Introduction
1.1. Background of study
The bank is an institution established by law, which deals with money and credit is
called banking. In other words, it is obvious that an institution which deals with money,
receiving it on deposits from customers, honoring customers drawings against such
deposits and demand, collecting cheques from customers, and lending or investing
surplus deposits until they are required for repayment.
In common sense, financial institution which deals with monetary transaction by
accepting various types of deposits, distributing various types’ loans and rendering
other financial services.
There is several definition of a bank by different authors and scholar’s .some of them is
as follows:-
According to Oxford Dictionary
“A bank is an establishment for the custody of money received from or on its
customers, its essential duty is to pay their draft on it, its profit arises from its use of
money left unemployed by them.”
According to Dr. Hart
“A person or company carrying on the business of receiving money and collecting
drafts, for customers subject to the obligation of honoring cheques upon them from
time to time by the customers to the extent of the amounts available on their current
accounts”
As per Kent
“Bank is an organization whose principle operation is concerned with accumulation for
the temporarily idle with money of the general public for the purpose of advancing to
other expenditure.”
According to Hals bury laws of England
“A banker is defined as an individual partnership or corporation, whose sole or
predominating business banking”.
According to the commercial bank act 2031
“A commercial bank is a bank, which deals in exchanging currency, deposits, giving
loans and doing commercial transactions”.
So bank is an organization, which deals with deposits, lends money and renders a wise
range of financial services.
Origin of Banking
The term “bank” was originated from the Latin word “BANCUS”, and the Italian word
“BANCO”, the German word “BACK” and French word “BANKE”.regarding the
origin & banking institution in the world, the bank established was “Bank of Venice” of
Italy. The second bank established in Spain in 1401 A.D. as “the bank of Barcelona”.
Then after, Bank of Geneva &Bank of England as a joint venture bank in 1401 &1694
A.D. respectively. Several national and foreign banks were established in India & other
countries subsequently.
Banking in Nepal
In Nepalese banking concept, the history of banking is not long. But it is found that the
banking transactions are conducted in ancient time. Nepal bank limited was the first
bank in Nepal established in 1994b.s .later Nepal Rastra Bank ,central bank was
established in 2013 b.s with an objective to provide the policy decision, guidance and
control the banking and to monitor this sector.Rastriya Banijya Bank is a government
owned commercial bank was established in 2022b.s. NIDC(Nepal industrial
development corporation) and agriculture development bank limited(ADBL) was
established in 2020b.s.the joint ventures bank’s increased dramatically after restoration
of democracy when the government adopted liberal and market oriented policy.
Nowadays following commercial banks are in operation
5 Agriculture development bank limited (ADBL)
6 Bank of Asia Nepal limited
7 Bank of Katmandu limited
8 Citizen international bank limited
9 Development credit bank limited
10 Everest bank limited
11 Global bank limited
12 Himalayan bank limited
13 Janata bank limited
14 Kumari bank limited
15 Kist bank limited
16 Laxmi bank limited
17 Lumbini bank limited
18 Machhapuchhre bank limited
19 Nabil bank limited
20 Nepal bank limited
21 Nepal Bangladesh bank limited
22 Nepal SBI bank limited
23 Nepal investment bank limited
24 Nepal industrial and commercial bank limited
25 Nepal credit and commercial bank limited
26 NMB bank limited
27 Prime commercial bank limited
28 Rastriya Banijya bank limited
29 Siddhartha bank limited
30 Sunrise bank limited
31 Standard chartered bank Nepal limited
7
6
5
4
3
2
1
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009
NPA in percent
The average NPA was 1.98 percent in 2008-09 against 3.58 percent in 2007=08.NPA
is an assets or account of borrower, which has been classified by a bank or financial
institution as sub-standard, doubtful or loss assets. Lower the NPA better the institution.
Figure no.-2
P/E ratio
70
60
50
40
30
20
10
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009
2.5
1.5
0.5
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009
Figure no. - 4
Return on equity (RoE)
45
40
35
30
25
20
15
10
5
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009
30
25
20
15
10
5
0
-5
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009
45
40
35
30
25
20
15
10
5
0
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009
Figure no.-7
Net worth per share (NWPS)
160
155
150
145
140
135
130
125
2004/2005 2005/2006 2006/2007 2007/2008 2008/2009
NWPS in rupees
Due to the increasing rights and bonus shares net worth per share has slowed
down.NWPS is a measurement of the net worth of the company for each share of stock
that has been issued.
