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By:Pradeep Pariyar Campus Roll No. 1826/065 Exam Roll No. 310307 Contact No. 9849699402 TU Regd No. -

Tribhuvan University Faculty of Management Public Youth Campus, Dhobichaur, Kathmandu, Nepal A Dissertation Submitted for the Partial Fulfilment of the Requirement For Degree of Bachelor in Business Studies (BBS),Public Youth Campus, Dhobichaur, Kathmandu, Nepal January 2011

A CASE STUDY ON THE FINANCIAL PERFORMANCE OF HIMALAYAN BANK LIMITED (A Project Work Report) A Dissertation Submitted for the Partial Fulfilment of the Requirement for Degree of Bachelor in Business Studies (BBS), Public Youth Campus, Dhobichaur, Kathmandu, Nepal

Investigator Pradeep Pariyar BBS Final Year Exam Roll No:-310307 Contact No:-9849699402 Email Address: pradeeppariyar@gmail.com Public Youth Campus

Dhobichaur, Kathmandu

Tribhuvan University Faculty of Management Public Youth Campus, Dhobichaur, Kathmandu, Nepal

Pradeep Pariyar January 2011 E-mail: pradeeppariyar@gmail.com Tribhuvan University Faculty of Management Public Youth Campus, Dhobichaur, Kathmandu, Nepal Citation: Pariyar, P. 2011. A CASE STUDY ON THE FINANCIAL PERFORMANCE OF HIMALAYAN BANK LIMITED: A Project Work Report, BBS final year, Finance group (Tourism) Faculty of Management, Public Youth Campus, Dhobichaur, Kathmandu, Nepal

TRIBHUVAN UNIVERSITY PUBLIC YOUTH CAMPUS DHOBICHAUR, KATHMANDU Ref No.. Date: CERTIFICATION OF ACCEPTENCE This Report entitled " A CASE STUDY ON THE FINANCIAL PERFORMANCE OF HIMALAYAN BANK LIMITED : A Project Work Report prepared and submitted by Pradeep Pariyar has been accepted for the partial fulfilment of the requirement of Bachelor's Degree in Business Studies. This entire work is based on field work and office work performed by the candidate and this work brings out useful findings in the concerned field. Supervisor ........... Head of Department Public Youth Campus, Dhobichaur, Kathmandu, Nepal

DECLARATION I, Pradeep Pariyar, hereby declare that this report work is my sole effort/research and the information is exclusively based on primary and secondary data collection. All the sources of information wherever used are thus, duly acknowledged. I have not submitted it or any part of it to any other academic institutions for any degree.

.. Pradeep Pariyar BBS Final Year, Finance group Public Youth Campus, Dhobichaur, Kathmandu, Nepal Date:

ACKNOWLEDGEMENT Many individuals and institutions have contributed in myriad of ways by sharing their invaluable time, resources and knowledge without which, materialization of the report in this form wouldnt have been possible. Space does not permit mentioning their entire good name however; it in no way does mean belittling of my gratitude toward them. Thank you all, but I owe special thanks to some people who deserve the acknowledgement. I would like to express the deepest gratitude and the sincerest thanks to Prof. Dr. Madhav Raj Koirala, my research advisor for his invaluable guidance, constructive criticism, intellectual support and encouragement throughout the whole research period in order to accomplish this work. I feel a deep sense of gratitude to him for his unconditional support and I am honored to have him as my advisor. His crucial role to make this report to this final stage is indescribable. I am indebted to all lecturers of Public Youth Campus and my friends. I would like to express the deepest gratitude and the sincerest thanks to all lecturers of Public Youth Campus and my friends. I am thankful to Public Youth Campus for providing the references facilities during my analysis. I am also thankful to all staff of Himalayan Bank for providing me secondary data. I would like to express my sincere thanks to teachers and all people of my study area for responding my queries providing their valuable time, help, generosity, hospitality and their co-operative attitude. Sincere cordial thanks and heartfelt gratitude goes to my lovely friend Nirjana Nepali for providing me continuous enthusiasm and endless support, guidance and help during my entire study period at PYC. My heartfelt thank goes to Ms. Sharmila Tandukar and Mr. Prakash Kapri who cheerfully accompanied me throughout the research study and shared many of their insights and information regarding my research. Love and affection of my family always encouraged and inspired me to perform any work intensively. I am indebted to their inspiration and support in every turn of life but here I am unable to express my feeling in words. At last but very far from the least are to my sister and brother-in-law whose wonderful love, unconditional support and inspiration have been fundamental to pave the path for successful journey in my academic pursuits. Pradeep Pariyar

Dedicated to My Mom Parbati Pariyar


LC A.D. U.S. NRB HBL i.e. etc. ATM No. % RBB

Letter of Credit Anno Domi United state Nepal Rastra Bank Himalayan Bank Limited That is Etceteras Automated Teller Machine Number Percentage Rastriya Banijya Bank

