1

CHAPTER 1: INTRODUCTION

1.1 BACKGROUND OF STUDY

Introduction of Bank For each and every development of a country, bank plays one of the vital roles. In other words, bank is that institution which helps a country to develop. It is like lifeblood of a country. Here, the word Bank means to focus only commercial bank. A bank is an institution, which deals with money accepting it in various type of deposit from customers, collecting cheques for customers, disbursing loans, and rendering other financial services. In other words, those organizations whose transactions are on money and credit is said to be a bank. Since bank help wide range of people at different walks of life, they have become an essential part of modern society. The word bank is said to be derived from Italian word Banco, French word Banque and Latin word Bancus which all means bench. In early stage, the bankers transacted their business at benches for acceptance and payment of valuable money or coins.So; this is how the word is derived. Some of the definitions of renowned scholars are as follows: According to R.S. Sayers, I believe in that fact the banks are not merely purveyors of money, but also in an; manufactures of money. According to U.S. Law, Bank is any institution offering deposits subject to withdrawal on demand and making loans of a commercial or business nature. According to Prof.Kinley, Bank is an establishment, which makes to individual such as advantage of money when do not required by them for use.

2 Bank is nearly as old as civilization. The ancient Romans developed as advanced as banking system to drive their vast trade networks which extend through our Europe, Asia, and much of Africa. But modern banking began to develop between the 1200s and 1600s in Italy. In Nepal, it began after 18th century.

1.2 COMMERCIAL BANKS OF NEPAL The word bank is the synonym of commercial bank. Bank can be categorized into different types on the basis of its functions and objectives. Commercial banks are those banks that do all kinds of functions such as accepting deposit, providing credit/loan, creation of money, advancing loan, foreign money exchange etc. It also issues guarantee, Bonds, Letter of credit etc. Commercial bank is a profit oriented organization that gives certain rate of interest to the depositors and takes certain rate of interest from debtors. According to the Commercial Bank Act 2031 B.S., A commercial bank means a bank which operates relating to commerce except the banks which have been specified for the Co-operative, agricultural, industry of similar other specific objective. In other words, those banks, which meet the criteria of this Act, are known as Commercial banks. Without the development of sound commercial banking, underdeveloped countries cannot hope to join the ranks of advanced countries. If industrial development requires the use of capital, the use of capital equipment will not be possible without the existence of banks to provide the necessary capital. Industrial development will be impossible without the existence of markets of goods produced. On the Other hand, the services of the Commercial Banks will help to extend the market. Role of Commercial Banks: Help in Business Expansion Encouragement for the Right Type of Industries Necessary for the Trade and Industry Transfer of Surplus Funds to Needy Regions

3 Promotion of Capital Formation Provides number of Subsidiary Services

Now there are many commercial banks operating in Nepal. Some of the commercial banks of Nepal are as follows: Nepal Bank Limited Rastriya Banijya Bank Nepal Arab Bank Limited Nepal Invested Bank Limited Standard Chartered Bank Limited Himalayan Bank Limited Nepal SBI Bank Limited Nepal Bangladesh Bank Limited Everest Bank Limited Bank of Kathmandu Limited Nepal Credit and Commerce Bank Limited Lumbini Bank Limited Machhapuchre Bank Limited Laxmi Bank Limited Nepal Industrial and Commercial Bank Limited Siddhartha Bank Limited Ace Bank Limited Global Bank Limited Agriculture Development Bank NCC Bank Limited Citizens International Bank Limited Kumari Bank Limited

