relates to working capital, it may be
right. However, if it relates to fund management, it can be a long-term basis. You may
imagine asset valuation for credit evaluation, i.e. a credit management step, refer to
fixed assets usually. Value of fixed assets will change over its life. In other words,
your credit evaluation will adjust all the time. Credit Management is the process of
mitigating the risk involved in granting the credit. It is a key to successfully utilize our
credit by minimizing our risks and losses. Credit is regarded as the most income
generating assets especially in commercial banks (Johnson, 1994).

Loan Management strongly recommends analyzing and managing the credit risks.
Credit risk is defined as the possibility that the borrower will fail to meet its
obligations in accordance with the agreed terms and conditions. Credit risk is not
restricted to lending activities only but also includes off balance sheet and interbank
explores. The goal of the credit risk management is to be maximizing a bank’s risk
adjusted rate of return by maintaining the credit risk exposure within acceptable
parameters. For most banks, loans are the largest and most obvious sources of credit
risk, however, other source of credit risk exit throughout the activities of the bank,
including the banking book, and in the trading book, and both increasingly facing
credit risk in various financial instruments other than land, including acceptances,
 2

interbank transactions and guarantees and the settlements of transactions (Joshi,

2002).

1.2Profile of NABIL and EBL

Nabil Bank Limited, the first foreign joint venture bank of Nepal, established in 1984
A.D. (2041 B.S.) under the commercial Bank Act 1974 A.D. (2031 B.S.) and the
companies Act 1964 A.D. (2021 B.S.). It was established with the permission of the
central bank (Nepal Rastra Bank).There are Nepalese and foreign investors in it.
Dubai Bank Limited was the initial partner with 50% equally to National Bank Ltd. of
Bangladesh. Nabil was incorporated with the objective of extending international
standard modern banking services to various sectors of the society. Pursuing its
objective, Nabil provides a full range of commercial banking services through its 19
points of representation across the kingdom and over 170 reputed correspondent
banks across the globe. Nabil, as a pioneer in introducing many innovative products
and marketing concepts in the domestic banking sector, represents a milestone in the
banking history of Nepal as it started an era of modern banking with customer
satisfaction measured as a focal objective while doing business. Operations of the
bank including day-to-day operations and risk management are managed by highly
qualified experienced management team. Bank is fully equipped with modern
technology which includes ATMs, credit cards, state-of-art, world renowned software
from Infosys Technologies System, Bangalore, India, Internet banking system and
Tele banking system.

Catering to more than 9 lakhs customers; Everest Bank Limited (EBL) is a name you
can depend on for professionalized & efficient banking services. Founded in 1994, the
Bank has been one of the leading banks of the [Link] Bank Limited (EBL)
provides customer-friendly services through its wide Network connected through
ABBS system, which enables customers for operational transactions from any
branches. The bank has 92 Branches, 116 ATM Counters & 28 Revenue Collection
Counters across the country making it a very efficient and accessible bank for its
customers, anytime, anywhere. It has been catering its services to various segments of
the society. With clients from all walks of life, the Bank has helped develop the nation
corporately, agriculturally and industrially. Punjab National Bank (PNB), our joint
 3

venture partner (holding 20% equity) is the largest nationalized bank in India having
presence virtually in all important centers. Owing to its performance during the year
2012-13, the Bank earned many laurels & accolades in recognition to its service &
overall performance. The bank has now more than 6,000 branches and 7000 ATMs
spread all across the India. As a joint-venture partner, PNB has been providing top
management support to EBL under Technical Service Agreement.

1.3Objectives
The main objective of the study is to analyze the loan management adopted by the
sample bank. However, the specific objectives can be set as follows:
 To examine the trend of loan and advances and non-performing loans of
commercial banks.
 To analyze the effect of liquidity on lending performance.
 To analyze the effect of loan on profitability.

1.4 Rationale
Present study is very important from the point of view of bank management. The
main strategy of every commercial bank is to establish the better creditability
position, which has directly impacted the financial performance of an organization.
Beside it helps to build positive attitude and perceptions to non-customer that helps to
make the organizational successes in terms of better transaction, better turnover and
better [Link] of the earlier researches were focused on financial
performances of bank but few researches were focused on creditability position of
bank. From view point of bank credit is the most important in and sincere area.
Thereport helps the commercial banks to fill up a research gap on the study of credit
management.

