1

A LOAN MOBLISATION OF EVEREST BANK LIMITED

A Project Work Report

By:
Anil Thakuri
T.U. Regd. NO.7-2-0039-1225-2015
4th Year Exam Symbol No.390072
Shankar Dev Campus, Putalisadak

Submitted To:
Faculty of Management
Tribhuvan University
Kathmandu

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu
May, 2019
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DECLARATION

I hereby declare that the project work entitled “LOAN MOBILIZATION OF

EVEREST BANK LIMITED” submitted to the Faculty of Management, Tribhuvan
University, Kathmandu is an original piece of work under the supervision of
Madhusudan Gautam lecturer, Shankar Dev Campus, Kathmandu, and is submitted in
partial fulfillment of the requirements for the award of the degree of Bachelor of
Business Studies (BBS). This project work report has not been submitted to any other
university or institution for the award of any degree or diploma.

……………….
Anil Thakuri
Date:
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SUPERVISOR'S RECOMMENDATION

The project work report entitled "LOAN MOBILIZATION OF EVEREST BANK

LIMITED", submitted by Anil Thakuri of Shankar Dev Campus, Kathmandu is
prepared under my supervision as per the procedure and format requirements 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 (BBS). I,
therefore, recommend the project work report for evaluation.

……………..
Madhusudan Gautam
Supervisor
Date :
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ENDORSEMENT

We hereby endorse the project work report entitled “LOAN MOBILIZATION OF

EVEREST BANK LIMITED” submitted by Anil Thakuri of Shankar Dev Campus,
Putalisadak, in partial fulfillment of the requirements for award of the Bachelor of
Business Studies (BBS) for external evaluation.

…………………… ……….……………………
Prof. Amuda Shrestha Asso. Prof. Krishna Prasad Acharya
Head of Research Department Campus Chief
Date : Date :
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ACKNOWLEDGEMENT

The project work report titled “Loan Mobilization of Everest Bank Limited " had been
undertaken to assess the financial performance of Himalayan Bank Limited. The
study is based on the secondary. The study conducted solely for the purpose for the
partial fulfillment of the requirement for Bachelor Degree in Business Studies (B.B.S)
from Tribhuvan University.

I express my sincere gratitude to my respected supervisor Mr. Madhusudan Gautam

for his valuable guidance, support and continuous inspiration for the completion of
the project work.

I am extremely indebted to my parents and brother who have contributed their

valuable time and resources in making me what i am now.

I owe great intellectual debt for support and immense contribution to administrative of
Everest Bank. I am thankful to library staffs of Shankar Dev Campus and TU. Library
for their co-operation.

Anil Thakuri
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TABLE OF CONTENTS
Page No.
Title Page i
Declaration ii
Supervisor’s Recommendation iii
Endorsement iv
Acknowledgement v
Table of Contents vi
List of Tables vii
List of Figures viii
Abbreviations ix
CHAPTER I: INTRODUCTION
1.1 Background 1
1.2 Profile of Organization 2
1.3Problem Statement 2
1.4Objectives of the Study 3
1.5 Rationale of the Study 3
1.6 Review of Literature 3-18
1.7 Research Methodology19-23
1.8 Limitation of the Study 24
CHAPTER II: RESULTS AND ANALYSIS
2.1 Data Analysis 25
2.2 Major Finding of the Study 34-35
CHAPTER III: SUMMARY AND CONCLUSION
3.1 Summary 36
3.2 Conclusion 36-37
Bibliography 38
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LIST OF TABLE

Title Page No.

4.1 Total Assets 25
4.2 Total Deposit 26
4.1 Sector wise detail of Loan and Advance 27-28
4.2 Total Loan and Advance 29
4.3 Non Performing Loan 30
4.4 Percent of Non-Performing Loan and Advance 30-31
4.5 Interest Rate 31 -32
4.6 Loan and Advance to Total Deposit Ratio 33
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LIST OF FIGURES

Title Page No.

4.1Total Assets 25
4.2Total Deposit 26
4.1Sector wise detail of Loan and Advance and advance 27-28
4.2Total Loan and Advance 29
4.3 Non performing Loan 30
4.4 Percent of Non-Performing Loan and Advance to 30-31
4.5 Interest Rate 31-32
4.6Loan and Advance to Total Deposit Ratio 33
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CHAPTER ONE

INTRODUCTION

1.1 Background of Study

Banks are the most widely known and important institutions among the various
modern institutions. In regarding to the origin of the word "bank" there are two
viewpoint mainly. At first it is supposed to be derived from the Latin word "Bancus"
or the French word "Bench" and the Italian word "Banca" which all mean the same
i.e. bench. It is so since in earlier days the banking functions were done by sitting on
the bench. The second is the origination from German word branch, which means the
joint fund. In this sense, both are similar to the fact modern banking was started with
the establishment of the bank of England .After that in other parts of the world banks
were established. There was the system of granting loan in Nepal from ancient time.
The real banking had established with the establishment of NRB in 1994 B.S.

