Financial
Performance Of Kumari Bank
A Project Work Report
Submitted by:
……….
Shanker
Dev Campus
T.U
Regd. No.
Exam
Roll No.:
Group:
Finance
Campus
Roll No.:
Registered
No.:
Submitted to
The Faculty of Management
Tribhuvan
University
Kathmandu
In Partial Fulfillment of the
Requirements for the Degree of
BACHELOR OF BUSINESS STUDIES (B.B.S)
Kathmandu
April
2018
DECLARATION
I
hereby declare that the project work entitled “FINANCIAL PERFORMANCE OF KUMARI
BANK” submitted to the Faculty of Management, Tribhuvan University, Kathmandu
is an original piece of work under the supervision of Mr. ………………… , faculty
member, SHANKER DEV CAMPUS, KATHMANDU and is submitted in partial fulfillment
of the requirement for the award of the degree of Bachelor of Business Studies
(B.B.S.). This project work report has not been submitted to any other
university of institution for the award of any degree of diploma.
…………………
………
Date:
April, 2018
SUPERVISOR’S
RECOMMENDATION
The
project work report entitled “FINANCIAL PERFORMANCE OF KUMARI BANK” submitted
by …….. of SHANKER DEV CAMPUS; KATHMANDU is prepared under my supervision as
per the procedure and format requirement laid by the Faculty of Management,
Tribhuvan University, as partial fulfillment of the requirements for the award
of the degree of Bachelor of Business Studies (B.B.S.). I, therefore, recommend
the project work report for evaluation.
………………….
………………….
SHANKER
DEV CAMPUS, KATHMANDU
April,2018
ENDORSEMENT
We hereby endorse the
project work report entitled “FINANCIAL PERFORMANCE OF KUMARI BANK” submitted
by …….. OF SHANKER DEV CAMPUS, KATHMANDU, in partial fulfillment of the
requirements for the award of the Bachelor of Business Studies (B.B.S.) for
external evaluation.
Signature Signature
………………… ……………………
Asso.Prof.
Krishna Prasad Acharya
Management
Research Committee
Campus Chief
Shanker
Dev Campus
Shanker Dev Campus
April 2018
April, 2018
ABSTRACT
This report is the partial fulfillment of
the Bachelor of Business Studies on the fourth year program which is originally
designed by T.U. Board in various areas. The researcher has prepared the field
work report on FINANCIAL PERFORMANCE OF KUMARI BANK LIMITD. This study aims to
investigate the financial performance of
Kumari bank limited.
Financial performance is a subjective measure of
how well a firm can use assets from its primary mode of business and generate
revenues. This term is also used as a general measure of a firm's overall financial health over a given period of time, and can be
used to compare similar firms across the same industry or to compare industries
or sectors in aggregation.
ACKNOWLEDGEMENT
I
am very much grateful to the Tribhuvan University authorities to include this
Field Work Programme in the syllabus of B.B.S. 4th year, which, I
think is very much helpful in developing practical knowledge of the students.
I
extend my special gratitude to our teacher Asso. Prof. Arun Neupane instructor
to this project of Shanker Dev Campus for inspiring me to take up this project
and for his valuable guidance and constructive suggestions in the preparation
of Project report.
Lastly,
my extend sincere thanks goes to all my friends and family whose ongoing
stimulation makes me energetic to prepare this project report. They have keenly
assisted me to bring the best result.
…Your
name>>>
B.B.S.
4th Year
TABLE OF CONTENT
Title Page i
Declaration ii
Supervisor’s
Recommendation iii
Endorsement iv
Abstract v
Acknowledgement vi
List of Table vii
Page
No.
CHAPTER I: INTRODUCTION
Background
of the Study
Introduction
to Kumari Bank Limited
Objectives
of the Study
Methods
of the Study
Data
Analysis
Review
of Literature
Limitations
of the Study
CHAPTER II: Results and Analysis
Data
presentation and Analysis
CHAPTER III: Summary and Conclusions
LISTS OF TABLES
Table 2:
Cash & Bank Balance to Total Deposit Ratio
Table 3:
Cash and Bank Balance to Current Deposit Ratio
Table 4:
Cash and Bank Balance Assets Ratios
Table 5:
Loans and Advances to Total Deposit Ratio
Table 6:
Net Profit to Total Assets Ratio
Table 7: Net
Profit Total Deposit Ratio
Table 8:
Return on Shareholder's Equity
Table 11:
Dividend Payout Ratio
Table 12:
Long-term debt to shareholders fund ratio
Table 13:
Total debt to Total Assets ratio
Table 14:
Total Debt to Shareholders Fund Ratio
Table 15:
Interest Coverage Ratio
Table 16:
Total Investment to Total Deposit Ratio
Table 17:
Loan and Advances to Total Deposit Ratio
Table 18:
Non-Performing Loan to Loan & Advances Ratio
Table 19:
Loan loss Provision to Total Loans and Advances Ratio
Table 20: Interest
Expenses to Total Deposit Ratio
Table 21:
Interest Expenses to Total Expenses Ratio
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CHAPTER I: INTRODUCTION |
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The circular flow of money in a modern economy is
maintained smoothly by the national financial machine having now main wheels.
Money Market:
Mainly for short-term Finance to provide working capital to
industry and commerce; and
Capital Market:
Primary for long-term finance to provide block or fixed capital
to business. These two markets work together and are closely inter dependent.
In fact, money market and capital market are the components of one market
called market of credit.
The growth of industries and planned industrialization depends
upon the development of both capital market which satisfies long-term finance
and money market, which fulfills short-term finance. Banks provide both
short-term finance as well long term finance. The development of banking system
is a must for the overall development of the economy of country. Banking system
can be considered as the life blood of the economy. In short banks are
extremely necessary for the healthy and prompt progress of country, its
citizens and the societies it has. Banks create and mobilized the capital,
render several financial service that help boost the domestic and international
trade. Banks exercise considerable influence on the level of economic activity
through their ability to create money in the economy.
Banking system is necessary to offer institutional service of
promotion undertaking, finance & investment for the economy utility
functions performed by banks of great economic significance for the
economy which can influence the course and direction of economic activity
within the economy. The pool together the saving of the community and arrange
of their productive use by providing short as well as long term loans in
different forms necessary for the trade and commerce. They discharge various
functions on behalf of their customers and in turn they paid for services.
Modern commercial banks perform various functions like the
payment of subscriptions, insurance premium, rent etc. and collections of
cheques, bills, salaries, pensions, dividends, interest etc. on behalf of their
customers by charging certain amount of commission for the services. In
addition, they purchase and discount bill of exchange promissory notes and
exchange foreign currency. Further more, commercial banks also arrange to remit
money from a place to another at very low fees by means of cheques, drafts,
SWIFT, etc. They buy and sell shares and securities on behalf of the customers
act as the custodian of the valuable such as jewellery, documents of title to
goods, securities etc. belongings to the customers.
INTRODUCTION TO KUMARI BANK LIMITED
Kumari Bank
Limited, came into existence as the fifteenth
commercial bank of Nepal by starting its banking operations from Chaitra 21,
2057 B.S (April 03, 2001) with an objective of providing competitive and modern
banking services in the Nepalese financial market. The bank has paid up capital
of NPR 2,699,166,532 of which 51% is contributed from promoters and remaining
from public.