Contents CHAPTER-1 INTRODUCTION 1.1 Meaning and Definition of Bank: 1.2 Origin of Bank: 1.3 Meaning and definition of Commercial Bank 1.4. Commercial Bank in Nepal 1.5 Function of Commercial Bank 1.6 An overview of HBL: 1.6.1 PROMOTERS OF HBL 1.6.2 BOARD OF DIRECTORS 1.6.3 LOCATION OF HBL 1.6.4 Products and Services of HBL: 1.7 Meaning of Financial Analysis: 1.8 Objectives of study: 1.9 Important of study: 1.10 Research Methodology 1.11 Limitation of the study: CHAPTER-2 2.1. Presentation of data 2.2 Ratio analysis 2.3 SWOT analysis 2.4. Brief analysis of the result Chapter3 3.1. Summary 3.2. Conclusion 3.3. Recommendation

list of tables Table 1: Current Ratio (In RS 000) Table 2: Cash and bank balance to deposits ratio (In RS 000) Table 3: Long-term Debt to Net worth Ratio (In RS. 000) Table 4: Net worth to Total Liabilities Ratio (In RS. 000) Table 5: Capital Adequacy Ratio (In Rs. 000) Table 6: Interest Expenses to Total Expenses Ratio (In RS. 000) Table 7: Return on Asset (In Rs 000) Table 8: Return on Shareholders equity (In RS. 000) Table 9: Net Interest Earned to Total Assets Ratio (In RS. 000) List of Figures Figure 1: Current Ratio (In RS 000) Figure 2: Cash and bank balance to deposits ratio (In RS 000) Figure 3: Long-term Debt to Net worth Ratio (In RS. 000) Figure 4: Net worth to Total Liabilities Ratio (In RS. 000) Figure 5: Capital Adequacy Ratio (In Rs. 000) Figure 6: Interest Expenses to Total Expenses Ratio (In RS. 000) Figure 7: Return on Asset (In Rs 000) Figure 8: Return on Shareholders equity (In RS. 000) Figure 9: Net Interest Earned to Total Assets Ratio (In RS. 000)

CHAPTER-1 INTRODUCTION 1.1 Meaning and Definition of Bank: Bank is a financial institution which is engaged in monetary transaction. It accepts deposit and grant loan to needy person against securities. So, banks are said to be financial Supermarket. It charges certain interest at some fixed interest rate per annum. Beside this, a bank also involves on a number of agency services like remitting and collection cash on behalf of its client opening bank drafts and LC activities and or writing shares of newly established companies. Banks are those institution, which are established under certain act to perform monetary and credit transactions According to Crowther: The bankers business is to take the debts of other people to offer his own in exchange and these create money. According to US Law: Any institution offering deposits subject to withdrawal on demand and making loan of a commercial or a business nature is a bank. Therefore, summarizing the above, banks are those financial institution that offer the widest range of financial services and accepts deposits with order or otherwise. Although the above act defines the banking in broad sense, it does a lot more than these works. 1.2 Origin of Bank: The term bank Originated from Latin word Bancus which refers to bench on which the bankers would keep its money and his records. Some believes it has been origin from French word Banqee and Italian word Banca which means a bench for keeping, lending and exchanging of money or coins in the market place by money lender and money changer. The first bank called Bank of Venice was established in Venice, Italy 1157 A.D. is supposed to be the most ancient bank. Following its establishment, a lot of banks in different parts of the world were established. After the evolution of Bank of England in 1694 A.D. there came a remarkable change in process of establishing the banking institution. It was established as a joint stock bank and later on it became first central bank in the world. The idea of commercial banks rapidly spread all over the world only after the foundation of bank. 1.3 Meaning and definition of Commercial Bank A commercial bank is business organization that receives and holds deposits of funds from others, makes loans or extends and transfer funds by written order of depositors A commercial banker is a dealer in money and substitute for money such as cheques or bill of exchange. It also provides a variety of financial services Commercial banks are those institutions which are established for purpose of promoting the trade and business in the country by providing them the short term and midterm loan. For the promotion of trade and business the commercial banks also provides the information about the goods or product, technology, market and the customers attitude towards the product which help the business by earning desired profit. 1.4. Commercial Bank in Nepal In the Nepalese context, banking sector is rather more slow evolution. In Nepalese history, a merchant namely SANKHDHAR, who alone paid all the debt of the people in the country at that time? This proves the existence of money lending function at that time. During the end of 14thcentury the term TANKADHARI i.e. moneylender were found in the course of development of borrowing. The TEJARATH office established in 19th century used to give loans to government employees. But the banking in Nepal ha started in real sense with the establishment of Nepal Bank Ltd. in 1937. RBB was established as a fully government owned commercial bank in 1966.Anyhow, Nepal Bank Limited is the