1.3 INTRODUCTION OF NEPAL INDUSTRIAL AND COMMERCIAL BANK

Authorization Fact This summer project work has been prescribed in BBA for the partial academic fulfillment under Pokhara University. It has been authorized by the Coordinator of National Open College; Mrs. Gina Shrestha, for which I have chosen Nepal Industrial and Commercial Bank. BACKGROUND Nepal Industrial & Commercial Bank Limited (NIC Bank) commenced its operation on 21 July 1998 from Biratnagar. The Bank was promoted by some of the prominent business houses of the country. The current shareholding pattern of the Bank constitutes of promoters holding 65% of the shares while 35% is held by general public. NIC Bank is one of the most widely-held Banking companies in Nepal, with over 32,000 shareholders. The shares of the Bank are actively traded in Nepal Stock Exchange with current market capitalization of about NPR 10,699 million. Within 10 years of commencing business, the Bank has grown rapidly with 16 branches throughout the country while 2 more are planned to be opened this year. All branches are inter-connected through V-Sat and are capable of providing real time on-line transactions. The Bank is the first commercial Bank in Nepal to have received ISO 9001:2000 certification for quality management system. Furthermore, NIC Bank became the 1st Bank in Nepal to be provided a line of credit by International Finance Corporation (IFC), an arm of World Bank Group under its Global Trade Finance Program, enabling the Bank's Letter of Credit and Guarantee to be accepted/ confirmed by more than 200

5 banks,worldwide. To add to these achievements, the Bank has also been awarded the "Bank of the Year 2007-Nepal" by the world-renowned financial publication of The Financial Times, U.K.-The Banker. This is the fruit of the Bank's outstanding performance backed by belief and support of its customers towards the Bank. Shares of NIC The banks shareholdings are as follows:-

Table 1: Rate of share Subscription of NIC Bank Limited Holders Promoters General Public Total Contribution (%) 65% 35% 100%

Figure 1: Shareholding Pattern of NIC Bank

35% Promoters General Public 65%

1.4.

BRANCHES OF NIC Corporate office: Kamaladi Sadak, Kathmandu Registered Office: Main Road, Biratnagar

Inside Valley: 1. Kamaladi Branch 2. New Road Branch 3. Battisputali Branch 4. Kirtipur Branch 5. Pulchowck branch 6. Samakhushi Branch 7. Bhaktapur branch Outside Valley: 1. Biratnagar Branch 2. Pokhara Branch 3. Dharan Branch Main Road, Biratnagar, Nepal Mahendra Pool , Pokhara, Nepal Mahendra Path, Dharan, Nepal Kamaladi Ganeshsthan, Kathmandu,Nepal New Road, Kathmandu, Nepal Battisputali, Kathmandu , Nepal Kirtipur, Naya Bazar, Kathmandu, Nepal Pulchowk, Lalitpur Samakhushi, Kathmandu, Nepal Suryavinayak, Bhaktapur

7 4. Birgunj Branch 5. Janakpur Branch 6. Damak Branch 7. Butwal Branch 8. Nepalgunj Branch 9. Surkhet Branch 10. Lahan Branch 11. Dhangadhi Branch Adarsh Nagar, Birgunj, Nepal Ram Mandir Chowk, Janakpur, Nepal Rajmarg Chowk, Damak, Jhapa, Nepal Shrawan Path, Butwal, Rupandehi, Nepal Surkhet Road, Nepalgunj, Nepal Birendra Chowk, Surkhet, Nepal Ganesh Chowk, Lahan, Siraha, Nepal Dhangadhi Municipality - 3, Kailali, Nepal

1.5

BOARD OF DIRECTORS

The Bank is run by professionals and believes in the highest standards of corporate governance. The Board of Directors of the Bank is supported by a management team, which comprises of young, enthusiastic professionals. The Bank has successfully embarked on a multi-pronged strategy of consolidation, administrative streamlining, human resource up-skilling, strategic cost management, focused non-performing assets management, balance sheet and treasury management and controlled asset growth, in tandem with strengthening the credit culture as well as strategic marketing and sales.

Organizational Structure
The composition of the Board of Directors of the Bank is, as per the Company Act and Bank and Financial Institution Ordinance 2062. The Directors of the Bank are eminent personalities drawn from various fields. The Directors have been contributing their professional knowledge, experience and expertise in their respective areas of specialization for the development of the Bank. The Directors are fully committed to the corporate governance model adopted by the Bank, which among others, encompasses the principles of full disclosure and transparency, social responsibility and

8 accountability, "zero tolerance" compliance culture, business and customer

confidentiality, intolerance of conflict of interests, and an independent management.

