A comparative study on FINANCIAL PERFORMANCE OF NEPAL BANGLADESH BANK LIMITED AND HIMALAYAN BANK LIMITED

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CHAPTER-1

Introduction

1. 1.1. Background of study

1. Background of study

The bank is an institution established by law, wh

The bank is an institution established by law, wh ich deals with money and credit isich deals with money and credit is called banking. In other wo

called banking. In other words, it is obvious that an institution which deals with money,rds, it is obvious that an institution which deals with money, receiving it on deposits from customers, honoring customers drawings against such receiving it on deposits from customers, honoring customers drawings against such deposits and demand, collecting cheq

deposits and demand, collecting cheques from customers, and lending or investingues from customers, and lending or investing surplus deposits until they are required for repayment.

surplus deposits until they are required for repayment.

In common sense, financial institution which deals with monetary transaction by In common sense, financial institution which deals with monetary transaction by accepting various types of deposits, distributing various types’ loans and rendering accepting various types of deposits, distributing various types’ loans and rendering other financial services.

other financial services.

There is several definition of a bank

There is several definition of a bank by different authors and scholar’s .some of them isby different authors and scholar’s .some of them is as

as

follows:-According to Oxford Dictionary According to Oxford Dictionary

“A bank is an establishment for the custody of money received from or on its “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 customers, its essential duty is to pay their draft on it, its profit arises from its use of money left unemployed by them.”

money left unemployed by them.”

According to Dr. Hart

“A person or company carrying on the business of receiving money and collecting “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 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 time to time by the customers to the extent of the amounts available on their current accounts”

accounts”

As per Kent

“Bank is an organization whose principle operation is concerned with accumulation for “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 the temporarily idle with money of the general public for the purpose of advancing to other expenditure.”

other expenditure.”

According to Hals bury laws of

According to Hals bury laws of England

England

“A

“A bankbanker er is is defdefineined d as as an an indindiviividuadual l parpartnetnershrship ip or or corcorporporatiation, on, whoswhose e solsole e or or predominating business banking”.

predominating business banking”.

According to the commercial bank act 2031

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“A commercial bank is a bank, which deals in exchanging currency, deposits, giving “A commercial bank is a bank, which deals in exchanging currency, deposits, giving loans and doing commercial transactions”.

loans and doing commercial transactions”.

So bank is an organization, which deals with deposits, lends money and renders a wise So bank is an organization, which deals with deposits, lends money and renders a wise range of financial services.

range of financial services.

Origin of Banking

The term “bank” was originated from the Latin word “BANCUS”, and the Italian word 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 “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 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”. 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 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 A.D. respectively. Several national and foreign banks were established in India & other countries subsequently.

countries subsequently.

Banking in Nepal

In Nepalese banking concept, the history of banking is not long. But it is found that the 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 banking transactions are conducted in ancient time. Nepal bank limited was the first ba

bank in nk in NepNepal estabal establilisheshed d in 1994b.in 1994b.s .lates .later r NepaNepal l RasRastrtra a Bank ,cenBank ,centratral l banbank k waswas established in 2013 b.s with an objective to provide the policy decision, guidance and established in 2013 b.s with an objective to provide the policy decision, guidance and control the banking and to

control the banking and to monitor this sectmonitor this sector.Rastriya Banijya or.Rastriya Banijya Bank is Bank is a governmenta government ow

ownened d cocommmmerercicial al babank nk wawas s esestatablblisishehed d in in 20202222b.b.s. s. NINIDC(DC(NepNepal al ininduduststririalal dev

develoelopmepment nt corcorporporatiation) on) and and agragricuicultulture re devedeveloplopmenment t bank bank lilimitmited(ed(ADBADBL) L) waswas established in 2020b.s.the joint ventures bank’s increased dramatically after restoration established in 2020b.s.the joint ventures bank’s increased dramatically after restoration of democracy when the government adopted liberal and market oriented policy.

of democracy when the government adopted liberal and market oriented policy.

Nowadays following commercial banks are in operation

5

5 AgrAgricuicultulture dre develevelopmopment ent bank bank limlimiteited (Ad (ADBLDBL)) 6

6 BaBank nk of of AsAsia ia NeNepapal ll limimititeded 7

7 BaBank nk of of KaKatmtmanandu du lilimimitetedd 8

8 CiCititizezen intn interernatnatioional bnal banank lik limimitetedd 9

9 DeDevelvelopopmement nt crcrededit it banbank lk limimititeded 10

10 EveEveresrest bat bank nk limlimiteitedd 11

11 GloGlobal bal bank bank limlimiteitedd 12

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13

13 JanJanata ata bank bank limlimiteitedd 14

14 KumKumari ari banbank lk limiimitedted 15

15 KiKist bst banank lik limimitetedd 16

16 LaxLaxmi mi banbank lk limiimitedted 17

17 LumLumbinbini bai bank nk limlimiteitedd 18

18 MacMachhaphhapuchuchhre bahre bank link limitmiteded 19

19 NaNabibil banl bank lik limimitetedd 20

20 NeNepal bpal banank lik limimitetedd 21

21 NepaNepal Bangl Bangladladesh banesh bank limik limitedted 22

22 NepaNepal SBl SBI baI bank lnk limiimitedted 23

23 NepNepal inval investestmenment bank lit bank limitmiteded 24

24 Nepal iNepal industrndustrial and ial and commercommercial bank cial bank limilimitedted 25

25 Nepal cNepal credit redit and comand commercimercial bank al bank limilimitedted 26

26 NMNMB baB bank lnk limimititeded 27

27 PriPrime commme commercercial banial bank limik limitedted 28

28 RasRastritriya Baniya Banijyjya bank limia bank limitedted 29

29 SidSiddhardhartha btha bank lank limimiteitedd 30

30 SunSunrisrise bae bank lnk limiimitedted 31

31 StandStandard chard charterartered baned bank Nepak Nepal lil limitemitedd

Latest performance of commercial banks sub-groups

The average of the listed commercial banks’ key indicators-NPA,P/E ratio,RoA ,RoE, The average of the listed commercial banks’ key indicators-NPA,P/E ratio,RoA ,RoE, EPS,NWPS

EPS,NWPS and profit margin- since last fiand profit margin- since last five years. in the five year 2004-05 and 2005-ve years. in the five year 2004-05 and 2005-06

06 thethere re werwere e onlonly y 17 17 lilistested d comcommermerciacial l bankbanks s whewhereareas s in in 2002006-06-07,t7,the he numnumber ber incre

increased to 18 and in 2007-08 and 2008-20ased to 18 and in 2007-08 and 2008-2009, there were 23 09, there were 23 listlisted and in the mid of ed and in the mid of 2009-10 there were 26 commercial

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Figure no.-1 Figure no.-1

Not performing assets Not performing assets

0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 2 2000044//2200005 5 22000055//2200006 6 22000066//2200007 7 22000077/2/200008 8 22000088//22000099 NPA in percent NPA in percent

The average NPA was 1.98 percent in 2008-09 against 3.58 percent in 2007=08.NPA 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 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. institution as sub-standard, doubtful or loss assets. Lower the NPA better the institution.

