CHAPTER-I
INTRODUCTION
1.1.Background
of the study
Bank,
today, can be deemed as the “financial supermarket” catering customized banking
products and services suiting every individual’s needs. Banking industry has
acquired a key position in mobilizing resources for financial, economical and
social development of the country. Banking is now an essential part of our
economic system and the economic development of a particular country depends on
the sound banking system. Modern trade and commerce would almost be impossible
without the availability of suitable banking services. Traditionally ,it is
believed that bank profit is accounted as the spread between their lending and
borrowing rates. As intermediaries between lenders and borrowers, banks
transform assets. Bank also issue and hold non-liquid loans, engage in
asset/liability management(such as duration management), and more recently,
provide (non-traditional) off-balance-sheet (OBS) services, including letters
of credit and other activities that generate fee income. Profit is an essential
for the survival and growth of the banks. Thus, this study of the profitability
of commercial bank helps to know the bank strength and ability to cope with
difficult economic situations.
The
term “Profit” and “Profitablilty” are used interchangeably sometimes. But in
real sense, there is a difference between the two. Profit is an absolute term,
whereas, the profitability is a relative concept. However, they are closely
related and mutually interdependent, having distinct roles in business. Profit
refers to the total income earned by the enterprise during the specified period
of time, while profitability refers to the operating efficiency of the
enterprise. It is the ability of the enterprise to make profit on sales. It is
the ability if enterprise to get sufficient return on the capital and employees
used in the business operation.
1.1.1.Introduction of bank
A
bank is a financial institution that accepts deposits from public and creates
credit. It is a financial intermediary for the safeguarding, transferring,
exchanging, or lending of money. A primary role of bank is connecting those
with funds, such as investors and depositors, to those seeking funds, such as
individuals or businesses needing loans Banks plays an important role in
economic growth by providing various banking services to the rest of the
economy. First of all, bank stimulates the habit of savings among people by the
security and interest they offer. Today, every common man has option to park
his earned savings under different saving schemes of the bank. Secondly,
banking promotes investment. Banks either invests directly or bank increases
the transaction capacity of the customers by advancing loans when they require
for additional funds to finance their expanded program of business. Thirdly, it
is most through banks that foreign trade is carried on. Whether we export or
import, it is through banks that money is transferred from one country to
another. For example, bills of exchange and letters of credit are the regular
ways banks use to transfer money. Last but not the least, banks provide payment
and settlement services which are necessary for households, business and other
financial institutions to settle their day-to-day transactions. Although banks
create to new wealth but their borrowing, lending and related activities
facilitate the process of production, distribution, exchange and consumption of
wealth. In this way, they become very effective partners in the process of
economic development. The banks are mobilizing the savings of the people for
the investment purposes. The savings are encouraged and saving rates increases.
If there would be no banks then a great portion of a capital of the
country would remain idle. A bank as a
matter of fact is just like a heart in the economic structure and the capital provided
by it is like a blood in it.
1.1.2.Introduction of the commercial
bank
Generally,
the word Bank is used in the sense of a Commercial Bank. Commercial Bank is the
financial institutions which accept deposits from general public and business
institutions, and channel those deposits into productive sectors like business
and consumer lending. In today’s globalized technological context, Nepalese
commercial bank is confined not only to traditional banking of accepting
deposits and lending ofunds, but has
diversified itself in e-banking. According to Commercial Bank Act 2031, ‘A
commercial bank means bank which deals in exchanging currency, accepting
deposit, giving loans and doing commercial transactions.’
Commercial
Banks are profit oriented financial institutions, involved in operating
commercial transactions like lending, remittance and trade finance business.
Commercial Bank channelizes its funds in profitable sector as loans and
advances by keeping certain portion of the funds as liquid assets in order to
meet the withdrawal demands of its customers. A Commercial Bank holds liquid
assets balance in the form of currency, bank balance, marketable securities and
other assets that are readily convertible to cash. Banks are principally
engaged in providing the services of intermediation by directing flows of funds
from lenders to borrowers.
As
per the latest data from Nepal Rastra Bank ( Magh 2075 ), at present, there are
a total of 28 Commercial Banks in Nepal. So far, a total of 3266 branches of
commercial banks have been established across the nation.
1. Nepal Bank Ltd. (NBL)
2. RastriyaBanijya Bank Ltd. (RBB)
3.
Nabil Bank Ltd. (NABIL)
4. Nepal Investment Bank Ltd.(NIBL)
5. Standard Chartered Bank Nepal Ltd.( SCBNL )
6. Himalayan Bank Ltd. ( HBL )
7. Nepal SBI Bank Ltd. ( NSBI)
8. Nepal Bangladesh Bank
Ltd. (NBB )
9. Everest Bank Ltd. (
EBL )
10. Bank of Kathmandu
Lumbini Ltd. ( BOK )
11. Nepal Credit and
Commerce Bank Ltd. ( NCC )
12. NIC ASIA Bank Ltd. (
NIC )
13. Machhapuchhre Bank
Ltd. ( MBL )
14. Kumari Bank Ltd. (
Kumari )
15.
Laxmi Bank Ltd. ( Laxmi )
16.