Table no: 2 Management Members Mr.Dambar Bahadur Bomjan Mr.Dhan Prashad Rai Mr.Ramesh Tamang Mrs.Meena Shrestha Mr.Nirmal Gurung Mr.Dinesh Shakya Mr.Mahesh Prasad Rijal 1.6 FUNCTIONS OF NIC main services provided by the bank are: 1. Current, Savings, Call and Fixed Deposit Accounts (both in LCY & FCY) 2. Funds transfer (Draft, T.T. & Fax etc.) 3. Bank Guarantees 4. Letter of Credit 5. Bills Purchase 6. Clearing / Collection 7. Corporate Finance 8. Consumer Loans 9. Safe Deposit Lockers 10. Cash Management 11. Trade Finance 12. Loans 13. Purchase and sale of travelers cheques 14. Other Allied services 15. Banking services on SWIFT Besides this, the recently provided facilities by the bank are: Executive Chairman Director Director Director Director Director Director

Tailor-made solutions to suit every customer is the main motto of this bank. The

9 1. NIC Bank presents NIC Life Savings Account for ensuring protection of the Savings, High Return & also the Financial & Personal Security. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Interest Rate 6% Life Insurances up to Rs 100,000 (with double accident cover) Gold coin for seven lucky winners every quarter Free any Branch Banking Facility Free inward remittances NIC Privilege Card with privilege counter facility 25% discount on Locker Facility (subject to availability) 50% discount on Draft issuance 50% discount on Travelers Cheque issuance On-call Home Banking Service Multiple / Unlimited withdrawal facility No maintenance fees Free Statements upon request Extended Banking hours including free Sunday Banking Free Hyundai Club Membership And many more benefits

1.7

STATEMENT OF THE PROBLEM The research seeks to find out the financial status of Nepal Industrial & Commercial Bank Ltd. with the analysis of these banks financial statements. The attempts have been made to sort out the answers to the following questions:

1. How do the Nepal Industrial & commercial bank Ltd. operating its activities? 2. How is the financial performance managed by the Nepal Industrial & Commercial Bank Ltd.? Is the performance of the bank satisfactory? 3. Is the central bank policy creating the problem for Nepal Industrial & Commercial Bank Ltd.?

10

1.8

OBJECTIVES OF THE STUDY

The general objective of this study is to identify the financial situation of Nepal Industrial & Commercial bank Ltd. The specific objectives of the research are as follows: Ltd. To observe whether the bank is in progressive or not by the help of financial tools. To evaluate the financial performance of Nepal Industrial & Commercial Bank Ltd. To meet the requirement of internal assignment. To provide important suggestions. 1.9 SIGNIFICANCE OF THE STUDY To study the existing financial situation of Nepal Industrial & Commercial Bank

The study of this fieldwork is important in various fields. Some of the importance of this fieldwork report are highlighted below: This fieldwork is prepared to fulfill the objectives set forth by Pokhara University for the partial fulfillment of degree of BBA. This fieldwork report might be useful for those who are willing to know about the financial situation of the NICB like deposit, financial performance and its utilization, position of this commercial bank etc.

11 This report helps to provide necessary documentary information to the existing and the new companies to be operated in near future. This report also helps the students of financial management to gain and share some practical knowledge of banking. This fieldwork also acts as guidelines for preparing small project reports. This fieldwork report might be useful for the library purpose so that any student wanting to prepare a report on such field can have some idea and basic guidelines.

1.10

LIMITATIONS OF THE STUDY

There are many limitations faced while preparing this project work report. Some of them are given below: The study is concerned with only NICB and it cannot be accurate unless compared with other such commercial banks. The project work is focused on the financial analysis of the bank. As a result, other various aspects of the bank such as marketing strategies, employees motivation programs etc are neglected. Due to the unavailability of sufficient references and resources, most of the data used are of secondary type in forms of publications of the bank and other sources. The project report has been prepared under the constraint of the limited time. Thus, it was not possible to analyze each and every aspect of the bank. As a student, this project work has been completed within the constraint of the limited budget.