Figure no.-2 Figure no.-2 P/E ratio P/E ratio 0 0 10 10 20 20 30 30 40 40 50 50 60 60 70 70 2 2000044/2/200005 5 22000055/2/200006 6 22000066/2/200007 7 2020007/7/2200008 8 22000088/2/2000099

P/E ratio in times P/E ratio in times

During the fiscal year

During the fiscal year 2007-08,the overpopulation of 2007-08,the overpopulation of the shares have been raised thethe 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 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 2008-09.a high P/E ratio suggests that investors are expecting higher earnings growth in the future.

earnings growth in the future.

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Return on assets (RoA) Return on assets (RoA)

0 0 0.5 0.5 1 1 1.5 1.5 2 2 2.5 2.5 20 200404/20/2005 05 20200505//202006 06 20200606//202007 07 20200707/20/2008 08 20200808/20/200909

Return on total assets in percent Return on total assets in percent

The

The aveaveragrage e RoARoA,ho,howevewever,ar,almolmost st doubdoubled led in in 20082008-09 -09 to to 2022021 1 perpercencent t frofrom m 1.761.76 percent a year ago.RoA gives an idea as to how efficient management is at using to percent a year ago.RoA gives an idea as to how efficient management is at using to

generate profits. generate profits.

Figure no. - 4 Figure no. - 4

Return on equity (RoE) Return on equity (RoE)

0 0 5 5 10 10 15 15 20 20 25 25 30 30 35 35 40 40 45 45 20 200404/20/2005 05 20200505//202006 06 20200606/20/2007 07 20200707/20/2008 08 20200808//20200909

Return on equity in percent Return on equity in percent

The average RoE stood at 24.73 percent in 2008-09.it reveals how much profit a 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 company earned in comparison to the total amount of shareholders equity found on the

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balance sheet. balance sheet. Figure no.-5 Figure no.-5 Profit margin Profit margin -5 -5 0 0 5 5 10 10 15 15 20 20 25 25 30 30 2 2000044//2200005 5 22000055//2200006 6 22000066//2200007 7 22000077//2200008 8 22000088//22000099

Profit margin in percent Profit margin in percent

In

In 20200707-0-08, 8, ththe e avavereragage e prprofofit it mamargrgin in of of ththe e 23 23 liliststed ed cocommmmerercicial al babanks nks waswas 27

27.09.09pepercrcenent t bubut t in in 202008-08-2002009, 9, it it popoststed ed a a prprofofit it of of onlonly y 27.27.86 86 pepercrcenent. t. ThThee competition among commercial banks-the key player in the Nepse –and lack of market competition among commercial banks-the key player in the Nepse –and lack of market expansion pulled the profit margin down.

expansion pulled the profit margin down.

Earning per share (EPS) Earning per share (EPS)

0 0 5 5 10 10 15 15 20 20 25 25 30 30 35 35 40 40 45 45 2 2000044/2/200005 5 22000055/2/200006 6 2200006/6/2200007 7 2020007/7/2020008 8 2020008/8/20200099

Earning per share in rupees Earning per share in rupees The EPS has

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

be single most important variable in determining a share’s price.share’s price.

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Net worth per

Net worth per shareshare _(NWPS)_(NWPS)

125 125 130 130 135 135 140 140 145 145 150 150 155 155 160 160 2 2000404/2/20005 05 22000055/2/200006 6 22000066/2/200007 7 2200007/7/2200008 8 2020008/8/20200099 NWPS in rupees NWPS in rupees Du

Due e to to ththe e inincrcreaeasising ng ririghghts ts and and bonbonus us shsharares es net net wowortrth h per per shsharare e hahas s slslowoweded down.NWPS is a measurement of the net worth of the company for each share of stock down.NWPS is a measurement of the net worth of the company for each share of stock that has been issued.

that has been issued.

(Sources: - Security Research Centre and services) (Sources: - Security Research Centre and services)

1.2

Introduction of Himalayan Bank LimitedIntroduction of Himalayan Bank Limited

Himalayan bank limited is a joint venture bank with Habib bank of Pakistan, was 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 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 managed by Nepali chief executive officer. The bank had started its operation from February 1993.

February 1993.

The main objective of the bank is to provide modern banking facilities like banking to The main objective of the bank is to provide modern banking facilities like banking to busi

businessmnessman, an, indusindustrialtrialists and ists and other professiother professionals and onals and to to proviprovide de for for commercommercial,cial, agr

agricuicultulture, re, and and indindustustriarial l secsectortors. s. DesDespitpite e the the cutcut-t-throhroat at comcompetpetitiition on in in NepaNepaleslesee banking sector, Himalayan bank has been able to maintain a lead in the primary banking sector, Himalayan bank has been able to maintain a lead in the primary banking activities-loans and deposits.

banking activities-loans and deposits. The bank’s vision

The bank’s vision

Himalayan bank limited holds of a vision to become a leading bank of the country by 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 providing premium products and services to the customers, thus ensuring attractive and

sustainable returns to shareholders of the bank. sustainable returns to shareholders of the bank. The bank’s mission

The bank’s mission

The bank’s mission to become preferred provider of quality financial services in the The bank’s mission to become preferred provider of quality financial services in the

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country .there are two components in the mission of the bank; preferred provider and 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 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.

by the satisfying these two importants.components with the customer at focus. The bank’s objective

The bank’s objective

To become the first choice is the main objective of the bank. To become the first choice is the main objective of the bank.

1.2.1 Share subscription of HBL

Table no.-1 Table no.-1 Share subscription of HBL Share subscription of HBL P

Prroommootteer r sshhaarreehhoollddeerrs s 5511%% H

Haabbiib b BBaannkk, , PPaakkiissttaan n 2200%% Financial Financial institutions(employers institutions(employers provident fund) provident fund) 14% 14% N

Neeppaalleesse e ppuubblliicc shareholder’s shareholder’s 15% 15% T Toottaall 110000%%

In the above share subscription of HBL,promoters shareholders own more than 50%of 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 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 institutions (employee provident fund )own 14% of total shares and 15%of total shares are

are ownowned ed by by NepaNepaleslese e pubpublic lic shasharehreholdoldersers.The.Therefreforeore,pr,promotomoters ers of of HBL HBL own own thethe majority of shares.

majority of shares.

