ACKOWLEGEMENT

This study attempts to examine the financial performance of NIC ASIA bank with
special reference to solvency liquidity and profitability ratio with available data and
information. It also deals with problem identification besides this field study to
acquire the reality of banking operation of NIC Asia .For easier study the data has
been presented by tables graphs and have bee interpreted using various statistical
methods .This reports tries to focus on the study of NIC Asia only.
I epress my heartiest gratitude to Sagar Thapa and Bhanu Pokheral (our finance and
research teacher)for guiding and inspiring me to do this fieldwork.
Finally I would also like to express my gratitude to the Branch Manager NIC Asia
Pulchowk Branch Mrs Merina Dongol and all the staffs including Customer Service
Department who have kindly co-operated and supported me directly or indirectly in
all possible ways

Amara Shakya
BBS 4th year
Laligurans Rastriya College

1 BACKGROUND
1.1

Meaning of bank

The word bank has been derived from Latin word Bancus Italian word Banka or
French word Banque all giving same meaning i.e Bench.It is because people used to
perform monetary transaction by sitting on the bench at earlier times .According to
Oxford Dictionary bank means an establishment for keeping money and valuable
safety for the money being paid out on the customer order by the means of
cheque.
Bank is a institution which is established to perform monetary transaction.It is
monetary institution which accepts deposit from public and other institutions as
deposits by giving them certain percent as return and distributes the collected
deposits to those who are in need of money by charging certain percent interest per
annum.The basic function of bank is to collect deposit and grant loan.
Bank acts as intermediaries channeling saving investment and consumption.
Through them bank fulfills the investment requirement of saver with the end it

needs of investors. In this way banks plays an imperative role in our economy by
providing effective service efficiently towards the attaintment of economic
development.

The bank has been defined by different economist and professors in many
ways.Some of important definitions of bank are as following:
According to Prof. Kinley,Bank is an establishments ,which wakes to individuals such
as advances of money as may be required and safety made to and to which
individuals entrust money when and required them for us.
According to Scholars Bank is defined as factory of money for credit where does not
purchase goods and sell it rather produces credit in form of deposit and sells it in
form of loans.
Hence, bank is a financial service institution especially concentrating on credit ,
savings and payment services and performing the widest range of financial
functions of any business firm in the economy . The major activities performed by
typical modern bank are accepting deposits , granting loans, exchange of foreign
currency, transfer of funds, credit creation, and functioning as an agent to customer.
1.2

HISTORY AND ORIGIN OF THE BANK

Bank existed since a long time back during ancient times. The first banks were
probably the religious temples of the ancient world, and were probably established
sometime during the third millennium B.C.Banks probably predated the invention of
money. Deposits initially consisted of grains and later other goods including cattle,
agricultural implements, and eventually precious metals such as gold, in form of
easy to carry compressed plates. There are extant records of loans from the 18 th
century BC . In Babylon that were made by temple priest /monks to merchants.
In ancient Greece the famous temples of Delphi and Olympia served as the great
spot for people having surplus fund to deposit their money and there were also
centre for money lending transactions. In England , banking and its origin can be
started with goldsmith who adopt the valuable thing of the public for the safe
keeping at certain commission(interest) and to be returned to those, the depositor
wished. The fourth century B.C saw increased use of credit based banking in the
Mediterranean world. In Egypt, from early times, grain had been used as a form of
money in addition to precious metals, and state granaries functioned as banks.
When Egypt fell under the rule of a Greek dynasty, the ptolemies (332-330 B.C), and
the numerous scattered government granaries were transformed into a network of
grain banks, centralized in Alexandria where the main accounts from the entire
state granary banks were recorded. This banking network functioned as a trade