(Sources: - Security Research Centre and services)
1.2 Introduction of Himalayan Bank Limited
Himalayan bank limited is a joint venture bank with Habib bank of Pakistan, was
established in 1992ad, under the company act 1964.this is the first joint venture bank
managed by Nepali chief executive officer. The bank had started its operation from
February 1993.
The main objective of the bank is to provide modern banking facilities like banking to
businessman, industrialists and other professionals and to provide for commercial,
agriculture, and industrial sectors. Despite the cut-throat competition in Nepalese
banking sector, Himalayan bank has been able to maintain a lead in the primary
banking activities-loans and deposits.
The bank’s vision
Himalayan bank limited holds of a vision to become a leading bank of the country by
providing premium products and services to the customers, thus ensuring attractive and
sustainable returns to shareholders of the bank.
The bank’s mission
The bank’s mission to become preferred provider of quality financial services in the
country .there are two components in the mission of the bank; preferred provider and
quality financial services; therefore we HBL that the mission will be accomplished only
by the satisfying these two importants.components with the customer at focus.
The bank’s objective
To become the first choice is the main objective of the bank.
1.2.1 Share subscription of HBL
Table no.-1
Share subscription of HBL
Promoter shareholders 51%
Habib Bank, Pakistan 20%
Financial 14%
institutions(employers
provident fund)
Nepalese public 15%
shareholder’s
Total 100%
In the above share subscription of HBL,promoters shareholders own more than 50%of
total shares.Similarly,Habib Bank limited, Pakistan owns 20% total shares, financial
institutions (employee provident fund )own 14% of total shares and 15%of total shares
are owned by Nepalese public shareholders.Therefore,promoters of HBL own the
majority of shares.
1.2.2 Capital structure of Himalayan bank limited
Capital structure of Himalayan bank is as follows:
Authorized capital = Rs.1, 00, 00, 00,000
(Divided into 10000000@Rs.100 each)
Capital = Rs.81, 08, 10,000
(Divided into 8108100@Rs.100 each)
Paid up capital = Rs.81, 08, 10,000
(Divided into 8108100@Rs.100 each)
1.2.3 Services offered by Himalayan Bank Limited
Himalayan bank offers various types services to its valuable customers, which
promotes bank competitiveness, credit worthiness and attraction.
Some services and technologies, which may provide by Himalayan bank limited, are as
follows:-
1) Accepting deposits
-current deposits
-fixed deposits
-saving deposits
2) Granting loan
- Overdraft
- Demand loan
-Time loan
-term loan
3) Transferring funds
4) Premium saving accounting
5) Bills discounts
6) Bank guarantee
7) Issued of honors of travelers cheques
8) Inward and outward remittance
9) Issuance of bank draft and bankers cheques
10) ATM, debit card, credit card facilities
11) Inter banking services
12) Any branch banking system (ABBS)
The bank is the first joint venture bank managed by Nepalese chief executive. Its head
office is based in the capital city of the country, Kathmandu in “Karmachari Sanchaya
Kosh Building”Thamel, Ktm.it has 26 branches out of which 910 are in Katmandu
valley and remaining 17 branches are outside the valet spread in the main cities of the
country. The bank adopting modern technologies such as computer system in each
branch, credit card, master card and visa international card etc.recently this bank has an
agreement with Smart Choice Technology Pvt. Ltd. for expanding ATM network in
Katmandu valley
1.3 Introduction of Nepal Bangladesh bank limited
Nepal Bangladesh bank was established in 1994 with an authorized capital Rs.240
million and paid up capital Rs.60 million as a joint venture with IFIC Bank Ltd.It has
head office situated at Baneshwor Katmandu .the prime objective of this bank is to
render banking sources to different sector, small entrepreneurs and the weaker society
of society and every people who need banking services .during the period of 15 years of
its operation .it has accommodated a large number of clients and has been able to
provide excellent services to its clients. Bank has a network of 18 branches.
The bank has earned the glory of making available the services almost all the top
business houses of the leading, positions among the joint ventures in Nepal, the bank is
still purshing to accommodate as many clients as far as possible.
The exporters and importers of the country have established banking relationship with
the bank and sub stainable volume of foreign business which has enhanced the bank’s
popularity in the international trade front. Bank has developed agency and
correspondent relationship with more than 200 prominent foreign banks in the world.
This is the first only bank entrusted by the World Bank and government of Nepal to be
the Power Development Fund (PDF) administrator for the development of small and
middle level of the hydropower projects in the country. The bank is the first joint
venture bank, the government revenue transactions in the country.Tatopani branch is
solely dealing with the government revenue account of Tatopani revenue office.
