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CHAPTER-1

Introduction
1.1. Background of study
The bank is an institution established by law, which deals with money and credit is
called banking. In other words, it is obvious that an institution which deals with money,
receiving it on deposits from customers, honoring customers drawings against such
deposits and demand, collecting cheques from customers, and lending or investing
surplus deposits until they are required for repayment.
In common sense, financial institution which deals with monetary transaction by
accepting various types of deposits, distributing various types’ loans and rendering
other financial services.
There is several definition of a bank by different authors and scholar’s .some of them is
as follows:-
According to Oxford Dictionary
“A bank is an establishment for the custody of money received from or on its
customers, its essential duty is to pay their draft on it, its profit arises from its use of
money left unemployed by them.”
According to Dr. Hart
“A person or company carrying on the business of receiving money and collecting
drafts, for customers subject to the obligation of honoring cheques upon them from
time to time by the customers to the extent of the amounts available on their current
accounts”
As per Kent
“Bank is an organization whose principle operation is concerned with accumulation for
the temporarily idle with money of the general public for the purpose of advancing to
other expenditure.”
According to Hals bury laws of England
“A banker is defined as an individual partnership or corporation, whose sole or
predominating business banking”.
According to the commercial bank act 2031
“A commercial bank is a bank, which deals in exchanging currency, deposits, giving
loans and doing commercial transactions”.
So bank is an organization, which deals with deposits, lends money and renders a wise
range of financial services.
Origin of Banking
The term “bank” was originated from the Latin word “BANCUS”, and the Italian word
“BANCO”, the German word “BACK” and French word “BANKE”.regarding the
origin & banking institution in the world, the bank established was “Bank of Venice” of
Italy. The second bank established in Spain in 1401 A.D. as “the bank of Barcelona”.
Then after, Bank of Geneva &Bank of England as a joint venture bank in 1401 &1694
A.D. respectively. Several national and foreign banks were established in India & other
countries subsequently.
Banking in Nepal
In Nepalese banking concept, the history of banking is not long. But it is found that the
banking transactions are conducted in ancient time. Nepal bank limited was the first
bank in Nepal established in 1994b.s .later Nepal Rastra Bank ,central bank was
established in 2013 b.s with an objective to provide the policy decision, guidance and
control the banking and to monitor this sector.Rastriya Banijya Bank is a government
owned commercial bank was established in 2022b.s. NIDC(Nepal industrial
development corporation) and agriculture development bank limited(ADBL) was
established in 2020b.s.the joint ventures bank’s increased dramatically after restoration
of democracy when the government adopted liberal and market oriented policy.
Nowadays following commercial banks are in operation
5 Agriculture development bank limited (ADBL)
6 Bank of Asia Nepal limited
7 Bank of Katmandu limited
8 Citizen international bank limited
9 Development credit bank limited
10 Everest bank limited
11 Global bank limited
12 Himalayan bank limited
13 Janata bank limited
14 Kumari bank limited
15 Kist bank limited
16 Laxmi bank limited
17 Lumbini bank limited
18 Machhapuchhre bank limited
19 Nabil bank limited
20 Nepal bank limited
21 Nepal Bangladesh bank limited
22 Nepal SBI bank limited
23 Nepal investment bank limited
24 Nepal industrial and commercial bank limited
25 Nepal credit and commercial bank limited
26 NMB bank limited
27 Prime commercial bank limited
28 Rastriya Banijya bank limited
29 Siddhartha bank limited
30 Sunrise bank limited
31 Standard chartered bank Nepal limited

Latest performance of commercial banks sub-groups


The average of the listed commercial banks’ key indicators-NPA,P/E ratio,RoA ,RoE,
EPS,NWPS and profit margin- since last five years. in the five year 2004-05 and 2005-
06 there were only 17 listed commercial banks whereas in 2006-07,the number
increased to 18 and in 2007-08 and 2008-2009, there were 23 listed and in the mid of
2009-10 there were 26 commercial banks were listed.
Figure no.-1
Not performing assets

7
6
5
4
3
2
1
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

NPA in percent

The average NPA was 1.98 percent in 2008-09 against 3.58 percent in 2007=08.NPA
is an assets or account of borrower, which has been classified by a bank or financial
institution as sub-standard, doubtful or loss assets. Lower the NPA better the institution.
Figure no.-2
P/E ratio

70
60
50
40
30
20
10
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

P/E ratio in times


During the fiscal year 2007-08,the overpopulation of the shares have been raised the
P/E ratio to an average of 65.60 times that came down to an average of 56.28 times in
2008-09.a high P/E ratio suggests that investors are expecting higher
earnings growth in the future.
Figure no.-3
Return on assets (RoA)

2.5

1.5

0.5

0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

Return on total assets in percent

The average RoA,however,almost doubled in 2008-09 to 2021 percent from 1.76


percent a year ago.RoA gives an idea as to how efficient management is at using to
generate profits.