Siddhartha Bank Ltd. ( SBL )
17.
Agriculture Development Bank Ltd. ( ADBNL )
18.
Global IME Bank Ltd. ( Global )
19.
Citizens Bank International Ltd. ( Citizens )
20.
Prime Commercial Bank Ltd. ( Prime )
21.
Sunrise Bank Ltd. ( Sunrise )
22.
NMB Bank Ltd. ( NMB )
23.
Prabhu Bank Ltd. ( PRABHU )
24.
Janata Bank Nepal Ltd. ( Janata )
25.
Mega Bank Nepal Ltd. ( Mega )
26.
Civil Bank Ltd. ( Civil )
27.
Century Commercial Bank Ltd. ( Century )
28.
Sanima Bank Ltd. ( Sanima )
1.2. Profile of Organization
In
this section, general introduction of the banks under study is being attempted
to furnish for the easy reference of the samples to research.
Nabil Bank Limited
Nabil
Bank Ltd, the first commercial bank was incorporated in 1984. Dubai Bank Ltd
was the initial joint venture partner with 50% equity investment. The shares
owned by Dubai Bank Ltd(DBL) were transferred to Emirates Bank International
Ltd(EBIL) Dubai. Later on EBIL sold its entire stock to national Bank Ltd,
Bangladesh(NBLB).
The present configuration consists of 50%
share capital by National Bank Ltd, Bangladesh. 10% NIDC, 9.66% Rastriya Bema
Sansthan, 0.34% Nepal Stock Exchange and 30% Nepalese public.
At present 73 branches of this bank are operating different parts of the
country. Authorized capital and paid up capital of Nabil Bank Ltd are Rs.1600
million and Rs. 965.74 million. This bank was awarded as the “Bank of year
2004”.
Nabil
Bank Ltd undertakes the following activities and services:
Ø Tele
banking
Ø Credit
card facilities
Ø SWIFT
Ø Deposit
Locker
Ø Western
Union Money Transfer
Ø ATM
Ø International
Trade and Bank Guarantee
1.3. Objective of the study
Different
profitability ratios provide different useful insights into the financial
health and performance of any financial institution like bank. For example,
gross profit and net profit ratios tell how well the company is managing its
expenses. For most of these ratios, a higher value is desired. A higher value
means the company is doing well and it is good at generating profits, revenues
and cash flows.
The
main purpose of the study is to examine the current profitability of the bank.
The specific purposes of the study are:
·
To analyze the performance of the bank
over five years
·
To examine the profit of the bank
·
To evaluate the profitability position of
the bank through profitability ratios
1.4. Rationale of the study
Profitability ratios show a company’s
overall efficiency and performance. A
profit is what is left of the revenue a business generates after it pays all
expenses directly related to the generation of the revenue. The study focuses
on profitability ratios, which are a measure of the business’s ability to
generate revenue compared to the amount of expenses it incurs. The
significances of the study are highlighted below:
·
The study helps us to know how effectively
the bank is maintaining its profitability ratios.
·
The study will be a helpful tool for the
policy makers of the bank to review their policies.
·
The study shall guide the stakeholders of
the bank in better analyzing the performance of the bank.
·
The study benefits fellow researchers
conducting research on similar subjects.
·
The study shall be the subject of interest
for financial agencies like stock exchange, stock brokers, competitorse.t.c.
·
The study will be equally significant to
the regulators of the nation like central bank in restructuring the financial
policy of the country.
1.5. Review of literature
1.5.1 Theoretical Review
The
bank should be able to earn income from the medium of investment because it is
a legal person. The objective of the bank is intensified with the concept of
gaining profit. The bank should invest its money to gain the profit. The bank
can invest in various ways. A great lead of cash is deposited in a bank from
different accounts as deposit. The bank invests as loan, the cash fund and the
cash collected from other various sources. In addition to it, the bank spreads
its investment in various profitable sectors for the generation of the income.
Profitability analysis indicates the degree of
success in achieving derived profit. The profitability ratio gives answer to
how effectively the bank is being managed. Also the profitability ratios mainly
studies the earning power of the firm (bank) and depicts almost entire
performance of the bank.
The
main definitions of the profitability analysis are as follows:
“The
operating efficiency and its ability to ensure adequate return to its investors
ultimately depend upon the profit earned by it.”
“Profit
earning is the main objectives to each business concern. At the same time, it
is the effort at every concern to earn maximum profit not only in absolute term
but also in relative term.”
“Profitability
is an indication of the efficiency with which the operations of the business
are carried on profitability analysis, measure management and overall
effectiveness as shown by the returns of enervated sales and investment.”
Determinant factors of bank profitability are
separated to both internal factors which is controlled by bank management and
external factors outside the control of management and under the condition of
massive environment. The basic goal of any business and economic bank is
profitability. Banks use all their efforts to achieve the objectives and meet the economic needs of the community they
serve and they are considered as one of the tools of monetary policy in each
country’s economic system for on one hand gather small savings and wandering
funds and on the other hand in line with the implementation of economic
policies and credit which has been set, direct the financial resources to
steering the wheel of manufacturing and industrial sectors.