first commercial bank of Nepal and was established in 1994 B.S. Then several legislation was made and other different types of banks were developed in the country. After declaring free economy and the privatization policy, Nepal Arab Bank (NABIL) was established in 1984 A.D. This the first modern bank with latest banking technology. Then lot commercial bank opened in the country. Presently there are seventeen commercial banks in Nepal as declared by NRB. They are listed as follows. List S.N. Name of the Bank Establishment Date Commencement Head Office of (in B.S.) Date (in B.S.) Licen 1 Nepal Bank Ltd. 1994.07.30 1994.07.30 KTM sed 2 RBB 2022.10.10 2022.10.10 KTM Com 3 NABIL Bank Ltd. 2041.03.29 2041.03.29 KTM merci 4 Nepal Investment 2042.11.16 2042.11.16 KTM al Bank Ltd. Banks 5 Standard Chartered 2043.10.16 2043.10.16 KTM in Bank Ltd. Nepal (up to January 2007) Table-1 6 Himalayan Bank Ltd. 2049.10.05 2049.10.05 KTM 7 NB Bank Ltd 2050.02.23 2050.02.23 KTM 8 Nepal SBI Bank Ltd. 2050.03.23 2050.03.23 KTM 9 Everest Bank Ltd. 2051.07.01 2051.07.01 KTM 10 Bank of Ktm. ltd. 2051.11.28 2051.11.28 KTM 11 NCC Bank Ltd. 2053.06.28 2053.06.28 Siddharthanagar 1.5 12 Lumbini Bank Ltd. 2055.04.01 2055.04.01 Narayangadh Funct 13 NIC Bank ltd. 2055.04.05 2055.04.05 Biratnagar ion of 14 Kumari Bank Ltd. 2056.08.24 2057.12.21 KTM Com 15 Machhapuchhre Bank 2057.06.17 2057.06.17 Pokhara merci Ltd. al 16 Laxmi Bank Ltd. 2058.06.11 2058.12.21 Birjung Bank 17 Siddhartha Bank Ltd. 2058.06.12 2059.09.09 KTM The 18 Annapurna Bank Ltd. 2060.04.18 2060.04.18 KTM main functi 19 Global Bank Ltd. 2063.09.17 2063.09.17 Birjung ons 20. Agriculture Devt. KTM of Bank com mercial bank are borrowing and lending of money but commercial banks generally performs following functions: 1) Safe Custody : Another important service rendered by commercial bank is that of keeping in safe custody of valuables such as negotiable securities, jewelry, documents of title, will deed-boxes, etc by providing a locker on bases of small payment per year. 2) Underwriting function: This includes the functions of selling shares and debentures of a joint stock company to general public. It underwrites shares and debenture of newly established company. 3) Receiving deposits: Receiving deposits from the public is the first function of any commercial bank. For the benefit and convenience bank of deposits it has opened different accounts like: Current Account Saving Account Fixed Account

4) Discounting of bills: Commercial bank discounts the bills and promissory notes of business man so as to facilities them in their business. There are more other services provided by commercial banks. 1.6 An overview of HBL: Himalayan Bank was established in 1993 in joint venture with Habib Bank Limited of Pakistan. Despite the cut-throat competition in the Nepalese Banking sector, Himalayan Bank has been able to maintain a lead in the primary banking activities- Loans and Deposits. Legacy of Himalayan lives on in an institution that's known throughout Nepal for its innovative approaches to merchandising and customer service. Products such as Premium Savings Account, HBL Proprietary Card and Millionaire Deposit Scheme besides services such as ATMs and Tele-banking were first introduced by HBL. Other financial institutions in the country have been following our lead by introducing similar products and services. Therefore, we stand for the innovations that we bring about in this country to help our Customers besides modernizing the banking sector. With the highest deposit base and loan portfolio amongst private sector banks and extending guarantees to correspondent banks covering exposure of other local banks under our credit standing with foreign correspondent banks, we believe we obviously lead the banking sector of Nepal. The most recent rating of HBL by Bankers Almanac as countrys number 1 Bank easily confirms our claim. All Branches of HBL are integrated into Globus (developed by Temenos), the single Banking software where the Bank has made substantial investments. This has helped the Bank provide services like Any Branch Banking Facility, Internet Banking and SMS Banking. Living up to the expectations and aspirations of the Customers and other stakeholders of being innovative, HBL very recently introduced several new products and services. Millionaire Deposit Scheme, Small Business Enterprises Loan, Prepaid Visa Card, International Travel Quota Credit Card, Consumer Finance through Credit Card and online TOEFL, SAT, IELTS, etc. fee payment facility are some of the products and services. HBL also has a dedicated offsite Disaster Recovery Management System. Looking at the number of Nepalese workers abroad and their need for formal money transfer channel; HBL has developed exclusive and proprietary online money transfer software- HimalRemitTM. By deputing our own staff with technical tie-ups with local exchange houses and banks, in the Middle East and Gulf region, HBL is the biggest inward remittance handling Bank in Nepal. All this only reflects that HBL has an outside-in rather than inside-out approach where Customers needs and wants stand first. The Bank operations were highly satisfactory even in the prevailing hard times in the country. HBL announces with some pride that The Bankers Almanac, published in Britain, in its July 2003 edition, rated Himalayan Bank Limited as number one bank in Nepal. Furthermore, the bank received the National Excellence Award 2003 from the Federation of Nepals Chambers of Commerce and Industry and Best Presented Accounts Award 2008, Merit Award for the year 2008 in the category.