1.5Literature Review
1.5.1 Conceptual Review
The review of textbooks and other reference materials such as: newspaper, magazines,
research articles, journals and past thesis have been included in this
[Link] between two parties in which one (the creditor or lender) supplies
money, goods, services, or securities in return for a promised future payment by the
 4

other (the debtor or borrower) is credit. Such transactions normally include the
payment of interest to the lender. Credit may be extended by public or private
institutions to finance business activities, agricultural operations, consumer
expenditures, or government [Link] is the amount of money lent by the
creditor (bank) to the borrower (customers) either on the basis of security or without
[Link] of money lent by bank is the credit (Oxford Advance learners
Dictionary, 1992).

1.5.2 Review of Related Study

Rawal (2011) has conducted a study on “Measures Adopted to Overcome the
Problems of the Financial Sector and the NPLs’’ addressed that financial sector
reform measures can be broadly grouped under three heads: i)restructuring of large
two state-owned banksii)reengineering of the centralbanks and iii)capacity building in
the financial sector. In this concern, management of two state-owned banks has been
handed over to the expert groups comprising the people within and outside of Nepal;
the reengineering and restructuring process of the central bank (Nepal Rastra Bank)is
in progress. Side by side, the capacity building in financial sector is smoothly
approaching ahead. Enactment of NRB Act which, gives greater autonomy in its
operation, enforcement of inspection and supervision directives based on international
standard, withdrawal of government /NRB involvement from the financial
institutions, adoption of accommodative monetary measures the efforts made to build
up sound financial [Link], with a view to strengthening legal
agreement, Debt recovery Act has been approved and the Debt consolidate financial
sector through an umbrella Act banks and financial institution Act has recently been
approved and for the purpose to resolve the problem of Non-performing-assets. Assets
management company Act is the process of being approved. In addition,
establishment of credit rating Company strengthening of credit Bureau and Banker’s
training canter are some of the tasks processing ahead. With the agreement of such
legislative, regulatory, supervisory and institutional framework, the financial sector
would hopefully, take a pace for receiving which, in turn, would help NPLs to be
reduced.

Adhikari (2012) has conducted a study on “Non-Performing Loan and its

Management” states in articles that one of the main functions of commercial banks is
 5

to management of Non-Performing loan. Main function of commercial banks and

financial institution is accepting deposit and provide loan. In undeveloped countries
like Nepal providing loan and interest income generating through loan is the main
sources of bank and financial institutions. If provided loan become non-performing
loan the bank and financial institutions suffer from big financial scarcity. One side un-
recover interest cannot make income and other side loan itself converts in NPL that
make huge effect in financial condition of bank and financial institutions. So,
management of NPL is crucial factor for any bank and financial institutions. In
practical, there may be default rate in aggregate banking system. Two commercial
banks hold by govt. Nepal Bank Limited and Rastriya Banijya Bank are accounting
for the highest number and amount of non- performing assets (NPA) among other
commercial banks.

Pradhan (2015) has conducted a study on"A Study on Fund Mobilization of Joint
Venture Banks (With Reference to Himalayan Bank Ltd. and Nabil Bank Ltd. and
Everest Bank Ltd.)."The main objectives and findings are given below:
 To analyze the ability of the selected joint venture banks in fund mobilization.
 To identify the factors affecting the fund mobilization.
 To provide suggestion and recommendation on the basis of analysis.
 The average credit and advance to total assets ratio shows that EBL seems
successful to mobilize its total working fund as credit and advance in
comparison to other banks. But HBL is more consistent ratio than other banks.
 The average debt to equity ratio shows that HBL has the highest average ratio
than other banks that means the financial risk of this bank is also high. All the
JVBs have used excessive amount of debt.
 The average ratio of total interest income to total credit and advances of
NABIL is lightly higher than HBL, EBL.

Shah (2016) has conducted a study on “Lending Policy and Recovery Management of
Standard Chartered Bank Nepal Limited and Everest bank limited.”The main
objectives and findings are given below:
 To analyze the recovery management of commercial banks.
 To examine the loan loss provision and NPL of commercial banks.
 6

 To analyze the relationship between loan and advance and deposit of sample
banks.
 The deposit collection by the banks shows that increasing but in a fluctuating
trend.
 Out of different types of deposit collection amount, higher account has been
collected in saving deposit account.
 The correlation of loan loss provision and loan loss disbursement of EBL is
negative.

Bajracharya (2014) has conducted a study on “A Study on Fund Mobilization of Joint

Venture Banks (With Reference to Himalayan Bank Ltd. and Nabil Bank Ltd.
andEverest Bank Ltd.)". The objective of the study has been concentrated on
reviewing the fund collection and its mobilization in the joint venture banks especially
in NABIL, HBL and EBL. Her study has expected to prove a useful feedback to the
commercial banks.

1.6 Methods
1.6.1 Research Design
The research covers the two commercial banks in Nepal particular in their loan
management practice. To achieve the objectives descriptive and analytical research
designs are used in this study.