In finance, a loan is the lending of money from one individual, organization or entity
to another individual, organization or entity. A loan is a debt provided by an entity
(organization or individual) to another entity at an interest rate, and evidenced by
a promissory note which specifies, among other things, the principal amount of
money borrowed, the interest rate the lender is charging, and date of repayment. A
loan entails the reallocation of the subject asset(s) for a period of time, between
the lender and Borrower.

In a loan, the borrower initially receives or borrows an amount of money, called

the principal, from the lender, and is obligated to pay back or repay an equal amount
of money to the lender at a later time.
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1.2 Background of EBL

Nepal is an agricultural and developing country with a very unique physical setting
surrounded by India and China. For the economic development of any country banks
are playing a vital role.Among the overall bank in Nepal, EBL is one of them, which
lies in the lap of Kathmandu district and Bagmati Zone. It is situated in the Heart of
Kathmandu city at New Baneshwor.

Everest Bank Ltd (EBL),Founded in 1994, the Bank has been one of the leading
banks of the country and has been catering its services to various segments of the
society. The Bank has helped the nation to develop corporately, agriculturally &
industrially. Joint venture with Punjab National Bank The Partner (holding 20%
equity) is one of the largest nationalized bank in India having presence virtually in all
important centers. With the decision of Loans and AdvanceEBLinvest their reserve to
the group of Companies, Professionals, industrialist, businessman.

In a loan, the borrower initially receives or borrows an amount of money, called

the principal, from the lender, and is obligated to pay back or repay an equal amount
of money to the lender at a later time.

1.3 Statement of Problem

Thus, the present study seeks to explore the efficiency and weaknesses of loan
procedure of EBL. Attempts have also been made to explore the answers to the
following questions.

 What are the various types of loan provided by the bank?

 What is the loan management process?
 What are the various market interest rates?
 How information flows between different levels of management while
approving the loan?
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1.4 Objectives of Study

Everest Bank Ltd is a currently established company, which is serving the people of
community to fulfill their banking needs up to the large extent. The bank is moving
forward towards the achievement of success of organizational aim. The scope of my
report is to know about the system of Loan Management in EBL, which is undertaken,
basically with the objectives of discussion, examination and evaluating the Loan
Management of EBL. The objectives of report are:

 To study about the various types of loan provided by the bank.

 To study loan management process.
 To examine the various market interest rate.
 To examine how the information flow between different levels of management
while approving the loan.

1.5 Rational of the Study

As we know that the main importance of commercial bank is loan mobilization by

using reserve they have. Thus, the importance of the field work, apart from the
requirement of BBS program covered under the point mentioned below :

i. To draw out the problems of the Everest Bank Limited.

ii. To draw the attention of concerned parties about the loan management
system though these days competition has been increased between banks.

1.6 Review of Literature

1.6.1 Conceptual Review

This is the survival unit of the bank because until and unless the success of this
department is attained, the survival is a question to every bank. If this section does not
properly work in the bank it may become bankrupt. This is important because this is
the earning unit of the bank. Banks are accepting deposits from the depositors in
condition of providing interest to them as well as safe keeping their interest. Now the
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question may gradually arise how the bank will provide interest to the clients and the
simple answer is – Loans & Advance.

Loan and Advance is continuous process. Recovery of one Loan and Advance helps
to rise another Loan and Advance. In this process of revolving of funds, bank earns
income in the form of interest. A bank can invest its fund in many ways. Bank
provides loans and advances to traders, businessmen, and industrialists. Moreover
nature of Loan and Advance may differ in terms of security requirement,
disbursement provision, terms and conditions etc. The bankers have to keep in mind
that lending is for the best interest of the community and lending should be directed to
productive sectors only.

We often use loans and advances as an alternative to one another. But academically
this concept is incorrect. Academically Advances is the combination of such items
where loans is a part only. For this Loan and Advance section of the banks is known
as advance section. Academically Advance is the combined form of the following
items.

1.6.2Functions of Loans and Advance Department:

 Ensuring that funds are disbursed only after compliance with terms and
conditions or required documents received.

 Make sure that the bank has always valid and current loan documentation.

 Ensuring that the collateral security is adequate at times to support the loans.

 Keeping the loan documentation under safe custody.

 Ensuring that the bank receives sufficient valid insurance cover whenever
required from a recognized insurance company.

 Monitoring the receipt of periodical receivable.

 Debiting the client for all charges, interest etc.

 Maintaining the central liability records for all extensions of Loan and Advance
and balancing the totals with General Ledger.

 To earn interest from the borrowers and give the depositors interest.
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 To accelerate economic development by providing different industrial as well

as agricultural advances.

 To create employment by providing industrial loans.

 To pay the employees as well as meeting the interest groups.