12 This project work is not suitable for future since it was done on the basis of only past five fiscal years financial records. So, the future projections of the bank as per the fieldwork may not be effective.

CHAPTER 2:

RESEARCH METHODOLOGY

To obtain relevant qualitative and quantitative data, the following methodology will be employed. The different tools and techniques will be used in the data collection and in the analysis of various information. This study is based on an appropriate research methodology. It helps to analyze the data in finding the causes and effects of relationships and the performance of the bank. 2.1 Sample Unit As it is self explanatory that the study is based on only field works, a single unit, of NIC has been selected for the study purpose. Hence, there is no need to express the unit in terms of sample size. 2.2 Nature and Sources of Data The data for the study will be both primary and secondary in nature. The primary data will be collected from the fieldwork. These will be collected through personal contact with the respondents and key informants (focused group discussion) from the study

13 area. The secondary data will be collected from various libraries and various related literatures such as books, journals, articles, reports etc. 2.3 Data Collection Procedure The required dates will be collected in a period of about two months and made use of the following techniques: Observation method, Interview method and questionnaire method. But due to the time limitations and cost limitations, all these data are secondary. Although these data are secondary, they are reliable, suitable and adequate.

2.4 Data Processing The collected data are processed for analysis and interpretation. In course of that, all the analyzed data are classified, tabulated and presented in various forms like table, bar diagrams, pie charts etc. 2.5 Research Tools used Simple research tools have been used to measure the financial performance of the NICB. Data used in the study have been analyzed by using financial and statistical tools to achieve the objectives of the study. Following tools serves as an important tool for arranging this bank as a whole: I have used some of the other statistical tools which are as follows: Statistical Tools: Time Line Average Percentage Pie Chart Financial Tools:

14

1.

Percentage (%) =

One variable Other variable

100

2.

Earning Per Share (EPS) =

Net Profit after Tax No. of Share Outstanding Net profit Total Assets Net Profit Total Deposit Dividend Per Share Earning Per Share Loan and Advance Total Deposit Net operating Income x 100 No. of Full Time Employees x 100

3.

Return on Total Assets =

4. 5.

Return on Total Deposit = Dividend Payout Ratio =

6.

Loan and Advance to Total Deposit =

7.

Employee Productivity Ratio =

15

CHAPTER 3. DATA PRESENTATION AND ANALYSIS

Introduction The organizations provide the annual reports, which are necessary for all the parties outside or inside of the organization. The annual reports include the details of Balance Sheet and Income Statement. With the help of this annual report, detailed financial position and the strength of the organization can be determined by using the financial analysis tools. It helps to analyze the financial strength and weakness of the firm. The various investors, managers, creditors and parties involved within the organization and the outsiders, do this financial analysis. The method of financial analysis may vary from parties to parties. Various analyses have been done in this chapter for the financial analysis purpose. These include the ratio analysis and the various other statistical tools.

3.1

POSITION OF PROFIT OVER DIFFERENT YEARS Table 3. Position of Profit over Different Years Increase (Decrease) Percentage Increase (Decrease)

Fiscal Year

Net Profit (NPR in Million)

16

2003/04 2004/05 2005/06 2006/07 2007/08

68.3 113.7 96.6 158.5

0 45.4 17.1 61.9

0 66.47% 15% 64.08%

243.1 84.6 53.38% Sources: Annual Report of NIC, 2007/2008

For the clear light of the above table, the available data has been presented in the time line. Figure no. 2: Profit over different Years

Trend of Profit
80 70 60 50 Percentage 40 30 20 10 0 -10 -20 0 2003/04 2004/05 2005/06 -15 Fiscal years 2006/07 2007/08 Series1 66.47 64.08 53.38

The above table 3, shows the amount of profit over Five years beginning from F/Y 2003/04 to 2007/08. The profit of NIC is fluctuating through out the period. In the year

17 2004/05 profit increased by 66.47%, which is the maximum profit through out the five fiscal years. In the Year 2005/06, the bank faced the lowest profit i.e. just 15%. Again in the year 2006/07, it was able to recover and gain the profit which is near to maximum. And the profit increased to 64.08% in that year. The profit in the year 2007/2008 again decreased as compared to the previous year i.e. only 53.38%. Despite the down fall in economic condition, the bank is able to increase net profit by 53.38% in the year ended 15th July 2008.This increase in profit is primarily due to the diversification of credit to high yielding consumer loans, recovering of non performing loans and efficient management of the Bank.