Kumari Bank Limited
has been providing wide - range of modern banking services through
38 points of representations located in various urban and semi urban part of
the country, 36 branches outside and inside the valley; and 2 extension
counters. The bank is pioneer in providing some of the latest / lucrative
banking services like E-Banking and SMS Banking services in Nepal. The bank
always focus on building sound technology driven internal system to cater the
changing needs of the customers that enhance high comfort and value. The adoption
of modern Globus Software, developed by Temenos NV, Switzerland and arrangement
of centralized data base system enables customer to make highly secured
transactions in any branch regardless of having account withparticular branch.
Similarly the bank has been providing 365 days banking facilities, extended
banking hours till 7 PM in the evening, Utility Bill Payment Services, Inward
and Outward Remittance services, Online remit Services and various other
banking services.
Visa Electron Debit Card, which is accessible in entire
VISA linked ATMs (including 46 own ATMs) and POS (Point of Sale) terminals both
in Nepal and India, has also added convenience to the customers. The bank has
been able to get recognition as an innovative and fast growing institution
striving to enhance customer value and satisfaction by backing transparent
business practice, professional management, corporate governance and total
quality management as the organizational mission.The key focus of the bank is always center on serving unfulfilled needs
of all classes of customers located in various parts of the country by offering
modern and competitive banking products and services in their door step. The
bank always prioritizes the priorities of the valued customer.
OBJECTIVES OF THE SUDY
The core objective of the study is to analyze the
financial performance of Kumari Bank Limited. The specific objectives of this
research study are as follows:
(a) To evaluate the financial performance of Kumari
Bank Limited.
(b) To identify the profitability position of the
bank.
(c) To identify the liquidity turnover efficiency of
assets management.
METHOD OF THE STUDY
Method of the study refers to the various segmental steps
along with the rationale of each step to be adopted by a researcher in studying
a problem with certain objectives in view. In other words, mehod describes the process
applied in the entire aspects of the study.
The basic objectives of this study are to analyze the financial performance of
Kumari Bank Limited. An appropriate method has to be followed to achieve the
desired objectives of the study. It would be appropriate to mention here that
research study is not meaningful to any unless they are sequential in order
which will be determined by the particular problem at hand. This project
focuses and deals with the following parts of methods.
DATA COLLECTION
The annual report of Kumar Bank Limited was obtained from the
Bank itself. Moreover, monthly and economic bulletin banking and financial
statistics, economic report etc. have been collected.The data collection of
primary and secondary sources.
DATA ANALYSIS
The following tools are used to analyze the data presented in
the study.
RATIO ANALYSIS
A ratio is simply one number expressed in terms of another and
on such it express the quantitative relationship between any two numbers. Ratio
can be expressed in terms of percentage, proportion and as a coefficient.
LIQUIDITY RATIO
Liquidity
ratios are used measure a firm's ability to meet short-terms obligations. They
compare short terms obligations to short-term (current) resources available to
meet these obligations. From these ratios, much insight can be obtained into
the present cash solvency of the firm and the firm's ability to remain solvent
in the event of the adversity.
The
following ratios are evaluated under liquidity ratio:
·
Current
Ratio
-
CURRENT RATIO
It measures the short-term solvency position of firm by the
current assets. It is derived by dividing current assets by current
liabilities as follows:
Current Ratio = Current
Asset
Current Liabilities
Current assets are those assets that can be converted into cash
within a year, such as cash & Bank balance, Investment, Debtors,
Inventories, Prepaid expenses, Money at call and short notice, Overdrafts etc.
Higher current ratio
indicates better liquidity position and 2:1 or more is considered satisfactory.
But all times this standard cannot be followed blindly; it depends upon quality
of assets.
CASH AND BANK BALANCE TO CURRENT DEPOSIT RATIO
This ratio measures the ability of bank's current assets
to fulfills the current deposit. High levels of liquidity is not good as idle
assets earn nothing. This ratio is calculated as under:
Cash and Bank balance to Current Deposit ratio =
CASH AND BANK BALANCE TO TOTAL DEPOSIT RATIO
This ratio shows the percentage of liquid assets held on
compared to the total deposit. High ratio shows the strong liquidity position
of the bank. But very high ratio is not favorable for the bank, as it does not
produce appropriate profit to bear the high interest.
The total deposit consists of current deposit, savings deposit,
fixed deposit, money at call and short notice and other deposits. This ratio is
calculated as:
Cash & Bank balance to Total Deposit Ratio
=
CASH & BANK BALANCE TO CURRENT ASSETS RATIO
Cash & Bank balance is the most liquid form of current
assets. This ratio measures the proportion of cash and bank balance held by the
bank. Current assets includes: Cash & Bank balance, Money at call and short
notice, Loans and Advances including, Bill discounted and Purchased,
Investments in government securities and other securities, Interests receivable
and miscellaneous current assets shown under used head other assets.
The ratio is calculated as follows =
LOAN AND ADVANCES TO TOTAL DEPOSIT RATIO:
This ratio measures the
banks ability to utilize the via fixed, savings, current call and margin
deposit to earn profit by providing loans and advances. Higher ratios indicates
higher utilization of funds and lower ratio is the signal of balance remained
un utilize or remaining idle. The ratio can be computed by using following
formula:
Loans and Advances to total deposit ratio=
PROFITABILITY RATIO
Profitability ratio measures the efficiency and searches the
degree of success in achieving desired profit. Any firm should earn
satisfactory profit to survive and grow over a long period in the competitive
environment profitability ratio can be determined on the basis of either sales
investment. Through this ratio the investor decides whether to invest in a
particular business or not. Some of the important profitability ratio have been
calculated and interpreted in this study which is presented below:
NET PROFIT TO TOTAL ASSETS RATIO
This ratio measures the bank’s ability to earn as rate of return
on the total assets invested. It measures the return on assets. The ratio is
calculated by dividing the net profit after tax by total assets.
Net profit to total assets ratio=
NET PROFIT TO TOTAL DEPOSIT RATIO
It is used fro measuring
the internal rate of return from deposits. Here net profit means profit after
tax and deposit, total deposits including savings, current, fixed, call, margin
and other deposits. Higher ratio indicates the return from investment on loan
and advances are better utilized and mobilized. It is computed by dividing the
net profit by total deposit.
Net profit to total deposit ratio=
RETURN ON SHAREHOLDERS’ EQUITY
It is the most vital to judge whether a concern has earned a
satisfactory return to its owner or not. Here, return refers to net profit
after tax. This ratio is expressed by dividing net profit after tax to ordinary
shareholder's equity.
Return on Shareholder's Equity=
RETURN TO INVESTMENT
Return on investment measures the company's return from
investment or the capacity to generate profit from its investment. It can be
computed by dividing net profit after tax to total investment.
Return on Investment =
EARNING PER SHARE
It measures the profit available to the common shareholders as
per share basis i.e. the amount they get from every share. This division will
automatically after the earning per share. The earning per share is calculated
by dividing net profit after tax to the shareholders by number of outstanding
shares.
Earnings Per Share =
DIVIDED PER SHARE
Divided implies that portion of net profit, which is allocated
to shareholders as return on either investment on cash. The net profit after
tax belongs to shareholders. However, the income which they really received is
the amount of earning distributed as such dividend. The dividend per share is
that portion of earning which is allocated to shareholders divided by the total
no. of shares outstanding. Thus, dividend per share is computed by dividing the
total amount of dividend paid by the no. of outstanding share.