1.6.3Lending

Lending involves elements of risks. The element of risk, in the main operations of a
bank, leads to the necessity of Loan and Advance investigation. It presupposes right
selection of borrower, which needs complete and comprehensive investigation of all
the facts. As a matter of fact, much of the worries of the lending banker is over if
correct type borrowers can be selected. To arrive at a decision about selection of a
borrower the banker needs to collect a long chain of information about the borrower.
Usual loan application forms when filled in by the applicant provide the banker with
almost all the required particulars pertaining to the advance. The banker’s
responsibility is to verify and correlate those statements and to prepare a Loan and
Advance report, which is expected to give a complete, clear, correct and reliable
record of the character, means and business integrity of the borrower. On the basis of
Loan and Advance information and Loan and Advance report, the banker may arrive
at a reasonably correct decision about the proposed advance. Loan and Advance
investigation is, therefore, a sacred and obligatory job of a lending banker for
administering his lending operations with success.

1.6.3.1Sound Principles of Lending:

It is a fundamental precept of banking everywhere that advances are made to

customers in reliance on his promise to repay, rather than the security held by the
banker. Although all lending involves some degree of risks, it is necessary for any
bank to develop sound and safe lending policies and new lending techniques in order
to keep the risk to a minimum. As such, the banks are required to follow certain
principles of sound lending.

 Safety
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 Liquidity
 Purpose
 Profitability
 Security
 Spread/ Diversity
 National interest

Safety: Advances should be expected to come back in the normal course. The
repayment of the loan depends upon the borrower’s capacity to pay and willingness to
pay. The capacity depends upon the tangible assets of the borrower. The willingness
to pay depends upon the honesty and character of the borrower.

Liquidity: Liquidity is the availability of bank funds on short notice. The borrower
must be in a position to repay within a reasonable time. Liquidity also signifies that
the assets should be salable without any loss.

Profitability: A banker has to see that major portion of the assets owned by it are not
only liquid but also aim at earning a good profit. The difference between the interest
received on advances and the interest paid on deposits constitutes a major portion of
bank’s income. Besides, foreign exchange business is also highly remunerative.

Purpose: A banker would not throw away money for any purpose for which the
borrower wants. The purpose should be productive so that the money not only
remains safe but also provides a definite source repayment.

Security: Security serves as a safety valve for an unexpected emergency. The security
offered for an advance is a cushion to fall back upon in case of need. An element of
risk is always present in every advance however secured it might appear to be.

Spread/ Diversity: The advances should be as much broad-based as possible and

must be in keeping with the deposit structure. The advances must not be in one
particular direction or to one particular industry. Again, advances must not be granted
in one area alone.
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National Interest: Bank has significant role to play in the economic development of
a country. The banker would lend if the purpose of the advance is for overall national
development.

1.6.4 Loan and Advance Investigation:

Different phases of Loan and Advance Investigation:

 Collection of information of the entrepreneur

 Preparation and analysis of this information in order to determine Loan and
Advanceworthiness of the borrower/ entrepreneur
 Making decisions and recommendations about the borrower
 Furnishing Loan and Advance information to other bankers
 Retention of the information for future use

1.6.4.1 Sources of information for Loan and Advance investigation:

1 Personal Interview:
The first and most obvious information that can be derived from the borrower by
personal interview in the following manner:

A. Refreezing:
 Try to get introduced with the entrepreneur
 Be informal with him
 Know him personally and earn his acceptance
 Be frank, upright and sincere

B. Assessing achievement need:

 Ask about his past experiences during student life and afterwards and try to
assess whether he is a winner character or loser
 Mark his enthusiasm when the entrepreneur describes his achievement/
success
 Try to assess the extent of optimism and pessimism
 Make notional rating about his achievement need (positive/neutral/negative)
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C. Assessing attitudes of the Entrepreneur:

 Try to note entrepreneur’s responses indicating his inclination to literature,

business, economics, history etc.
 Check and recheck if his attitude is proper towards business management
 Examine his responses and deliberations to find out whether trend of response
is positive or negative
 Try to assess his attitudes on the above lines and rank him accordingly
(High/average/low)

D. Assessing overall knowledge about the project:

 Discuss about the project the entrepreneur has submitted

 Check if he is familiar with the project that contained in the profile
 Check the information given by the entrepreneur contained in the profile
 Rank his project knowledge according to the correctness of project
information (high/modest/low)

E. Assessing Management skill:

 Try to assess entrepreneur’s skills in managing people, material resources and

financial resources
 Try to know his capability about assessing others
 Note if he is critical about others
 Note his appreciation about others
 Assess his knowledge about the product/service
 Assess his knowledge about the competitors
 Assess his knowledge about the price, consumer group and consumer behavior
 Assess his knowledge about actual market where his product is likely to be
marketed
 Assess his knowledge about demand gap
 Rank his management skill on the basis of above discussion
(high/average/low)
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2. Borrower’s Loan Application: Loan application entails a detailed questionnaire

where from borrowers answer provide some basic information

3. Bank’s own record: Bank’s own record provides applicant’s transaction behavior.
In case of old borrower information are available regarding previous borrowings
and the repayments were made as per sanction stipulation.

4. Reports obtained through friends or rivals: Banks may obtain information about
the borrowers in the same line of trade or business.