1.2.2 Capital structure of Himalayan bank limited 1.2.2 Capital structure of Himalayan bank limited

Capital structure of Himalayan bank is as follows: Capital structure of Himalayan bank is as follows: Authorized

Authorized capital capital = = Rs.1, Rs.1, 00, 00, 00, 00, 00,00000,000 (Divided into

(Divided into 10000000@Rs.10010000000@Rs.100each)each) Capital

Capital = = Rs.81, Rs.81, 08, 08, 10,00010,000 (Divided into

(Divided into 8108100@Rs.1008108100@Rs.100each)each) Paid

Paid up up capital capital = = Rs.81, Rs.81, 08, 08, 10,00010,000 (Divided into

(Divided into 8108100@Rs.1008108100@Rs.100each)each)

1.2.3 Services offered by Himalayan Bank Limited

Him

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promotes bank competitiveness, credit worthiness and attraction. promotes bank competitiveness, credit worthiness and attraction.

Some services and technologies, which may provide by Himalayan bank limited, are as Some services and technologies, which may provide by Himalayan bank limited, are as follows:-1) Accepting deposits 1) Accepting deposits -current deposits -current deposits -fixed deposits -fixed deposits -saving deposits -saving deposits 2) Granting loan 2) Granting loan - Overdraft - Overdraft - Demand loan - Demand loan -Time loan -Time loan -term loan -term loan 3) Transferring funds 3) Transferring funds

4) Premium saving accounting 4) Premium saving accounting 5) Bills discounts

5) Bills discounts 6) Bank guarantee 6) Bank guarantee

7) Issued of honors of travelers cheques 7) Issued of honors of travelers cheques 8) Inward and outward remittance

8) Inward and outward remittance

9) Issuance of bank draft and bankers cheques 9) Issuance of bank draft and bankers cheques 10) ATM, debit card, credit card facilities 10) ATM, debit card, credit card facilities 11) Inter banking services

11) Inter banking services

12) Any branch banking system (ABBS) 12) Any branch banking system (ABBS)

The bank is the first joint venture bank managed by Nepalese chief executive. Its head 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 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 Kosh Building”Thamel, Ktm.it has 26 branches out of which 910 are in Katmandu valle

valley and y and remairemaining 17 ning 17 branchbranches are es are outsioutside the de the valet spread in the valet spread in the main citiemain cities of s of thethe country. The bank adopting modern technologies such as computer system in each 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 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 agreement with Smart Choice Technology Pvt. Ltd. for expanding ATM network in Katmandu valley

Katmandu valley

1.3

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Nepal Bangladesh bank was established in 1994 with an authorized capital Rs.240 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 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 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 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 of society and every people who need banking services .during the period of 15 years of it

its s opeoperatration .it has accommion .it has accommodatodated ed a a larlarge number of clienge number of clients and ts and has been able tohas been able to provide excellent services to its clients. Bank has a network of 18 branches.

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 The bank has earned the glory of making available the services almost all the top business houses of

business houses of the leading, positions the leading, positions among the joint ventures among the joint ventures in Nepal, the bank isin Nepal, the bank is still purshing to accommodate as many clients as far as

still purshing to accommodate as many clients as far as possible.possible.

The exporters and importers of the country have established banking relationship with The exporters and importers of the country have established banking relationship with the bank

the bank and sub and sub stainstainable volume of able volume of foreiforeign business which has gn business which has enhanceenhanced d the bank’sthe bank’s p

popopululararitity y in in ththe e ininteternrnatatioionanal l trtradade e frfronont. t. BaBank nk hahas s dedevevelolopeped d agagenency cy anandd correspondent relationship with more than 200 prominent foreign

correspondent relationship with more than 200 prominent foreign banks in the world.banks in the world. This is the first only bank entrusted by the World Bank and government of Nepal to be 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 the Power Development Fund (PDF) administrator for the development of small and middl

middle level of the hydropowee level of the hydropower projectr projects in the country. The bank is the s in the country. The bank is the firsfirst jointt joint venture bank, the government revenue transactions in the country.Tatopani branch is venture bank, the government revenue transactions in the country.Tatopani branch is solely dealing with the government revenue account of Tatopani revenue office.

solely dealing with the government revenue account of Tatopani revenue office.

The bank’s vision

NB bank

NB banks holds a s holds a visvision to becomion to become e a leadia leading bank of ng bank of the couthe countrntry by y by proprovidvidinging p

preremimium um prproduoductcts s anand d seservrvicices es to to ththe e cucuststomomerers, s, ththus us enensusuriring ng atattrtracactitive ve anandd substantial returns

substantial returns to the stakeholders to the stakeholders of of the banks.the banks.

The bank’s mission

The bank mission is to provide their clients with the help of a skilled and dedicated 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 workforce whose creative talents, innovative actions and competitive edge make unique position in giving quality services to all institutions and individuals.

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. To become a legend and first selection bank is the objective of the bank.

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1.3.1

1.3.1_{Share subscription of Nepal Bangladesh bank limited}_{Share subscription of Nepal Bangladesh bank limited}

Table no.:-2 Table no.:-2

Share subscription of NB Bank Share subscription of NB Bank

P

Prroommootteer r sshhaarreehhoollddeerrs s 5511%% IIFFIIC C BBaannkk, , PPaakkiissttaan n 2200%% Fi

Financnancial ial insinstitituttutionions(es(emplmployeoyersrs provident fund)

provident fund)

14% 14%

Nepalese

Nepalese public public shareholder’s shareholder’s 15%15%

Total 100%

1.3.2 Capital structure of Nepal Bangladesh bank limited

Capital structure of Nepal Bangladesh bank

Capital structure of Nepal Bangladesh bank limited is as follows:-limited is as follows:-Authorized capital

Authorized capital (Divided in to

(Divided in to 2400000@Rs.1002400000@Rs.100 each) each) =Rs.24, =Rs.24, 00, 00, 00,00000,000 Issued capital

Issued capital (Divided in to

(Divided in to 600000@Rs.100600000@Rs.100each) each) =Rs.6, =Rs.6, 00, 00, 00,00000,000 Paid up capital

Paid up capital (Divided in to

(Divided in to 600000@Rs.100600000@Rs.100each) each) =Rs.6, =Rs.6, 00, 00, 00,00000,000

1.3.3 Products and services of Nepal Bangladesh bank

Nepal Bangladesh bank limited provides following

Nepal Bangladesh bank limited provides following services and products:-services and products:-32

32 LoLoan an and and adadvanvancece 33

33 DeDeposposit it scschehememe 34

34 AutAutomaomated telted teller machler machineine(AT(ATM)M) 35

35 EdEducucatatioion ln loaoann 36

36 HoHoususining log loanan 37

37 Hire Hire purchapurchase lse loan fooan for pror professfessionalionalss 38

38 SavSaving pling plus deus deposposit scit schemhemee 39

39 LoLockcker fer facacililitityy 40

40 Any Any branch branch bankinbanking syg systemstem(ABBS(ABBS))

1.4 Statements of Problems

The problem of the study lies on the issues related to the strength and weakness of “a The problem of the study lies on the issues related to the strength and weakness of “a

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comparative evaluation of financial performance of Himalayan bank limited and Nepal comparative evaluation of financial performance of Himalayan bank limited and Nepal Bangladesh bank limited”. It also tries to seek

Bangladesh bank limited”. It also tries to seek the answers to the following questions:-the answers to the following questions:-What is the comparative evaluation financial performance of the bank in terms of 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 liquidity, EPS, DPS, payout ratio, debt management and profitability ratio over fiver different years?

different years?