1.6.2 Population and Sample

In the present context, there are 28 commercial banks operating in Nepal. The study
of all these banks within this research is almost impossible. Hence, considering these
number of banks as total population, only two commercial banks namely Everest
Bank Limited (EBL) and NABIL Bank Limited (NABIL) within from these total
population has been taken as sample and tried to achieve the objectives set out by
analyzing the data.

1.6.3 Data Collection Procedures

The Annual Report of concern bank was obtained from field visiting of these banks
especially from their corporate office. NRB publication, such as Quarterly, Economic
 7

Bulletin, Banking and financial statistics, Economic Report, annual Report of NRB
etc. has been collected from the personal visit of concerned department of NRB at
Baluwatar. The data on some aspect of these banks was obtained from the website of
Nepal stock exchange, concerned commercial banks and Nepal Rastra Bank.

1.6.4 Tools of Analysis

To compare these commercial banks, these following accounting and statistical tools
are used for financial analysis.

Financial Ratio Analysis

The technique of ratio analysis is of a considerable significance in studying the
financial stability, liquidity profitability and the quality of the business and industrial
concerns.

Loan and Advances to Current Assets Ratio

It shows the relationship between loan and advances to current assets or shows the
capacity of a bank to purchase discount bill and loan, cash credit and overdraft facility
to its customer. It can be computed as,
Loan∧ Advances
Loan and Advances to Current Assets Ratio =
Current Assets
Loan and advances represent local and foreign bills discounted and purchased and
loan, cash credit and overdraft in local currency as well as inconvertible foreign
currency.

Loan and Advances to Total Deposit Ratio

This ratio is calculated to find out, how successful the bank is utilizing their total
deposition loan and advances for profit generation purpose. Higher the ratio implies
the better utilization of loan and advances out of total deposit.
This is calculated as,
Loan∧ Advances
Loan and Advances to Total Deposit Ratio =
Total Deposit

Loan and Advances to Total Working Fund Ratio

 8

Loan and advances is the major component in working fund (total assets), which
includes the ability of bank to channelize its deposit in the form of loan and advances
to earn high return. This can be calculated by dividing loan and advances by total
working fund. This can be stated as,
Loan∧ Advances
Loan and Advances to Total Working Fund Ratio =
Total Working Fund

Return on Loan and Advance Ratio

Return on loan and advance ratio indicates how efficiently the bank has utilized its
resources in form of loan and advances. This ratio is calculated by dividing net profit
(loss) by total amount of loan and advances. This can be calculated as,
Net Profit (loss)
Return on Loan and Advance Ratio =
Loan∧ Advances

Total Interest Earned to Total Loan and Advances Ratio

Total interest earned to Total Loan and Advances Ratio measures the income as
interest from total loan and advances. Interest income could be increased by
embracing good issuing and recovery credit policy.
Total interest earned
Total Interest Earned to Total Loan and Advances Ratio =
Total Loan∧ Advances

Credit Risk Ratio

This ratio measures the possibility that loan will not be repaid or the investment will
deteriorate in quality of going into default with consequently loss to the bank. The
ratio can be computed as:
Non performing Loans
Credit Risk Ratio and Provisioning =
Total Loans∧Advances

Loan Loss Provision to Total Loan and Advances Ratio

This ratio describes the quality of assets that a bank is holding. The low ratio indicates
the good quality of assets in total volume of loan and advances and high ratio
indicates more risky assets in total volume of loan and [Link] ratio can be
computed as follow:
Loan Loss Provision
Loan Loss Provision to Total Loan and Advances Ratio =
Total Loan∧ Advances
 9

Adequacy ofLoan Loss Provisioning

Nepal Rastra Bank has set up directives regarding the maintenance of loan loss
provision for different types of loan of commercial banks. In this way, this analysis
comprises the adequacy of loan loss provision as per NRB directives of the sample
banks for the study period.

Pass Loan Provision to Total Pass Loan

This ratio measures whether the sample banks under the study has maintained the pass
loan provision of at least 1% of total pass loan according to NRB directive throughout
the review period.
The ratio can be computed as follow:
Pass Loan Provision
Pass Loan Provision to Total Pass Loan =
total Pass Loan

Sub-standard Loan Loss Provision to Total Sub-standard Loan

This ratio measures whether the sample banks under the study has maintained the
Sub-standard Loan Loss provision of at least 25% of total Sub-standard loan
according to NRB directive throughout the review period. The ratio can be computed
as follow:
Sub- standard loan Loss Provision to Total Sub-standard Loan
¿ Standard Loan Loss Provision
=
Total Standard Loan