Dividend per share =
DIVIDEND PAYOUT RATIO
Dividend payout ratio indicated the percentage amount of
dividend paid to shareholders out of earnings per share i.e. this ratio
reflects at what percentage of net profit is to be distributed in terms of
dividend and what percentage is to be retained by company as retained earnings.
This earning is needed for business to grow and to expand. From the
shareholders point of view, the dividends are more desirable to increase their
current wealth and retained earnings are the most sufficient internal sources
of financing for the earning per share. Therefore, where there are not
dividends paid, there is not dividend payout ratio. The share holder of company
always expects a higher dividend payout ratio.
Dividend Payout Ratio =
LEVERAGE RATIO
Leverage ratio is known as capital structure ratio or solvency
ratio. It is calculated to measure the long term financial position of a firm.
Debt and equity are long-term obligation. This ratio indicates the fund
provided by owners & creditors. Leverage ratio measures the overall
financial risk as well the ability of the bank in using debt for the benefit
for the share holders. Thus, there should be appropriate mix of debt and owners
equity in financing the firm's assets. To find out the long solvency of the
bank several ratio are calculated. This ratio helps to find out the proportions
of outsiders fund and owners fund.
LONG-TERM DEBT TO SHAREHOLDERS FUND RATIO
Long-term debt means total amount of fixed and loan from banks
and share holders fund consists of general reserve, share premium other
reserves, general loans, loss provision, retained earnings and proposed
capitalization. The ratio shows the proportion of outside long-term liabilities
to shareholder's total funds. The ratio can be calculated by using following
formula:
Long-term debt to shareholders fund ratio=
TOTAL DEBT TO SHAREHOLDERS FUND RATIO
Total debt refers to the sum of long-term debt and short-term
debt. Debenture or bands, differed payment arrangements for buying capital
equipment and bank borrowing public deposits and any other interest bearing
loan. Total debt to fund ratio can be calculated by dividing total debt by the
shareholders fund.
Total debt to shareholders fund ratio=
TOTAL DEBT TO TOTAL ASSETS RATIO
This ratio implies a bank's success in exploiting debts to be
more profitable as well as its riskier capital structure to assess the
proportion of total funds short-term and long-term, provided by outsider to
finance assets the following ratio may be calculated :
Total debt to Total assets ratio=
INTEREST COVERAGE RATIO
Other debt ratio describes above is state in nature and fail to
indicated the firm's ability to meet interests obligations. The interest
coverage ratio is one of the most conventional. Coverage ratio is computed by
dividing earnings before interest and tax by interest charges:
Interest Coverage Ratio=
ACTIVITY RATIO
Activity ratio measures efficiency of an organization from
various angles of its operations. This ratio indicates the efficiency of
activity of an enterprise to utilize available funds, particularly short-term
funds. The following activity ratios measure the performance, efficiency of an
organization to utilize its short-term funds. These ratios are used to
determine the efficiency, quality and the contribution of loans and advances in
the total profitability.
TOTAL INVESTMENT TO TOTAL DEPOSITS RATIO
This ratio reveals now efficiency the resources of the banks
have been mobilized. High ratio shows the managerial efficiency regarding the
utilization of deposits and vice-versa.
Total Investment to Total Deposit Ratio=
LOAN AND ADVANCES TO TOTAL DEPOSIT RATIO
This ratio indicates the proportion of total deposit investment
in loan and advances. Higher ratio indicates the proper use of total deposit
where as lower ratio indicates less use of deposit or idle cash. The ratio is
calculated as:
Loan and Advances to Total Deposit Ratio=
NON-PERFORMING LOANS TO LOAN AND ADVANCES RATIO
This ratio indicates the percentage of non-performing loans out
of total loans and advances. Higher ratio shows the inefficiency of the banks
in lending and vice-versa. The ratio is calculated as:
Non-Performing loans & Loan and Advances
Ratio=
LOANS & ADVANCES TO FIXED DEPOSIT RATIO
This ratio indicates the proportion of expenses incurred
interest out of total deposit of the bank. The ratio is calculated as under:
Loan and Advances to Fixed Deposit Ratio=
LOAN LOSS PROVISION TO TOTAL LOANS & ADVANCES RATIO
This ratio indicates the percentage of provision for loan loss
out of total loans and advances. Banks to provisioning as per the guidance of
Nepal Rastra Bank. Loan loss provision is interlinked with non-performing
loans. Higher the Non-performing loans, higher will be loan loss provision. The
ratio is calculated as:
Loan loss Provision to total & advances
ratio=
INTEREST EXPENSES TO TOTAL DEPOSIT RATIO
This ratio indicates the proportion of expenses incurred
interest out of total deposit of the bank. The ratio is calculated as under:
Interest Expenses to Total Deposit Ratio=
INTEREST EXPENSES TO TOTAL EXPENSES RATIO
This ratio shows the percentage of interest of interest expenses
out of total expenses. High ratio indicates that the major portion expenses has
been spent for interest. The ratio is calculated as:
Interest Expenses to Total Expense Ratio=
REVIEW OF LITERATURE
REVIEW OF THE BANK’S OPERATIONS IN FY
2071/72
Analysis of the financial statement
of review period clearly depicts the growth in banking transaction, asset and
profit. Such increment led in increment of balance sheet size by 20.48%, which
is NPR 37.37 billion in fiscal year 2071/72.
CAPITAL
MANAGEMENT
By the end of 2071/72, paid up
capital of the bank has reached to NPR 2.69 billion (including proposed bonus
share). Also the capital adequacy ratio has to be minimum 10%, of which by the
end of review period, the total capital adequacy is 10.84%. As per the Nepal
Rastra Bank’s Capital requirement, bank had formulated following capital plan
to adhere with the requirement of the Central Bank obligations.
Amount
in NPR million
|
|
|
Share Dividend Merger Right Share |
Closing
Balance |
|
2071/72 |
2,432 |
243 - - |
2,675 |
|
2072/73 |
2,675 |
7602 2,751 - |
6,185 |
|
2073/74 |
6,185 |
742 - 1,237 |
8,164 |
DEPOSIT
Compared
to the last fiscal year, deposit increased by 21.19% and the total deposit
reached NPR 33.42 billion.
|
Deposit |
FY
071/72 |
%
of total deposit |
FY
070/71 |
%
of total deposit |
|
Current |
1,666 |
4.98 |
1,391 |
5.04 |
|
Savings |
8,005 |
23.95 |
7,234 |
26.23 |
|
Call |
9,281 |
27.77 |
6,812 |
24.70 |
|
|
|
43.29 |
12,142 |
44.03 |
|
Total |
33,422 |
100.00 |
27,578 |
100.00 |
LENDING
AND ITS MANAGEMENT
In fiscal year 2070/71, the bank’s
total loan was NPR 22.80 billion, while at the end of review year, it increased
by 18.69% reaching NPR 27.07 billion. The bank has diversified its lending into
personal loans, education loans, small and medium scale business loans,
organizational loans and development projects loan. During the review period,
bank’s non-performing loan was 2.49 %, but the gross non-performing loan ratio
was only 0.44%. Certain improvements were noted in the real estate sector of
lending in the current review period. In the current review period along with
recoveries certain non performing loans were taken as non banking asset of the
bank, which resulted in the decline in the non performing loan ratio in
comparison to the previous year. We would like to inform you that we shall put
continuous efforts to regularize these loans in the days to come. In FY
2070/71, the loans of real estate amounted to NPR 2.04 billion, which was
pulled down by 1.5% to NPR 2.1 billion as of Asadh 2072. As per Nepal Rastra Bank
the real estate loans should not exceed 25% of the total loan exposure of the
bank. In the same line, with due caution while investing in real estate loans,
bank’s exposure on such loan portfolio is 7.43% only at the end of Asadh 2072.