1.5 Objective of study 1.5 Objective of study

Each activity of human being is driven to world the following objective; Each activity of human being is driven to world the following objective;

41

41 To To evaluaevaluate te liquiliquidity, dity, leverleverage, age, capitcapital al adequacadequacy y and and profiprofitabiltability ity ratiratios os of of Nepal Bangladesh bank and Himalayan bank limited.

Nepal Bangladesh bank and Himalayan bank limited. 42

42 To study tTo study the comparhe comparative casative cash flow sth flow statemeatement of banksnt of banks.. 43

43 To To makmake e necnecessessary suggesary suggestitions ons and and recrecommommendendatiations ons for for effeffectective ive finfinanciancialal performance in future.

performance in future. 1.6 Limitations of study 1.6 Limitations of study

The major limitations of this research are related with the ratio analysis of financial The major limitations of this research are related with the ratio analysis of financial p

pererfoformrmanance ce of of NeNepal pal BaBangnglaladedesh sh banbank k anand d HiHimamalalayayan n babank nk lilimimiteted. d. VarVarioiousus limitations have been faced while preparing this report which is expressed below:

limitations have been faced while preparing this report which is expressed below: 44

44 This studThis study is conducty is conducted mainly based mainly based on secondary tyed on secondary type of data i.e. annual repe of data i.e. annual reportsports and textbooks factors.

and textbooks factors. 45

45 Study conStudy conducted to five yeaducted to five years beginnirs beginning from fiscang from fiscal year 059/060 to 064/l year 059/060 to 064/065.065. 46

46 This stuThis study only expdy only explains abolains about ratiut ratio and cash flow stao and cash flow statementements of two banksts of two banks.. 47

47 Study anStudy and resultd results of two banks mas of two banks may or may not be appliy or may not be applicable to othecable to others banks.rs banks. 48

48 This stuThis study is only cody is only conductenducted only withd only within Katmanin Katmandu valleydu valley.. 1.7

1.7 Concept of cash flow statementConceptConcept of cash flow statementConcept of cash flow statementof cash flow statement

Cash flow statements indicates where funds came from during the year (from sales, 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, receivable or sales of property) and where they are spent (for purchase of equipment, payment of dividends reducing accounts

payment of dividends reducing accounts payable) cash flow statements showspayable) cash flow statements shows 49

49 How the firHow the firm’s operm’s operation have afation have affectefected its liquid its liquiditydity.. 50

50 ThThe e rerelalatitiononshship ip amamong ong cacash sh flflow ow frfrom om opeoperaratitingng, , ininveveststining g anand d fifinanancnciningg activities.

activities. 1.8

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Mainly the study covers the financial analysis, which covers the liquidity, profitability, 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 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 study with five years from data of the bank has been analyzed so far. Hence, it has been own

own impimportortance ance and and sigsignifnificaicance nce for for polpolicy icy makmakersers, , proprofesfessiosionalnals, s, shasharehreholdoldersers,, management and general public.

management and general public.

1.9 Organization of study

This study has been divided in to

This study has been divided in to five chapters.five chapters. Chapter:-1 Introduction

Chapter:-1 Introduction

Chapter:-2 Research Methodology Chapter:-2 Research Methodology Chapter:-3 Presentation and Analysis Chapter:-3 Presentation and Analysis

Of data Of data

Chapter:-4 Summary, Conclusion and Chapter:-4 Summary, Conclusion and

Recommendation Recommendation

INTRODUCTION

Thi

This s chachaptepter r covecovers the rs the genegeneral backgrral backgrounound d of of the generthe general al perperforformanmance ce analanalysiysis,s, introduction of the organization, statement of problem, objective and limitations of the 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 study and organization of the research study of Himalayan bank limited and Nepal Bangladesh bank limited.

Bangladesh bank limited.

RESEARCH METHODOLOGY

This chapter focuses the research design, sample data analysis tools and their using This chapter focuses the research design, sample data analysis tools and their using techniques.

techniques.

PRESENTATION AND ANALYSIS OF DATA

This chapter concern with measurement of financial performance using ratio analysis This chapter concern with measurement of financial performance using ratio analysis tools and their trend analysis.

tools and their trend analysis.

SUMMARY, CONCLUSION AND RECOMMENDATION

This chapter gives summarization, conclusion and recommendation

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CHAPTER-2

RESEARCH METHODLOGY

51 51 Rese

Research

arch metho

methodolo

dology

gy

Res

Researearch ch metmethodohodologlogy y refrefers to ers to the variothe various us seqsequenuentiatial l stesteps ps to to be be adopadopted ted by by aa researcher in studying a problem with certain objectives in view. This chapter explains researcher in studying a problem with certain objectives in view. This chapter explains the methodology used for this research in the

the methodology used for this research in the following order.following order.

52 52 Res

Resear

earch des

ch design

ign

Financial tools are used to ensure the relationship between variables in terms of ratio, Financial tools are used to ensure the relationship between variables in terms of ratio, pe

percercentantage ge and and timtimes. es. HerHere e for for thithis s resresearearch ch worwork k botboth h anaanalytlyticaical l and and desdescricriptiptiveve research design is applied.

research design is applied.