1.6.1 PROMOTERS OF HBL The promoters of HBL are given below: Mr. Himalaya S.J.B. Rana Lt. Mr. Sardar Bhim Bdr. Pandey Lt. Mrs. Mani Harsha Joshi Mr. Narsing Bdr. Shrestha 1.6.2 BOARD OF DIRECTORS Mr. Manoj B. Shrestha (Chairman)

Mr. Mohan Gopal Khetan Mr. Anand Bhakta Raj Bhandari Mr. Prithivi Bdr. Pandey

Mr. Upendra Keshari Paudyal (Prof. Director)

Mr. Ashraf M. Wathra (First Vice Chairman) Mr. Prem Prakash Khetan (Sec. Vice chairman) Mr. Pracanda B. Shrestha (Director) Mr. Dr.Ramesh Kumar. Bhattarai (Director) Mr. Bijaya Bdr. Shrestha (Director) Mr. Amar SJB Rana (Director) Mr. Sushil Bikram Thapa (Director)

Mr. Himalayan SJB Rana ( Chief Advisor ) Mrs. Ranjana Shrestha (Alt. Director) Mr. Menuka Shrestha (Alt. Director) Mr. Surendra Silwal (Alt. Director) Mr. Sushil Bdr. Thapa (Alt. Director) Mr. Rajendra Kafle(Alt. Director) Mr. Bipin Hada (Company Secretary)

1.6.3 LOCATION OF HBL It is already described that, HBL is one of the joint venture commercial bank in Nepal. At the time of establishment, it has got fewer branches throughout the valley. For the reliable services to the general public, it has operated the many branches throughout the valley as well as outside the valley. Head office and Main branches of HBL are as follows: Tridevi Marg, Thamel. New Road Branch Suryabinayak, Bhaktapur Branch Patan branch Banepa Branch Maharajgunj Branch Credit Card Center, Pulchock Branch Chabahil branch Swoyambhu Branch New Baneshwor Branch Sorakhutte Branch Satdobato Branch Nagarkot Branch Kalanki branch Dilibazar branch Teku Branch

The bank is also operating a counter in the premise of the Royal Palace. The bank has also set up branches in the different part of the country. The bank had a very aggressive plan of establishing more branches in the different parts of the kingdom in near future. Narayangadh Branch Pokhara Branch Siddharthanagar Branch Dharan Branch Taadi Branch Bhairawa Branch Birgunj Branch Bharatpur Branch Hetauda Branch Butwal Branch Biratnagar Branch Baglung Branch Dang Branch Parsa Branch 1.6.4 Products and Services of HBL: HBL provides different services to different customers like Tele-banking, ATM, Credit Card, Fund transfer, Money gram, Himal remit service etc. Apex body of the bank are hurry to provide encouragement to export busy as identification of new lending investment opportunities to motivate the employees by providing to incentive, providing the different facilities to its customer ( Car loan, Home, Educational, etc.). The computer software used by HBL is Globus before it was Pumori. The bank has been also a pioneer in introducing a Nepalese domestic credit card, which is called,Himalayan Bank Golden Credit Card, which is valid in Nepal & India. It has also introduced the Himalayan Bank Golden Card with additional privilege. Besides the bank has VISA & Master Card international, the bank issues all the ranges of VISA & Master Card. And it has also launched its ownVISA & Master Card.

The fund transfer can also be transferred through the correspondent banks; financial institutions in Middle East and remittance facility from other banks as well as facilitate efficient transfer. Further more it can be transferred with in the country to the following cities in Nepal directly and provide service of transferring funds to other cities like Nepal via its local correspondents cities like Biratnagar, Pokhara, Birgunj, Bhaktapur, Hetauda, Bhairawa etc. outward remittance can also be done as per the rules and regulation of central bank The remittance facility from middle east. The bank has also launched lottery of Rs.25000 fixed deposit and with in 2 week the lottery is opened. The lottery is of millionaire. 1.7 Meaning of Financial Analysis: Financial statement report is a portion of the Bank/Company both at a point in a time and its operation over some past period. However, the real value of financial statements lies in the fact that they can be used to help others to predict the banks future earnings and dividends. From an investors standpoint, predicting the future is what financial statements analysis all about. While from managements point standpoint, financial statement is used both as way to anticipate future condition, and more important as a starting point for planning action that will determine the future course of action. Financial analysis is the process of identifying the financial strength and weakness of the firm by properly establishing relationship between the items of balance sheet and profit and loss account. Financial analysis is largely the study of relationships among the various financial factors in a business as disclosed by one of the factors as shown in a series. Financial analysis is the process of preparing financial statement in accordance with generally accepted principal to ascertain information concerning the magnitude, timing and risking of future cash flow.