INVESTMENT
In accordance with the bank’s
objective of getting returns from the overall resources by maintaining balanced
liquidity, the bank has given continuity to its policy of investing in Nepal
Government and Nepal Rastra Bank’s risk free securities (Treasury bill, development
bond, etc). The bank has been carefully investing in local and international
market and various organizations’ share and bonds. The bank has invested NPR
2.57 billion in NG’s treasury bills, NPR 1.33 billion in development bonds;
making the total investment of the bank to be NPR 5.29 billion by the end of FY
2071/72.
PROFIT
During the review period, the
interest spread between deposit and loan has decreased; although there was
substantial increment in loans and investment amount but there was only
marginal increment in net interest income. Such decrease in interest spread was
seen in all the banking institutions. In addition, the education loans to the
students going abroad for further studies also declined which further reduced
the commission revenues of the bank. The employee’s salary scale was reviewed,
adding up to the staff expenses. With high degree of internal control mechanism
and robust service delivery process; the expenses control worked effectively
with only 6% increase in other operating expenses in relation to the last year
expenses. In the fiscal year 2071/72, the bank was able to recover net loan
loss provision of NPR 86 million and a total of Rs 146 million was added as Non
banking assets of the bank, while the net profit of the bank increased by
15.55% amounting to NPR 394.79 million.
REVIEW
OF THE BANK’S OPERATIONS IN FY 2072/73
Analysis of the financial statement of review
period clearly depicts growth in banking transaction, asset and profit. Such
increase in transactions led to increment of balance sheet size by 13.49%,
which is NPR 42.41 billion in fiscal year 2072/73.
CAPITAL
MANAGEMENT
As per Nepal Rastra Bank’s capital
requirement, bank had formulated following capital plan to adhere with the
requirement of the Central Bank obligations.
Amount in NPR million
|
|
|
Share Dividend Right Share Aquistion |
Closing
Balance |
|
|
2,699 |
567 - - |
3,266 |
|
Fiscal
Year |
Opening
Balance |
Kumari
Bank’s 50% Right Share |
Acquired
through Acquisition |
Right
Share after Acquisition |
Share
Dividend |
Closing
Balance |
|
2073/74 |
3,266 |
1,350 |
1,640 |
900 |
844 |
8,000 |
Out of Bank’s current paid up capital
of NPR 2.69 billion, total capital would reach NPR 4.61 billion after
distribution of the share dividend of 21% i.e. NPR 566.8 million and 50% right
share i.e. NPR 1.35 billion, in the fiscal year 2072/73. Similarly, additional
paid up capital of NPR 1.64 billion from 4 acquiring financial institutions
would be added up in the bank’s capital. In the current fiscal year 2073/74,
share dividend from joint operation after acquisition would be NPR 840 million
and right share would be NPR 900 million. The above mentioned right share is
targeted to be included in consolidated capital after acquisition.
DEPOSIT
The total deposit amount reached NPR
37.95 billion in Asadh end 2073, which increased by 13.55% as compared to the
last fiscal year.
|
|
Deposit |
|
FY
072/73 |
%
of total deposit |
FY
071/72 |
%
of total deposit |
Increased
Amount |
Increased
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
2,070 |
5.45 |
1,666 |
4.98 |
404 |
24.25 |
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
9,581 |
25.25 |
8,005 |
23.95 |
1,576 |
19.69 |
|
|
|
|
|
|
|
|
|
|
|
|
Call |
|
8,771 |
23.11 |
9,281 |
27.77 |
-510 |
-5.49 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
17,528 |
46.19 |
14,470 |
43.29 |
3,058 |
21.13 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
37,951 |
100 |
33,422 |
100 |
4,529 |
13.55 |
LENDING
AND ITS MANAGEMENT
In fiscal year 2071/72, the bank’s
total loan was NPR 27.7 billion, while at the end of review year, it increased
by 11.23% reaching NPR 30.11 billion. The bank has diversified its lending into
personal loan, education loan, small and medium scale business loan,
agricultural and productive loan, deprived sector loan, organizational loans
and development projects loan. During the review period, bank’s nonperforming
loan is 1.15%, but the gross non-performing loan ratio was only 0.12%. Certain
improvements were noted in real estate sector lending in the current review
period. In the current review period along with recoveries certain non
performing loans were taken as non banking asset of the bank, which resulted in
decline in nonperforming loan ratio in comparison to the previous year. We
would like to inform you that we shall put continuous efforts to regularize
these loans in the days to come.
INVESTMENT
In accordance with the bank’s
objective of getting returns from overall resources by maintaining balanced
liquidity, the bank has given continuity to its policy of investing in Nepal
Government and Nepal Rastra Bank’s risk free securities (Treasury bill,
development bond, etc). The bank has been carefully investing in local and international
market and various organizations’ share and bonds. The bank has invested NPR
1.28 billion in NG’s treasury bills, NPR 2.51 billion in development bonds;
making the total investment of the bank to be NPR 7.74 billion by the end of FY
2072/73 . The bank has invested in shares of few institutions also.
PROFIT
In the review year, there was good growth in
revenue from every sector along with growth in the Bank’s overall business.
Besides this in the review year, growth in operating expenses has been limited
to 8% and huge bad debts have been recovered. Interest income from loan and
investment in the fiscal year 2072/73 increased by 11% and reached NPR 2.69
billion and interest expenses increased by 0.64% to NPR 1.52 billion as
compared to the fiscal year 2071/72. Bank’s net interest income increased by
27% and reached NPR 1.18 billion in the fiscal year 2072/73. Bank’s loan,
deposit and income through fee and commission for other services increased by
14% and reached NPR 230 million in fiscal year 2072/73 whereas foreign exchange
income increased by 14% and reached NPR 110 million. Similarly in the fiscal
year 2072/73, Bank’s total operating income has reached NPR 1.51 billion which
increased by 24% than previous year. Besides this, Bank’s staff expenses and
other operating expenses increased by 11% and 4% to NPR 320 million and NPR 260
million respectively. In fiscal year 2072/73, operating profit before loan loss
provision increased by 36% than last fiscal year and reached NPR 930 million.
In the review year, there was additional loan loss provision NPR 180 million
and NPR 430 million was returned for loan loss provision. There were few loans
which were required to be converted into non-banking assets with a book value
of NPR 40 million. The Bank’s net income in fiscal year 2072/73 increased by
81% and reached NPR 716 million as compared to the fiscal year 2071/72 which
was NPR 390 million.
LIMITATIONS
OF THE STUDY
The limitations of the study are those characteristics of
design or methodology that impacted or influenced the interpretation of the
findings from the research. They are the constraints on generalizability,
applications to practice, and/or utility of findings that are the result of the
ways in which is initially chose to
design the study and/or the method used to establish internal and external
validity. All studies have
limitations. However, it is important to restrict the
discussion to limitations related to the research problem under investigation.
Acknowledgement
of a study's limitations also provides with an opportunity to demonstrate that what is have thought critically
about the research problem, understood the relevant literature published about
it, and correctly assessed the methods chosen for studying the problem. A key objective
of the research process is not only discovering new knowledge but to also
confront assumptions and explore what is not known.