Figure no. - 4
Return on equity (RoE)

45
40
35
30
25
20
15
10
5
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

Return on equity in percent


The average RoE stood at 24.73 percent in 2008-09.it reveals how much profit a
company earned in comparison to the total amount of shareholders equity found on the
balance sheet.
Figure no.-5
Profit margin

30
25
20
15
10
5
0
-5
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

Profit margin in percent


In 2007-08, the average profit margin of the 23 listed commercial banks was
27.09percent but in 2008-2009, it posted a profit of only 27.86 percent. The
competition among commercial banks-the key player in the Nepse –and lack of market
expansion pulled the profit margin down.
Figure no.-6
Earning per share (EPS)

45
40
35
30
25
20
15
10
5
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

Earning per share in rupees


The EPS has slowed due issuance rights and bonus shares. It is generally considered to
be single most important variable in determining a share’s price.

Figure no.-7
Net worth per share (NWPS)

160
155
150
145
140
135
130
125
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

NWPS in rupees
Due to the increasing rights and bonus shares net worth per share has slowed
down.NWPS is a measurement of the net worth of the company for each share of stock
that has been issued.
(Sources: - Security Research Centre and services)
1.2 Introduction of Himalayan Bank Limited
Himalayan bank limited is a joint venture bank with Habib bank of Pakistan, was
established in 1992ad, under the company act 1964.this is the first joint venture bank
managed by Nepali chief executive officer. The bank had started its operation from
February 1993.
The main objective of the bank is to provide modern banking facilities like banking to
businessman, industrialists and other professionals and to provide for commercial,
agriculture, and industrial sectors. Despite the cut-throat competition in Nepalese
banking sector, Himalayan bank has been able to maintain a lead in the primary
banking activities-loans and deposits.
The bank’s vision
Himalayan bank limited holds of a vision to become a leading bank of the country by
providing premium products and services to the customers, thus ensuring attractive and
sustainable returns to shareholders of the bank.
The bank’s mission
The bank’s mission to become preferred provider of quality financial services in the
country .there are two components in the mission of the bank; preferred provider and
quality financial services; therefore we HBL that the mission will be accomplished only
by the satisfying these two importants.components with the customer at focus.
The bank’s objective
To become the first choice is the main objective of the bank.
1.2.1 Share subscription of HBL
Table no.-1
Share subscription of HBL
Promoter shareholders 51%
Habib Bank, Pakistan 20%
Financial 14%
institutions(employers
provident fund)
Nepalese public 15%
shareholder’s
Total 100%

In the above share subscription of HBL,promoters shareholders own more than 50%of
total shares.Similarly,Habib Bank limited, Pakistan owns 20% total shares, financial
institutions (employee provident fund )own 14% of total shares and 15%of total shares
are owned by Nepalese public shareholders.Therefore,promoters of HBL own the
majority of shares.
1.2.2 Capital structure of Himalayan bank limited
Capital structure of Himalayan bank is as follows:
Authorized capital = Rs.1, 00, 00, 00,000
(Divided into 10000000@Rs.100 each)
Capital = Rs.81, 08, 10,000
(Divided into 8108100@Rs.100 each)
Paid up capital = Rs.81, 08, 10,000
(Divided into 8108100@Rs.100 each)
1.2.3 Services offered by Himalayan Bank Limited
Himalayan bank offers various types services to its valuable customers, which
promotes bank competitiveness, credit worthiness and attraction.
Some services and technologies, which may provide by Himalayan bank limited, are as
follows:-
1) Accepting deposits
-current deposits
-fixed deposits
-saving deposits
2) Granting loan
- Overdraft
- Demand loan
-Time loan
-term loan
3) Transferring funds
4) Premium saving accounting
5) Bills discounts
6) Bank guarantee
7) Issued of honors of travelers cheques
8) Inward and outward remittance
9) Issuance of bank draft and bankers cheques
10) ATM, debit card, credit card facilities
11) Inter banking services
12) Any branch banking system (ABBS)
The bank is the first joint venture bank managed by Nepalese chief executive. Its head
office is based in the capital city of the country, Kathmandu in “Karmachari Sanchaya
Kosh Building”Thamel, Ktm.it has 26 branches out of which 910 are in Katmandu
valley and remaining 17 branches are outside the valet spread in the main cities of the
country. The bank adopting modern technologies such as computer system in each
branch, credit card, master card and visa international card etc.recently this bank has an
agreement with Smart Choice Technology Pvt. Ltd. for expanding ATM network in
Katmandu valley
1.3 Introduction of Nepal Bangladesh bank limited
Nepal Bangladesh bank was established in 1994 with an authorized capital Rs.240
million and paid up capital Rs.60 million as a joint venture with IFIC Bank Ltd.It has
head office situated at Baneshwor Katmandu .the prime objective of this bank is to
render banking sources to different sector, small entrepreneurs and the weaker society
of society and every people who need banking services .during the period of 15 years of
its operation .it has accommodated a large number of clients and has been able to
provide excellent services to its clients. Bank has a network of 18 branches.
The bank has earned the glory of making available the services almost all the top
business houses of the leading, positions among the joint ventures in Nepal, the bank is
still purshing to accommodate as many clients as far as possible.
The exporters and importers of the country have established banking relationship with
the bank and sub stainable volume of foreign business which has enhanced the bank’s
popularity in the international trade front. Bank has developed agency and
correspondent relationship with more than 200 prominent foreign banks in the world.
This is the first only bank entrusted by the World Bank and government of Nepal to be
the Power Development Fund (PDF) administrator for the development of small and
middle level of the hydropower projects in the country. The bank is the first joint
venture bank, the government revenue transactions in the country.Tatopani branch is
solely dealing with the government revenue account of Tatopani revenue office.
The bank’s vision
NB banks holds a vision to become a leading bank of the country by providing
premium products and services to the customers, thus ensuring attractive and
substantial returns to the stakeholders of the banks.
The bank’s mission
The bank mission is to provide their clients with the help of a skilled and dedicated
workforce whose creative talents, innovative actions and competitive edge make unique
position in giving quality services to all institutions and individuals.
The bank’s objective
To become a legend and first selection bank is the objective of the bank.
1.3.1 Share subscription of Nepal Bangladesh bank limited
Table no.:-2
Share subscription of NB Bank
Promoter shareholders 51%
IFIC Bank, Pakistan 20%
Financial institutions(employers 14%
provident fund)
Nepalese public shareholder’s 15%
Total 100%