1.7.1 Objectives of financial analysis: Financial analysis has proved that one can explore various fact related to past performance of the business and predict out future potentials for achieving expected results. The major objectives of the analysis in broad sense can be stated as: 1) Ascertain the real meaning and significance of financial data. 2) Assessment of potential and related risk. 3) Financial stability of business concern. 4) Assessment of past performance and current position. 1.7.2 Significance of financial analysis: Significance of this analysis lies on the objectives of financial analysis of firm. The fact discovered by the analysis are perceived different groups associated with the concern. The facts and the relationships concerning managerial performance, corporate efficiency, financial strength and weakness are interpreted on the basis of objectives in the hand. The parties that are benefited from he results drawn from the analysis of financial performance are: 1) Top management 2) Creditors 3) Shareholders 4) Labour union 5) Economist 1.7.3 Technique of financial analysis: There may be various techniques of financial analysis. Some major techniques are: a) Fund Flows analysis b) Cash Flow analysis c) Trend analysis d) Ratio analysis For the purpose of the study only ratio analysis has been considered. 1.7.4 Statement of problem: With the prevailing economic condition of the country, the investment in agriculture, manufacturing and industrial sectors has not grown satisfactory. The problem areas to access in the study are: 1) How should the operation al results in relation to their profitability. 2) How far have HBL been able to shift the monetary resources from the saver to user. 3) What is position of the bank in terms of liquidity, leverage, capital adequacy and profitability of the institution/firm/bank? 1.8 Objectives of study: The main objective of study is to analyze and interpret the financial state and policy of HBL. The study focuses whether it is backward or forward in liquidity position and its fund efficiency with respect to industry average. The prime objectives of the study are to evaluate the financial performance of HBL. The main objectives of HBL are as follows: 1) To evaluate liquidity, leverage, capital adequacy, turnover and profitability position of HBL. 2) To evaluate the growth ratios of cash and bank balance, loan and advances, net worth. 3) To provide suitable and useful suggestion on finding of study. 4) To discuss fund mobilization and strategy of liquidity management of HBL. 5) To find out the future trend of total deposit, investment, loans and advances, net worth, etc.

1.9 Important of study: The important of study are as follows: 1) The student can have clear view of establishment and working of the concerned bank thereby broadening the banking knowledge. 2) The BBS level would remain incomplete without this study. 3) This report can be a source of secondary data for researchers.

1.10 Research Methodology This data has been prepared from 18th annual report of HBL. The main objectives of this study are to analyze, examine, highlight and interpret the financial position of HBL. The data has been presented in table and charts to ease the study. 1.10.1 Resource Design: The fieldwork report is a descriptive of one bank, i.e. HBL therefore; the entire study undertaken for fieldwork report is descriptive nature. However, comprehensive analysis is also being made for this purpose. 1.10.2 Nature and sources of Data: This report is based in secondary sources obtain from the bank, library and internet. Secondary sources used in this study are listed below: 1) Economic survey 2) Annual report published by bank, 3) Profit and loss account and balance sheet of HBL for 4 years. 4) Books and magazines, internet, etc. 1.10.3 Data processing: The collected data were processed for analysis. Various table and calculation have been shown in the study in order to come to reliable conclusions. Finding and results are compared and interpreted. While processing data in the table and charts following tools were used: a) Liquidity Ratio b) Profitability Ratio c) Activity/Turnover Ratio d) Capital structured or Leverage Ratio. e) Others Ratios. 1.11 Limitation of the study: The limitations of the study are discussed bellow: a) The financial successes are highlight with the use of charts, bar-diagram, trend-line and financial ratios. b) It contains the data of only 5 years 2005-2010. c) The analysis is based on the secondary data available of the bank.

CHAPTER-2 Presentation and Analysis of Data 2.1. Presentation of data Since the report is based on the contribution of saving deposits in the banks total capital, the way of presenting the data are of numerical form i.e. the mathematical numbers the data are presented in the tabulation method. Tabulation Method: Generally, the tables are classified in two ways. According to purpose: a) Reference table: It is big and has large data and general in nature. b) Summary table: It contains data, which may be useful for the study of particular problem and specific in nature. According to character: a) Simple table: It provides information about only one characteristic of the particular data. b) Complex table: the data are classified with respect to two or more inter-related characteristics. Charts: The chart is used to show the range of variation in the values. v Pie-chart: It divides the data into several parts into which it is broken up form of circle. It is called piechart because it looks like slices of a pie. v Bar Graph: bar graph shows the comparatively between the two variables. 2.2 Ratio analysis The ratio analyses of HBL are as follows: 2.2.1 Liquidity ratios: The ability of firm to meet its short term obligation is known as liquidity. It reflects the short term financial strength of business the ratios are used to know the capacity of concern to repay is short term liability. The ratios indicating the liquidity of a firm is: Current Ratio Cash and Bank Balance to Deposit Ratio. a) Current Ratio