3.2

POSITION OF DEPOSIT OVER DIFFERENT YEARS Table 4: Position of Deposit Deposit (in Million) 5215.8 6691.7 9223.7 10420.4 Increase (Decrease) in million 0 1475.9 2532 1196.7 Percentage Increase (Decrease) 0 28.30% 37.84% 12.98%

Fiscal Year 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 Figure no. 3

13419.7 2999.3 28.79% Source: Annual Report of NIC, 2006/07

18

Deposit over different Years

45 40 35 30 25 20 15 10 5 0

40.59 31.16 32.26 25.6 Series1

Percentage

0 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 Fiscal Year

Deposit is the main source of bank which bank generally yields income by investing it on different sectors. Public starts to deposit their money in such bank, which is more attractive and faithful for them in different point of view. If the amount of deposit is in increasing trend then the bank has good relation with the public. In the above table, the trend of deposit is increasing up to the fiscal year 2005/06.In the fiscal year 2004/05 deposit increased by 28.30% and in the fiscal year 2005/06 it is increased by 37.84% which is the maximum till the date. Then it is fluctuating i.e. decreasing in the year 2006/07 i.e. was only 12.98%. Again in the year ended 2008 bank is able to recover that means it is able to make the good public relation. The deposit is increased by 28.79% as compared to previous year.

3.3

POSITION OF LOAN ISSUED OVER DIFFERENT YEARS Position of Loan over the Years Loan Amount (NPR in Million) Increase(NPR in million) Percentage Increase

Table 5:

Fiscal Year

19

2003/2004 2004/2005 2005/2006 2006/2007 2007/2008

3743.1 4909.4 6902.1 9128.7 11465.3

0 1166.3 1992.7 2226.6

0% 31.16% 40.59% 32.26%

2336.6 25.6% Source: Annual Report of NIC, 2007/08

Figure no: 4

T re n d s h o w in g P o s itio n o f L o a n
45 40 35 30 25 20 15 10 5 0

4 0.59 31.16 32.26 25 .6 S eries 1

Ratio in Percentage

0 2003/04 2004/ 05 200 5/0 6 20 06 /07 20 07 /08 F isca l y e a rs

20 The above table depicts the position of loan issued over different years. The bank has issued loan over different heads. The loan issued is increased by 31.16% in the fiscal year 2004/05 and by 40.59% in the year ended 2006. Then the loan issued amount decreased by 32.26% in the year ended 2007.And in the fiscal year the loan issued amount decreased as compared to the ratio of the year ended 2007. It is increased only by 25.6%. The loan issued amount is in fluctuating trend. As the volume of total loan goes on increasing and in the same ratio recovery of loan also goes smoothly, it is profitable to bank. This is possible under sound operational performance, consistency, outstanding managerial skill and dedicated personnel.

3.4

POSITION OF NET FIXED ASSETS:

Table 6: Position of net fixed Assets Fiscal Years 2003/04 2004/05 2005/06 2006/07 2007/08 Total Assets (NPR In Million) 5939.4 7508.1 10383.6 11679.3 15238.7 Increase(NPR in million) 0 1568.7 2875.5 1295.7 Percentage Increase 0 26.42% 38.3% 12.48%

3559.4 30.48% Source: Annual Report of NIC, 2007/08

Figure no. 5

21

Position of Net Fixed Assets

45 40 35 30 25 20 15 10 5 0

Trend in percentage

38.3 26.42 30.48 Series1 12.48 0 2003/04

2004/05

2005/06 Fiscal years

2006/07

2007/08

The above table shows the position of net Fixed Assets over five fiscal years. The amount of Net Fixed Assets is increasing as well as decreasing i.e. in fluctuating trend.Net Fixed Assets is increased by 26.42%, 38.3%, 12.48% and 30.48% in the fiscal year 2004/05, 2005/06, 2006/07, 2007/08 respectively. The Net fixed Assets was increased by only 12.48% in the year ended 2007.