5. Confidential Report/ Status Report from fellow bank

6. Spot verification

7. Market reports

8. Financial statement of the applicant

9. Income Tax statement

10. Report from CIB

11. Trade checking

12. Reports from Chamber of Commerce and Industry

13. Reports from Registrar of Joint Stock Company in case of Limited Company

14. Personal visit to the applicant’s business, plant or trade center

15. Other sources:

 Press reports regarding purchase, sale, auction of property

 Registration records, municipal records etc.

1.6.4.2 Preparation of Loan and Advance Report:

On the basis of Loan and Advance investigation, bankers prepare a Loan and Advance
report for the applicant usually as per preformed used by the respective bank. The
report generally includes the following under different ownership:

 Name
 Worth
 Date
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 Registered Office
 Address (present, permanent and business)
 Nature of business
 Constitution of the firm
 Date of establishment
 Incorporation and Commencement certificate
 Associates and allied concerns with details of assets and liabilities
 Manufacturing and Trading Account
 Profit & Loss Account
 Analysis of Balance Sheet
 Facilities requested
 Ability to furnish equity and collateral
 Other bank report
 Manager’s opinion

1.5.4.3Loan and Advance Report Analysis:

An analytical study is required whether a particular project is accepted or rejected:

 Managerial Aspect
 Organizational Aspect
 Technical Aspect
 Marketing Aspect
 Financial Aspect
 Economic Aspect

Selection of Borrowers: Selection of borrowers is to be considered as per lending

principles and Bangladesh Bank Guidelines.

Borrower Selection Criteria: The following points should be taken into

consideration:

 The borrower must be a real entrepreneur

 He must be resident of the project area
 He should have at least 20% of the total project value as his equity
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 He should have the ability to offer collateral security acceptable to the lending
bank

Methods of Selection:

In selecting the borrower, the following aspects should be considered

 Past behavior of the borrower requires to be studied. Enquiry should be made

whether the applicant has availed of any loan previously from other bank and
whether his dealings with that bank are regular or not.
 Work experiences of the intending borrower—what are the activities undertaken
by him—his successes and failures along with analysis of the underlying factors.
 Whether the work area has any relevance to the project proposed to be
undertaken y him.

On investigation and enquiry the banker reaches his conclusion to select a borrower
that qualifies the 5(five) essentials, which may be termed as five C’s:

 Character

 Capacity

 Capital

 Condition

 Collateral

A. Character: Character denotes integrity of the borrower i.e. he should have

willingness to repay the money borrowed. The banker should investigate every
aspect of the character factor and should convince himself that despite adverse
conditions, the applicant will make every effort to discharge his debt as per
terms.

B. Capacity: Capacity means the ability to employ the funds profitably according
to the terms and conditions. The capacity of the borrower has to be determined
to find out his experiences in the line in which he is working.
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C. Capital: Capital denotes financial soundness. The borrower must have his own
stake in the business which creates a sense of involvement in the mind of the
borrower. Capital is the financial strength of a risk as measured by the equity or
net worth of the business.

D. Condition: Condition refers to the general business condition and the

conditions in the particular industry in which the borrower is engaged. The
banker should exercise prudence whether the business establishments are
existent and continuing their business.

E. Collateral: Collateral implies the additional securities taken to offset

weaknesses that are apparent. All of the collateral that may be made available
to the bank will not make a bad loan good but it will make good loan better.
While assessing valuation of collateral securities bankers need to take extra
care by sampling survey and by examining information from land revenue
office and also enquiring people nearby. The documents of the collateral
securities are to be verified from the concerned Sub-Registered Office and
other related office.

1.6.5 Type of Loan

This organization provides different types of loan in the following topics:

1.6.5.1 Hire purchase Loan:

Under the hire purchase loan, the client acquire the possession of goods immediately
and agrees to the total hire purchase price in installment is treated as a hire charge
until the payment of the last installment when ownership of goods passes from the
EDB: to the client. In case of the client make any default in the payment of any
installment the EBL will have a right to repossess these.
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1.6.5.2 Business Loan:

Business loan is provided to the business holders to improve their capability to run
their business wifely and to the client to set up his/her new business without sufficient
fund you can establish a new firm or run it smoothly. For Business purchase, we need
short and tern funds, so, the EBL provides such loan to the business person. In this
type of loan, the EBL change as maximum 15.5% and minimum 15% interest rate.

1.6.5.3 Service business loan:

The EBL provides loan to different types of services like transport, supply service,
welfare service.

 Transport services: Bus, truck, car, van, etc.

 Supply services: gas supply, electricity supply, water supply etc.
 Welfare services: hospital, canteen, libraries, school etc.

Industrial loan:

 The EBL also makes their rules in development industrial sector whether it is
small-scale industry or large –scale industrials by giving such industrial loan to
the industrials, also is helping in Nepal's industrial development where interest
rate is maximum 15.5% and minimum 15% interest rate.

Agricultural loan:

 The EBL also make aim in development in the field of agricultural. It gives
different types of amount per remote areas farmer for their different kinds of
purpose such as farming diary. EBL gives this small scale of loan by putting
their financial document like lalpurja. The EBL charges interest of maximum
15.5% and minimum 14.5% for these types of loan.