credit system in which payments were affected by transfer from one account to
another without money passing.
According to Crowther , modern banking has three ancestors:a)The Merchant,
b)The Money Lender and
c)The Goldsmith
The oldest ancestor known as The Merchants used to exchange the gold , silver and
deposited the valuable ornament or goods made of gold, silver and gems.
The second ancestor are The Money Lenders. Lending and borrowing are almost as
old as money itself and the village money lender is found even in quite primitive
communities.
The third ancestor The Goldsmiths are taken as the father of the modern banks.
They used to give receipts which were known as Goldsmith s note. It was made
payable to bearer and on demand which transformed the said receipt into the
position of a bank note. These notes with passage of time become payable to
bearer on demand and enjoyed circulation.
INTRODUCTION OF NIC ASIA BANK
PROFILE
NIC ASIA Bank has its antecedents in NIC Bank which was established on 21 st? July 1998. The Bank
was rechristened as NIC ASIA Bank after the merger of NIC Bank with Bank of Asia Nepal on 30th
June 2013. This was a historic merger in the annals of Nepalese financial landscape as the first of its
kind merger between two successful commercial banks in the country. Today, NIC ASIA has
established itself as one of the most successful commercial bank in Nepal.
During the post-merger integration phase, NIC ASIA managed the transition very smoothly receiving
accolades from the regulators as well as the stakeholders, paving the way for other mergers and
consolidation in the Nepalese financial sector. After the merger, NIC ASIA was recognized as Bank
of the Year 2013-Nepal by The Banker, Financial Times, UK. This is the second time that the Bank
was recognized with this prestigious award, the previous occasion being in 2007.
NIC ASIA Bank is now, one of the largest private sector commercial banks in the country in terms of
capital base, balance-sheet size, number of branches, ATM network and customer base. The Bank
has 79 branches and 69 ATM across Nepal with a network covering all major financial centers of the
country. The Bank strongly believes in meritocracy transparency, professionalism, team spirit
and service excellence. These core values are internalized by all functions within the Bank and are
reflected in all actions the Bank takes during the course of its business.
Vision

a) To become one of the most respectable banks in Nepal based on honorable conduct and
long-term financial performance.
b) To integrate frontiers of technology and servicing the various segments of society.
c) To evolve and position the bank as a progressive, cost effective and customer friendly
institute.
d) To be excellence in serving the public and also in corporate values.
Mission
a)
To become a leading bank in Nepal by providing complete financial solutions to our
customers, superior value to our shareholders and promising growth opportunities to our
employees.

MANAGEMENT COMMITTEE

Mr. Laxman Risal

Chief Executive Officer

Mr. Bimal Daga

Deputy General Manager

Mr. Sujit Kumar Shakya

Mr. Prabin Basnet

Chief Credit Officer

Head Retail Banking

Mr. Roshan Kumar Neupane

Chief Risk Officer

Mr. Sudhir Pandey

Chief Operation Officer and Head Human Resource

Mr. Bhanu B. Dabadi

Head Corporate Communication and Branding

Mr. Binay Dahal

Head-Small & Medium enterprises (SME)

Ms. Shilu Aryal Head -Deposit and Transaction Banking

Mr. Dinesh Bhari

Head -Legal & Corporate Affairs

Ms. Nina Tamang

Head Service Excellence

Mr. Arjun Raj Khaniya Head-Loan Recovery

Mr. Dipak Dhakal

Head Internal Audit

Mr. Bishal Sigdel

Manager Finance

Board of Directors

The Directors of the Bank are eminent personalities with vast experience in business and the
financial sector. The Board of Directors is fully committed to a high standard of corporate
governance, which among others encompasses the principles of full disclosure and transparency,
social responsibility and accountability, "zero tolerance" compliance culture, business and customer
confidentiality, intolerance of conflict of interests, and an independent management. The Board
comprises of the following directors:

Mr. Jagadish Prasad Agrawal Chairman

Mr. Trilok Chand Agrawal

Director

Mr. Tulsi Ram Agrawal Director

Mr. Ramchandra Sanghai
Mr. Rajendra Aryal

Director

Director

Mr. Govind Lal Sanghai

Director

Mr. Binod Kumar Pyakurel

Director

Bank services provided by NIC ASIA

1. Accepting Deposits
NIC ASIA accepts deposits from the customer through various deposits schemes under
different account headings. Some of the accounts facility provided by NIC ASIA is:
Sulav Bachat
Nari Bachat
Swalambhi Nari Bachat
Life saving
Share Suvida Bachat
Current account
Litter star account
Krishak Sambridi
Karmasil Bachat
Fixed deposits
2. Providing loan
NIC ASIA provides Customer friendly service on providing loans under various headings
such as:

3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

Home Loan
Auto Loan
Loan against share
Loan against fixed de[posit
Gold loan
Bank Guarantee
Safe deposit locker
Automated Teller Machine (ATM)
Any branch banking service
Remit
Debit Card
Credit Card
Balance Certificate
Letter of Credit (LC)
Balance statement
SMS Banking
Internet banking
Exchange of foreign currency
Clearing
USD Account
Bill payment of college,

STRATEGIES AND FUTURE PLANS OF THE NIC ASIA

NIC ASIA.s mission is to be the Bank of the first choice to attain the goal to be the Bank of
the first choice, bank is concerting into the service of its customers and social issues. So
Nepal investment is the customer focus and goal oriented.