Current Ratio = Current Assets/Current Liabilities Here, Current Assets reflects to those assets that can be converted into cash with in a short period of time, i.e. with in 1 year, such as cash &bank balance, investment in government securities, money at short or call placement, receivables, customer acceptances, prepaid expenses, etc . Similarly, current liabilities refers to obligations maturing within a year such as bills payables, provision, dividend payables, outstanding expenses, current deposits, call deposits, saving deposits and other short term deposits, borrowing, bank overdraft, customer acceptance outstanding, etc . Table 1: Current Ratio (In RS 000) Year Current Assets 2005/06 29373640 2006/07 33084074

Current liabilities 28,813,632 32,168,368

Ratio 1.02 1.03

2007/08 2008/09 2009/10

35486463 38449531 41743996

34,344,633 36,926,805 40,421,046

1.03 1.04 1.03

Figure 1: Current Ratio (In RS 000) b) Cash and Bank Balance to deposits Ratio This ratio is part of liquidity and is also called as cash reserve (as specified by NRB). This ratio can be calculated by dividing cash and bank balance by deposit liabilities of the banks. The ratio shows the proportion of cash and bank balance to deposits. Cash and Bank Balance to deposit ratio = Cash and Balance Deposits Liabilities

Table 2: Cash and bank balance to deposits ratio (In RS 000) Years Cash and Balance Deposits liabilities 2005/06 2006/07 2007/08 2008/09 2009/10 1,717,352 1,757,341 1,448,143 1,448,143 3,866,491 26,490,852 30,048,418 31,842,789 34,681,345 37,611,202

Ratio 0.065 0.058 0.045 0.042 0.103

Figure 2: Cash and bank balance to deposits ratio (In RS 000) 2.2.2 Capital Structure / Leverage Ratio: The leverage ratios are calculated to judge the long term financial position of a firm. These ratios measure the enterprises ability to pay the interest regularly and to repay the principal on maturity. Under this some ratios are calculated: a) Long-term Debt to Net worth Ratio : Long-term debt to net worth is calculated by dividing the fixed obligations of the banks by owners claim. It is calculated as: Long-term Debt to Net worth Ratio = Long-term Debt Net worth Table 3: Long-term Debt to Net worth Ratio (In RS. 000) Years Long-term Debt Net worth 2005/06 2006/07 2007/08 2008/09 504,625 595,968 943,178 500,000 2,270,801 2,742,468 3,456,170 3,619,881

Ratio 0.22 0.22 0.27 0.14





Long-term Debt to Net worth Ratio Figure 3: Long-term Debt to Net worth Ratio (In RS. 000) b) Net worth to Total Liabilities Ratio : Net worth to Total Liabilities shows the proportion of Net worth to total liabilities of bank. It is calculated as: Net worth to Total Liabilities Ratios = Net worth Total Liabilities

Table 4: Net worth to Total Liabilities Ratio (In RS. 000) Year Net worth Total Liabilities 2005/06 2,270,801 28,813,632 2006/07 2,742,468 32,168,368 2007/08 3,456,170 34,344,633 2008/09 3,619,881 36,926,805 2009/10 3,939,205 40,421,046

Ratio 0.08 0.09 0.10 0.10 0.10

Figure-4 Figure 4: Net worth to Total Liabilities Ratio (In RS. 000) 2.2.3 Capital Adequacy Ratio: Capital fund refers to paid-up capital, general reserve and undistributed profit. It is also called as shareholders capital as well. High as well as low capital adequacy ratio is unfavourable in term of lowered solvency. It is calculated as: Capital Adequacy Ratio = Capital fund Total Deposits liabilities

Table 5: Capital Adequacy Ratio (In Rs. 000) Years Capital Fund Total Liabilities 2005/06 28,813,632 26,490,852 2006/07 32,168,368 30,048,418 2007/08 34,344,633 31,842,789 2008/09 36,926,805 34,681,345 2009/10 40,421,046 37,611,202

Deposit Ratio 1.088 1.071 1.079 1.065 1.075 Figure 5: Capital Adequacy Ratio (In Rs. 000) 2.2.4 Activity / Efficiency /

Turnover Ratio: This ratio reflects how efficiently the company is managing its resources. Thus these ratios measure the degree of effectiveness in use of resources or funds by a firm. Under this ratio following ratio are calculated. a) Interest Expenses to Total Expenses Ratio: The ratio indicates the expenses related to interest payment out of total expenditure occurred during the period of time. It is calculated as: Interest Expenses to Total Expenses Ratio = Interest Expenses

Table 6: Interest Expenses to Total Expenses Ratio (In RS. 000) Years Interest Expenses Total Expenses 2005/06 648,842 723,023