1.3.2 Capital structure of Nepal Bangladesh bank limited


Capital structure of Nepal Bangladesh bank limited is as follows:-
Authorized capital
(Divided in to 2400000@Rs.100 each) =Rs.24, 00, 00,000
Issued capital
(Divided in to 600000@Rs.100 each) =Rs.6, 00, 00,000
Paid up capital
(Divided in to 600000@Rs.100 each) =Rs.6, 00, 00,000
1.3.3 Products and services of Nepal Bangladesh bank
Nepal Bangladesh bank limited provides following services and products:-
32 Loan and advance
33 Deposit scheme
34 Automated teller machine(ATM)
35 Education loan
36 Housing loan
37 Hire purchase loan for professionals
38 Saving plus deposit scheme
39 Locker facility
40 Any branch banking system(ABBS)
1.4 Statements of Problems
The problem of the study lies on the issues related to the strength and weakness of “a
comparative evaluation of financial performance of Himalayan bank limited and Nepal
Bangladesh bank limited”. It also tries to seek the answers to the following questions:-
What is the comparative evaluation financial performance of the bank in terms of
liquidity, EPS, DPS, payout ratio, debt management and profitability ratio over fiver
different years?
1.5 Objective of study
Each activity of human being is driven to world the following objective;
41 To evaluate liquidity, leverage, capital adequacy and profitability ratios of
Nepal Bangladesh bank and Himalayan bank limited.
42 To study the comparative cash flow statement of banks.
43 To make necessary suggestions and recommendations for effective financial
performance in future.
1.6 Limitations of study
The major limitations of this research are related with the ratio analysis of financial
performance of Nepal Bangladesh bank and Himalayan bank limited. Various
limitations have been faced while preparing this report which is expressed below:
44 This study is conducted mainly based on secondary type of data i.e. annual reports
and textbooks factors.
45 Study conducted to five years beginning from fiscal year 059/060 to 064/065.
46 This study only explains about ratio and cash flow statements of two banks.
47 Study and results of two banks may or may not be applicable to others banks.
48 This study is only conducted only within Katmandu valley.
1.7 Concept of cash flow statement
Cash flow statements indicates where funds came from during the year (from sales,
receivable or sales of property) and where they are spent (for purchase of equipment,
payment of dividends reducing accounts payable) cash flow statements shows
49 How the firm’s operation have affected its liquidity.
50 The relationship among cash flow from operating, investing and financing
activities.
1.8 Significance of study
Mainly the study covers the financial analysis, which covers the liquidity, profitability,
solvency and efficiency ratios of the bank over five different years. The comparative
study with five years from data of the bank has been analyzed so far. Hence, it has been
own importance and significance for policy makers, professionals, shareholders,
management and general public.
1.9 Organization of study
This study has been divided in to five chapters.
Chapter:-1 Introduction
Chapter:-2 Research Methodology
Chapter:-3 Presentation and Analysis
Of data
Chapter:-4 Summary, Conclusion and
Recommendation
INTRODUCTION
This chapter covers the general background of the general performance analysis,
introduction of the organization, statement of problem, objective and limitations of the
study and organization of the research study of Himalayan bank limited and Nepal
Bangladesh bank limited.
RESEARCH METHODOLOGY
This chapter focuses the research design, sample data analysis tools and their using
techniques.
PRESENTATION AND ANALYSIS OF DATA
This chapter concern with measurement of financial performance using ratio analysis
tools and their trend analysis.
SUMMARY, CONCLUSION AND RECOMMENDATION
This chapter gives summarization, conclusion and recommendation of the study.
CHAPTER-2
RESEARCH METHODLOGY
51 Research methodology
Research methodology refers to the various sequential steps to be adopted by a
researcher in studying a problem with certain objectives in view. This chapter explains
the methodology used for this research in the following order.
52 Research design
Financial tools are used to ensure the relationship between variables in terms of ratio,
percentage and times. Here for this research work both analytical and descriptive
research design is applied.
53 Population and sampling
The study is done to taking an account of two organizations i.e. Himalayan bank
limited and Nepal Bangladesh bank limited. In this study, overall financial
performances of both banks are taken into consideration. The reason selecting these
banks as sample for many study are predominant.
54 Convenience accessibility.
55 Easy data availability.
56 Good record of banks and recognition.
57 Welcome environment of banks.
The joint ventures commercial banks, established year and head office of population are
given below:
Table no.:-3
List of joint ventures commercial banks
Commercial Banks Established Head Office
S.N year
1 Nepal Arab bank limited 2041-03-29 Katmandu
2 Nepal investment bank 2042-11-16 Katmandu
limited
3 Standard chartered bank 2043-10-13 Katmandu
Nepal limited
4 Himalayan bank limited 2049-10-05 Katmandu
5 Nepal SBI bank limited 2050-03-23 Katmandu
Nepal Bangladesh bank 2051-02-23 Katmandu
6 limited
7 Bank of Katmandu limited 2021-11-28 Katmandu
8 Everest bank limited 2051-07-01 Katmandu
9 Nepal credit and commerce 2053-06-28 Siddharthna
bank limited gar
10 Lumbini bank limited 2055-04-01 Narayangad
h
11 Nepal industrial and 2055-04-05 Biratnagar
commercial bank limited
12 Machhchhapuchhre bank 2057-06-17 Pokhara
limited
13 Kumari bank limited 2056-08-24 Katmandu
14 Laxmi bank limited 2058-06-11 Katmandu
15 Siddhartha bank limited 2058-06-12 Katmandu
Sources- Newspaper and Magazines
58 Sources of data
The research is based on primary as well as secondary data. Primary data collected are
personally collected through questionnaires, direct observations and interviews, which
have conducted with the concerned staffs and customers of the concerned banks. The
secondary data are collected from annual report of banks, broachers, balance sheet and
from the website.
59 Method of data analysis
“The term data analysis refers to the computation of certain measures along with
searching for patterns of relationship that exit among data group. thus in the process of
analysis, relationship of different supporting or conflicting with original or new
hypothesis and should be subjected to statistical lest of significant to determine with
what validity can be said to indicate any conclusion.”
Analysis may be categorized as descriptive analysis and inferential analysis. To achieve
the predetermined objective of the research, certain tools are used.
The tools are categorized as;
1. Financial tools
2. Stastical tools
3. Graphical tools
In this study, following statistical tools are used to analysis the financial performance of
the bank:-
Profitability ratio
Profitability is ultimately in terms of rate of return earned by the liquidity by the equity
investors who are the owner of the business. Profitability is the final result of the bank.
There are five measures of profitability, called profit margin, net interest, the spread,
the return on assets, and the return on equity. This ratio tools helps to analyzed income
relations to resources committed is to measure profitability from the financial
statements.
Liquidity ratio
It means the ability to meet cash obligation as they come due. Liquidity is the probably
most difficult aspect of the financial performances of the institutions to measures. This
report gives out the correct comparison of the maturities of assets and liabilities.
Leverage ratio
It is used to know the long term financial positions of the financial instituitions.these
ratios are also called capital structure ratios. These ratios indicate the proportions of
debt and equity in the capital structure of a bank.
1. Liquidity ratios
Current ratio = Current assets/Current liabilities
Cash and bank balance to total deposit ratio (cash reserve ratio)
=Cash and bank balance /Total deposits
2. Debt management ratios
Total debt ratio = Total debt/Total assets