NIC ASIAs strategies and future plans:

To develop a customer oriented service culture with special emphasis on customer care
and convenience
To increase its market share by following a disciplined growth strategy.
To leverage its technology platform and pen scalable system to achieve cost effective
operation, efficient MIS, improved delivery capability and high service standards.
To develop innovative products and service that attracts its targets customer and market
segments
To continue to develop products and service that reduces its cost of funds.

 To maintain a high quality assets portfolio to achieve strong and sustainable returns and
to continuously build share holders value.

STATEMENT OF THE PROBLEMS:

Liquidity is the status and part of the assets which can be used to meet
the obligation. Liquidity can be viewed in term of liquidity stored in the balance
sheet and in term of liquidity available through purchased fund. The degree of
liquidity depends upon the relationship between cash assets plus those assets
which can be quickly turned into cash and liability awaiting payments.
Bank needs to maintenance some seasonable level of liquidity to fulfill
different commitments such as provide money to depositors when they demand
for administrative expenses, for maintaining cash reserve ratio in the central bank
etc. so, liquidity is defined as the banks capacity to pay cash in exchange of
deposits. Liquidity is crucial in the business like banking. Because if the bank has
the high liquidity it can no on a desired profit and if the bank has the shortfall of
the liquidity it can not satisfy its customers. Inadequate liquidity may lead to
collapse of the bank while excess liquidity is determinant to banks profitability in
order to remove demerits associated with maintaining inadequate and excess
liquidity, bank should maintained and optimum level of liquidity. This possible only
when banks liquidity needs is correctly predicted. Prediction covers inflows and
outflows of liquidity. If prediction shows more outflows, bank should be prepared
to cover the shortfall by borrowing or by liquidating assets. If inflow is greater
than outflows, bank should plan where to invest so that income can be increase.
Banks attach great importance short terms and long terms predictions. Prediction
of liquidity need should be in the form of primary and secondary reserve so that
bank generates income and at the same time does not compromise to liquidity.
Banks got failure because of wrongly analyzed liquidity position and wrongly
predicated liquidity requirement and management policy of liquidity. Thus to gain
the trust of the customers and be success on the operation, the bank should
maintain and forecast the liquidity need for the period and optimum level of
liquidity based on past liquidity position.
OBJECTIVES THE STUDY:

The main objective of the study is to analyze the NIC ASIA banks
liquidity position. Based on the analyzed liquidity position, the study will suggest
the liquidity need and its management for the current year.
Other objectives can be listed below:
To check the liquidity position of the NIC ASIA BANK
To analyze the financial performance
To check the NIC ASIA banks profitability
To suggest the amount of the optimum level of liquidity
To suggest the liquidity management policies
To fulfill the partial requirement of T.U. (department of management) for the
degree of bachelor of business study.
SIGNIFICANCE OF THE DTUDY:
This report is prepared to analyze the liquidity position of NIC ASIA
bank. This report comprises the date from 2015 to 2016 This would help the bank
to observe the trend of the liquidity position hold in those periods. Besides that,
this study also evaluates the role of short term obligation and the bank ability to
pay the currently maturity obligation. Moreover, the study will check the
profitability of the bank. This will help the bank to take the corrective actions if
there are any errors on the past performance and the study aims to recommend
correcting the division if the standard has not been met.
1.9. LIMITATION OF THE STUDY
This study is simply conducted for the partial fulfillment of the
requirement for the degree of the bachelor in business studies (BBS). And only
the secondary data is used and analyzed which could not disclose the actual
result. And being the first endeavor, the report can comprise some mistakes
which may cause to misinterpretation of the results.
i.
ii.
iii.
iv.