2006/07 2007/08 2008/09 2009/10

767,411 823,745 934,778 1,553,531

679,452 658,357 925,252 1,414,614

0.90 1.13 1.25 1.01 1.10

Figure 6: Interest Expenses to Total Expenses Ratio (In RS. 000) 2.2.5 Profitability Ratios: Maximization of profit is the main objectives of each and every business concern. It is very necessary to earn maximum profit for the successful running of a business concern. According to Lord Keynes, profit is the engine that drives the business enterprises. The profit is also important to preserve the existence of business as well as strength and expand it. Following Ratios are calculated to measure the profitability of the bank. a) Return on Assets (ROA): This ratio shows the return or profit generated out of total assets of firm. It is calculated as: Return on Assets = Net profit after taxes (NPAT) Total Assets

Table 7: Return on Asset (In Rs 000) Years NPAT 2005/06 457,458 2006/07 2007/08 2008/09 2009/10 491,823 635,869 752,835 508,798

Total Assets 30,579,808 34,314,868 36,857,624 40,046,686 43,860,251

Ratio 0.015 0.014 0.017 0.019 0.012

Figure 7: Return on Asset (In Rs 000) b) Return on Shareholders equity: This ratio can be calculated by dividing net profit after taxes by shareholders equity. Return on Shareholders equity = NPAT Shareholders equity Table 8: Return on Shareholders equity (In RS. 000) Years NPAT Shareholders equity 2005/06 457,458 1,766,176 2,146,500 2,512,992 3,119,881 3,439,205


2006/07 2007/08 2008/09 2009/10

491,823 635,869 752,835 508,798

0.26 0.23 0.25 0.24 0.15

Figure 8: Return on Shareholders equity (In RS. 000) c) Net Interest Earned to Total Assets Ratio: The major sources of interest income are loans and advances, overdrafts and investment in government securities. Similarly, sources expenses are borrowings, deposits, etc. this ratio is calculated by dividing interest by total assets. Net Interest Earned to Total Assets Ratio = Interest Earned Total Assets Table 9: Net Interest Earned to Total Assets Ratio (In RS. 000) Years Interest Income Total Assets Ratio 2005/06 1,626,474 30,579,808 0.053 2006/07 2007/08 2008/09 2009/10 1,775,583 1,963,647 2,342,198 3,148,605 34,314,868 36,857,624 40,046,686 43,860,251 0.052 0.053 0.058 0.072

Figure 9: Net Interest Earned to Total Assets Ratio (In RS. 000) 2.3 SWOT analysis Strengths (S) v Used modern technology v Large amount of paid-up capital v Huge amount of assets v Strong management teams v Centrally located Weaknesses (W) v Less advertisements v Less investments Opportunities (O) v Invest on hydropower sectors and industries v Provide services outside the nation v Develop more E banking system v Collect customers by opening other branch Threats (T) v More competition v Debt management v Possibility of barred debt v Customers satisfaction v International recognition 2.4. Brief analysis of the result In overall, banks performance is found well in every spare. All the ratios are in well condition that is because of well management of their Banking business. Besides, each table can be explained as follows: Liquidity ratio [Table-1 & 2] These examine the adequacy of funds, the solvency of the firm, and the firms ability to pay its obligations when due. Short-term liquidity involves the relationship between current assets and current liabilities. Leverage ratio [Table-3& 4] Leverage or capital structure ratios shows the degree or extent of debt availed by the organization and its capacity to serve such debt. In other words, creditworthiness and the financial risk of the organization can be judged with the help of these ratios. Capital adequacy ratio [Table-5] Another important ratio is the capital adequacy which measures the adequate use of the capital employed. In other form it is the relationship of the capital use and the firms total liabilities. Turnover ratio [Table-6] Turnover ratios reflect the efficiency with which an organization manages and uses assets in generating sales. These ratios indicate the degree of conversion of assets into sales. The quicker the conversion in conformity with the investment, the more efficient the management of the assets. Profitability ratio [Table-7,8& 9] These measure the efficiency of the firms activities and its ability to generate profits. The contribution of Net profit after tax to saving deposit has increased by 17.83 % (39.96%-22.13%), indicating efficiency in deposit collection from customer. There has been decreased in investment and increased in interest expenses to saving deposit, which has also increased the percentage of Net profit after tax contributed by saving deposits. And according to trend analysis saving