Over
the past few years of the establishment of commercial banks, in addition to
financial services for different activities, it has been an effort for
increasing the profitability and less relied on government resources.
Profitability is driven by the ability of the bank in generating sufficient
earnings or in lowering operational cost, implying being more efficient.
Furthermore, due to the special nature of banks, risk taking and leverage are
also very important drivers for profitability. Theoretical academic suggests
that there is a risk return trade off, higher risk is associated with higher
profits. Risk taking could relate to the quality of assets, liquidity of assets
and to the capital structure of a bank. Hence, the following are the factors
that affects the profitability of the bank:
a) Capital strength
The
equity-to-asset ratio measures how much of bank’s assets are funded with
owner’s funds and is a proxy for the capital adequacy of a bank by estimating
the ability to absorb losses.
b) Operational efficiency
Cost to income
ratios shows the overheads or costs of running the bank, including staff
salaries and benefits, occupancy expenses and other expenses such as office
supplies, as percentage of income.
c) Income diversification
The concept of
revenue diversifications follows the concept of portfolio theory which states
that banks can reduce firm-specific risk by diversifying their portfolios.
Moreover, the decline in interest margins during the last decade has changed
the traditional role of banks and forced them to search for new sources of
revenue.
d)
Liquidity
risk
Liquidity risk is
one of the types of risk for banks; when banks hold a lower amount of liquid
assets they are more vulnerable to large deposit withdrawals. Therefore,
liquidity risk is estimated by the ratio of liquid assets to total assets.
e) Size
There is consensus
in academic literature that economies of scale and synergies arise up to a
certain level of size. Beyond that level, financial organizations become too
complex to manage and diseconomies of scale arise. The effect if size could
therefore be nonlinear; meaning that profitability is likely to increase up to
a certain level by achieving economies of scale and bureaucratic. Hence, the
expected size is unpredictable based on academic literature.
f) Asset Quality
There appears to
be consensus that bank profitability is directly related to the quality of the
assets on its balance sheet; that is, poor credit quality has a negative effect
on bank and vice versa. This relationship exists because of an increase in the
doubtful assets, which do not accrue income, requires a bank to allocate a
significant portion of its gross margin to provisions to cover expected credit
losses; thus, profitability will be lower. This was in line with the theory
that increased exposure to credit risk is normally associated with decreased
firm profitability, indicating that banks would improve profitability by
improving screening and monitoring of credit risk.
1.5.2.Review of previous studies
During
the study, the following independent studies have reviewed about profitability
in Nepalese commercial banks:
Chidambram and Alamelu(
1994 ) made a study entitled ,'
Profitability in Banks, a matter of survival ', pointed out the problem of
declining profit margins in the Indian Public Sector Banks as compared to their
private sector counterparts. It was observed that in spite of similar social
obligations; almost all the private sector banks have been registering
both-high profits and high growth rate with respect to deposits, advances and
reserves as compared to the public sector banks. Regional orientation, better
customer services, proper monitoring of advances and appropriate marketing
strategies are the secret behind the success of public sector.
Chandan,CL and Rajput, P.K. (2002)
measured the performance of bank on basis of the profitability analysis.
Profitability
is a measure of firm’s efficiency (Khan&
Jain, 1998). It is also a control measure of the earning power of a firm as
well as operating efficiency.
Weston and Copeland(1998),
described profitability as net result of large number of policies and
decisions. Ratios are used to measure profitability and give final answers to
how effectively the firm is being managed in terms of its financial
performance. Therefore, management, creditors and owners are also interested in
the profitability ratio of the firm (Pandey,
1995)
1.6. Research Methodology
Research
is an original contribution to the existing stock of knowledge of making for
its advancement. It is the pursuit of truth with the help of study,
observation, comparison and experiment. In short, the search for knowledge
through objectives and systematic method of finding solution to a problem is
research. Research Methodology is the way to solve the problem systematically and
scientifically. Research methodology is the investigation tools of any certain
area and it means clearly observation of certain object.
'Research
is undertaken not only to solve a problem existing in the work setting, but
also to add or contribute to the general body of knowledge in a particular area
of interest to the researcher. Research is thus a knowledge, which can be used
for different purposes. It is used to build a theory, develop policies ,
support decision making and solve problems with the opening of new frontiers of
knowledge through research, new concepts and theories are developed to explain,
verify and analyze the social phenomena'(Howard k. Wolf and P.R.
pant, Social Science Research and Thesis Writing, 2nd edition, 2002
).
The basic objective of the chapter is to provide details knowledge about
various methodologies followed in the study. Research methodology is only one
way to reach the objective of the study.
1.6.1. Research Design
Research
Design is the plan, structure and strategy of investigations conceived so as to
obtain answers of research question through analysis of data. It includes an
outline of what the investigator will do from writing the hypothesis and their
operational implications to the final analysis of data. The structure of the
research is more specific, it is the outline, the scheme, and the standard of
the operation of the variables. Strategy, as used here, is also more specific
than plan. In other words, strategy implies how the research objectives will be
reached and how the problem encountered in the research will be tackled.