Miscellaneous loan:

 Besides above mentioned loan, EBL can provided different kinds of loan in
these types of loan, the EBL change interest rate of maximum 18.5% and
minimum 17.5%.
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Educational loan:

 The bank offers this loan to the students undergoing for higher studies in Nepal
or abroad. This type of loan can be extended to students per parents to the extent
of maximum 80% of the cost of the tuition fee, hospital and travel expenses
against the mortgage change over fixed assets.

1.5.5.4 Process of lending

The process of lending loan to the client is depending upon the nature, rules,
regulation and poster of the board of directors of the organization. The process
followed by the EBL while providing, loan to the clients are as follows:

Loan application

 The process of lending loan to the client begins when the client submit to the
company demanding loan. The clients has to submit firms/industries registration
certificate, tax clearance certificate, personal and copy od collateral.

Interview:

 After receiving the application letter the office conduct face to face conversation
with the client which help them to achieve an essential and critical information
about the borrower.

Investigation:

 After receiving the important information about the borrower, the loan in charge
goes to the site visit to find out the face about the borrowers sources of income,
about his project and collateral.

Decision of loan committee

 After investigation, the investigator narrate to the loan committee. the decision
committee decides whether to provide or not to provide how much to provide.
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Valuation of the collateral

 After decision of the loan committee, loan in charge evaluates the securities. In
case, if the loan in charge feels the difficulties to evaluate the securities then that
security is evaluated by the engineer by preparing the valuation report of the
collateral.

Documentation:

 After the valuation of the collateral, the loan in charge needs various kinds of
legal document to keep his organization free from risks. The ckeck list differs
according to the types of loan.

Loan approved:

 After getting the all necessary and legal document loan in charge approved to
provide loan to the clients.

Disbursement:

 The loan amount is distributed to the client by the cash department only after it
is approved by the loan committee. Generally it provide 50% of the total value
of securities as a loan. In case of reliable and regular clients of the company may
provide 75% of the total value of securities as loan.

1.6.5.5 Collateral Requirement:

To take loan from Development Bank, collateral of land and building are acceptable
assets such as Machinery, vehicles, and share of blue chips companies etc will be
taken. The loan normally up to 50% of such collateral's distress value will be
provided. The limit can be increased up to 70% if the party has good financial relation
and have a better financial record with the bank.
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1.6.5.6 Duration of the loan:

In the EBL the loan is provided for the different time duration. Considering the nature
of business and character of clients the duration of loan is determined. Mostly it also
depends upon the client’s inflow sources and ability to repay the interest with the
principal repayment will be monthly, quarterly, half yearly basis depending upon the
nature of business and capacity of the client. A grace period up to 1 year for the
repayment of the principal can be considered, if the client is reliable. The penalty @
7% is charged to those clients who failed to repay the interest along with the principal
in the maturity period.

1.6.5.7 Site Visit

Site visit is done to see the project which is conducted by the client to know the
strength of the collateral proposal, repayment capacity, client’s status and location of
the client and the fast. It plays very important role in the lending real fact about the
client and its location and collateral, the loan department's staff is appointed by the
Manager or managing Director for site visit as follows:

Manager/Assistant Staffs: loan up to Rs. 10 lakhs.

Director: if the loan demand is more than Rs. 10 lakhs.

1.6.5.8 Evaluating Loan and Advance Applicant

Financial institutions are profits motive companies that are established with the aim of
providing financial helps to the different sectors of the country. In this regard the
company must evaluate the individual Loan and Advance applications and consider
the possibilities of a bad debt or a slow payment. Bank and financial institution go
thoroughly into individual's evaluation before taking Loan and Advance decision.
Frequently the Loan and Advance departments make written assessments of the
quality management of a company to whom Loan and Advance may be extended. The
manager of the company to whom Loan and Advance may be extended. The manager
of the company should analyze potential clients proposal on the basis of 5 C's of Loan
and Advance i.e.:
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Chapter: This evaluates the moral attributes and attitudes of the clients. It reflects the
willingness of client to repay the loan amount in the maturity period.

Collateral: It evaluates the security that should cover the loan in the form of pledge
assets.

Condition: It evaluates the state economic condition or regional economic condition

of any particular region with the political condition, social condition of the country.

Capital: It consist financial reserves of application if the applicants is unable to meet

loan obligation operating cash flow. Applicant may be charged to capital.

Capacity: It reflects the financial strength and weakness of the applicants to pay the
Loan and Advance obligation.

1.6.6 Review of Previous Works

Pandey (2011), in his book “Loan Management” defines loan management as that
managerial activity which is concerned with the planning and controlling of the firm’s
loan resources. I.M. Pandey believes that among the most crucial decision of the firm
are those, which relate to loan, and an understanding of the theory of loan
management provides the conceptual and analytical insights to make the decisions
skill fully.