Interest coverage ratio =EBIT/Total interest charge (times)


3. Profitability ratios
Return on total assets =Net profit/Total assets
Return on net worth ratio =Net profit/Net worth
Return on total capital =Net profit after interests and taxes/Total capital
4. Other indicators
Earning per ratio (EPS) =Net profit/No. of shares
Dividend per share (DPS) =Earn paid to shareholders/No. of shares
Dividend payout ratio (DPR) =Dividend per share/Earning per share
CHAPTER-3
PRESENTATION AND ANALYSIS OF DATA
60 Presentation and analysis of data
This chapter thesis work presents the data, facts, figures and their interpretation. This
thesis work is based on the secondary data. The relevant data collected from secondary
sources are presented and analyzed by using financial, statical and graphical tools and
techniques. To compare the financial performance of Nepal Bangladesh bank and
Himalayan bank, ratio analyses has been used. We have also compared the data
collected from various using ratios formulas.
61 Liquidity ratio
Liquidity of a firm refers to the sound solvency position of a firm to meet its
obligations. Liquidity ratio measures the ability of a firm to meet its short-term
obligations.liquiidity of a bank should be considered as the most important factor its
existence. It shows the capability of payment of current liability. High ratio indicates
the liability to pay and low ratio shows scarcity of liquid assets. In this ratio we have
calculated:
62 Current ratio
Current ratio is the measure of the firm’s short-term solvency .current ratio is also
known as “working capital ratio” it indicates the availability of current assets in rupees
for ever one rupee of current liabilities .ratio greater than unity refers that firm has more
current assets than the liabilities .current ratio is simply the ratio of current assets and
current liabilities.
The proportion of current ratio of 2:1 is supposed to be an idle. This conventional rule
is based on the assumption that even it the current assets are decreased by half the form
can meet its obligations. The standard of 2:1is not hard and fast rule for current ratio.
The ratio of the firm depends upon the kind of the business it does as well. If the firm is
a service tendering firm it is considered to be enough to be 1; 1ratio. It can be computed
by using following formula,
Current ratio= current assets/current liabilities (times)
Table no. - 4
Current ratio
in million(Rs.)
Bank Himalayan bank Nepal Bangladesh bank
year Current Current Rati Current Current ratio
Assets Liabiliti os Assets Liabilities (time
es (tim s)
es)
2060/2 1,92,98,89 18,30,23 1.05: 19,99,36 1,62,55,024 1.23:
061 3 0 1 8 1
2061/2 2,09,97,00 1,98,14, 1.06: 2,12,71, 14181,310 1.50:
062 4 319 1 964 1
2062/2 2,39,68,10 2,22,92, 1.08: 2,80,01, 2,08,96,,59 1.34:
063 3 091 1 430 0 1
2063/2 2,54,30,14 2343789 1.09: 2,13,51, 1,14,18,096 1.87:
064 4 1 840 1