Decisions regarding what, where, when, how much, by what means concerning an
inquiry or a research study constitute a research design. In fact, research
design is the conceptual structure within which research is conducted; it
constitutes the blueprint for the collection, measurement and analysis of data.
This study is mainly related to quantitative aspects such as various accounting
statement, functional budgets and the actual result of the budgets. As per the
requirements of the study, both descriptive and analytical approaches are used.
1.6.2. Source of Data and Collection
Method
The
major source of data under this study is based on secondary data . Secondary
data are used to analyze the historical trend in profitability management and
primary data are used to find the factor affecting the profitability management
of commercial bank. The source of secondary
data are AGM reports of commercial banks, websites of NRB and sampled banks, bulletins
and publications of different authorities and researchers, journals,
unpublished thesis reports, newspapers etc. In the collection of data,
internet, websites relating to different topics has been used. Similarly,
reference to different books has also been taken in order to complete this
study along with the website of Nabil Bank Ltd. to prepare the data analysis
and presentation.
.
1.6.3. Data Analysis Tools
The
primary and secondary data collected from various sources leads to the logical
conclusion, only if the appropriate tools are adapted to analysis such data.
The collected data has no meaning if such data are not analyzed. As for the
analysis of the data, statistical tools and profitability ratios have been used
as a tools to analyze and present data. The data analysis tools used to
evaluate Nb Bank’s abilare alongside;
1.6.3.1. Statistical tools
Statistical
tools are the measures or the instruments to analyze the collected data from
different sources. In statistics, there are numerous statistical tools to
analyze the data of various natures.In this study, the following statistical
tools have been used to analyze the data;
Average Mean
An
average is a single value related from a group of values to represent them in
some way, a value which is supposed to stand for whole group of which it is
part, as typical of all the values in the group. There are various types of
averages. Arithmetic mean ( A.M. simple and weighted ), median, mode, geometric
mean, harmonic mean, are the major types of averages. The most popular and
widely used measure representing the entire data by one value is the A.M. The
value of the A.M. is obtained by adding together all the items and by dividing
this total by the number of items.
Mathematically,
Arithmetic
Mean (
Where,
n = Number of observations
Standard Deviation
The
standard deviation measures the absolute dispersion. The greater the standard
deviation, greater will be the magnitude of the deviation of the values from
their mean. The small standard deviation means a high degree of uniformity of
the observations as well as homogeneity of a series and vice versa.
Mathematically,
Standard
Deviation (σ)=
1.6.3.2. Profitability Analysis Ratios
Profitability
ratio is the indicators of degree of managerial success in achieving the
objective of profit maximization. It shows the overall efficiency and earning
capacity of the business concern. Profitability is the final result of the
commercial bank. The following ratios are to be used to analyze the
profitability;
Net Profit Margin
This
ratio shows the relationship between Net Profit After Tax (Net income) and
Operating Income. Profit Margin means percentage of net income on operating
income. It is good to be greater profit margin for any business concern.
Operating Income
Net Interest Margin (NIM )
NIM
is another most popular tool of profitability measurement. It shows the
relationship between net interest income and interest earning assets. It means
the percentage of net interest income on interest earning assets.
Interest Earning
Assets
Where,
Net
Interest Income = Interest Income – Interest Expenses
Interest
Earning Assets = Investment + Loan, Advance & bills purchased
Return on Equity (ROE)
Return
on Equity shows the relationship between net profit after tax and shareholders
equity. This ratio measures capacity of the firm in utilizing the shareholders
fund to cash maximum profit. It is good far any institution to be higher.
Common equity
Return on Assets ( ROA )
This
ratio shows the relationship between net profit after tax and total assets.
This ratio measures the profitability of all financial resources invested in
firm assets. It indicates capacity of the firm in utilizing its assets to earn
a maximum profit.
Total
assets
Leverge ratio
The
leverage ratios are calculated to judge the long term financial position. These
ratios are also called ' Capital Structure of Bank.'
(I)
Debt
to total asset ratio (D/A ratio)
Debt to total asset
ratio shows the relationship between the total debt and total asset. It measures
the proportion of total assets financed by the debt.
Total assets
(II)
Debt
to equity ratio (D/E Ratio)
Debt to equity ratio
shows the relationship between total debt and equity. This ratio measures the
relative interest of creditors and owners. It depicts an arithmetical relation
between debt fund and owner’s fund.
Total equity
(III)
Total
Assets Turnover ratio
The total assets
turnover indicates the efficiency with which the firm uses its assets to
generate income. The most importance turnover ratio for commercial bank is the
total assets turnover.
Total
assets
Where,
Operating income = net
income + interest + tax
1.7.Limitations of the study
It
is universally accepted truth that everything has its own limitation. In other
words, everything must function within its scope. Because of various factors,
the study has been limited within the following aspects:
·
This study is mainly based on secondary
data collected from annual reports and financial statements of sample banks and
other published sources like journals, website and magazines on the subject.
·
This study examines and suggests only on
the subject matter of profitability. There are many factors that affect the
performance of commercial banks.
·
The study is mainly focused only on one
bank, which is Nabil Bank Ltd. Therefore, the profitability analysis of other
firms of banking industry may be different.