3.5 3.5.1

PROFITABILITY RATIO Calculation of Earning Per Share (EPS)

Table 7: Net Profit (NPR in Million) 68.3 113.7 96.6 158.5 No. of Share Outstanding 5.003663004 4.997802198 6 6.601416077

Fiscal Year 2003/04 2004/05 2005/06 2006/07

EPS (NPR) 13.65 22.75 16.1 24.01

22

2007/08

243.1 9.440776699 Source: Annual Report of NIC, 2007/08

25.75

EPS = Net Profit After Tax No. of Share Outstanding The below line graph helps to know the trend of EPS at ease.

Figure no: 6

Earning per share

EPS in NPR 30 20 10 0
20 03 /0 4 20 04 /0 5 20 05 /0 6 20 06 /0 7 20 07 /0 8

EPS

Fisca l ye a r

The earning per share of the NIC is NPR 13.65, 22.75, 16.10, 24.01, 25.75 in the economic year 2003/04, 2004/05, 2005/06, 2006/07,and 2007/08 respectively. EPS is

23 always in increasing trend and the maximum EPS is in the fiscal Year 2007/08, i.e. increment in EPS by NPR 1.74, as compared to the base year.

3.5.2

RETURN ON TOTAL ASSETS (ROTA)

Return on Total Assets = Net Profit Total Assets The higher return on Total Assets reflects the efficiency of the bank in utilizing its overall resources and higher ratio also indicates the lower volume of non-performing assets by the bank. Non- performing Assets are ideal resources for the bank. So, they try to reduce proposition in Assets structure.

Table 8. Return on Total Assets Net Profit Fiscal Year 2003/04 2004/05 2005/06 2006/07 2007/08 (NPR in Million) 68.3 113.7 96.6 158.5 Total Assets (NPR Return on Total In Million) 5939.4 7508.1 10383.6 11679.3 Assets 1.15% 1.52% 0.94% 1.36%

243.1 15238.7 1.60% Source: Annual Report of NIC, 2007/08

24 From the above table, we can see that the ROTA of the bank is in increasing as well as decreasing trend. The ROTA is 1.15%, 1.52%, 0.94%, 1.36%, and 1.60% from the fiscal year 2003/04, 2004/05, 2005/06, 2006/07 and 2007/08 respectively. Higher return is in the year ended 2008.And the lowest is in the year ended 2006. Every year ROTA is in fluctuating because of the fair performance of the bank.

3.5.3

RETURN ON TOTAL DEPOSIT (ROTD)

Return on Total Deposit =Net profit Total Deposit Deposit is one of the main sources of fund for the bank. Collected deposit has to be mobilized into the loan and advance and on other sector effectively to maximize the Return on Equity. Bank had to bear same cost for deposit. Therefore Bank has to mobilize deposit in productive sector where return is more. The net Profit to total deposit ratio enables to evaluate what extent the management has been successful to mobilize and utilize deposit in generating profit. Table 9. Return on Total Deposit

Net Profit (NPR Fiscal Year 2003/04 2004/05 2005/06 in Million) 68.3 113.7 96.6

Total Deposit (NPR in Million) 5215.8 6691.7 9223.7

Return on Total Deposit 1.31% 1.70% 1.05%

25

2006/07 2007/08

158.5 243.1

10420.4

1.53%

13419.7 1.82% Sources: Annual Report of NIC, 2007/08

The above table shows the Return on Deposit of the five fiscal years. Returns on Deposits are 1.31%, 1.70%, 1.05%, 1.53% and 1.82% from the year ended 2004 to the year ended 2008.The trend of the Return on Deposit in increasing except the fiscal year 2005/06. There is highly increase in return on total deposit in the year ended 2008 as compared to the previous year.