2064/2 2,45,75,52 2630294 1.09: 2,78,89, 1,29,28,536 2.16:


065 1 8 1 597 1
By table no.1, we can see the current ratios of HBL from the year 206/2061 to
2064/2065 are 1.05, 1.06, 1.08, 1.09 & of NB for those years are 1.23, 1.5, 1.34, 1.87&
2.15.both banks have current ratio lower than the standard ratio 2:1.So, both banks
should increase its current assets.however, looking at above table we can see that NB
bank has higher current ratio. Hence, the liquidity position of NB bank in comparison
to HBL.
Figure no.-8
Current ratio

63 Cash and Bank balance to total deposit ratio


The table shows the comparative cash and bank balance to deposit ratio (excluding
fixed deposit).cash and bank balance to total deposit measures the percentage of cash
and bank balance maintained by NB bank and HBL bank in order to honor the cheques
presented by its depositors excluding fixed deposits .a high ratio represents the greater
ability to meet their all type or prompt demand of cash payment. but too high ratio of
cash and bank balance to total deposits may be unsuitable and harmful because it
affects their profitability position and also too low ratio is unfavorable as capital will be
tied up and opportunity cost will be higher .this is computed by using following
formula,
Cash and bank balance to total deposit (cash reserve ratio) =cash and bank
balance/total deposit.
Table no.-5
Cash and Bank balance to total deposit (cash reserve ratio)
(In million Rs.)
Banks Himalayan bank Nepal Bangladesh bank
Year Cash Total Rati Cash & Total Ratio
& Deposit o Bank Deposit (%)
Bank (%) Balance
Balanc
e
2060/20 14,35, 1,75,32, 8.19 11,89,048 16,58,07 7.18
61 157 404 3
2061/20 12,64, 1,86,19, 6.79 27,95,996 2,90,68,9 9.62
62 672 375 28
2062/20 19,79, 2,10,07, 9.42 27,12,150 2,71,62,2 9.99
63 209 379 15
2063/20 20,01, 22,10,33 9.09 22,82,676.5 2,16,74,0 10.53
64 184 3 46
2064/20 20,14, 2,48,14, 8.12 24,00,763.7 2,39,76,4 10.01
65 471 012 33

This ratio shows the ability of banks funds to meet their deposits. Dividing cash and
bank balance calculate this ratio by total deposit. High ratio shows the good liquidity
position. the ratio of HBL from 060/2061 to 2064/2065 is 8.19,6.79,9.42,9.09 and 8.12
and NB Bank is 7.18,9.62,9.99,10.53 and 10.01.by looking at the above table one can
say that the NB Bank is in good liquidity position because of higher cash and bank
balance to total deposit ratio.
Figure no.-9
Presentation of cash and bank balance to total deposit ratio in
Line diagram

64 Debt management ratio


Leverage of capital structures ratios are used to judge the long term financial position
of the banks. It evaluates the financial risk. Greater the portion of equity capital in
capital lesser will be the risk. Debt is more riskily but it is advantageous to
shareholders. In this ratio, we calculate total debt ratio, debt equity ratio and debt to
total capital ratio.
3.3.1 Total debt ratio
This ratio reflects the external obligation of the firm in relation to the total assets. It
indicates the financial contribution of outsiders and owners on total assets of the firm. It
also measures the financial security of outsiders.generallly creditors prefer a low debt
ratio where as, owners prefer high debt ratio in order to magnify their earnings on the
one hand and to maintain their concentrated control over the
Firm. Higher the ratio depicts higher the contribution of debt in total assets
consequently higher the risk association.
Total debt ratio=total debt/total assets
Table no.-6
Total debt to total assets ratio
(In million Rs.)
Bank Himalayan bank Nepal Bangladesh bank
Year Total Total Ratio Total Total Rati
Debt Assets (%) Debt Assets o
(%)
2060/206 1,83,02,3 1,95,00,5 93.86 1,81,19,2 1,96,95,5 92.
1 00 72 77 78 00
2061/206 1,98,14,3 2,13,15,8 92.96 1,96,16,1 2,15,29,0 91.
2 19 48 76 06 91
2062/206 2,22,92,0 2,41,97,9 92.12 2,20,69,1 24,439,9 90.
3 91 74 70 54 30
2063/206 2,34,37,8 2,57,29,7 91.09 2,32,03,4 2,59,87,0 89.
4 59 87 80 85 29
2064/206 2,63,02,9 2,88,71,3 91.10 2,60,39,9 2,91,60,0 89.
5 48 43 19 56 30