·
Selected statistical and financial tools
and techniques have been used in the analysis, therefore, the data calculations
may contain some error and a comprehensive findings on impact of profitability
on performance may not be concluded.
·
The study lacks in time and other
resources as well, as it has covered the data of only past five years from FY
2070/71 to 2074/75.
CHAPTER-II
RESULT AND ANALYSIS
The main purpose of
this study is the assessment of the profitability of Commercial banks with
reference to Nabil Bank Ltd. from
2070/71 to 2074/75. Here various tools are used for assessment of
profitability.
2.1. Presentation and Analysis of data:
This chapter deals with the presentation
and analysis of statistics and facts to clearing the research works. Here the
study presents the collected data for various purpose of analysis. The data are
analyzed by using financial and statistical tools to get values of different
variables. The analyzed data are presented clearly and simultaneously using
tables and graphs.
a)Net
Profit Margin
Operating Income
Table no. 1
Comparative Analysis of Net income and
Operating income
(Figure In million)
|
Fiscal
Year |
Net
income |
Operating
income |
Profit
Margin(%) |
|
2070/71 |
2320 |
3549 |
65.37 |
|
2071/72 |
2099 |
3241 |
64.76 |
|
2072/73 |
2822 |
4344 |
64.96 |
|
2073/74 |
3613 |
5464 |
66.12 |
|
2074/75 |
4021 |
5694 |
70.62 |
|
Mean( |
|
|
66.37 |
(Source:
Annual Report of Nabil Bank)
Table no. 1.1
Calculation of Mean
and Standard Deviation
|
Fiscal
Year |
Profit
Margin(X) |
(X- |
|
|
2070/71 |
65.37 |
-1 |
1 |
|
2071/72 |
64.76 |
-1.61 |
2.59 |
|
2072/73 |
64.96 |
-1.41 |
1.99 |
|
2073/74 |
66.12 |
-0.25 |
0.06 |
|
2074/75 |
70.62 |
4.25 |
18.06 |
|
|
=331.83 |
|
=23.7 |
Arithmetic
Mean(
Standard
Deviation(σ)=
Figure 1
Higher
profit margin is better for any bank. The above table shows the profit margin
of Nepal SBI Bank Ltd. for 2070/70 to 2074/75 is 65.37%, 64.76%, 64.96%, 66.12%
and 70.62% respectively. The bank has been able to maintain an average profit
of 66.37% during the study period of five years. In fiscal year 2072/73, the bank has obtained
the lowest profit margin i.e.64.76%. But in fiscal year 2074/75, the bank has
been able to increase its profit margin to 70.62% which is good for Nabil Bank
Ltd.
b)
Net Interest Margin (NIM)
Interest Earning Assets
Table no. 2
Comparative Analysis of Net interest
income and Interest earning assets
( Figure in million)
|
Fiscal
Year |
Net
Interest Income |
Interest
Earning Assets |
Ratio |
|
2070/71 |
3713 |
72967 |
5.09% |
|
2071/72 |
3544 |
96480 |
3.67% |
|
2072/73 |
4340 |
112215 |
3.87% |
|
2073/74 |
5459 |
122606 |
4.45% |
|
2074/75 |
6262 |
142291 |
4.4% |
|
Mean
( |
|
|
4.3% |
|
SD
( σ) |
|
|
0.5 |
(Source: Annual Report of Nabil Bank)
Table no. 2.1
Calculation of Mean and
Standard Deviation
|
Fiscal
year |
Net
Interest Margin(X) |
(X- |
|
|
2070/71 |
5.09% |
0.79 |
0.62 |
|
2071/72 |
3.67% |
-0.63 |
0.39 |
|
2072/73 |
3.87% |
-0.46 |
0.21 |
|
2073/74 |
4.45% |
0.15 |
0.02 |
|
2074/75 |
4.4% |
0.1 |
0.01 |
|
|
21.48% |
|
=
1.25 |
Arithmetic
Mean (
Standard
Deviation(σ)=
Figure 2
Higher
net interest margin is better for any bank. The above table shows the net
interest margin for year 2070/71 to 2074/75 is 5.09%, 3.67%, 3.8%, 4.45% and
4.4% respectively. The ratio is fluctuated compared to other banks. The lowest
Net interest margin is 3.67% in fiscal year 2070/71 whereas in fiscal year
2074/75, the bank has obtained highest NIM which is 5.09%. The average ratio is
4.3% whereas SD is 0.5%. It shows that
the bank has obtained higher NIM in 2074/75 as compared to previous years.