Statistical Tools
Some important statistical tools have been used to present and analyze the data for
achieving the objective of the study. Simple analytical statistical tools such as graph,
percentages, Karl Person’s Coefficient of Correlation, method of least square are
adopted which are as follows:

Arithmetic Mean (Average)

It represents the entire data by a single value. It provides the gist and gives the bird's
eye view of the huge mass of unwieldy numerical data. It is calculated as:
 10

∑X
X= n
Where,
X = Arithmetic mean
n = Number of observations

∑X = Sum of observations

Standard Deviation
A standard deviation is the positive square root of the arithmetic mean of the squares
of the deviations of the given observations from their arithmetic mean. It is denoted
by the letter s (sigma). In this study, standard deviation of different ratios is
calculated.

σ=
√ ∑ ( X − X )2
n

Where,
s = Standard deviation of X
N = No. of observant ions.

Coefficient of Variation (C.V.)

The coefficient of variation reflects the relation between standard deviation and
mean. It is used for comparing variability of two distributions, the C.V is defined as,
σ
C.V = ×100%
X
Where,
C.V = Coefficient of Variance
σ = Sigma
X = Arithmetic Mean

Coefficient of Correlation Analysis

This analysis interprets and identifies the relationship between two or more variables.
 Coefficient of correlation between Total Deposit and Loan and Advances.
 Coefficient of correlation between Net Profit and Loan and Advances
 11

 Correlation between Non performing Loan and Total Loan & Advances
The above ratio tools analyzes the relationship between these relevant variables and
helps the bank to make appropriate policies regarding deposit collection, fund
utilization (loan and advances and investment) and profit [Link]
relationship between two variable X and Y is usually denoted by ‘r’ can be obtained
as:
N ∑ XY −∑ X ∑ Y
r=
√ N ∑ X −( ∑ X ) √ N ∑ Y −( ∑ Y )
2 2 2 2

Where,
N = no of observation in series X and Y
∑ X = Sum of observation in series X
∑ Y = Sum of observation in series Y
∑ X 2 = Sum of square observation in series X
∑ Y 2 = Sum of square observation in series Y
∑ XY = Sum of the product of observation in series X and Y
The result of coefficient of correlation is always between -1 to +1, where r= +1 means
there is a positive relationship between two variables and where r=-1, means there is a
negative relationship between two variables.

Coefficient of Determination (r2)

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

Probable Error of Correlation

The probable error of the co-coefficient of correlation helps in interpreting its value; it
is obtained the following formula.
2
1−r
P . E .=0.6745
√n
It is used in interpretation whether calculated value of ‘r’ is significant or not.
 If r < P.E., it is insignificant. So, perhaps there is no evidence of correlation.
 If r > P.E., it is significant.
 In other cases, nothing can be concluded.
12
 13

1.6 Limitations
The study is important document in context of loan management of Nepalese financial
sectors. Finding of the study might be very much useful for academicians as well as
for practitioners. As every study it is also not free from some limitations. This also
suffers from following limitations:
 This study is concerned with loan management of two banks namely: Everest
Bank Ltd and NABIL Ltd.
 The period of the study is limited from fiscal year 2013/14 to 2017/18.
 The study is basically based on secondary data, articles, publication and
journals of the respective banks.
 The result of the study may not be thoroughly applied over all types of
Commercial banks.
 14

CHAPTER - II
RESULTS AND FINDINGS

2.1 Data Presentation

The Balance sheet shows the financial position on a particular date in terms of
structure of assets, liabilities and owner’s equity, and profit and loss account shows
the profit earned and loss sustained during a specific period. The financial analysis
helps to obtain better understanding of firm’s position and performance. The first step
involves selecting the information, second step involves arranging the information in
a way to highlight significant relationships, the final step is interpretation and drawing
of conclusion.

2.2 Analysis Effect of Liquidity and Loan

Commercial banks should maintain its satisfactory liquidity position to satisfy the
credit needs of the community, to meet demands for deposit, withdraws, pay maturity
obligation in time and convert non-cash to satisfy immediate needs without loss to
bank and consequent impact in long run profit. The liquidity positions of the
commercial banks are comparatively studied through the following [Link] and
advances are the current assets of commercial bank, which includes loan and
advances, cash, credit, loan and foreign bills purchased, overdraft and discount.
Table 2.1
Loan and Advances to Current Asset Ratio
(Ratio in %)
Fiscal Year EBL NABIL
2013/14 123.10 105.71
2014/15 106.70 100.51
2015/16 108.16 97.44
2016/17 107.81 87.77
2017/18 85.72 78.48
Mean 106.30 93.98
S.D 11.93 9.70
C.V 11.22 10.33
Source: Appendix I
 15