3.5.4

DIVIDEND PAYOUT RATIO

The bank does not distribute all its profit to its stakeholders or owners because every Bank is established to gain profit by mobilizing money in productive sectors. So, they keep the money for the future reference or as to face the uncertainties. Reserve also helps to know about the financial position of a bank too. Nepal Government or Nepal Rastra Bank has implied some compulsory provision to keep the reserve. So, some profit earned by bank is retained in its own account and remaining profit distributed among the shareholders as a dividend by the decision of the board meeting. Dividend Payout Ratio shows the relation between Earning per Share and Dividend per Share. We need to calculate earning per share and dividend per share before calculating the Dividend Payout Ratio. Step 1: Earning Per Share= Net Profit No. of Share Outstanding Table 10: Earning per Share

26 No. of Net Profit Fiscal Year 2003/04 2004/05 2005/06 2006/07 2007/08 (NPR in Million) 68.3 113.7 96.6 158.5 243.1 Share Outstanding 5.003663004 4.997802198 6 6.601416077 EPS (NPR) 13.65 22.75 16.1 24.01

9.440776699 25.75 Source: Annual Report of NIC, 2007/08

Step 2: Dividend per Share Table 11. Fiscal Year 2003/04 2004/05 2005/06 2006/07 2007/08 Dividend Per Share(NPR) 6.825 1.69533 5.054105 5.420375

27 Source: Annual Report of NIC, 2007/08 Step 3: Calculation of Dividend payout Ratio (DPR) Table 12. Dividend Per Share(NPR) 2003/04 2004/05 6.825 22.75 2005/06 1.69533 16.1 2006/07 5.054105 24.01 2007/08 5.420375 25.75 21.05% Source: Annual Report of NIC, 2007/08 In the F/Y 2003/04, bank doesnt distribute any dividend due to less earning per share. In the F/Y 2004/05 bank distributed 30% of the total earning i.e. Rs 6.825 as a dividend although it earned Rs. 22.75 per Share. In F/Y 2005/06 dividend was distributed only 10.53% of the total earning. Bank is able to distribute 21.05% dividend of the total earning in the F/Y 2006/07 and F/Y 2007/08. 3.5.5 LAON AND ADVANCES TO TOTAL DEPOSIT 21.05% 10.53% 30% Fiscal Year

EPS (NPR) 13.65 _

Dividend Payout Ratio

Loan and advance to total deposit is an indication of the velocity with which funds moves through the business. It measures the velocity of loan and advances out of the total deposit. Generally bank earns profit by issuing loan. If the bank is able to mobilize its funds, it is considered to be good because if the deposit funds remains ideal, then bank have to pay cost on it and it will certainly decrease the amount of profit. Table 13. Loan and Advances to Total Deposit

28 Loan (NPR millions) 3743.1 4909.4 6902.1 9128.7 11465.3 Loan to Deposit Ratio 71.76463821% 73.3655125% 74.83005735% 87.60412268%

Fiscal Year 2003/04 2004/05 2005/06 2006/07 2007/08

Deposit (Rs.) 5215.8 6691.7 9223.7 10420.4

13419.7 85.43633613% Source :Annual Report of NIC,2007/08

The above table depicts ratio of loan and advances to total deposit over five fiscal years. In the four fiscal year the Loan and advance to total deposit is in increasing trend i.e. 71.76%, 73.36%, 74.83% in the fiscal year 2003/04, 2004/05, 2005/06, 2006/07 respectively. In the F/Y 2006/07, the bank is able to mobilize its deposit at maximum level. In the fiscal year 2007/08 ratio of loan and advances to total deposit decreased by 2.1678%

3.5.6

EMPLOYEE PRODUCTIVITY RATIO

Employee Productivity Ratio shows the employers skill to work, knowledge and capacity and profit from the employers to the bank. It simply tends the productivity of employers and effectiveness of the whole management team.