53 53 Popul

Population

ation and s

and sampli

ampling

ng

The study is done to taking an account of two organizations i.e. Himalayan bank The study is done to taking an account of two organizations i.e. Himalayan bank li

limimiteted d anand d NeNepapal l BaBangnglaladedesh sh babank nk lilimimiteted. d. In In ththis is ststududy, y, ovovereralall l fifinanancnciaiall performances of both banks are taken into consideration. The reason selecting these performances of both banks are taken into consideration. The reason selecting these banks as sample for many study are predominant.

banks as sample for many study are predominant. 54

54 ConConvenvenienience ce accaccessessibiibilitlity.y. 55

55 EasEasy daty data avaa availailabilbilityity.. 56

56 Good rGood record ecord of baof banks anks and recnd recognitognition.ion. 57

57 WelWelcomcome envie environronmenment of bant of banks.ks.

The joint ventures commercial banks, established year and head office of population are The joint ventures commercial banks, established year and head office of population are given below:

given below:

Table no.:-3 Table no.:-3

List of joint ventures commercial

List of joint ventures commercial banks

banks

S.N S.N

Commercial

Commercial Banks Banks EstablishedEstablished year

year

Head Office Head Office

1

1 NNeeppaal l AArraab b bbaannk k lliimmiitteedd 20204411--0033--2299 KKaattmmaanndduu 2

2 NNeeppaal l iinnvveessttmmeennt t bbaannk k limited

limited

2

2004422--1111--1166 KKaattmmaanndduu

3

3 SSttaannddaarrd d cchhaarrtteerreed d bbaannk k Nepal limited

Nepal limited

2

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4

4 HHiimmaallaayyaan n bbaannk k lliimmiitteedd 22004499--1100--0055 KKaattmmaanndduu 5

5 NNeeppaal l SSBBI bI baannk k lliimmiitteedd 20205500--0033--2233 KKaattmmaanndduu

6 6

N

Nepepal al BaBangnglaladedesh sh babank nk limited

limited

2

2005511--0022--2233 KKaattmmaanndduu

7

7 BBaannk k oof f KKaattmmaannddu u lliimmiitteedd 22002211--1111--2288 KKaattmmaanndduu 8

8 EEvveerreesst t bbaannk k lliimmiitteedd 22005511--0077--0011 KKaattmmaanndduu 9

9 NNeeppaal l ccrreeddiit t aannd d ccoommmmeerrccee bank limited

bank limited

2

2005533--0066--2288 SSiiddddhhaarrtthhnnaa gar

gar 1

100 LLuummbbiinni i bbaannk k lliimmiitteedd 22005555--0044--0011 NNaarraayyaannggaadd h

h 1

111 NNeeppaal l iinndduussttrriiaal l aanndd commercial bank limited commercial bank limited

2

2005555--0044--0055 BBiirraattnnaaggaar r

1

122 MMaacchhhhcchhhhaappuucchhhhrre e bbaannk k limited

limited

2

2005577--0066--1177 PPookkhhaarraa

1

133 KKuummaarri i bbaannk k lliimmiitteedd 20205566--0088--2244 KKaattmmaanndduu 1

144 LLaaxxmmi i bbaannk k lliimmiitteedd 20205588--0066--1111 KKaattmmaanndduu 1

155 SSiiddddhhaarrtthha a bbaannk k lliimmiitteed d 22005588--0066--1122 KKaattmmaanndduu

Sources- Newspaper and Magazines Sources- Newspaper and Magazines

58 58 Sou

Source

rces of d

s of data

ata

The research is based on primary as well as secondary data. Primary data collected are The research is based on primary as well as secondary data. Primary data collected are personally collected through questionnaires, direct observations and interviews, which personally collected through questionnaires, direct observations and interviews, which have conducted with the concerned staffs and customers of the concerned banks. The 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 secondary data are collected from annual report of banks, broachers, balance sheet and from the website.

from the website.

59 59 Meth

Method of d

od of data an

ata analysi

alysiss

“The term data analysis refers to the computation of certain measures along with “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 searching for patterns of relationship that exit among data group. thus in the process of ana

analyslysis, is, relrelatiationsonship hip of of difdifferferent ent supsupporportiting ng or or conconfliflicticting ng witwith h orioriginginal al or or newnew hypothesis and should be subjected to statistical lest of significant to determine with hypothesis and should be subjected to statistical lest of significant to determine with what validity can be said to indicate any conclusion.”

what validity can be said to indicate any conclusion.”

Analysis may be categorized as descriptive analysis and inferential analysis. To achieve Analysis may be categorized as descriptive analysis and inferential analysis. To achieve the predetermined objective of the research,

the predetermined objective of the research, certain tools are used.certain tools are used. The tools are categorized as;

The tools are categorized as; 1. Financial tools

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2. Stastical tools 2. Stastical tools 3. Graphical tools 3. Graphical tools

In this study, following statistical tools are used to analysis the financial performance of In this study, following statistical tools are used to analysis the financial performance of the

the

bank:-Profitability ratio

Profitability ratio

Profitability is ultimately in terms of rate of return earned by the liquidity by the equity 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. 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, 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 the return on assets, and the return on equity. This ratio tools helps to analyzed income re

relalatitions ons to to reresosoururceces s comcommimitttted ed is is to to memeasasurure e prprofofititababililitity y frfrom om ththe e fifinanancnciaiall statements.

statements.

Liquidity ratio

It means the ability to meet cash obligation as they come due. Liquidity is the probably 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 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.

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 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 ratios are also called capital structure ratios. These ratios indicate the proportions of debt and equity in the capital structure of a bank.

debt and equity in the capital structure of a bank. 1

1

. Liquidity ratios

Current

Current ratio ratio = = Current Current assets/Current assets/Current liabilitiesliabilities Cash and bank

Cash and bank balance to total deposit ratio (cash reserve ratio)balance to total deposit ratio (cash reserve ratio) =Cash and bank balance /Total deposits

=Cash and bank balance /Total deposits

2. Debt management ratios

Total

Total debt debt ratio ratio = = Total Total debt/Total debt/Total assetsassets

Interest

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

3. Profitability ratios

Return

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Return

Return on on net net worth worth ratio ratio =Net =Net profit/Net profit/Net worthworth Return

Return on on total total capital capital =Net =Net profit profit after after interests interests and and taxestaxes//Total capitalTotal capital

4. Other indicators

Earning

Earning per per ratio ratio (EPS) (EPS) =Net =Net profit/No. profit/No. of of sharesshares Dividend

Dividend per per share share (DPS) (DPS) =Earn =Earn paid paid to to shareholders/No. shareholders/No. of of sharesshares Dividend payout

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CHAPTER-3

PRESENTATION AND ANALYSIS OF DATA

60

60 60 Presentation and analysis of data

Presentation and analysis of data

This chapter thesis work

This chapter thesis work presenpresents the ts the data, facts, figures and data, facts, figures and their interprtheir interpretatietation. on. ThisThis thesis work is based on the secondary data. The relevant data collected from secondary 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 sources are presented and analyzed by using financial, statical and graphical tools and tec

technihniquesques. . To To comcomparpare e the the finfinancancial ial perperforformanmance ce of of NepNepal al BangBangladladesh esh bank bank andand Him

Himalaalayan yan bankbank, , ratratio io anaanalyslyses es has been has been useused. d. We We havhave e alsalso o comcomparpared ed the datathe data collected from various using ratios formulas.

collected from various using ratios formulas.