deposit is an increasing trend. Hence, from the above activities it is observed that the HBL is in sound financial status. Financial analysis is an important and useful technique and useful to check upon the efficiency of an organization. The management can arrive at important decisions by using analysis. The financial analysiss used for expressing the mutual relation of different accounts consisting in the financial statement. With the help of financial analysis, the big figures groups can be made short and simple. Out of the various methods of financial statement analysis, ratio analysis is far and the most widely used method. However, ratio analysis only is not enough to track down the financial performance of bank. There are many ways to measure financial performance of a bank such as; cash flow analysis, funds flow analysis, trend analysis, etc. Chapter3 Summary, Conclusion and Recommendation 3.1. Summary Nepal is being and under privileged country and more then 90% of people being dependent upon agriculture, which sector is unable to provide full employment to all people. HMG has to activate people in the nations development through overall industrialization of nation. For which, development of banking system is necessary. Modern commercial banks make the economy always alive and smart to run and maintain dayto-day commercial, economical and banning transaction. In short, banking transaction helps a country to develop its economy swiftly. If there were systematic and scientific programs for economic development, countries like Nepal would have developed its economy as much as those countries, which have development the whole economy. In addition, the todays circle of the underdevelopment might have perhaps narrowed down. At present, commercial banks including joint venture banks are operating in Nepal. Any country cannot have a developed economy in the absence of modern banking system. As any development, work needs, sufficient amount if capital and the lack of sufficient capital is also one of the main reasons as to why Nepal has been backward in developing this economy. Therefore it is utterly important to find out whether or not the banks are serving and import contribution to develop different sector of the economy. Fixed deposit occupies major portion of banking income. It also pays a vital role upgrading the rational economy. 3.2. Conclusion It can be concluded from the observation and analysis of above data that ratio analysis controls the banks and shows the general financial strengths and weaknesses. Similarly, it also shows the future opportunities and threats for the banks. Therefore it is very important for the appropriate policy to adopt with calculated various ratios. A large capital can be managed at very low capital cost. It will encourage industrial and commercial activities eventually leading to better economic growth, socioeconomic development, employment opportunity etc. In context of HBL, it will be found more effective in the sector of banking since its policies and the implementations are towards the great achievement that symbolisms its need in the Nepalese economy. HBL is going towards growth and hope it will ultimately goes for development very soon if the political scenario and economic condition walk proper as its result says. 3.3. Recommendation Some suggestion and recommendation are being put forward for the improvement of HBL and Banking industry in Nepal.

I. Now, the economic condition of the country is deteriorating, there is danger of reduction of business and industrial activities. Therefore banks should not focus only in collecting huge amount of deposit by increasing the interest rate. II. It is common complain that customers entering the branch premises have crave for employee attention. The remedy lies in creation of a friendly behaviour to all customers who come into the branch, whether valuable or not. A smile on the face would not cost but would go along way in satisfying customers expectation. III. Considering the present economic condition of the country, the bank should pay pivotal role for the economic development of the country. They should promote balanced regional development by financing funds in remote and other priority sectors. IV. The banks mobilized capital should be made available for investment in productive enterprises whether the business is of small, medium of large sized. Thus the bank should expand its credit to promote economic development more rapidly. V. Higher interest rate is a tool to attract customer to deposit their money. This will eventually lead to the collection of funds. The cash deposited by the customer are liquid position to help maintain adequate liquidity position of the bank. It also offers more chance to invest or lend. VI. There is serious competition among joint venture banks, finance companies and insurance companies being ruined or even strong companies going to losses and liquidate. Therefore the bank should be service oriented. They should train and motivate the staffs, get up-to date information about other bank and try to grow their market. VII. The bank should concentrate in various investment policies, so that the investment is done in wide range of profitable sectors in proportionate manner. The bank should scrutinize with, are parties, bank are dealing with, are having good reputation or not otherwise, the transaction, the truncation with bad parties may lessen the value of bank. VIII. The bank should publish annual report and distribute booklets containing details information about its activities and performance as well. IX. The bank should follow the discipline and adopt directives of NRB. This helps to maintain harmonious relationship between other banks as well. X. The bank should launch various kinds of welfare programs for its staffs and the society. Excellent staffs should be promoted in order to motivate them. XI. The bank should grab opportunities as soon possible, by adopting efficient and latest market strategies. Traditional method should be left behind. XII. There should be certain fund for advertising. Advertising also helps to attract depositors and borrowers. XIII. NRB should invite commercial banks officials to participate in formulating policies rules, regulation and directives. XIV. Banks should bring attractive motivational programs to motivate their employees effectively and efficiently. XV. HBL should change its marketing concept. It should adopt new and modern marketing concept. Now, it should go for the societal marketing concept for the betterment of the society and itself. XVI. Government, NRB and commercial banks should take necessary steps to form and regulation banking habits of Nepalese people especially people of rural areas.

Bibliography Singh, Hriday Bir (2006) BANKING AND INSURANCE, Kathmandu, Asian Publication. Thapa, MANAGEMENT Kiran (2005) FINANCIAL

Pant, P. R. (2001). Fieldwork Assignments and Report Writing, Ktm: Buddha Academic Enterprises Pvt. Ltd. Journal & Publication. Annual Report of HBL. Newsletter by Nepal Tourism Board Publication. www.hbl.com.np www.nrb.gov.np Handouts given by Teacher. Google search- free encyclopaedia