c)Return
on Equity(ROE)
Common equity
Table
no. 3
Comparative
Analysis of Net income and Common equity
( Figure in million)
|
Fiscal
Year |
Net
Income |
Common
Equity |
Ratio |
|
2070/71 |
2320 |
7671 |
30.24% |
|
2071/72 |
2099 |
9519 |
22.05% |
|
2072/73 |
2822 |
11637 |
24.25% |
|
2073/74 |
3613 |
14173 |
25.49% |
|
2074/75 |
4021 |
8043 |
49.99% |
|
Mean( |
|
|
30.40% |
|
SD(
σ) |
|
|
10.12 |
(Source: Annual Report of Nabil Bank )
Table no. 3.1
Calculation of Mean and
Standard Deviation
|
Fiscal
year |
Return
on Equity(X) |
(X- |
|
|
2070/71 |
30.24% |
-0.16 |
0.03 |
|
2071/72 |
22.05% |
-8.15 |
66.42 |
|
2072/73 |
24.25% |
-6.15 |
37.82 |
|
2073/74 |
25.49% |
-4.91 |
24.11 |
|
2074/75 |
49.99% |
19.59 |
383.77 |
|
|
152.02% |
|
=512.15 |
Arithmetic
Mean(
Standard
Deviation(σ)=
Figure
3
Table no.3 shows the relationship between
net income and shareholders fund of sampled banks for the period of five years
and the ratios of all banks are in fluctuating trend. Nabil Bank Ltd. has
maintained the highest ratio of 49.99 in FY 2074/75 while the lowest being in
FY 2071/72 of 22.05 . The bank has maintained average ratio of 30.40% and SD of
10.12%, suggests that the ratios are highly fluctuated and less consistent. ROE
of the bank is in increasing trend.
d)
Return on Assets (ROA)
Total assets
Table no. 4
Comparative Analysis of Net income and Total
Assets ( Figure in million )
|
Fiscal Year |
Net Income |
Total Assets |
Ratio |
|
2070/71 |
2320 |
90293 |
2.57% |
|
2071/72 |
2099 |
118695 |
1.77% |
|
2072/73 |
2822 |
127619 |
2.21% |
|
2073/74 |
3613 |
140697 |
2.57% |
|
2074/75 |
4021 |
160978 |
2.50% |
|
Mean ( |
|
|
2.32% |
|
SD ( σ) |
|
|
0.30 |
(Source:
Annual Report of Nabil Bank )
Table no. 4.1
Calculation of Mean and
Standard Deviation
|
Fiscal
year |
Return
on Assets(X) |
(X- |
|
|
2070/71 |
2.57% |
0.25 |
0.06 |
|
2071/72 |
1.77% |
-0.55 |
0.30 |
|
2072/73 |
2.21% |
-0.11 |
0.01 |
|
2073/74 |
2.57% |
0.25 |
0.06 |
|
2074/75 |
2.50% |
0.18 |
0.03 |
|
|
11.62% |
|
=
0.46 |
Arithmetic
Mean(
Standard
Deviation(σ)=
Figure 4
Higher the return on assets is better for
any bank. The above table shows the ROA for FY 2070/71 to FY 2074/75 is 2.57%,
1.77%, 2.21%, 2.57% and 2.32% respectively. ROA is 2.57% in FY 2070/71 and decreasing
thereafter to FY 2072/73. The highest ROA is maintained in FY 2070/71 and FY
2074/75 i.e. 2.57% in these five years which shows the better position of the
bank.
e) Leverage Ratio
i) Debt to Assets Ratio ( D/A Ratio)
Total assets
Table
no. 5
Comparative Analysis of Total debt and Total assets ( Figure in million )
|
Fiscal
Year |
Total
debt |
Total
assets |
Ratio |
|
2070/71 |
80996 |
90293 |
89.70% |
|
2071/72 |
108643 |
118695 |
91.53% |
|
2072/73 |
114701 |
127619 |
89.88% |
|
2073/74 |
124946 |
140697 |
88.80% |
|
2074/75 |
136071 |
160978 |
84.52% |
|
Mean( |
|
|
88.89% |
|
SD(
σ) |
|
|
2.36 |
(Source: Annual Report of Nabil Bank)
Table
no. 5.1
Calculation of Mean and
Standard Deviation
|
Fiscal
year |
D/A
Ratio(X) |
(X- |
|
|
2070/71 |
89.70% |
0.81 |
0.66 |
|
2071/72 |
91.53% |
2.64 |
6.987 |
|
2072/73 |
89.88% |
0.99 |
0.98 |
|
2073/74 |
88.80% |
-0.09 |
0.008 |
|
2074/75 |
84.52% |
-4.37 |
19.09 |
|
|
444.43 |
|
=
27.73 |
Arithmetic
Mean (
Standard
Deviation(σ)=
Figure
5
The
above table shows the debt to total assets ratio of FY 2070/71 to FY 2074/75
i.e. 89.70%, 91.53%, 89.88%, 88.80% and 84.52% respectively. Low debt ratio is
relatively good for the bank. But in the
above table, it shows that the debt ratio of Nabil Bank Ltd. is very high in FY
2071/72 i.e. 91.53% which indicate that the capital structure of the bank is
not so good. Because higher the debt, higher the risk is. In FY 2074/75, the
bank is able to minimize its debt to total assets ratio as compared to previous
four years i.e.84.52% .The average ratio of the bank is88.89% and SD is 2.36.