61 61 Liq

Liquid

uidity rat

ity ratio

io

Li

Liququididitity y of of a a fifirm rm rerefefers rs to to ththe e sosounund d sosolvlvencency y posposititioion n of of a a fifirm rm to to memeet et ititss obl

obligaigatiotions. ns. LiqLiquiduidity ity ratratio io meameasursures es the the abiabilitlity y of of a a firfirm m to to meemeet t its shortits short-te-termrm obligations.liquiidity of a bank should be considered as the most important factor its 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 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 the liability to pay and low ratio shows scarcity of liquid assets. In this ratio we have calculated:

calculated:

62 62 Cur

Curren

rent ra

t ratio

tio

Current ratio is the measure of the firm’s short-term solvency .current ratio is also 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 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 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 assets than the liabilities .current ratio is simply the ratio of current assets and current liabilities.

current liabilities.

The proportion of current ratio of 2:1 is supposed to be an idle. This conventional rule 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 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. 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 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

a service tendering firm it is considered to be enough to be 1; enough to be 1; 1ratio. It can be computed1ratio. It can be computed by using following formula,

by using following formula,

Current ratio= current assets/current liabilities (times) Current ratio= current assets/current liabilities (times)

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Table no. - 4 Table no. - 4

Current ratio

in million(Rs.) in million(Rs.) B

Baannk k HHiimmaallaayyaan n bbaannkk NNeeppaal l BBaannggllaaddeessh h bbaannk k y yeeaarr CCuurrrreenntt Assets Assets Current Current Liabiliti Liabiliti es es Rati Rati os os (tim (tim es) es) Current Current Assets Assets Current Current Liabilities Liabilities ratio ratio (time (time s) s) 2060/2 2060/2 061 061 1,92,98,89 1,92,98,89 3 3 18,30,23 18,30,23 0 0 1.05: 1.05: 1 1 19,99,36 19,99,36 8 8 1 1,,6622,,5555,,002244 11..2233:: 1 1 2061/2 2061/2 062 062 2,09,97,00 2,09,97,00 4 4 1,98,14, 1,98,14, 319 319 1.06: 1.06: 1 1 2,12,71, 2,12,71, 964 964 1 144118811,,331100 11..5500:: 1 1 2062/2 2062/2 063 063 2,39,68,10 2,39,68,10 3 3 2,22,92, 2,22,92, 091 091 1.08: 1.08: 1 1 2,80,01, 2,80,01, 430 430 2,08,96,,59 2,08,96,,59 0 0 1.34: 1.34: 1 1 2063/2 2063/2 064 064 2,54,30,14 2,54,30,14 4 4 2 2334433778899 11..0099:: 1 1 2,13,51, 2,13,51, 840 840 1 1,,1144,,1188,,009966 11..8877:: 1 1 2064/2 2064/2 065 065 2,45,75,52 2,45,75,52 1 1 2630294 2630294 8 8 1.09: 1.09: 1 1 2,78,89, 2,78,89, 597 597 1 1,,2299,,2288,,553366 22..1166:: 1 1 By

By tatablble e nono.1, we .1, we cacan n sesee e ththe e cucurrrrenent t raratitios os of of HBHBL L frfrom om ththe e yeyear ar 206206/2/2061 to061 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& 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 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 should increase its current assets.however, looking at above table we can see that NB bank has

bank has higher currenhigher current t ratiratio. o. Hence, the Hence, the liquiliquidity positidity position on of NB of NB bank in bank in comparcomparisonison to HBL.

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Current ratio

63 63 Cash and Ba

Cash and Bank balan

nk balance to total de

ce to total deposit rat

posit ratio

io

The table shows the comparative cash and bank balance to deposit ratio (excluding 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 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 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 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 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 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 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 tied up and opportunity cost will be higher .this is computed by using following formula,

formula,

Ca

Cash sh and and babank nk balbalanance ce to to tottotal al dedepoposit sit (c(casash h resresererve ve raratiotio) ) =ca=cash sh anand d banbank k balance/total deposit.

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Table no.-5 Table no.-5

Cash and Bank balance to total deposit (cash

Cash and Bank balance to total deposit (cash reserve ratio)

reserve ratio)

(In million Rs.) (In million Rs.)

B

Baannkkss HHiimmaallaayyaan n bbaannkk NNeeppaal l BBaannggllaaddeessh h bbaannk k Y Yeeaarr CCaasshh & & Bank Bank Balanc Balanc ee Total Total Deposit Deposit Rati Rati o o (%) (%) C

Caassh h && Bank Bank Balance Balance Total Total Deposit Deposit Ratio Ratio (%) (%) 2060/20 2060/20 61 61 14,35, 14,35, 157 157 1,75,32, 1,75,32, 404 404 8 8..1199 1111,,8899,,004488 1166,,5588,,0077 3 3 7.18 7.18 2061/20 2061/20 62 62 12,64, 12,64, 672 672 1,86,19, 1,86,19, 375 375 6 6..7799 2727,,9955,,999966 22,,9900,,6688,,99 28 28 9.62 9.62 2062/20 2062/20 63 63 19,79, 19,79, 209 209 2,10,07, 2,10,07, 379 379 9 9..4422 2727,,1122,,115500 22,,7711,,6622,,22 15 15 9.99 9.99 2063/20 2063/20 64 64 20,01, 20,01, 184 184 22,10,33 22,10,33 3 3 9 9..0099 2222,,8822,,667766..55 22,,1166,,7744,,00 46 46 10.53 10.53 2064/20 2064/20 65 65 20,14, 20,14, 471 471 2,48,14, 2,48,14, 012 012 8 8..1122 2424,,0000,,776633..77 22,,3399,,7766,,44 33 33 10.01 10.01

This ratio shows the ability of banks funds to meet their deposits. Dividing cash and 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 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 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 7.18,9.6

and NB Bank is 7.18,9.62,9.99,2,9.99,10.53 and 10.01.b10.53 and 10.01.by looking at the above y looking at the above table one cantable one can say that th

say that the NB Bank is in good liquie NB Bank is in good liquidity dity posiposition becaution because of higher cash and base of higher cash and bank nk balance to total deposit ratio.