140

120

100

80
EBL
60 NABIL

40

20

0
2013/14 2014/15 2015/16 2016/17 2017/18

Figure 2.1Loan and Advances to Current Asset Ratio

Figure 2.1 show the loan and advance to current ratio of EBL and NABIL during the
fiscal year 2013/14 to 2017/18. The table shows that EBL has fluctuating trend of
loan and advance to current asset ratio during the study period. In the fiscal year
2013/14 current ratio assets of EBL is 123.10 and NABIL has 105.71. Again, in the
fiscal year 2014/15 current ratio assets ratio of EBL is decrease to 106.70 and NABIL
is also decrease to 100.51. In 2015/16 current assets ratio of EBL is increase to 108.16
but NABIL has decrease to 97.44. There after 2016/17 to 2017/18 both banks have
face decrease loan and advance current assets ratio.

2.3Analysis of Loan Management Efficiency

This ratio measures how effectively the commercial banks are managing its assets and
whether or not the level of those assets is properly related to the level of operations as
measured by sales.

Loan and advances of any commercial bank represent the major portion in the volume
of total working fund. This ratio measures the volume of loan and advances in the
structure of total assets. The high degree of this ratio indicates the good performance
of the bank in mobilizing its funds by the way of lending function for the purpose of
income generation. However, in its reserve side, the low degree of this represents low
liquidity ratio.
 16

Table 2.2
Loan and Advances to Total Working Fund Ratio
(Ratio in %)
Fiscal Year EBL NABIL
2013/14 72.64 72.07
2014/15 71.81 75.19
2015/16 72.66 72.90
2016/17 76.60 72.55
2017/18 65.57 62.84
Mean 72.65 71.51
S.D 3.86 2.43
C.V 5.31 6.20
Source: Appendix I
Table 2.2 show the loan and advance to working fund ratio of EBL and NABIL
during the study period 2013/14 to 2017/18. The above table shows that the EBL’s
ratios are in fluctuating trend. In the fiscal year 2013/14 loan and advance to total
working fund ratio of EBL is 72.64 and NABIL has 72.07. Again, in the fiscal year
2014/15 total working fund ratio of EBL is decrease to 71.81 and NABIL is increase
to 75.95. After that EBL has increase in 2015/16 to 2016/17 but 2017/18 EBL face the
decreases. There after NABIL has decrease 2014/15 to 2017/18. The ratios of NABIL
are also in fluctuating trend with highest ratio 75.19% in fiscal year 2013/14 and the
lowest is 62.84% in the fiscal year 2016/17.
160
140
120
100
NABIL
80
EBL
60
40
20
0

Figure 2.2Loan and Advances to Total Working Fund Ratio

2.3.1 Loan and Profitability Ratio

 17

Profit is the most for any bank for its survival. And the profitability ratio helps to
measure and indicate how efficient the bank is in profit generation. A higher ratio
shows the higher efficiency of the bank. The following ratio has been computed under
this profitability ratio type.

This ratio measures the earning capacity of the commercial banks through its fund
mobilization as loan and advances. A high ratio indicates greater success to mobilize
fund as loan and advances and vice-versa.
Table 2.3
Return on Loan and Advances Ratio
(Ratio in %)
Fiscal Year EBL NABIL
2013/14 3.00 3.52
2014/15 3.04 2.06
2015/16 3.39 2.78
2016/17 3.26 2.24
2017/18 2.89 3.20
Mean 3.11 3.96
S.D 0.18 0.56
C.V 5.86 12.05
Source: Appendix I
9
8
7
6
5 NABIL
4 EBL
3
2
1
0

Figure 2.3Return on Loan and Advances Ratio

Figure 2.3 show the return on loan and advance ratio of EBL and NABIL during the
fiscal year 2013/14 to 2017/18. The EBL’s ratios are in fluctuating trend up to the
 18

study period. EBL has the highest ratio of 3.39% in the fiscal year 2014/15 and the
lowest ratio is 3.00% in the fiscal year 2011/12.