This ratio is calculated by dividing total debt by total assets. A high ratio shows the
contribution of creditor in financing the assets of bank. this ratio shows that both banks
have comparatively equale.The ratio of HBL are 93.89,92.96,92.12,91.09 and 91.1
likes this the ratio of NB Bank are 92,91.12,90.3,89.29,89.3.both banks have
proportion of assets investing by debt but Himalayan bank has more risk in relation to
NB bank due to higher debt ratio.
Figure no.-10
Presentation of total debt ratio in line diagram

65 Interest coverage ratio


This ratio is also called time interest ratio (TIE).Time interest ratio measures the extent
to which operating income can decline before the firm is unable to meet its annual
interest costs. failure to meet this obligation can bring legal action by the firm’s
creditors, possibly resulting in bankruipty.this ratio by dividing earnings before interest
and taxes(EBIT)by the charges can be presented below,
Interest coverage ratio=EBIT/total interest charge (times)
Table no.-7
Interest coverage ratio
(In million Rs.)
Banks Himalayan bank Nepal Bangladesh bank

Year EBIT Total Ratio EBIT Total interest Ratio


interest (times) charge (times)
charge
2060/206 11,65,88 7 34 518 1.59 1,17,73 7,30,845.40 1.61
1 0 8.80
2061/206 9,27,180 5,78,134 1.60 9,36,4 5,75,243.30 1.63
2 51.80

2062/20 9,14,15 5,54,1 1.65 9,23,2 5,51,357.40 1.67


63 6 28 97.56
2063/20 9,12,11 4,91,5 1.86 9,21,2 4,89,085.30 1.88
64 7 43 38.17
2064/20 10,84,5 5,61,9 1.93 19,53 5,59,154.20 1.96
65 06 64 1.06
The interest coverage ratio is calculated by dividing EBIT by interest expenses. And it
can be shown in times. The table shows the HBL and NB bank have more than Rs.1
EBIT for 1 rupee payment of interest. The higher the ratio will be more favorable for
the organization. The times interest on ratio of both banks are in increasing trend which
indicate that the EBIT of both banks are good to cover the interest expenses.
Figure no.-11
Presentation of interest coverage ratio

66 Profitability ratio
Profit is the difference between revenue and expenses. A profit is necessary for the
survival of the company and also meets the expectation of shareholders. It is the
measure of the performance of any business, heather it is doing well or not. It is
calculated to measure the operating efficiency of the firm. Profitability ratio shows the
combined effects of liquidity management and debt management on operating result.
Major types of profitability ratio are as under:
67 Return on total assets
This ratio measures the profitability of all invested in the firm’s assets. This ratio
provides the necessary foundation for a company to deliver a good return on equity. A
company with out a good return on total assets finds it almost impossible to generate a
satisfactory ROE. In this study ROA is computed to measure the profitability of all the
financial resources in bank assets and calculated be applying the following formula;
Return on total assets=net profit/total assets
Table no.-8
Net profit of total assets ratio
(In million Rs.)
Banks Himalayan bank Nepal Bangladesh bank
year Net Total Rati Net Total Rati
profit assets o profit assets o
(%) (%)
2060/20 2,77,039 1,95,00,572 1.4207 2,82,579.7 1,96,95,578 1.4347
61 8
2061/20 2,35,023 2,13,15,848 1.1026 2,39,723.4 2,15,29,006 1.1135
62 6
2062/20 2,12,132 2,41,97,974 0.8767 2,16,374.6 2,44,39,954 0.8853
63 4
2063/20 2,63,052 2,57,29,787 1.0240 2,68,313.0 2,55,98,085 1.0485
64 4
2064/20 3,08,277 2,88,71,343 1.0678 3,14,442.5 2,91,60,056 1.0783
65 4

Return on total assets is obtained by dividing net income after tax by total assets. This
ratio measures the efficiency of bank in utilization of overall assets. High ratio indicates
the success of management in overall operation all low ratio means inefficient
operation of bank. these ratios of HBL of 5 years 1.42,1.1,0.87,1.0024 & 1.0678 in
percentage same as NB bank are 1.43,1.11,.89,1.03 &1.08. From the above table one
can tell that RoA of NB bank is good because it has higher RoA.
Figure no.-12
Presentation of net profit to total asset ratio in line diagram

68 Return on net worth ratio


This ratio indicates that how the firms have been utilizing the owners fund. The key
objective of any enterprises is t maximize the owner’s wealth. Higher this ratio is the
consequences of sound management and efficiency of the management. The net profit
is obtained from P/L account and net worth is the sum of paid up capital, reserves,
surplus and undistributed profit. In another way it can be calculated by subtracting total
liabilities by total assets. Higher the ratio indicates higher the return and lower the ratio
indicates lower the return. This can be computed from the following formula,
Return on net worth=net profit/net worth
Table no.-9
Return on net worth ratio
(in million Rs.)
Banks Himalayan bank Nepal Bangladesh bank
year Net Net Rati Net Net Rati
profit worth o profit worth o
(%) (%)
2060/206 2,77,03 11,98,29 23.1 2,82,579.7 12,34,240. 22.9
1 9 2 2 8 80 0
2061/206 2,35,02 15,01,52 15.6 2,39,723.4 15,46,574. 15.5
2 3 9 5 6 90 0
2062/206 2,12,13 19,05,88 11.1 2,16,374.6 19,63,059. 11.0
3 2 3 3 4 50 2
2063/206 2,63,05 22,91,92 11.4 2,68,313.0 23,60,685. 11.3
4 2 8 8 4 80 7
2064/206 3,08,27 25,68,39 12.0 3,14,442.5 26,45,446. 11.8
5 7 5 0 2 90 9