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Presentation of cash and bank balance to total

Presentation of cash and bank balance to total deposit ratio in

deposit ratio in

Line diagram

64

64 64 Debt management ratio

Debt management ratio

Leverage of capital structures ratios are used to judge the long term financial position 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 of the banks. It evaluates the financial risk. Greater the portion of equity capital in ca

capipitatal l lelesssser er wiwill ll be be ththe e ririsksk. . DeDebt bt is is momore re ririskskilily y bubut t it it is is adadvavantntagageoeous us toto shareholders. In this ratio, we calculate total debt ratio, debt equity ratio and debt to shareholders. In this ratio, we calculate total debt ratio, debt equity ratio and debt to total capital ratio.

total capital ratio.

3.3.1 3.3.1 Tota

Total debt r

l debt ratio

atio

This ratio reflects the external obligation of the firm in relation to the total assets. It This ratio reflects the external obligation of the firm in relation to the total assets. It indicates the financial contribution of outsiders and

indicates the financial contribution of outsiders and owners on total assets of the owners on total assets of the firm. Itfirm. It also measures the financial security of outsiders.generallly creditors prefer a low debt 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 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

one hand and to maintain their concentrated control over the Fi

Firmrm. . HiHighegher r ththe e raratitio o dedepipictcts s hihighegher r ththe e cocontntriribubutition on of of dedebt bt in in tototatal l asassesetsts consequently higher the risk association.

consequently higher the risk association.

Total debt ratio=total debt/total assets Total debt ratio=total debt/total assets Table no.-6

Table no.-6

Total debt to total assets ratio

B

Baannkk HiimHmaallaayyaan n bbaannkk NNeeppaal l BBaannggllaaddeessh h bbaannk k Y Yeeaarr TToottaall Debt Debt Total Total Assets Assets Ratio Ratio (%) (%) Total Total Debt Debt Total Total Assets Assets Rati Rati o o (%) (%) 2060/206 2060/206 1 1 1,83,02,3 1,83,02,3 00 00 1,95,00,5 1,95,00,5 72 72 9 933..8866 11,,8811,,1199,,22 77 77 1,96,95,5 1,96,95,5 78 78 92. 92. 00 00

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2061/206 2061/206 2 2 1,98,14,3 1,98,14,3 19 19 2,13,15,8 2,13,15,8 48 48 9 922..9966 11,,9966,,1166,,11 76 76 2,15,29,0 2,15,29,0 06 06 91. 91. 91 91 2062/206 2062/206 3 3 2,22,92,0 2,22,92,0 91 91 2,41,97,9 2,41,97,9 74 74 9 922..1122 22,,2200,,6699,,11 70 70 24,439,9 24,439,9 54 54 90. 90. 30 30 2063/206 2063/206 4 4 2,34,37,8 2,34,37,8 59 59 2,57,29,7 2,57,29,7 87 87 9 911..0099 22,,3322,,0033,,44 80 80 2,59,87,0 2,59,87,0 85 85 89. 89. 29 29 2064/206 2064/206 5 5 2,63,02,9 2,63,02,9 48 48 2,88,71,3 2,88,71,3 43 43 9 911..1100 22,,6600,,3399,,99 19 19 2,91,60,0 2,91,60,0 56 56 89. 89. 30 30

This ratio is calculated by dividing total debt by total assets. A high ratio shows the 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 contribution of creditor in financing the assets of bank. this ratio shows that both banks have

have comparcomparativelatively eqy equale.Tuale.The rahe ratio tio of of HBL HBL are are 93.89,9293.89,92.96,92..96,92.12,91.012,91.09 9 and and 91.191.1 li

likes thkes this this the e ratratio of NB Bio of NB Bank ank are 92are 92,91.,91.12,12,90.390.3,89.,89.29,29,89.389.3.bot.both bankh banks haves have proportion of assets investing by debt but Himalayan bank has more risk in relation to proportion of assets investing by debt but Himalayan bank has more risk in relation to NB bank due to higher debt ratio.

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Presentation of total debt ratio in line

Presentation of total debt ratio in line diagram

diagram

65 65 Intere

Interest co

st coverag

verage rat

e ratio

io

This ratio is also called time interest ratio (TIE).Time interest ratio measures the extent 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 to which operating income can decline before the firm is unable to meet its annual int

intereerest st coscosts. failuts. failure re to to meemeet t thithis s oblobligaigatiotion n can can bribring ng leglegal al actaction ion by by the the fifirm’rm’ss creditors, possibly resulting in bankruipty.this ratio by dividing earnings before interest creditors, possibly resulting in bankruipty.this ratio by dividing earnings before interest and taxes(EBIT)by the charges can be presented below,

and taxes(EBIT)by the charges can be presented below,

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

Table no.-7 Table no.-7

Interest coverage ratio

B

Baannkkss HHiimmaallaayyaan n bbaannkk NNeeppaal l BBaannggllaaddeessh h bbaannk k Y

Yeeaarr EEBBIITT TToottaall interest interest charge charge Ratio Ratio (times) (times) E

EBBIITT TToottaal il inntteerreesstt charge charge Ratio Ratio (times) (times) 2060/206 2060/206 1 1 11,65,88 11,65,88 0 0 7 7 334 4 551188 11..5599 11,,1177,,7733 8.80 8.80 7 7,,3300,,884455..4400 11..6611 2061/206 2061/206 2 2 9 9,,2277,,118800 55,,7788,,113344 11..6600 99,,3366,,44 51.80 51.80 5 5,,7755,,224433..3300 11..6633 2062/20 2062/20 63 63 9,14,15 9,14,15 6 6 5,54,1 5,54,1 28 28 1 1..6655 99,,2233,,22 97.56 97.56 5 5,,5511,,335577..4400 11..6677 2063/20 2063/20 64 64 9,12,11 9,12,11 7 7 4,91,5 4,91,5 43 43 1 1..8866 99,,2211,,22 38.17 38.17 4 4,,8899,,008855..3300 11..8888 2064/20 2064/20 65 65 10,84,5 10,84,5 06 06 5,61,9 5,61,9 64 64 1 1..9933 1199,,5533 1.06 1.06 5 5,,5599,,115544..2200 11..9966

The interest coverage ratio is calculated by dividing EBIT by interest expenses. And it 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 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 EBIT for 1 rupee payment of interest. The higher the ratio will be more favorable for

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the organization. The times interest on ratio of both banks are in increasing trend which 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.

indicate that the EBIT of both banks are good to cover the interest expenses.