2.3.2 Total Interest Earned to Total Loan and Advances Ratio

Total interest earned to Total Loan and Advances Ratio measures the income as
interest from total loan and advances. Interest income could be increased by
embracing good issuing and recovery credit policy. High return shows the soundness
of credit policy.
Table 2.4
Total Interest Earned to Total Loan and Advances Ratio
(Ratio in %)
Fiscal Year EBL NABIL
2013/14 13.95 13.81
2014/15 13.81 12.73
2015/16 11.38 12.30
2016/17 10.88 10.31
2017/18 9.17 8.80
Mean 11.84 11.99
S.D 1.82 2.19
C.V 15.38 18.25
Source: Appendix I
Table 2.4 reveals the total interest earned to total loan and advances ratio of EBL and
NABIL during the fiscal year 2013/14 to 2017/[Link] has fluctuating trend of total
interest earned to total loan and advances ratio. In the fiscal year 2013/14 EBL has
13.95 and NABIL has 13.81. After that EBL has decrease to 13.81 and NABIL has
decrease to 12.73. Similarly, both banks face the decrease ratio position. The highest
ratio of is 12.67% in fiscal year 2013/14 and the lowest is 9.30% in fiscal year
2016/17.
 19

30

25

20
NABIL
15
EBL
10

Figure 2.4Total Interest Earned to Total Loan and Advances Ratio

2.4 Analysis of Risk on Loan

The possibility of risk makes bank’s investment a challenging task. Bank has to take
risk to get return on its investment. Higher the risk higher will be the return on
investment. So, banks operating for high profit have to accept the risk and manage it
efficiently.

2.4.1 Non performing loan

Bank utilizes its collected fund in providing credit to different sectors. While making
the investment, bank examines the credit risk involved in the project which may be
the risk of default or the non-payment of loan.
Table 2.5
Non-Performing Loans to Total Loans and Advances Ratio
(Ratio in %)
Fiscal Year EBL NABIL
2013/14 0.34 1.77
2014/15 0.84 2.33
2015/16 0.62 2.13
2016/17 0.97 2.23
2017/18 0.66 1.82
Mean 0.69 2.06
S.D 0.21 0.22
C.V 31.20 10.84
Source: Appendix I
 20

3.5

2.5

2 NABIL
1.5 EBL

0.5

Figure 2.5Non-Performing Loans to Total Loans and Advances Ratio

Table 2.5 reveal that the EBL’s credit risk ratios are in fluctuating trend from fiscal
year 2013/14 to 2017/18 and the ratio ranged from 0.34% in the fiscal year 2011/12 to
0.97% in the fiscal year 2015/16. Similarly, the ratios of NABIL are in fluctuating
trend with highest ratio 2.33% in fiscal year 2013/14 and the lowest is 1.77% in fiscal
year 2011/12. The ratios of are also in fluctuating trend and the ratio has ranged from
0.34% in the fiscal year 2016/17 to 0.78% in the fiscal year 2013/14.

2.4.2 Loan Loss Provision to Total Loan and Advances Ratio

Loan loss provision to total loan and advances describes the quality of assets that a
bank holding. The amount of loan loss provision is balance sheet refers to general
loan loss provision. The provision for loan loss reflects the increasing probability of
non-performing loan. The low ratio indicates the good quality of assets in total
volume of loan and advances and high ratio indicates more risky assets in total
volume of loan and advances.
 21

Table 2.6
Loan Loss Provision to Total Loan and Advances Ratio
(Ratio in %)
Fiscal Year EBL NABIL
2013/14 1.95 2.29
2014/15 1.97 3.03
2015/16 1.85 2.75
2016/17 1.85 2.76
2017/18 1.62 2.53
Mean 1.85 2.67
S.D 0.12 0.25
C.V 6.71 9.30
Source: Appendix I
6

NABIL
3
EBL

Figure 2.6Loan Loss Provision to Total Loan and Advances Ratio

Figure 2.6 reveals the loan loss provision to total loan and advances ratio of EBL and
NABIL during the fiscal year 2013/14 to 2017/18. The EBL’s loan loss provision to
total loan and advances ratios are in decreasing trend. In the fiscal year 2013/14 loan
loss provision to total loan advance ratio of EBL is 1.95 and NABIL has 2.29.
therefore, both banks face increase position in 2014/[Link] highest ratio is 1.97% in
fiscal year 2013/14 and the lowest ratio is 1.62% in 2016/17.

2.4.3 Adequacy of Loan Loss Provisioning

Nepal Rastra Bank has set up directives regarding the maintenance of loan loss
provision for different types of loan of commercial banks. In this way, this analysis
comprises the adequacy of loan loss provision as per NRB directives of the sample
 22

banks for the study period. Adequacy is measured by computing the ratios of loan loss
provisioning to loans and advances of different classified loan.

2.5 Statistical Analysis

Under this topic, some statistical tools such as co-efficient of correlation analysis
between different variables, trend analysis of loan and advances and non-performing
loan are used to achieve the objective of the study.

Under this heading, Karl Person’s co-efficient of correlation is used to find out the
relationship between total deposit and loan and advances, total deposit and total
investment, Interest earned to Total loan and advances and loan and advances to total
assets.