ii) Debt to Equity Ratio ( D/E Ratio)
Total
equity
Table no. 6
Comparative Analysis of Total debt and Total equity ( Figure in million)
|
Fiscal Year |
Total debt |
Total equity |
Ratio |
|
2070/71 |
80996 |
7671 |
10.56:1 |
|
2071/72 |
108643 |
9519 |
11.41:1 |
|
2072/73 |
114701 |
11637 |
9.86:1 |
|
2073/74 |
124946 |
14173 |
8.82:1 |
|
2074/75 |
136071 |
8043 |
16.92:1 |
|
Mean( |
|
|
11.51:1 |
|
SD( σ) |
|
|
2.83 |
(Source: Annual Report of Nabil bank)
Table no. 6.1
Calculation of Mean and
Standard Deviation
|
Fiscal
year |
D/E
Ratio(X) |
(X- |
|
|
2070/71 |
10.56:1 |
-0.95 |
0.90 |
|
2071/72 |
11.41:1 |
-0.1 |
0.01 |
|
2072/73 |
9.86:1 |
-1.65 |
2.72 |
|
2073/74 |
8.82:1 |
-2.69 |
7.24 |
|
2074/75 |
16.92:1 |
5.41 |
29.27 |
|
|
57.57 |
|
=
40.14 |
Arithmetic
Mean(
Standard
Deviation(σ)=
Figure
6
Above
tables shows the debt equity ratio for the FY 2070/71 to FY 2074/75
i.e.10.56:1, 11.41:1, 9.86:1, 8.82:1 and 16.92:1 respectively. In capital
structure of Nabil Bank Ltd, debt proportion is much more than owner’s equity.
It is an unfavorable signal to the creditors of Nabil Bank Ltd. The highest debt
equity ratio is in FY 2074/75 i.e. 16.92:1 and lowest debt equity ratio is in
FY 2073/74 i.e.8.82:1 . The average debt equity ratio is 11.51:1 and SD is 2.83.
iii) Total assets turnover ratio
Total assets
Table
no. 7
Comparative Analysis of Operating income
and Total asset ( Figure in
million )
|
Fiscal
Year |
Operating
income |
Total
asset |
Ratio |
|
2070/71 |
3549 |
90293 |
3.93% |
|
2071/72 |
3241 |
118695 |
2.73% |
|
2072/73 |
4344 |
127619 |
3.40% |
|
2073/74 |
5464 |
140697 |
3.88% |
|
2074/75 |
5694 |
160978 |
3.53% |
|
Mean( |
|
|
3.49% |
|
SD(
σ) |
|
|
0.44 |
(Source: Annual Report of
Nabil Bank)
Table
no. 7.1
Calculation of Mean and
Standard Deviation
|
Fiscal
year |
Total
Asset Turnover Ratio(X) |
(X- |
|
|
2070/71 |
3.93% |
0.44 |
0.19 |
|
2071/72 |
2.73% |
-0.76 |
0.58 |
|
2072/73 |
3.40% |
-0.09 |
0.008 |
|
2073/74 |
3.88% |
0.39 |
0.15 |
|
2074/75 |
3.53% |
0.04 |
0.0016 |
|
|
17.47% |
|
= 0.9296 |
Arithmetic
Mean(
Standard
Deviation(σ)=
Figure
7
The
above table and figure shows the Total assets turnover ratio for the FY 2070/71
to FY 2074/75 i.e.3.93%, 2.73%, 3.30%, 3.88% and 3.53% respectively. The total
assets turnover ratio is increased in FY 2070/71 i.e. 3.93% . Then it is in
decreasing trend. The lowest total assets turnover ratio is 2.73% in FY 2071/72
in this five years. It shows that the
efficiency with which the bank uses its assets to generate income is less in
other FYs.
2.2. Findings
|
Particulars |
2070/71 |
2071/72 |
2072/73 |
2073/74 |
2074/75 |
|
a)Net
profit margin |
65.37% |
64.76% |
64.96% |
66.12% |
70.62% |
|
b)Net
interest margin |
5.09% |
3.67% |
3.87% |
4.45% |
4.4% |
|
c)ROE |
30.24% |
22.05% |
24.25% |
25.49% |
49.99% |
|
d)ROA |
2.57% |
1.77% |
2.21% |
2.57% |
2.50% |
|
e)D/A
ratio |
89.70% |
91.53% |
89.88% |
88.80% |
84.52% |
|
f)D/E
ratio |
10.56:1 |
11.41:1 |
9.86:1 |
8.82:1 |
16.92:1 |
|
g)Total
assets turnover ratio |
3.93% |
2.73% |
3.40% |
3.88% |
3.53% |
The
study has been undertaken to evaluate the financial performance of assessment
of profitability analysis of Nabil Bank Ltd. The financial statement of five
years has been considered for the performance analysis of the bank.
Overall,
the study shows that the bank financial position is good and it has succeeded
to earn a good amount of profit.
CHAPTER-III
SUMMARY
& CONCLUSION
This
chapter includes summary and conclusion of the study. The final and the most
important task of the researchers is to enlist the fact-findings of the study and
give for futher improvements. The analysis is performed with the help of
financial tools and statistical tools. The analysis is associated with
comparison and interpretation. Under financial analysis various financial
ratios and statistical ratios related to the profitatbility are used.