Bhandari (2012) in his article "A Comparative Study of the Financial Performance of
HBL and NBBL" 30, he suggested NBBL to increase its current assets because the
bank is not maintaining adequate liquidity position in comparison with HBL. As
capital structures of both the bank are highly levered both the banks are recommended
to maintain and 29 improve mix at debt and owner's equity by increasing equity share.
He further suggests to HBL to improve the efficiency in utilizing the deposits in loan
and advance for generating the profit NBBL should try to maintain present position
on this regards. Profitability position of HBL is comparatively better than the same of
NBBL. So, NBBL is recommended to utilize its resources more efficiently for
generating more profit margins. If resources held idle, bank faces high cost and causes
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the low profit margin. An ideal dividend payout ratio is based upon shareholders
expectations and the growth requirement of the banks. NBBL is suggested to increase
its dividend payout ratio.

Gupta (2013), in his article “Financial Performance analysis" is a study or

relationship among the various financial factor in business a disclosed by a single set
of statement and a study of the trend of these fact as shown in a series of statements.
By establishing a strategic relationship between the item of a balance sheet and
income statements and other operative data, the financial analysis unveils the meaning
and signification of such items. According to R.W. Metcalf and P.H. Tatar (1995),
“Financial Performance analysis is a process of evaluating the relationship between
components parts of a financial statement to obtain a better understanding of a firm’s
position and performance.” Similarly, Khan and Jain have defined that (1990) “The
ratio analysis is defined as the systematic use of ratio to interpret the financial
performance so that the strength and weakness of firm as well as its historical
performance and current financial condition can be determined.”

Basyal,(2014), in the article “Loan Management of Commercial Bank” discussing the

Loan management of government owned banks, placing RBB and NBL under
Management Contracts Rational and Opposition agreed that the disappointing
performance of these two banks has become serious concern to all the stakeholders.
Further he mentions that they are having with huge Level of NPL, which could be
termed as the darkest sides of their operational inefficiency and undisciplined
financial behavior.

Pradhan, (2015), in the article, “NPL of Commercial Banks” Some suggestion to

tackle them expressed that unless the growth of NPL is kept in control, it has the
potential to cause systematic crisis. He has mentioned that a dream of globalization
led to huge investment which unfortunately could not be utilized properly due to
hesitant liberalization policies. Large corporate bodies misused the credits and
delayed payments and while loan sanctioning, reviewing or enhancing credit limits,
absence of risk management policy of financing, concentration of credit in few group
of parties and sector, lack of coordination among various financiers, lack of initiatives
to take timely action against wilful defaulters, indecision on existing out of bad loans
for fear of investigating agencies like special policy, CIAA, Public Accounts
 19

Committee of the parliament have also contributed in whatsoever measures to the

worsening situation of NPA front, He further pointed out that most crucial reason for
the increase in the NPA is the shabby and defaulter friendly legal system. Suggesting
the remedy of NPA, he adds that administrative system should be strengthened.

Adhikari, (2015), in his article “Non-Performing Loan and its Management” states in
articles that one of the main function of commercial bank is to management of non-
performing loan. Main function of commercial bank and financial institution is
accepting deposit and provide loan. In underdeveloped country like Nepal providing
Loan and interest income generating through loan is the main source of bank and
financial institution. If provided loan become non-performing loan the bank and other
side loan its self converts In NPL that make huge effect in financial condition of bank
and financial institution. So management of NPL is crucial factors for any bank and
financial institution. In practical, there may be default rate in aggregate banking
system. Two commercial bank hold by govt. Nepal Bank Ltd. And Rastriya Banijya
Bank are accounting for the highest number and amount of non-performing assets
(NPA) among the other commercial banks.

1.6.7 Research Gap

All the studies mentioned above about Loan Analysis are basically related with the
Loan Analysis of Nepalese banks. These studies have pointed out the similarities
findings. The conclusion of those researchers is that there is no proper Loan Analysis
process in Nepalese banks. Therefore this study is designed to highlight the
comprehensive Loan Analysis process and its impact on bank performance. Previous
study has not been yet made emphasizing the effect of Loan Analysis on bank’s
performance. This research work covers time period of five years for the purpose of
trend analysis.

1.7 Research Method

Research is the process of search of any particular topic, subject or area of

investigation in different ways for relevant data .Research Methodology is a way to
systematically solve the problem.
 20

1.7.1Type of Research

Research design is the plan, structure & strategy on investigations. Generally there are
three types of research design: quantitative research, Qualitative research design &
mixed methods design. For the study, the mixed methods design has been adopted, as
the quantitative design is adopted for Secondary data & qualitative design has been
adopted for primary data.

1.7.2Population & Sample

At present 28 commercial banks are operating in the country .However, the analysis
of all these financial institutions in term of financial performance. So, taking this
numbers as the population of the study, only one commercial banks: namely Everest
Bank Limited has been taken as the sample of the study.

1.7.3 Type of Data

There are different types of data used in the research. Type of data used in this study
is quantitative, objective and secondary type.

1.7.4 Data Collection Procedure

For the study, secondary data analysis has been done. However, the secondary data
have been collected merely form the review of documents, both published and
unpublished data. The sources of data collection are given below

 Annual report of selected commercial bank.

 Final account of the bank.
 Web sides of Everest Bank Limited.
 Other various sources of collecting data like: booklets, journal, various books,
research studies, articles etc.