Table no.14 Fiscal Year 2003/04 2004/05

Employee Productivity Ratio Net Operating Income (NPR in Million) 150.5 201.8 No. of fulltime employees 140 157 Employees Productivity Ratio 107.5% 128.5350318%

29

2005/06 2006/07 2007/08

212 291.4 393.1

166 189

127.7108434% 154.1798942%

232 169.4396552% Source: Annual Report of NIC, 2007/08

The Employees Productivity of the bank is increasing as portrayed by the enclosed chart. In the F/Y 2003/04 it was increased by 107.5%. Then the Employees Productivity is increased to 128.53%, 127.71%, 154.17%, and 169.44% in the Fiscal Year 2004/05, 2005/06, 2006/07 and 2007/08 respectively. The basic reasons for such an increment include implementation of multiple workculture system, part time employment and technology guided works at various departments resulting in swiftness in work performance.

CHAPTER 4. SUMMARY CONCLUSION RECOMMENDATION

4.1 Summary

Nepal Industrial & Commercial Bank Limited overall financial condition, performance & prospects within the Nepalese environment are considered satisfactory. Nepal Industrial & commercial bank Ltd. is newly established bank which was established in 21 July, 1998. The financial statement of five fiscal years i.e. from 2003/04 to 2007/08 has been taken for the purpose of study. The study is based on secondary data. The data has been taken from annual report of Nepal Industrial and Commercial Bank.

30 It is one of the reputed banks of Nepal. It launches different programs and activities, which helps to attract the people towards it. It provides loan regarding home, education, auto etc. It is further planning to extend its branches in several parts of the country. It also helps to produce skilled manpower by interning college student.

4.2

Conclusion

It is common practice in the banking sector of Nepal to use consultant to look into various corporate problems. How many of their recommendations are being successfully implemented is still questionable although huge sum of money and other resources are spent in research and implementation. In a nutshell, the above outcomes have not only revealed the satisfactory performance of the bank but the sign of future prosperity and development can also be expected as well. The problem identification and suggestions mentioned in this report of ours, we feel, may not be new. In reality, the managers in the bank may be aware of some of the problems identified and if asked, they can also give probable solutions. There are following specific findings. 1. The profit of the bank is not constant. It is fluctuating. In the year ended 2005, the bank had the maximum profit. In the next year i.e. in the year ended 2006, the bank had the 15% loss as compared to previous year. 2. Deposit is the main source of bank. The position of deposit is satisfactory because it is increasing which also means that the bank is able to make the good public relation. 3. The bank has issued loan over different heads. The loan amount is in fluctuating trend. As the volume of total loan goes on increasing and in the same ratio recovery of loan also goes smoothly. It is beneficial to the bank. 4. The bank is able to increase its Net Fixed Assets as per the time and need and Return on Total Assets is also in increasing trend.

31 5. Earning Per Share is also in increasing trend. Return on Total Assets is in fluctuating trend. Return on Total Deposit is in satisfactory trend which shows that bank is able to mobilize and utilize in generating profit. 6. Dividend Payout Ratio is in lower rate. 7. Ratio of Employee Productivity is good. It indicates that bank is able to implement new technology, part time employment etc.

4.3 1.

Recommendation Profitability position of Nepal Industrial & Commercial Bank Ltd. is

comparatively not better . So the bank should use its resources for generating more profit margin. If resources held idle, bank faces high cost and causes the low profit margin. 2. Nepal Industrial & Commercial Bank Ltd. should extent its contacts with

different institutions to increase to its business transactions. 3. Reports of Nepal Industrial & Commercial Bank Ltd. show that it is not

involved in social activities. Therefore, Nepal Industrial & Commercial Bank Ltd. should be involved in such social programs to maintain favorable public image. In order to

32 maintain the competitive banking environment, the bank should venture into new areas of banking activities, emphasize to improve the quality of work force. 4. Bank should keep some amount of profit for future reference. Bank should

expand its branches in remote areas too.