CHAPTER
II: RESULTS AND ANALYSIS
DATA PRESENTATION AND ANALYSIS
The main purpose of analyzing the financial performance and
interpretation is to highlight the strength and weakness of the business
enterprises. Therefore, this chapter includes the analysis and result of
gathered with a view to assessing financial performance of the bank for the
period of 3 years. Consequently, this analysis help the management take
benefits of strategic management technique by providing the information
regarding the strength and weakness of Kumari Bank Limited to exploit the
opportunities lying in the environment and manage the threat posed by the
environment.
In this chapter, the data
are presented, calculated and analyzed. The secondary data is used for the
purpose and for the data presentation of three years (2011/12, 2012/13,
2013/14).
FINANCIAL
ANALYSIS
RATIO ANALYSIS
As mentioned in the earlier chapter, various ratios are applied
to judge the financial viability of the Kumari Bank Limited. The following
ratios are used to analyze and check the financial position of the bank.
LIQUIDITY ANAYSIS
Profitability of a bank is more closely related to liquidity of
a commercial bank than any other business firm. since it has to gain confidence
from depositors and customers which is the largest sources of fund as well as
earning. Liquidity ratio measures the firm's ability to pay its short-term
obligations. It also assets the solvency of the company and its ability to
retain solvent even in difficult times. In case of commercial banks, short-term
obligations are current deposit, saving deposit, short-term loans and source of
meeting these obligations are cash and bank balance, money at call and
short-term notice, investments in government securities and bill discounted and
purchased. There is compulsion in banking sector to maintain cash and bank
balance as directed by the Nepal Rastra Bank. From legal perspective cash and
bank balance to total deposit ratio shows actual liquidity position of the bank
whereas other liquidity ratio are also useful.
The liquidity ratio can be analyzed under the following four
classifications:
CURRENT RATIO
This ratio is applied to test
solvency as well as in determining short-term financial strength of the bank.
The current ratio indicates the availability of current assets in rupees for
very one rupee of current liabilities. This ratio more than 2.1 is
satisfactory. It is computed as dividing current assets by current liabilities.
The current ratio of the bank for this report is calculated as follows:
This ratio is applied to test
solvency as well as in determining short-term financial strength of the bank.
The current ratio indicates the availability of current assets in rupees for
very one rupee of current liabilities. This ratio more than 2.1 is
satisfactory. It is computed as dividing current assets by current liabilities.
The current ratio of the bank for this report is calculated as follows:
Table 1: Current Ratio
|
Year |
Current Assets |
Current Liabilities |
Ratio |
|
2011/12 |
2945750832 |
2625142306 |
1.120 |
|
2012/13 |
5437024355 |
4960773398 |
1.096 |
|
2013/14 |
7354897975 |
6792440589 |
1.083 |
Current Assets = Cash &
Bank balance + Money at call & short notice + Loans and Advances + other
assets
Generally, higher current ratio
indicates better liquidity position and 2:1 or more is considered satisfactory.
But here in the context of bank this ratio is less than 2:1 but we considered
it satisfactory because bank always have more liquid current assets than other
types of organization. Here in the context of Kumari Bank Limited the current
ratio of 2011/2012 is 1.120, 2012/13 is 1.096 and 2013/14 is 1.083. It
indicates that the liquidity position of the bank has decreased with comparison
to the year 2011/2012.
CASH AND BANK BALANCE TO CURRENT
DEPOSIT RATIO
This ratio measures the ability of
banks current assets to fulfill the current deposit. It is calculated as
follows:
Table 3: Cash and Bank Balance to Current
Deposit Ratio
|
Year |
Cash & Bank Balance |
Current Deposit |
Ratio |
|
2011/12 |
291715250 |
135081020 |
2.519 |
|
2012/13 |
685477911 |
251045213 |
2.730 |
|
2013/14 |
443371369 |
279361097 |
1.588 |
The bank's cash and bank balance to
current deposit ratio is higher because it is more than 2 times in the fiscal
year 2011/12 and 2012/13 but the ratio in the fiscal year 2013/14 is less than
previous years. It indicates that there is high level of idle assets in the
year 2011/12 and 2012/13, which earn nothing. But bank tires to minimize the
idle cash by investing it to the productive sectors. This shows by its lower
ratio. The ratios are 2.519 in fiscal year 2011/2012, 2.730 in the fiscal year
2012/2013 and 1.588 in the year 2013/14.
CASH AND BANK BALANCE TO TOTAL DEPOSIT RATIO
This ratio shows the percentage of
liquid assets held as compared to the total deposit. High ratio shows the
strong liquidity position of the bank. It can be calculated as follows:
Table 2: Cash & Bank Balance to Total
Deposit Ratio
|
Year |
Cash & Bank Balance |
Total Deposit |
Ratio |
|
2011/12 |
291705250 |
2513144223 |
0.117 |
|
2012/13 |
658477911 |
4807936964 |
0.143 |
|
2013/14 |
443371369 |
6268954481 |
0.070 |
The cash and bank balance to total deposit
ratio of the bank in the fiscal year 2011/2012 is 0.116, in the fiscal year
2012/2013 is 0.143 & in the fiscal year 2013/14 is 0.070. It shows that the
bank has more strong liquidity position in the fiscal year 2012/2013 as compare
to the fiscal year 2011/2012 but the bank has not strong liquidity position in
fiscal year 2013/14 as compare to 2012/2013. The high ratio also indicates the
idle portion of the total deposit amount which cannot generate income.
CASH
AND BANK BALANCE TO CURRENT DEPOSIT RATIO
This ratio measures the ability
of banks current assets to fulfill the current deposit. It is calculated as
follows:
Table 3:
Cash and Bank Balance to Current Deposit Ratio
|
Year |
Cash & Bank Balance |
Current Deposit |
Ratio |
|
2011/12 |
291715250 |
135081020 |
2.519 |
|
2012/13 |
685477911 |
251045213 |
2.730 |
|
2013/14 |
443371369 |
279361097 |
1.588 |
The bank's cash and bank balance to
current deposit ratio is higher because it is more than 2 times in the fiscal
year 2011/12 and 2012/13 but the ratio in the fiscal year 2013/14 is less than
previous years. It indicates that there is high level of idle assets in the
year 2011/12 and 2012/13, which earn nothing. But bank tires to minimize the
idle cash by investing it to the productive sectors. This shows by its lower
ratio. The ratios are 2.519 in fiscal year 2011/2012, 2.730 in the fiscal year
2012/2013 and 1.588 in the year 2013/14.
CASH AND BANK BALANCE TO CURRENT
ASSETS RATIO
This ratio measures the proportion of
cash and bank balance held by the bank to compare with current assets. It can
be calculated as follows:
Table 4: Cash and Bank Balance Assets
Ratios
|
Year |
Cash & Bank Balance |
Current Deposit |
Ratio |
|
2011/12 |
291715250 |
2945750832 |
0.099 |
|
2012/13 |
685477911 |
5437024355 |
0.125 |
|
2013/14 |
443371369 |
2354897975 |
0.060 |
This ratio shows that the bank is not
able to repay its current obligation by cash and bank balance. In other words,
cash and balance is very low with compare to its current assets. In the fiscal
year 2011/12 is 0.126 and in the fiscal year 2012/13 is 0.60. This means that
the bank has increased its cash and bank balance in the year 2012/13 but
decrease in 2012/13. This ratio of the bank is somehow satisfactory because
high cash and bank balance increase cost as it is idle. So the bank should
maintain its cash and bank balance by analyzing its liquidity factor.