2.5.1 Correlation between Total Deposit and Loan & Advances

The Co-efficient of correlation between total deposit and loan and advances measures
the degree of relationship between two variables. In our analysis, total deposit is an
independent variable(X) and loan and advances is the dependent variable(Y).
Table 2.7
Correlation between Total Deposit and Loan and Advances
Particulars EBL NABIL
Correlation Coefficient (r) 0.9701 0.9904
Coefficient of Determination ( r2) 0.9411 0.9809
Probable Error (P.E) 0.0178 0.0058
6 × P. E. 0.1066 0.0346
Remarks Significant Significant
Source: Appendix II
Table reveals that the coefficient of correlation between deposit and loan and
advances of EBL and NABIL is 0.9701 and 0.9904 which we can say that there is the
highly positive relationship between these two variables. Moreover, the value of
coefficient of determination (r2) is 0.9411 and 0.9809 which means 92.11% and
98.09% of variation in dependent variable i.e. loan and advances has been explained
by the independent variable i.e. total deposit of EBL and NABIL respectively.
2.5.2 Correlation between Net Profit and Loan and Advances
 23

The correlation coefficient between net profit and loan and advances measures the
degree of relationship between these two variables. Here net profit is dependent
variable (X) and loan and advances is the independent variable (Y). The objective of
computing ‘r’ between these two variables is to justify the significance of loan and
advances to net profit.
Table 2.8
Correlation between Net Profit to Loan and Advances
Particulars EBL NABIL
Correlation Coefficient (r) 0.9470 0.6885
Coefficient of Determination ( r2) 0.8968 0.4740
Probable Error (P.E) 0.0311 0.1587
6 × P. E. 0.1868 0.9519
Remarks Significant Insignificant
Source: Appendix II
Table reveals that the coefficient of correlation between net profit and loan and
advances of EBL and NABIL is positive. The value of coefficient of correlation of
EBL and NABIL is 0.9470 and 0.6885 respectively.

2.5.3 Correlation between Non performing Loan andLoan & Advances

The correlation coefficient between NPL and loan and advances measures the degree
of relationship between these two variables. Here NPL is the dependent variable (X)
and loan and advances are the independent variable (Y).
Table 2.9
Correlation between Non performing Loan and Loan & Advances
Particulars EBL NABIL
Correlation Coefficient (r) 0.7663 0.8526
Coefficient of Determination ( r2) 0.5872 0.7269
Probable Error (P.E) 0.1245 0.0824
6 × P. E. 0.7471 0.4942
Remarks Significant Significant
Source: Appendix II
Table reveals that the coefficient of correlation between non-performing loan and loan
and advances of EBL and NABIL is 0.7663, 0.8526 and -0.3825 respectively, which
 24

we can say that there is the positive relationship between these two variables in EBL
and NABIL.

2.6 Findings
The major findings of the study are divided on the basis of financial and statistical
data of EBL and NABIL, which are given below:
 The average current ratio maintained by EBL and NABIL is 1.15 times,
1.45times respectively. This indicates that NABIL has maintained little bit more
current assets than EBL andto meet the obligation of current liabilities. Though
the optimal standard of current ratio should be 2:1, the conventional measure of
liabilities is not applicable in banking sector.
 The average cash and bank balance to total deposit ratio of EBL and NABIL are
21.30% and 10.12% respectively. Therefore it can be concluded that the cash
and bank balance of NABIL with respect to deposit is better against the
readiness to serve its customer’s deposit than EBL.
 On the basis of mean ratio EBL has the highest ratio of 30.48% followed bywith
mean ratio 18.07% and NABIL with mean ratio 12.95%, which is the lowest
among the banks under study. It supports the conclusion that NABIL has not
been successful in maintaining its higher cash and bank balance to current asset
ratio in comparison to EBL.
 From the mean ratio point of view EBL has the highest loan and advance to
current ratio of 106.30% followed by NABIL with mean ratio 93.98% and
thenwith 57.91%. The NABIL seems to have much more consistency than the
EBL andwith its loan and advances to current asset.
 The mean loan and advance to total deposit ratio of EBL and NABIL is 72.93%
and 72.09% respectively. Average ratio of NABIL is higher compared to EBL
has a greater ability of successfully utilizing their total deposits on granting
loans and advances to earn more profit.
 On the basis of mean ratio of loan and advances to total working fund, it can be
said that EBL has the highest mean ratio of 72.65%, followed by NABIL with
mean ratio 71.51% which mean EBL has strong position to mobilize its working
fund as loan and advance for generating income than NABIL.
 25