1.7.5Technique of Analysis

The study employs various financial tools & statistical tools to analyze the data
collected from various sources. Before analysis, data will be presented in the tabular
 21

format, charts & graphs, statistical tools i.e. Regression analysis. The collection data
are analyzed by using various factors& financial tools.

1.7.5.1 Financial Method

Financial analysis is the starting point for making plans before using any
sophisticated forecasting and budgeting procedures hence, ratio analysis is used under
risk management to attain the result after tabulating the data.A ratio is quotient of two
mathematical expressions. Establishment of quantities relation of data furnished by
the financial statements is called ratio analysis. In other words, a financial ratio is the
mathematical expression of relationship of two accounting figures. It helps in taking
decision science, it helps to establish relationship among various ratios and
interpretation there on inter firm comparison and comparison between past and
present ratios for the same firm gives enormous and fruitful results to test the
financial performance, once author has said that to evaluate the financial condition
and performance of firm, the financial analyst needs certain yard sticks. The yard
stick frequently used is a ratio or index relating two pieces of financial data of each
other. Analysis and interpretation of various ratios should give experienced, skilled
analysis better understanding of financial condition and performance of the form
them they would obtain from analysis of financial data alone (Van Horn, 1997:759).

Interest Rate Risk

Financial institutions almost always accept some interest rate risk because most
depository institutions borrow short and tend long. Interest rate swap is the technique
for managing interest rate risk. To measure the interest rate risk the bank under study
uses the spread technique. The spread is calculated as follows:
Spread Net Interest Revenue
Interest Rate Risk =
Total Assets

Non Performing Loan to Total Loan Ratio

These assets are those assets which fall in the category of default and deferred loan.
Higher the ratio, higher is the credit risk and vice-versa. This ratio is calculated as
follows:
 22

Non-Performing Assets
Non-Performing loan to total loan ratio =
Total Loans

Credit to Deposit Ratio

This ratio shows how much deposit amount is utilized for the credit purpose. This
ratio is calculated as follows:
Total Credit
Credit to Deposit Ratio =
Total Deposit

Cash and Bank Balance to Total Deposit

This ratio measures the proportion of most liquid assets i.e. cash and bank balance
among the total current assets of the bank. Higher ratio shows the bank’s strength to
meet demand for cash.
Cash and Bank Balance
Cash and Bank Balance to Total Deposit =
Total Deposit

Return on Total Assets

Return on total assets is calculated and analyzed for measuring the profitability in
relation to total assets. The ratio is also calculated to measure the profitability of all
financial resources invested in the bank’s assets.
The higher return on assets ratio reflects the efficiency of the banks in utilizing its
overall resources and vice versa. A high ratio also indicates the lower volume of non-
performing assets employed by the bank. The following formula can be used to
calculate this ratio:
Net Profit After Tax
Return on Total Assets =
Total Assets

Total Investment to Total Deposit Ratio

By referring the term investment, it is meant investment on other interest or dividend

earning assets like government securities, bonds, shares and short term placements on
 23

national and international banks apart from loans and advances. Such investment is
comparatively less risky than loans and advances and hence has lower yield, i.e.
deposit into less risky and high liquid lower yield asset.
Bankers consider 15% of this ratio as ideal one based on their past experience.
Total Investment
Total Investment to Total Deposit Ratio =
Total Deposit

Loans and Advances to Total Assets Ratio

Loans and advances are the highest yielding asset of bank. If this category of asset is
managed properly, i.e., their proportion in total asset is increased such that default in
repayment of interest and principle is kept at minimum level then the bank will be
able to generate higher yield, i.e., interest income keeping risk at the minimum
because banks cannot increase their interest income simply by accumulating large
volume of assets, rather it should be able to maintain adequate level of interest
earning assets on its total assets portfolio.
This ratio calculates the proportion of loans and advances in total assets of a
bank.

Loan and Advances

Loans and Advances to Total Assets Ratio =
Total Assets

1.8 Limitation of Study

While preparing this report on Loan procedure management in EBL, the fieldwork
reports only include the management system for Loan Management on various
sectors. While making the fieldwork report I was not allowed to study and engage
with all internal activities of the organization.

 The study is concern with only the loan management process.

 This study covers data related only to the concern bank.
 Study is mainly based on secondary data.
 The study is based on only 5 years data collected from the bank i.e. from
2013/14 to 2017/18.
 24

CHAPTER TWO
RESULT AND ANALYSIS

2.1 Data Analysis

Documentation: The rules of EBL while approving the Loan and Advance are
described below or the documents of EBL while approving Loan and Advance are as
follows:

 Loan and Advance application form

 Citizenship certificate
 Map of land and house
 Recently paid house and land tax receipts
 Land owners certificate
 Map of the land approved by municipality or V.D.C (Blue Print)
 PAN certificate
 Trade certificate
 Tax and Vat registration
 Company registration form.

2.1.1 Total Assets

The Table 2.1 can conclude that the total asset of the bank in increasing in order in
study period. The presented in table 2.1 for better understanding.