LOANS
AND ADVANCES TO TOTAL DEPOSIT RATIO
This ratio measures the banks
ability to utilize the amount that has been collected through saving, current
& fixed deposit account. High ratio indicates the higher utilization of
amount and vice-versa. It can be calculated as follows:
Table 5: Loans and Advances to Total Deposit
Ratio
|
Year |
Cash & Bank Balance |
Current Deposit |
Ratio |
|
2011/12 |
2105736522 |
2513144223 |
0.838 |
|
2012/13 |
3649008723 |
4807936964 |
0.759 |
|
2013/14 |
5590925658 |
6268954481 |
0.982 |
The loan and advances to total
deposit ratio of the Kumari Bank Limited in the fiscal year 2011/12 is 0.838
means about 83% of its deposit is utilized in the loan and advances. In fiscal
year 2012/13 is 0.759 means about 75% of its total deposit is utilized in loan
and advances and in the fiscal year 2012/13 is 0.892 means about 89% of its total
deposit is utilized. This ratio decreased in the fiscal year 2012/13, thus
2011/12 by about 13% that means the banks ability to utilize its fund is
decreased which is not good but in the year 2012/13 ratio increased by 14%
which shows bank is trying to utilize its fund. This is good.
It measures the efficiency and
searches the degree of success in achieving desired profit. Any firm should
earn satisfactory profit for survive and grow over a long period in the
competitive environment. Moreover, through this ratio the investor can decide
whether to invest or not. Under this ratio the following ratio are calculated.
NET PROFIT TO TOTAL ASSETS RATIO
This ratio measure the firm's
ability to earn return on total assets invested. It measures the return on
assets. The higher rate of return is considered good and vice-versa. This ratio
can be calculated as follows:
Table 6: Net Profit to Total Assets Ratio
|
Year |
Net Profit |
Total Assets |
Ratio |
|
2011/12 |
12474065 |
2686175754 |
0.00918 |
|
2012/13 |
48685822 |
5494176578 |
0.00886 |
|
2013/14 |
87880557 |
7437885125 |
0.01182 |
The net profit to total assets ratio
of the bank is very low in fiscal year. It indicates that the bank is not in
good position to earn profit. In the latest year bank's profit and ratio of net
profit to total assets is increased, this factor is good, but the increasing
pattern is as the race of tortoise. Bank should accelerate it speed to increase
its profit ratio in the coming year.
NET PROFIT TO TOTAL DEPOSIT RATIO
This ratio is used to measure the
internal rate of deposit. Here net profit means profit after tax and deposit
means total deposit including saving, current and fixed. Higher ratio indicates
the return from the loan and advances is better. It can be calculated as
follows:
Table 7: Net Profit Total Deposit Ratio
|
Year |
Net Profit after Tax |
Total Deposit |
Ratio |
|
2011/12 |
12474065 |
2513144223 |
0.00496 |
|
2012/13 |
48685822 |
4807936964 |
0.01013 |
|
2013/14 |
87880557 |
6268954481 |
0.0141 |
The net profit to total deposit ratio
of the bank in fiscal year 2011/12 is 0.00496, in 2012/13 is 0.01013 and in
2012/13 is 0.0141. It indicates quite low rate of return on deposit. But the
bank is also increasing its rate return as compared to increasing in total
deposit. This ratio is low because here the net profit is taken after deducting
bonus to staff and provision for losses.
RETURN
ON SHAREHOLDER'S EQUITY
This ratio is very important tool to
judge whether the concern has earn satisfactory returns to its over or not.
Here return refers to the profit after tax. This ratio is calculated as
follows:
Table 8: Return on Shareholder's Equity
|
Year |
Net Profit after Tax |
Total Deposit |
Ratio |
|
2011/12 |
12474065 |
392883373 |
0.03175 |
|
2012/13 |
48685822 |
570147056 |
0.0854 |
|
2013/14 |
87880557 |
533801337 |
0.1647 |
The return on shareholders equity
measures the performance of the bank. The above table reveals that Kumari Bank
Limited has used very properly the shareholder's fund which is represented by
increasing trend of net profit. Ratio is also increasing pattern. The Owners of
the Kamari Bank Ltd. are satisfied by seeing above table.
Return on investment measures the
company's return from investment or the capacity to generate profit from
investment. This ratio is considered to know the investment generates income
from investment. The high ratio is considered as good performance of company.
This ratio is calculated as under:
Table 9: Return on Investment
|
Year |
Net Profit after Tax |
Total Investment |
Ratio |
|
2011/12 |
12474065 |
423154880 |
0.029 |
|
2012/13 |
48685822 |
983504403 |
0.049 |
|
2013/14 |
87880557 |
1190271012 |
0.074 |
The above table reveals that the
ratio of increasing total investment is less than the increase percentage of
the ratio. It indicates that the bank has used its fund to generate its income.
From the increasing ratio of return on investment, we can confidently say that
the performance of the bank is in good condition
It measures the profit available to
the common shareholders as per share basis. If one forgets to calculate the
return on shareholders equity, his performance analysis cannot be completed.
Common shareholders are entitled to the residual profit. The rate of common
dividend is not fixed, the earning many be distributed to them or retained in
the business. This ratio indicates how well the firm utilizes the resources of
owners. In fact, this ratio of great interest to present as well as prospective
shareholders is also of great concern to the management, which has the responsibility
of maximizing the owner's welfare. This can be calculated as under:
By studying the above table, we can
say that the bank has increased the shareholder's equity by (9.74-3.56) i.e.
6.18 in the fiscal year 2012/13 and in the latest fiscal year 2012/13 bank has
also increased its earning per share by (17.58 - 9.74) i.e. 7.84. However, the
bank has increased its shareholders equity or common stock by 15,00,000 in the
year 2013/14. The above figure shows that bank is in dynamic motion to increase
its shareholder's earning per share at the high rate. So, we can say that the
performance of the bank is a very good; it makes the common shareholders
satisfied.
Dividend implies that portion of net
profit, which is allocated to shareholders return on either investment on cash.
It is the net profit after tax belongs to shareholders. However the income
which they really received is the amount of earning distributed as cash
dividend per share is that portion of earning per share that is distributed to
common shareholder. It can be calculated as follows:
Table 10: Dividend Per Share
|
Year |
Earning Paid to Shareholder |
No. of common stock |
D.P.S. |
|
2011/12 |
---- |
3500000 |
---- |
|
2012/13 |
26300000 |
5000000 |
5.26 |
|
2013/14 |
------ |
5000000 |
----- |
The Kumari Bank Limited has not
distributed cash dividend on the fiscal year 2012/13 and 2012/13 but it paid
the cash dividend on fiscal year 2012/13 is 5.26 per share. It means the bank
has earned more in the fiscal year 2012/13. This factor is very good from the
view point of shareholder. It makes shareholders satisfied.