 Comparing the mean return on loan and advance ratiohas the highest mean ratio
of 5.44% followed by NABIL with 3.96% then EBL with 3.11%. The mean
ratio L has been successful in maintaining its higher return on loan and advances
in comparison to other two banks under study.
 Comparing their mean loan loss provision to total loan and advances ratios,
NABIL (2.67%) has the higher mean ratio than EBL (1.85%). The mean ratio of
NABIL has higher than EBL, it means that the company has always been
provisioning higher than EBL.
 From mean ratio point of view all of the sample banks have been able to
maintain the pass loan provision of at least 1% of total pass loan. Overall with
all the analysis which has been made above, we could conclude that EBL and
NABIL have been able to maintain the pass loan provision of at least 1% of total
pass loan as according to NRB directives.
 The provision for bad debt to total bad debt ratios of EBL andhas remained
consistent throughout the review period. From mean ratio point of view onlyhas
been able to maintain the provision for bad debt of 100% of total bad debt
according to the directives of NRB.
 The coefficient of correlation between deposit and loan and advances of EBL
and NABIL is 0.9701 and 0.9904 which we can say that there is the highly
positive relationship between these two variables.
 There is the positive relationship between the net profit and loan and advances
of EBL and NABIL The relationship between the net profit and loan and
advances is significant in EBL andinsignificant in NABIL.
 26

CHAPTER-III
SUMMARY AND CONCLUSION

3.1 Summary
From the analysis made during the study period of the concerned sample banks,
certain conclusion has been derived after the financial as well as statistical tools have
been measured on behalf of different aspect of the loan management of the concerned
banks under [Link] attempt of studying of the loan management of commercial
banks has been made in this report. EBL and NABIL are taken as sample banks under
the study for five years. A bank should invest those sectors where the investment
wouldn’t bad debt. If the fund would turn in to bad debt, the bank will lose huge
amount of fund. So, the bank should manage appropriate amount of loan loss
provision. It reduces the high amount loss in one single time period. Thus, loan
management is one of very essential as well as crucial task. This thesis study is
summarized into five different chapters including this chapter. Loan management, to
make it simple, refers to fund and working capital management. However, most
people have some miss concepts.

They only consider credit management is a short-term process. In fact, if it relates to

working capital, it may be right. However, if it relates to fund management, it can be a
long-term basis. You may imagine asset valuation for credit evaluation, i.e. a credit
management step, refer to fixed assets usually. Value of fixed assets will change over
its life. In other words, your credit evaluation will adjust all the time. Credit
Management is the process of mitigating the risk involved in granting the credit. It is a
key to successfully utilize our credit by minimizing our risks and losses.

First chapter of the study dealt about basic assumptions of the study. Basically, it
highlighted the concept and importance of the study. The study is important document
in context of loan management of Nepalese financial sectors. Finding of the study
might be very much useful for academicians as well as for practitioners. As every
study it is also not free from some limitations. It also presented research problem,
objective and limitation of the study. Second chapter dealt with various review of
 27

literature regarding the concept of, loan, lending policies and previous reviews of
articles and thesis to provide knowledge about the background of the study.

The third chapter of the study included the research design, nature and source of the
data, data collection procedure, data processing and tools used for study. The fourth
chapter dealt with data presentation and analysis and major findings of the study. In
this chapter different financial ratios are calculated and presented in graphical form to
analyze the loan, lending, profit & loss and various other factors essential for the
analysis of this [Link] financial and statistical tools helped to measure the
performance of the bank in comparative manner.

3.2 Conclusion
Based on the analysis and interpretation of data, the following conclusions have been
drawn. NABIL has maintained little bit more current ratio than EBL to meet the
obligation of current liabilities. Though the optimal standard of current ratio should be
2:1, the conventional measure of liabilities is not applicable in banking sector. The
cash and bank balance of NABIL with respect to deposit is better against the readiness
to serve its customer’s deposit than EBL. It implies that better liquidity position of
NABIL. In contrast, a high ratio of non-earning cash and bank balance may unfit,
which indicates the bank’s unavailability to invest its fund in income generation areas.
There is the positive relationship between the total deposit and loan and advances of
EBL and NABILThe relationship between the total deposit and loan and advances is
significant in case of all these two banks. There is the positive relationship between
the net profit and loan and advances of EBL and [Link] relationship between the
net profit and loan and advances is significant in EBL and NABILOn the basis of
analysis and finding of the study, following suggestion and recommendation can be
advanced to overcome weakness, inefficiency and satisfactory improvement policy of
EBL and NABIL
 It implies that better liquidity position of EBL. In contrast, a high ratio of non-
earning cash and bank balance may unfit, which indicates the bank’s
unavailability to invest its fund in income generation areas.
 It is found that EBL’s loan and advances to total deposit ratio is comparatively
the highest among thetwo banks followed by NABIL so it is recommended.
 28

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