The bank’s vision
NB banks holds a vision to become a leading bank of the country by providing
premium products and services to the customers, thus ensuring attractive and
substantial returns to the stakeholders of the banks.
The bank’s mission
The bank mission is to provide their clients with the help of a skilled and dedicated
workforce whose creative talents, innovative actions and competitive edge make unique
position in giving quality services to all institutions and individuals.
The bank’s objective
To become a legend and first selection bank is the objective of the bank.
1.3.1 Share subscription of Nepal Bangladesh bank limited
Table no.:-2
Share subscription of NB Bank
Promoter shareholders 51%
IFIC Bank, Pakistan 20%
Financial institutions(employers 14%
provident fund)
Nepalese public shareholder’s 15%
Total 100%
This ratio shows the ability of banks funds to meet their deposits. Dividing cash and
bank balance calculate this ratio by total deposit. High ratio shows the good liquidity
position. the ratio of HBL from 060/2061 to 2064/2065 is 8.19,6.79,9.42,9.09 and 8.12
and NB Bank is 7.18,9.62,9.99,10.53 and 10.01.by looking at the above table one can
say that the NB Bank is in good liquidity position because of higher cash and bank
balance to total deposit ratio.
Figure no.-9
Presentation of cash and bank balance to total deposit ratio in
Line diagram
This ratio is calculated by dividing total debt by total assets. A high ratio shows the
contribution of creditor in financing the assets of bank. this ratio shows that both banks
have comparatively equale.The ratio of HBL are 93.89,92.96,92.12,91.09 and 91.1
likes this the ratio of NB Bank are 92,91.12,90.3,89.29,89.3.both banks have
proportion of assets investing by debt but Himalayan bank has more risk in relation to
NB bank due to higher debt ratio.
Figure no.-10
Presentation of total debt ratio in line diagram
66 Profitability ratio
Profit is the difference between revenue and expenses. A profit is necessary for the
survival of the company and also meets the expectation of shareholders. It is the
measure of the performance of any business, heather it is doing well or not. It is
calculated to measure the operating efficiency of the firm. Profitability ratio shows the
combined effects of liquidity management and debt management on operating result.
Major types of profitability ratio are as under:
67 Return on total assets
This ratio measures the profitability of all invested in the firm’s assets. This ratio
provides the necessary foundation for a company to deliver a good return on equity. A
company with out a good return on total assets finds it almost impossible to generate a
satisfactory ROE. In this study ROA is computed to measure the profitability of all the
financial resources in bank assets and calculated be applying the following formula;
Return on total assets=net profit/total assets
Table no.-8
Net profit of total assets ratio
(In million Rs.)
Banks Himalayan bank Nepal Bangladesh bank
year Net Total Rati Net Total Rati
profit assets o profit assets o
(%) (%)
2060/20 2,77,039 1,95,00,572 1.4207 2,82,579.7 1,96,95,578 1.4347
61 8
2061/20 2,35,023 2,13,15,848 1.1026 2,39,723.4 2,15,29,006 1.1135
62 6
2062/20 2,12,132 2,41,97,974 0.8767 2,16,374.6 2,44,39,954 0.8853
63 4
2063/20 2,63,052 2,57,29,787 1.0240 2,68,313.0 2,55,98,085 1.0485
64 4
2064/20 3,08,277 2,88,71,343 1.0678 3,14,442.5 2,91,60,056 1.0783
65 4
Return on total assets is obtained by dividing net income after tax by total assets. This
ratio measures the efficiency of bank in utilization of overall assets. High ratio indicates
the success of management in overall operation all low ratio means inefficient
operation of bank. these ratios of HBL of 5 years 1.42,1.1,0.87,1.0024 & 1.0678 in
percentage same as NB bank are 1.43,1.11,.89,1.03 &1.08. From the above table one
can tell that RoA of NB bank is good because it has higher RoA.
Figure no.-12
Presentation of net profit to total asset ratio in line diagram
Return on net worth of HBL are 23.12,15.65,11.13,11.48 &12.like the above ratio of
NB bank are 22.90,15.50,11.02,11.37&11.89.comparing both banks HBL has greater
profitability on net worth than NB bank due to higher ratio.
Figure no.-13
Presentation of net profit to net worth ratio in line diagram
The earning per share of HBL are 92.34,6.26,49.44,49.05&47.906 for the fiscal year
2060/2061 to 2064/2065 and of NB bank are 85.63,55.879,45.85,45.49 &44.42.from
the above table we can see the EPS of HBL’s is good because it has higher EPS.it is
enough to attract the investor.