Though, there are lots of commercial bank ,it only study NIC ASIA BANK
Only five years observation covering from fiscal year 2005/2006 to 2009/2010
is analyzed.
Analysis is based on the ratio and trend lines of the corresponding ratios only.
For the forecast of the liquidity requirement, daily and monthly data is needed

v. Being a student resource and time constraints.

vi. Limited variable has been selected.
vii. Simple techniques has been used in analysis.
viii. The qualitative factors such as growth and expansions policy of bank quality and
general economic conditions have not been studied.

a)
b)
c)
d)
e)
f)

SCOPE AND IMPORTANCE OF THE STUDY:

This study will be useable and valuable to the various parties, which
can be mentioned as follow:
To the investors
To the creditors
To management of the bank
To the customers
To the other parties
And this study will be equally useful to the other readers, students of
related subjects and other people who are concern with banking field

CHAPTER TWO

Review of Literature
This chapter deals with the theoretical aspects of the topic of
financial analysis of Nepal investment bank Ltd. in more detail and descriptive
manner. For this study, journals, articles, and some research reports related with
this topic have been reviewed. This study has to refer almost all books related
with this topic published. Some of the prior reports by students of BBS regarding
this topic have also been reviewed.

2.1. Conceptual framework:

One of the sensitive factor or element in the bank is liquidity. Liquidity
refers to the convertibility assets into cash. It means how fast the assets can be
change into cash. There are many assets which are easily converted into cash
by the bank. Such as cash in hand, cash at bank, cash at central bank,
investment in government securities. But some assets are difficult to get
converted into cash such as loan and fixed assets.
Liquidity is also defined as the position or capability of a bank to meet the
current obligation of customers such as payment of cheque. Payment of demand
drafts, disbursement of approved loan etc. Bank needs to maintain some
reasonable level of liquidity to fulfill different commitments such as provide
money to depositors when they demand for administrative expenses, for
maintaining cash banks capacity to pay cash in exchange of deposits. Liquidity
is crucial in the business like banking. Because if the bank has high liquidity, it
can no earn a desire profit and if the bank has the shortfall of the liquidity it
cannot satisfy its customers. Inadequate liquidity may lead to collapse of the
banks while excess liquidity is detrimental to banks profitability. In order to
remove demerits associated with maintaining inadequate and excess liquidity,
banks should maintain an optimum level of liquidity. This possible only when
banks liquidity needs is correctly predicted. Prediction covers in present outflows
of liquidity. If prediction shows more outflows, bank should be prepared to cover
the shortfall by borrowing or by liquidating assets. If inflow greater than outflow,
bank should plan where to invest so that income can be increase. Banks attach
great importance short term and long term predictions. Prediction of liquidity
need should be in the firm of primary and secondary reserves so that bank
generates income and at the same time does not compromise to liquidity.
2.1.1. Liquidity assets: the assets which can be converted into cash
immediately with or without a nominal loss of value. Liquidity can be in the firm of
treasury bills, investments in government securities, gold and silvers, inventories
and marketable securities etc.

2.1.2. Cash reserve Ratio (CRR): Central banks the world over make banks
maintains the certain level of liquidity to total deposit liabilities in the form of the
cash and bank balance. This ratio is known as the cash reserve ratio or primary
reserve.
2.1.3. Statutory liquidity ratio (SLR): Central bank orders to the banks to
maintain the certain level of liquidity to total deposit liabilities in the form of the
cash and bank
11
balance and treasury bills and government securities and bonds. Such liquidity
requirement is called the statutory liquidity ratio.
2.1.4. Importance of liquidity for the bank: The liquidity is important for the
bank for the motives cited as follow:
Transaction motive
Speculative motive
Precautionary motive
2.1.5. Need of liquidity for the bank:
a) To meet the expenses for the banks administrative works
b) To pay all sorts of deposit on demand
c) To repay the dept
d) To gain trust or faith
e) To provide the security to the bank
2.1.6. Demand for the liquidity:
Withdrawal of customer deposit
Acceptable loan request
Repayment of non-deposit borrowing
Payment of interest on deposit
Payment of dividends
Expansion and growth
Miscellaneous liabilities

2.1.7. Supply of bank liquidity:

Capital issue
Retained earning
Borrowings
Bond issue
Repayments of loans
Other incomes

i.
ii.