Return on net worth of HBL are 23.12,15.65,11.13,11.48 &12.like the above ratio of
NB bank are 22.90,15.50,11.02,11.37&11.89.comparing both banks HBL has greater
profitability on net worth than NB bank due to higher ratio.
Figure no.-13
Presentation of net profit to net worth ratio in line diagram

69 Return on total capital


This ratio is calculated by dividing net income after tax by total capital .it is tasted to
see how the company employ their capital and can earn. More earning is expected by
the company so high ratio desirable.

Return on total capital=Net profit after interest and taxes/Total capital


Table no.-10
Return on total capital
(In million Rs.)
Banks Himalayan bank Nepal Bangladesh bank
year Net Total Rati Net profit Total Ratio
profit capital o capital (%)
(%)
2060/2061 2,77,039 3,00,000 92.35 2,82,879.78 3,30,000 85.63
2061/2062 2,35,023 3,90,000 60.26 2,39,723.46 4,29,000 55.88
2062/2063 2,12,132 4,29,000 49.45 2,16,374.64 4,71,900 45.85
2063/2064 2,63,052 5,36,250 49.05 2,68,313.04 5,89,875 45.49
2064/2065 3,08,277 6,43,500 47.91 3,14,442.54 7,07,850 44.42
Returns on total capital of HBL of 5 years are 92.35, 60.26, 49.45, 49.05 &47.91. Same
ratios of NB bank are 85.63, 55.88, 45.85, 45.49 &44.42.comparing both banks HBL
has high return to total capital i.e. utilize their capital in more productive sectors.
Figure no.-14
Presentation of return on total capital in line diagram
70 Others indicators
Others indicators like payout ratio, dividend yield ratio are calculated. Higher ratio or
higher values of these indicators shown good performance of any organization.
71 Earning per share (EPS)
EPS indicate the income distributed .high EPS indicates good performance and low
EPS indicates low performance.
EPS=net profit/no. of shares
Table no.11
Earning per share (EPS)
(In million Rs.)
Banks Himalayan bank Nepal Bangladesh bank
year Net No. of EPS Net profit No. of EPS
profit shares shares
2060/206 2,77,039 3,000 92.35 2,82,579.7 3,300.00 85.63
1 8
2061/206 2,35,023 4,290 60.26 2,39,723.4 4,290.00 55.88
2 6
2062/206 2,12,132 5,362 49.45 2,16,374.6 4,719.00 45.85
3 4
2063/206 2,63,052 6,435 49.06 2,68,313.0 5,898.75 45.49
4 4
2064/206 3,08,277 6,435 47.91 3,14,442.5 7,078.50 44.42
5 4

The earning per share of HBL are 92.34,6.26,49.44,49.05&47.906 for the fiscal year
2060/2061 to 2064/2065 and of NB bank are 85.63,55.879,45.85,45.49 &44.42.from
the above table we can see the EPS of HBL’s is good because it has higher EPS.it is
enough to attract the investor.
Figure no-15
Presentation of earning per share in line diagram

72 Dividend per share (DPS)


Dividend per share indicates the earning paid to ordinary shareholders. High DPS can
satisfy the shareholders and low DPS can unsatisfy the shareholders.
DPS= earn paid to shareholders/no. of shares
Table no.12
Dividend per share
(in million Rs.)
banks Himalayan bank Nepal Bangladesh bank
year Earn paid to No. DPS Earn paid No. of DPS
shareholder of to shares
s share sharehold
s ers
2060/2061 22,500 3,000 7.50 33,909.57 3,300.00 10.28
2061/2062 97,500 4,290 25.00 45,547.46 4,290.00 10.62
2062/2063 5,645 5,362 1.3159 71,403.63 4,719.00 15.13
2063/2064 0 6,435 0 23,343.23 5,898.75 3.96
2064/2065 74,511 6,435 11.579 40,877.30 7,078.50 5.77

The dividend per share of HBL is 7.50,25,1.3159,0 &11.597.for the fiscal year
2060/2061 to2064/2065 & NB bank are 10.28,10.62,15.13,3.96 &5.77.from the table
we can say that HBL paid higher dividend for the fiscal year 2061/2062 &2064/2065
&NB bank paid more dividend for remaining fiscal years.so,we can say that both banks
have satisfactory DPS
Figure no.-16