Figure no-15
Presentation of earning per share in line diagram
The dividend per share of HBL is 7.50,25,1.3159,0 &11.597.for the fiscal year
2060/2061 to2064/2065 & NB bank are 10.28,10.62,15.13,3.96 &5.77.from the table
we can say that HBL paid higher dividend for the fiscal year 2061/2062 &2064/2065
&NB bank paid more dividend for remaining fiscal years.so,we can say that both banks
have satisfactory DPS
Figure no.-16
74 Findings
The current ratios of both banks are less than the generally accepted standard of
2:1.however the current ratio never falls below the ratio 2:1. So, current ratios of both
banks have satisfactory. But the current ratio of Nepal Bangladesh bank is higher so it
has stronger liquidity position.
75 Cash and bank balance to total deposit of NB bank is higher than that of Himalayan
bank which is not good because higher liquidity position shows the greater amount
of idle money, which cannot generate the revenue.
76 Both bank’s proportion of total debt is very high in overall assets. The higher debt
generates the higher EPS, which is quite good but from the view point of
organization, both banks are in risk.
77 Return on total assets of NB bank is slightly higher than that of HBL, which also
shows that the both banks are earning equal profit ratio.
78 The return on net worth of both banks are almost equal where as return on total
capital of HBL is higher than NB bank, it shows that the profitability rate of HBL is
good due to sound performance.
79 EPS of HBL is higher than NB bank where as DPS of is higher than HBL.both the
banks have regularity in the payment of dividend but NB pays more amount of
dividend than HBL bank.
80 The no. of outstanding shares of HBL is increasing every year to minimize the risk
that is caused by the high amount of debt.
CHAPTER-4
Summary, conclusion and recommendation
81 Summary
In the last two decades, the financial scenario of Nepal has dramatically changed. The
vast development industrial sector or due to the presence of different kinds of risk in the
economy brings so many banking institutions from private as well as public sector in
Nepal. The first banking of Nepal, Nepal bank limited from government sector was
established in 1994.
Presently 27 commercial banks are in operation in the country, among 24 banks are
listed in NEPSE.out of 27 commercial banks, two joint ventures are selected as the
sample banks for this thesis work. The objectives, functions, policies and strategies of
joint ventures banks have been emphasized and the performances of the two sample
banks have been analyzed. The main purpose of selecting these two banks is, they have
been offering all kinds of available facilities available in banking sectors in the country.
The study is mainly based on the secondary data publicly available in the NEPSE data
base and the annual report of respective banks. for the study, the five year’s data of the
banks have been pooled starting from FY 2060/2061 to 2064/2065.the collected data of
the banks for the study purpose are thoroughly processed, tabulated for the required
format; different measures of the data have been calculated using different statistical
tools and financial tools with the best effort.
82 Conclusion
While going through the study, it is found that both banks have sound performance but
Nepal Bangladesh bank has more sound performance than Himalayan bank. All the
debt management ratio and profitability ratio of Nepal Bangladesh bank are slightly
better than of Himalayan bank ltd. Liquidity ratio of both banks is not so good.
At last, from the study of NB bank and Himalayan bank, we can conclude that the
banks are performing their business with the fast success in Nepal. However liquidity
ratio and debt ratio of NB bank is higher. But when we take in to consideration EPS
and DPS, the Himalayn bank has higher EPS but lower DPS.So, Himalayan bank is
better in terms of EPS but Nepal Bangladesh bank is better in terms of DPS.
83 Recommendation
Based on the analysis conducted on previous chapters, some shorts are found. Thus,
following recommendations could be possibly helpful to improve their future financial
performance.
84 Profit is essential for the survival and growth of banks. As per the findings, profits
of both of the sampled banks are not at satisfactory level.therefore, they are
suggested to generate higher profit for the survival and growth of the firm.
85 Investors of any firm are always fascinating towards the EPS and DPS of the firm.
Here is the observed that the EPS and DPS of Himalayan bank are quite
low.therefore, the bank should think to improve these financial indicators so that it
could convey the right message in the market.
86 In order to be able to pay the liabilities both the banks should have to increase their
current assets by investing in marketable securities because their current ratios are
less than the conventional standard 2.1.
87 In both banks the proportion of total debt is very high in their overall assets. It will
be riskier. The proportion of total debt must be reduced. If not possible, they should
increase their share in order to rescues from their risk.
88 Cash and bank balance to total deposit ratios or Nepal Bangladesh bank is much
higher than its necessity. So it should its cash and bank balance and should invest
them in to earning assets to increase income.