2.1.8. Criteria of the measuring the bank liquidity:

Criteria of measuring of the bank liquidity denotes
attributes required being bank liquidity
compliance test of liquidity requirement
In words criteria area bank liquidity refers to:
What conditions the assets have to meet to be bank liquidity?
Whether CRR and SLR have been maintained as per instruction of the central
bank?
2.1.9. Liquidity to be maintained with the central bank:
Nepal Rastra Bank, as the central bank of Nepal, had made it mandatory
for commercial bankers to maintain liquidity as under:
12
Balance at Nepal Rastra bank 7% current and saving deposit
liabilities. 4.5% of fixed deposit liabilities.
Cash in vault 2 % of deposit liabilities

2.1.10. Penalty for non-compliance:

Penalty will be levied for failing to maintain the adequate liquidity as
above under any of the following conditions:
1) In the case of shortfall in maintenance of balance with Nepal Rastra bank but
maintenance of cash at vault more than 2%, then on such shortfall amount.

2) In the case shortfall in maintenance of balance with Nepal Rastra bank but
maintenance of cash at vault more than 2%, up to 1% excess cash of total
deposit is added in the balance with NRB, than on such shortfall amount (after
adding up to 1% excess)
3) In the case of shortfall in maintenance of cash in vault as well as shortfall in
balance held with Nepal Rastra bank, than on total shortfall amount.
2.1.11. Applicable penalty rates:
1. first time shortfall
2. for second time shortfall
3.for third time shortfall and all
subsequent shortfalls

Equivalent to bank rate/highest

refinance (currently 5.5%)
Equivalent to 2 times of bank rate
Equivalent to 3 times of bank rate.

The penalty is imposed on the shortfall amount on weekly basis.

2.1.12. Composition:
a. Total deposit means current, saving and fixed deposit account as well
as call money deposit and certificate of deposit. For the purpose,
deposits held in convertible foreign currency, employees guarantee
amount and margin account will not be included.
b. Fixed deposit means a deposit in local currency accepted under the
condition to repay on completion so stipulated time period.
c. Current and saving deposit means all deposit accounts other than the
fixed deposits.
d. Cash in vault shall include only the local currency and foreign currency
(except clearing cheque etc.)
e. Balance held with Nepal rastra bank in ordinary account only will be
eligible for liquidity calculation. Special accounts opened with Nepal

rastra bank for specific purpose and foreign currency designated

accounts will not be included for the purpose.
f.For the purpose of liquidity examination, all branches of the bank shall
constitute one unit.

a.
b.
c.
d.
e.
f.

2.1.13. Basis for liquidity requirement prediction:

Maturity of deposits
g. seasonal need of liquidity
Maturity of borrowings
h capital purchases
Maturity of placement
i. central banks requirements
Maturity of bill payment
j market situation
Repayment of the debt.
k bonus to the staffs
Letter of credit outstanding

2.1.14. Review from related studies:

Bank needs to maintain some reasonable amount of liquidity to fulfill
different commitments. Such as provide money to depositors when they demand
for administrative expenses, for maintaining cash reserve ratio in the central bank
etc. so, liquidity is define banks capacity to pay cash in exchange of deposits.
Liquidity needs of commercial banks are unique because in no other types of
business there will be such large portion of deposits payable on demand.
Inadequate liquidity does damage credits standing of other organization as well
but a banks fails to pay the deposits on demands, the bank loose the faith of the
public. Bank may maintain the liquidity in the form of :
Cash and bank balance

Placement money at short calls or short notice

Investments in gov. securities and other securities convertible into cash
International federation of accountants has recommended the measuring the
liquidity of bank by:
Cash and liquid securities
Interbank money deposit liabilities

Liquidity of the bank should be maintained according to standard; excel

liquidity as well as lack of the liquidity indicates that a bank is serious financial
problems. The implication of the financial problem results losing of deposits,
which erodes its supply of cash and forces the institutions to dispose of its safer
and more liquid assets. On the other hand, other banks that are strong in liquidity
will be increasingly reluctant to lend the problem bank liquid funds at higher
interest rates. Thus, we can say that it is optimism necessity of the bank to
maintain a proper balance between high liquidity and low liquidity.
The tools used for analysis are:
Cash and bank balance to total deposit ratio
Current deposit to total deposit ratio
Saving deposit to total deposit ratio
Investment to total deposit ratio
And fund fluctuation trend line