Presentation of interest coverage ratio

66

66 66 Profitability ratio

Profitability ratio

Profit is the difference between revenue and expenses. A profit is necessary for the 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 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 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 calculated to measure the operating efficiency of the firm. Profitability ratio shows the combined effects of liquidity management and debt management on operating result. combined effects of liquidity management and debt management on operating result. Major types of profitability ratio are as under:

Major types of profitability ratio are as under:

67 67 Retur

Return on

n on tota

total ass

l assets

ets

This ratio measures the profitability of all invested in the firm’s assets. This ratio 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 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 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 satisfactory ROE. In this study ROA is computed to measure the profitability of all the financial resources in bank assets and calculated

financial resources in bank assets and calculated be applying the following formula;be applying the following formula;

Return on total assets=net profit/total assets Return on total assets=net profit/total assets Table no.-8

Table no.-8

Net profit of total assets ratio

B

Baannkkss HHiimmaallaayyaan n bbaannkk NNeeppaal l BBaannggllaaddeessh h bbaannk k y yeeaarr NNeett profit profit Total Total assets assets Rati Rati o o (%) (%) Net Net profit profit Total Total assets assets Rati Rati o o (%) (%) 2060/20 2060/20 61 61 2 2,,7777,,003399 11,,9955,,0000,,557722 11..44220077 22,,8822,,557799..77 8 8 1, 1,9696,9,95,5,575788 1.1.43434747 2061/20 2061/20 62 62 2 2,,3355,,002233 22,,1133,,1155,,884488 11..11002266 22,,3399,,772233..44 6 6 2, 2,1515,2,29,9,000066 1.1.11113535 2062/20 2062/20 63 63 2 2,,1122,,113322 22,,4411,,9977,,997744 00..88776677 22,,1166,,337744..66 4 4 2, 2,4444,3,39,9,959544 0.0.88885353

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2063/20 2063/20 64 64 2 2,,6633,,005522 22,,5577,,2299,,778877 11..00224400 22,,6688,,331133..00 4 4 2, 2,5555,9,98,8,080855 1.1.04048585 2064/20 2064/20 65 65 3 3,,0088,,227777 22,,8888,,7711,,334433 11..00667788 33,,1144,,444422..55 4 4 2, 2,9191,6,60,0,050566 1.1.07078383

Return on total assets is obtained by dividing net income after tax by total assets. This 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 o

ratio measures the efficiency of bank in utilization of o verall assets. High ratio indicatesverall assets. High ratio indicates th

the e susuccccesess s of of mamananagegemement nt in in ovovereralall l opopereratatioion n alall l lolow w raratitio o memeanans s ininefeffificicientent operation of bank. these ratios of HBL of 5 years 1.42,1.1,0.87,1.0024 & 1.0678 in 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 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. can tell that RoA of NB bank is good because it has higher RoA. Figure no.-12

Figure no.-12

Presentation of net profit to total

Presentation of net profit to total asset ratio in line diagram

asset ratio in line diagram

68

68 RetReturn urn on non net wet worth orth ratiratioo

This ratio indicates that how the firms have been utilizing the owners fund. The key 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 objective of any enterprises is t maximize the owner’s wealth. Higher this ratio is the conseq

consequences of uences of sound managemesound management and nt and effiefficiency of the ciency of the managemanagement. The ment. The net profitnet profit is obtained from P/L account and net worth is the sum of paid up capital, reserves, 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 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 liabilities by total assets. Higher the ratio indicates higher the return and lower the ratio indicates lower the return. This can be

indicates lower the return. This can be computed from the following formula,computed from the following formula,

Return on net worth=net profit/net worth Return on net worth=net profit/net worth Table no.-9

Table no.-9

Return on net worth ratio

(in million Rs.) (in million Rs.)

Banks

Banks Himalayan Himalayan bank bank Nepal Bangladesh Nepal Bangladesh bank bank y yeeaarr NNeett profit profit Net Net worth worth Rati Rati o o (%) (%) Net Net profit profit Net Net worth worth Rati Rati o o (%) (%) 2 2006600//220066 22,,7777,,0033 1111,,9988,,2299 2233..11 22,,8822,,557799..77 1212,,3344,,224400.. 2222..99

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1 1 99 22 22 88 8800 00 2061/206 2061/206 2 2 2,35,02 2,35,02 3 3 15,01,52 15,01,52 9 9 15.6 15.6 5 5 2,39,723.4 2,39,723.4 6 6 15,46,574. 15,46,574. 90 90 15.5 15.5 0 0 2062/206 2062/206 3 3 2,12,13 2,12,13 2 2 19,05,88 19,05,88 3 3 11.1 11.1 3 3 2,16,374.6 2,16,374.6 4 4 19,63,059. 19,63,059. 50 50 11.0 11.0 2 2 2063/206 2063/206 4 4 2,63,05 2,63,05 2 2 22,91,92 22,91,92 8 8 11.4 11.4 8 8 2,68,313.0 2,68,313.0 4 4 23,60,685. 23,60,685. 80 80 11.3 11.3 7 7 2064/206 2064/206 5 5 3,08,27 3,08,27 7 7 25,68,39 25,68,39 5 5 12.0 12.0 0 0 3,14,442.5 3,14,442.5 2 2 26,45,446. 26,45,446. 90 90 11.8 11.8 9 9

Return on net worth of HBL are 23.12,15.65,11.13,11.48 &12.like the above ratio of 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 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 du

profitability on net worth than NB bank due to higher ratio.e to higher ratio.

Presentation of net profit to net

Presentation of net profit to net worth ratio in line diagram

worth ratio in line diagram

69

69 69 Return on total capital

Return on total capital

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

the company so high ratio desirable.

Return on total capital=Net profit after interest and taxes/Total capital Return on total capital=Net profit after interest and taxes/Total capital Table no.-10

Table no.-10

Return on total capital

B

Baannkkss HHiimmaallaayyaan n bbaannkk NNeeppaal l BBaannggllaaddeessh h bbaannk k y yeeaarr NNeett profit profit Total Total capital capital Rati Rati o o (%) (%) N

Neet t pprrooffiitt TToottaall capital capital Ratio Ratio (%) (%) 2 2006600//22006611 22,,7777,,003399 33,,0000,,000000 9922..3355 22,,8822,,887799..7788 33,,3300,,000000 8855..6633 2 2006611//22006622 22,,3355,,002233 33,,9900,,000000 6600..2266 22,,3399,,772233..4466 44,,2299,,000000 5555..8888 2 2006622//22006633 22,,1122,,113322 44,,2299,,000000 4499..4455 22,,1166,,337744..6644 44,,7711,,990000 4455..8855 2 2006633//22006644 22,,6633,,005522 55,,3366,,225500 4499..0055 22,,6688,,331133..0044 55,,8899,,887755 4455..4499 2 2006644//22006655 33,,0088,,227777 66,,4433,,550000 4477..9911 33,,1144,,444422..5544 77,,0077,,885500 4444..4422

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Returns on total capital of HBL of 5 years are 92.35, 60.26, 49.45, 49.05 &47.91. Same 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 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.

has high return to total capital i.e. utilize their capital in more productive sectors.