It indicates the percentage amount of
dividend paid to shareholders out of earning per share. It means it refers to
what percent of earning is distributed to shareholders as cash dividend and
what percent of earning is n the form of retained earning. That is needed for
business to grow and expand. From the shareholders point of view more cash
dividend is desirable however from business point of view or organization's
point of view more retained earning is desirable for internal financing. It is
calculated as follows:
Table 11: Dividend Payout Ratio
|
Year |
Dividend Per Share |
Earning Per Share |
Ratio |
|
2011/12 |
---- |
3.56 |
---- |
|
2012/13 |
5.26 |
9.74 |
0.54 |
|
2013/14 |
------ |
17.58 |
----- |
The bank has not distributed cash
dividend in the fiscal year 2011/12 and 2012/13 but in the fiscal year 2012/13
the bank distributed 0.54 or 54% of its earning to the shareholders. The rest
portion of the earning of the bank is taken is retained earning which is useful
for internal financing. From the above table we know that 46% of the earning is
taken as retained earning in the fiscal year 2012/13. All the earnings is
retained in the fiscal year 2011/12 & 2013/14.
Leverage ratio is also called
structure ratio. It is the solvency ratio too. It is calculated to measure the
long-term financial position of a firm, debt & equity. This ratio measures
the solvency of long-term debt from equity.
But in the context of Kumari Bank
Limited there is not long-term. So, fixed deposit is taken as its long-term
liability. And here we have calculated the solvency of fixed deposit by its
equity under leverage ratio. The following ratios are calculated:
LONG-TERM DEBT TO SHAREHOLDER FUND RATIO
This ratio shows that the total
amount of fixed deposit and long-term bank loan and shareholders fund consists
of general reserve, share premium, other reserves and share capital. Here in
the context of Kumari Bank Limited long-term loan is taken as fixed deposit and
loan advance from bank other institutions. This ratio is calculated as under:
Table 12: Long-term debt to shareholders
fund ratio
|
Year |
Long-term Debt |
Shareholder's Fund |
Ratio |
|
2011/12 |
798402962 |
392883373 |
2.024 |
|
2012/13 |
1292449200 |
570147056 |
2.267 |
|
2013/14 |
2703848950 |
533801337 |
5.066 |
The long-term debt to shareholder
fund ratio of the bank in the fiscal year 2011/12 is 2.024 which mean the bank
has more than double shareholders fund than the fixed deposit. So it can cover
the fixed deposit by shareholder fund. In the fiscal year 2012/13 the ratio is
increased than the fiscal year 2011/12. And in the fiscal year 2012/13 the
ratio is increased as double as 2013/14. This means there is no risk to deposit
in this ban from the depositor point of view.
TOTAL LONG-TERM DEBT TO TOTAL ASSETS RATIO
This ratio implies banks success in
exploiting debts to be more as well as its riskier capital structure. For the
requirement fund to the firm the management should financed the proper mix of
fund from the debt and others. This ratio is calculated as under:
Table 13: Total debt to Total Assets ratio
|
Year |
Long-term Debt |
Total Assets |
Ratio |
|
2011/12 |
798402962 |
2986178454 |
0.267 |
|
2012/13 |
1292449200 |
5495176578 |
0.235 |
|
2013/14 |
2703848950 |
7437882125 |
0.364 |
The total debt to total assets ratio
of the bank in the fiscal year 2011/12 is 0.267, 2012/13 is 0.235 and 2013/14
is 0.364. It indicates that 0.267 times in fiscal year 2011/12, 0235 times in
fiscal year 2013/14 and 0.364 times in the fiscal year 2012/13 of total assets
is total debt. Total ratio is decreased in the fiscal year 2012/13 than fiscal
year 2011/12 but increased in fiscal year 2013/14 as compare to earlier.
TOTAL DEBT TO SHAREHOLDERS FUND RATIO
This ratio shows the relation between
total debt and shareholder's equity. It shows the ratio between total debt and
shareholder's equity. It measures the solvency of total debt from the
shareholders equity. Here, in the context of Kumari Bank Limited total debt is
taken as fixed deposit and other short-term liabilities. This ratio is
calculated as follows:
Table 14: Total Debt to Shareholders Fund
Ratio
|
Year |
Total Debt |
Shareholder's Fund |
Ratio |
|
2011/12 |
2625142306 |
392883373 |
6.682 |
|
2012/13 |
4960773398 |
570147056 |
8.701 |
|
2013/14 |
6937882125 |
533801337 |
12.99 |
The total debt to shareholder's fund
ratio of the bank is very high. It indicates that in the fiscal year 2011/12
the bank has used 6 times more debt than equity. In the fiscal year 2012/13 it
has used 8 times more than shareholders equity. And in the fiscal year 2013/14
it has used 12 times more than shareholders equity. The bank is increasing its
debt portion as compared to equity portion. It is risky for the creditor.
Interest coverage ratio measures the
interest coverage power to the debt. It shows that the bank is able to cover
the interest on the debt others by earning before tax or not. This is
calculated as under:
Table 15: Interest Coverage Ratio
|
Year |
EBIT |
Interest |
Ratio |
|
2011/12 |
114298128 |
92945310 |
1.23 |
|
2012/13 |
201517886 |
163902663 |
1.23 |
|
2013/14 |
294529943 |
240130179 |
1.23 |
The interest coverage ratio of the
bank is also strong. It's interest coverage ratio is more than one means that
it can easily pay the interest to it's creditors from earning before tax.
It measures efficiency of an
organization from various angles of its operations. It indicates the efficiency
of activity of an enterprise to it's utilizing available funds. The following
ratios measures the performance efficiency of an organization to utilize the
available funds.
TOTAL INVESTMENT TO TOTAL DEPOSIT RATIO
This ratio reveals that the resources
of the bank have been mobilized less efficiency. High ratio shows the
managerial efficiency regarding the utilization of deposit and vice-versa. This
ratio can be calculated as follows:
Table 16: Total Investment to Total Deposit
Ratio
|
Year |
Total Investment |
Total Deposit |
Ratio |
|
2011/12 |
423154880 |
2513144223 |
0.168 |
|
2012/13 |
983504403 |
4807936964 |
0.205 |
|
2013/14 |
1190271012 |
6268954481 |
0.189 |
The investment to total deposit ratio
of the bank is very low in the fiscal year 2011/12 as about 17% in the fiscal
year 2012/13 it is about 21% and in the fiscal year 2013/14 as about 19% of the
deposit has been invested means that the mobilization of the fund is very low.
From the comparison of first two fiscal years, the ratio has been increased in the
fiscal year 2012/13 which is acceptable to some extent but decrease in the
latest fiscal year.
LOAN AND ADVANCES TO TOTAL DEPOSIT RATIO
This ratio indicates the proportion
of total deposit invested in loan and advances. Higher ratio indicates the
proper use of deposit whereas the low ratio indicates the low use of deposit.
This ratio is determined as under:
Table 17: Loan and Advances to Total
Deposit Ratio
|
Year |
Loan & Advances |
Total Deposit |
Ratio |
|
2011/12 |
2105736822 |
2513144223 |
0.838 |
|
2012/13 |
3649008723 |
4807936934 |
0.759 |
|
2013/14 |
5590925658 |
6268954481 |
0.892 |
Loan and Advances to total deposit ratio of
Kumari Bank Limited is greater in fiscal Year 2011/12 than that of the fiscal
year 2012/13 (i.e. 0.838 Vs 0.759) and also greater in fiscal year 2012/13 than
that of fiscal year 2013/14 (i.e. 0.759 Vs 0.892). It indicates that the
utilization of deposit in loan and advances of the bank is decreased in the
fiscal year 2012/13 but increased in the fiscal year 2013/14. It indicates that
the bank's performance is fluctuating in the context of utilization of deposit
in loan and advances.