3.1.Summary
Basically,
the entire research work has focused on the comparative study on profitability
analysis in Nepalese Commercial Banks. For the study, Nabil Bank Ltd. is taken
as a sample by taking five years ( FY 2070/71 to FY 2074/75 ) secondary data.
The objective of the study is to find out and analyze the profitability
ratios practice in Nepalese Commercial
Banks. To fulfill the main objectives, following specific objectives are
formulated.
·
To analyze profitability profile of Ltd
and Nabil Bank Ltd.
·
To identify factors affecting the
profitability position and its management in Nepalese Commercial Banks.
·
To examine the effectiveness of
profitability in Nepalese Commercial Banks.
·
To provide suggestions and recommendations
about profitability management in commercial banks.
In
first chapter, brief introduction of profitability analysis, focus of the
study, significance of the study, research objectives, brief introduction of
sampled bank, limitation of study and research schemes are included and
theoretical review has been made. Different theories, policies , rules and
regulations about profitability analysis are reviewed. During the study of
different books, journals, previous studies, websites, reports are viewed to
know about the profitability analysis along with Research design, population
and sample and analysis tools . The data are mostly collected from secondary
source for the study. The secondary data are collected from annual papers of
sampled bank. After collecting the data from different source, it is analyzed
by using financial and statistical tools and techniques.
An
attempt has been made to fulfill the objectives of the research work in chapter
two. In this chapter, all the secondary data are compiled, processed and
tabulated as pro the necessity and figures; diagrams are also used to present
it clearly.
This
study suffers from different limitations; time and resources are the
constraints of the study. Therefore, the study may not be generalized in all
cases and accuracy depends upon the data collected and provided by the
organization and respondents.
3.2. Conclusion
As
per the objectives and analysis of data following, conclusion has been drawn.
In present scenario, bank are the institution to earn profits. The conclusion
of the study are explained as
Profitability ratios
Profitability
ratio shows that the profitability position of Nabil Bank Ltd. is good because
its profit margin is increased in FY 2074/75 .
Net
interest margin of the bank is also higher in FY 2070/71 i.e. 5.09% .Then,it is
in decreasing rate in next two years and increased thereafter which shows that
there is a better percentage of net interest income on interest earning assets.
It
is good for any institution to obtain higher ROE. ROE of the bank is increased in FY 2074/75 which shows the capacity of the bank in
utilizing the shareholders fund to cash maximum profit is more .
ROA
of the bank is more in FY 2070/71 i.e. 2.57% then after it is decreasing which
shows that the capacity of the bank in utilizing its assets to earn a maximum
profit is less.
Leverage ratios
Lower
D/A ratio is relatively good for any firm. D/A ratio of Nabil Bank Ltd. is
higher which shows that the capital structure of the bank is not good because
high debt means high risk.
D/E
ratio of the bank shows that the debt proportion of the bank is much more than
the owner’s equity which indicates the unfavorable signal to the creditors.
Total
assets turnover ratio is in decreasing trend which shows that the bank efficiency
with which the firm uses its assets to generate income is less.
BIBLIOGRAPHY
CA
SurbiBansal, (2008), Auditing and Assurance, New Delhi: Bestwords Publication
Pvt. Ltd.
Chandan
CL and Rajput ( 2002), 'Profitability analysis of Bank in India: A Multiple
Regression Approach', Indian Management Studies Journal.
Chidambram
and Alamelu (1994), 'Profitability of banks, a matter of survival', The Banker.
Gupta,
S.P. (1990), Statistical Methods, New Delhi: Sultan Chand and Sons publishers.
Kerlinger,
F.N. (2002), Foundation of Behavioural Research, New Delhi: Surjeet
Publications.
Khan
and Jain(1998),Management Accounting, New Delhi: Tata Mcgraw Hill
Kothari,
C.R. (1994), Research Methodology, New Delhi: Vikash Publishing House Pvt. Ltd.
Pandey
(1995), Finance: A management guide, PHI Learning Pvt. Ltd.
Panta P.R. and Wolf,H.K. (2000), Social Science and
Thesis Writing, Kathmandu:Buddha Academic Enterprises.
Pradhan,
R.S. (2004), Financial Management, Kathmandu: Buddha Academic Enterprises.
Weston
and Copeland (1998), Managerial Finance, New York : CBS college publishing
Reference:
Annual
Report of Nabil Bank Ltd. from 2070-2074
Books
and Journals
Website:
www.nabilbank.com.np
Appendices-I
(in million )
|
Fiscal Year |
Net Income |
Operating Income |
Net Interest Income |
Interest Earning Assets |
Common Equity |
Total Assets |
Total Debt |
|
2070/71 |
2320 |
3549 |
3713 |
72967 |
7671 |
90293 |
80996 |
|
2071/72 |
2099 |
3241 |
3544 |
96480 |
9519 |
118695 |
108643 |
|
2072/73 |
2822 |
4344 |
4340 |
112215 |
11637 |
127619 |
114701 |
|
2073/74 |
3613 |
5464 |
5459 |
122606 |
14173 |
140697 |
124946 |
|
2074/75 |
4021 |
5694 |
6262 |
142291 |
8043 |
160978 |
136071 |
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