Presentation of dividend per share in line diagram


73 Dividend payout ratio
Generally most of the firms retain some portion of the earnings to strengthen the
financial position of the firm and to avail fund for the future purpose. This ratio simply
shows the ratio of proportion of earnings distributed to shareholders as dividend and
proportion of earnings retained in the firm for the future purpose as retained earnings.
Higher the ratio reflects higher the proportion of earnings is distributed as dividends.
Dividend payout ratio= dividend per share/earnings per share
Table no.-13
Dividend yield ratio
Banks Himalayan bank Nepal Bangladesh bank
year DPS EPS Ratio DPS EPS Ratio
(%) (%)
2060/2061 7.50 92.35 8.12 10.28 85.63 12.01
2061/2062 25.00 60.26 41.49 10.62 55.88 19.01
2062/2063 1.3159 49.45 42.66 15.13 45.85 33.00
2063/2064 0 49.06 0 3.96 45.49 8.71
2064/2065 40877.30 47.91 24.17 5.77 44.42 12.99
Dividend payout ratio of HBL for 5years are 8.12.,41.49.42.66,0 &24.17.similarly,
DPR of NB bank is 12.01,19.01,33.00,8.71 &12.99.the DPR of HBL is higher than for
the fiscal year 2061/062 &2062/063 whereas in other fiscal year NB bank has higher
DPR.
Figure no.-17
Presentation of dividend payout ratio in line diagram

74 Findings
The current ratios of both banks are less than the generally accepted standard of
2:1.however the current ratio never falls below the ratio 2:1. So, current ratios of both
banks have satisfactory. But the current ratio of Nepal Bangladesh bank is higher so it
has stronger liquidity position.
75 Cash and bank balance to total deposit of NB bank is higher than that of Himalayan
bank which is not good because higher liquidity position shows the greater amount
of idle money, which cannot generate the revenue.
76 Both bank’s proportion of total debt is very high in overall assets. The higher debt
generates the higher EPS, which is quite good but from the view point of
organization, both banks are in risk.
77 Return on total assets of NB bank is slightly higher than that of HBL, which also
shows that the both banks are earning equal profit ratio.
78 The return on net worth of both banks are almost equal where as return on total
capital of HBL is higher than NB bank, it shows that the profitability rate of HBL is
good due to sound performance.
79 EPS of HBL is higher than NB bank where as DPS of is higher than HBL.both the
banks have regularity in the payment of dividend but NB pays more amount of
dividend than HBL bank.
80 The no. of outstanding shares of HBL is increasing every year to minimize the risk
that is caused by the high amount of debt.
CHAPTER-4
Summary, conclusion and recommendation
81 Summary
In the last two decades, the financial scenario of Nepal has dramatically changed. The
vast development industrial sector or due to the presence of different kinds of risk in the
economy brings so many banking institutions from private as well as public sector in
Nepal. The first banking of Nepal, Nepal bank limited from government sector was
established in 1994.
Presently 27 commercial banks are in operation in the country, among 24 banks are
listed in NEPSE.out of 27 commercial banks, two joint ventures are selected as the
sample banks for this thesis work. The objectives, functions, policies and strategies of
joint ventures banks have been emphasized and the performances of the two sample
banks have been analyzed. The main purpose of selecting these two banks is, they have
been offering all kinds of available facilities available in banking sectors in the country.
The study is mainly based on the secondary data publicly available in the NEPSE data
base and the annual report of respective banks. for the study, the five year’s data of the
banks have been pooled starting from FY 2060/2061 to 2064/2065.the collected data of
the banks for the study purpose are thoroughly processed, tabulated for the required
format; different measures of the data have been calculated using different statistical
tools and financial tools with the best effort.
82 Conclusion
While going through the study, it is found that both banks have sound performance but
Nepal Bangladesh bank has more sound performance than Himalayan bank. All the
debt management ratio and profitability ratio of Nepal Bangladesh bank are slightly
better than of Himalayan bank ltd. Liquidity ratio of both banks is not so good.
At last, from the study of NB bank and Himalayan bank, we can conclude that the
banks are performing their business with the fast success in Nepal. However liquidity
ratio and debt ratio of NB bank is higher. But when we take in to consideration EPS
and DPS, the Himalayn bank has higher EPS but lower DPS.So, Himalayan bank is
better in terms of EPS but Nepal Bangladesh bank is better in terms of DPS.
83 Recommendation
Based on the analysis conducted on previous chapters, some shorts are found. Thus,
following recommendations could be possibly helpful to improve their future financial
performance.
84 Profit is essential for the survival and growth of banks. As per the findings, profits
of both of the sampled banks are not at satisfactory level.therefore, they are
suggested to generate higher profit for the survival and growth of the firm.
85 Investors of any firm are always fascinating towards the EPS and DPS of the firm.
Here is the observed that the EPS and DPS of Himalayan bank are quite
low.therefore, the bank should think to improve these financial indicators so that it
could convey the right message in the market.
86 In order to be able to pay the liabilities both the banks should have to increase their
current assets by investing in marketable securities because their current ratios are
less than the conventional standard 2.1.
87 In both banks the proportion of total debt is very high in their overall assets. It will
be riskier. The proportion of total debt must be reduced. If not possible, they should
increase their share in order to rescues from their risk.
88 Cash and bank balance to total deposit ratios or Nepal Bangladesh bank is much
higher than its necessity. So it should its cash and bank balance and should invest
them in to earning assets to increase income.