NON-PERFORMING LOANS TO LOAN & ADVANCES RATIO
This ratio indicates the performance
of non-performing loans out of total loan and advances. Higher ratio shows the
inefficiency and lower ratio shows the efficiency of the firm. This ratio is
calculated as follows:
Table 18: Non-Performing Loan to Loan &
Advances Ratio
|
Year |
Non-Performing Loans |
Loan & Advances |
Ratio |
|
2011/12 |
36323814 |
2105736822 |
0.017 |
|
2012/13 |
28189656 |
3649008723 |
0.008 |
|
2013/14 |
53988537 |
5590925658 |
0.009 |
From the above table, we can say that
the efficiency performance of Kumari Bank Limited in context of non-performing
loan is efficient because its ratio of non-performing loans is low.
LOAN AND ADVANCES TO FIXED DEPOSIT RATIO
This ratio indicates the utilization
of fixed deposit in loans and advances. High ratio shows the efficiency
in utilization of fixed deposit amount in loan and advances and vice-versa.
This ratio can be calculated as follows:
Table 19: Loan and Advances to Fixed
Deposit Ratio
|
Year |
Loan & Advances |
Fixed Deposit |
Ratio |
|
2011/12 |
2105736822 |
795402962 |
2.64 |
|
2012/13 |
3649008723 |
1292449200 |
2.82 |
|
2013/14 |
5590925658 |
2302087622 |
2.42 |
This table shows that the loan and
advances of Kumari Bank Limited is two times more than fixed deposit and in
increasing trend in both the fiscal year. So, it shows the bank's efficiency
and better performance.
LOAN LOSS PROVISION TO TOTAL LOANS AND ADVANCES RATIO
This ratio indicates the percentage
of Provision for loan loss out of total loans and advances. Banks do make such
provisions as per the guidance and direction of Nepal Rastra Bank. This ratio
can be calculated as follows:
Table 19: Loan loss Provision to Total
Loans and Advances Ratio
|
Year |
Loan Loss Provision |
Loan & Advances |
Ratio |
|
2011/12 |
16805159 |
2105736822 |
0.0080 |
|
2012/13 |
17125580 |
344008723 |
0.0049 |
|
2013/14 |
41111258 |
559092568 |
0.0074 |
The loan loss provision to loan
advances ratio of the bank has decreased in the fiscal year 2012/13. In this
context, the performance of the bank is quite weak. But ratio is increased in
the latest year, which is quite satisfactory.
INTEREST EXPENSES TO TOTAL DEPOSIT RATIO
This ratio indicates the proportion
of expenses incurred for interest out of total deposit of the bank. This ratio
is calculated as follows:
Table 20: Interest Expenses to Total
Deposit Ratio
|
Year |
Interest Expenses |
Total Deposit |
Ratio |
|
2011/12 |
92945310 |
2513144223 |
0.037 |
|
2012/13 |
163902663 |
4807936964 |
0.034 |
|
2013/14 |
240130179 |
6268954481 |
0.038 |
By evaluating the above table, we
came to know that the interest expenses to total deposit ratio of the bank is
0.037 in the fiscal year 2011/12, 0.034 in the fiscal year 2012/13 and 0.038 in
the fiscal year 2013/14. The ratio has slightly decreased in the year 2013/14
and slightly increased in the latest year. The deduction of expenses is
favorable for the bank. It should be considered as efficient performance of the
bank.
INTEREST EXPENSES TO TOTAL EXPENSES RATIO
This ratio indicates the proportion
of the interest expenses to the total expenses. Higher ratio indicates that the
major portion has been spent on interest expenses. This ratio is calculated as
follows:
Table 21: Interest Expenses to Total
Expenses Ratio
|
Year |
Interest Expenses |
Total Deposit |
Ratio |
|
2011/12 |
92945310 |
161703002 |
0.575 |
|
2012/13 |
163902663 |
258920112 |
0.658 |
|
2013/14 |
240130179 |
354337190 |
0.677 |
From the above table, we can say that
the bank's interest expense to total expenses is higher than 50%. Which means
about 58% of its total expenses are interest expenses and the rest are other
expenses in the fiscal year 2011/12, about 66% of the total expenses are
interest expenses in the fiscal year 2012/13 and about 68% of the total
expenses are interest expenses in the fiscal year 2013/14. The ratio has
increased in the latest years.
CHAPTER
III: SUMMARY AND CONCLUSION
SUMMARY
AND CONCLUSION
This field work report has been prepared for the fulfillment of
the internal assessment of BBS program. From this purpose, here we have
analyzed the financial performance of Kumari Bank Limited. To evaluate the
financial performance of the bank, we have divided the whole report to
different chapters. In every chapter, there are several sub-chapters. The first
Introduction chapter gives background information about the project work,
introduction of Kumari Bank Limited, Review related studies etc. The second
chapter called Presentation and Analysis of Data, we tried to analyze it's
financial performance through Ratio Analysis. By using this financial tool, we
computed different ratios to evaluate its Liquidity position, Management
Position, Profitability Position and overall Financial Position.
Ratio analysis is a very
significant tool to financial performance analysis. It is one of the means by
which financial stability, wealth, viability and performance of a firm can be
judged. Current ratio of Kumari Bank Limited is how than it's theoretical norm
that is 2:1. Its current ratio are 1.12, 1.096 and 1.083 in the year 2011/12,
2012/13 and 2013/14 respectively. But, there is not matter to worry about
because the bank has kept more liquid assets than other types of organization.
Other solvency power of bank to the different deposit by its cash is also in
increasing trend. Moreover, it should manage cash properly because cash on hand
doesn't generate any income. In aggregate, there is nothing to be worried about
the liquidity position of the bank since it's quality of current assets is very
good which can be easily converted into cash within short period without any
loss of it's assets. The debt position is unfavorable to the management because
it has not borrowed loan from banks and institutions in the earlier years. But
is the latest year bank has borrowed some amount of money from central banks
which is good symptom. By borrowing loans at low rate of interest from other
banks, the institution may generate lots of income by investing such loans on highly
profitable sectors. The profitability position of the bank is much
satisfactory. The net profit of the bank has increased as compared to its
increment in investment.
RECOMMENDATIONS
However, we are not
authorized person to recommend the management of Kumari Bank Limited but here
we attempt to recommend the management of Kumari Bank Limited. Here under we
have given some recommendation which may be useful to the management:
·
To raise the total capital of Kumari Bank Limited by long-term
debt and minimize the use shareholders equity.
·
To maintain the idle cash or cash equivalents minimum.
·
The bank should finance the maximum fund in external assets.
·
The bank should take maximum advantage by maintaining minimum
cash holding and should finance in riskier assets that is Loan and Advances to
earn high interest.
·
For the better utilization of Shareholders fund, the bank should
conduct research frequently.
·
Kumari Bank should maintain Liquidity to meet current
obligations easily.
·
The bank should identify better investment opportunity to get
high rates of return.
·
Management of the bank should be effective.
·
Personnel should be trained and motivated by giving incentives.
·
The bank needs to adopt new technologies, which is very helpful
to work effectively and efficiency.
·
Loans Programs should be made attractive.
·
Customer Satisfaction should be the Bank's motto.
BIBLIOGRAPHY
BIBLIOGRAPHY
http://gunasoo.blogspot.com/project-report-for-bbs-3rd-year-of-bank.html?m=1
LinkedIn
S.J. Khadka
and H.B. Singh (2056), Banking and Principles, Lesgislation and Practice, Nabin
Prakashan, Bhotahity, Ktm.
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