Table 2.1.1
Total Assets

Year Total Assets (in million)

2014 4948.3

2015 5552.5
 25

2016 5508.2

2017 5991.8

2018 7883.3

Source: Annual Report of EBL

Table 2.1, shows the total assets of the EBL in different years. Total assets of the bank
in year 2014 was 4948.3 million which raised to 7883.3 million in year 2018. Total
assets of the bank in year 2015, 2016 and 2017 is 5552.5, 5508.2 and 5992.8 million
respectively. Form the table 2.1, we can conclude that the total assets of the bank in
increasing in order in study period.

2.1.2 Total Deposit

The Table 2.2 can conclude that the total deposit of EBL in increasing in order in
study period .The data above is shown in table below for better understanding.

Table 2.1.2

Total Deposit

Year Total Deposit (in million)

2014 4001.5

2015 4954.2

2016 4847.4

2017 5258.5

2018 5981.3

Source: Annual Report EBL 2014-2018

Table 2.2 shows the total deposit of the EBL in different years. The total deposit of
the bank in year 2014 was 4001.5 million which raised to 5981.3 million in year 2018.
The total deposit of year 2015, 2016 and 2017 was 4954.2, 4847.4 and 5258.5
respectively. From the above table we can conclude that the total deposit of EBL in in
increasing in order in study period.
 26

2.1.3 Sector wise detail of Loan and Advance

Table 2.1.3

Sector wise detail of Loan and Advance

(In million)

Sectors 2014 2015 2016 2017 2018

Agricultural and Forest Related 182.15 197.39 205.9 278.5 305.15
Fishery Related 2.15 2.15 2.1 10.2 33.77
Mining Related 19.99 19.97 20.5 34.8 30.21
Manufacturing (Producing) Related 295.79 302.34 354.2 545.1 539.85
Construction 345.22 290.91 430.0 558.3 755.25
Electricity, Gas and Water 14.80 14.72 14.5 33.9 58.55
Metal Products, Machinery & 178.12 175.38 233.5 289.0 257.25
Electronic Equipment
Transport, Communication and 322.74 311.58 394.4 503.4 557.89
Public Utilities
Wholesaler & Retailer 504.41 558.85 587.8 781.8 872.01
Finance, Insurance and Real Estate 538.35 345.10 253.5 427.2 537.40
Hotel or Restaurant 294.95 311.51 282.7 150.0 244.35
Other Services 297.57 272.95 252.5 370.7 388.18
Consumption Loans 515.01 404.59 425.1 425.9 478.53
Others 184.42 354.97 391.5 551.0 534.95
TOTAL 3597.55 3554.54 3858.7 5091.8 5713.37
Source: Annual Report of EBL 2013-2017

The table 2.3 shows the bank has provided loan and advance in different various
sectors among which maximum loan and advance is provided in wholesale and retail
sector which includes 504.41, 550.58, 587.8, 781.8 and 872.01 in year 2014, 2015,
2016, 2017, and 2018 respectively. The investment in this sector is in increasing in
trend. The another sector which holds large amount loan and advance by the bank is
Finance, Insurance and Real Estate which includes 538.35 which is maximum in this
year but it is in decreasing trend to the year 2016 but in year 2017 and 2018 it is found
increasing and reaches to the 537.40 million. Consumption loans has a big share in
loan and advance form the bank which includes 515.01m 404.59, 425.1, 425.9, and
478.53 in year 2014, 2015, 2016, 2017, and 2018 respectively. Consumption loan is
 27

decreases in year 2014 but found slightly increasing in following years. There is a
sharp increase in construction loan in the study period which was 345.22 million in
2014 and raised to 755.25 million in 2018. Same trend is also found in the
manufacturing related loan and advance which was 295.79 in 2014 and raised to
539.85 in 2018. The bank has least loan and advance in Fishery related sector which
includes only 2.15 million in year 2014 and raised to 33.77 million in 2018.

The major holders of loan and advance from the bank are Manufacturing, real estate,
production, trade, hotel and restaurant.

2.1.4 Total Loan and Advance

Total Loan and Advance includes the sum of total loan and advance provided by the
firm in different sectors. The detail of total Loan and Advance provided by the EBL in
five different years is given in table 2.4.

Table 2.1.4

Total Loan and Advance

(Amount in Million)

Year Total Loan and Advance

2014 3597.55

2015 3554.5

2016 3858.7

2017 5091.7

2018 5713.37
Source: Annual Report of EBL 2014-2018

The detail of total Loan and Advance provided by the EBL in five different years is
given in 2.4 bar diagram figure.
 28

Figure 2.1.4

Total Loan and Advance

6000

5000

4000

3000

2000

1000

0
2014 2015 2016 2017 2018

The table2.4 shows the total Loan and Advance provided by the bank in different
fiscal years. The total Loan and Advance provided by the bank in year 2014 was
3597.33 million which is slightly decreased in year 2015 to 3554.5 million. In year
2016 the Loan and Advance provided by the bank is increased to 3858.7 million but
in year 2017 there is sharp rise in loan and advance to 5091.7 and the increasing trend
continues to the year 2018 which is 5713.37.

2.1.5 Non Performing Loan

The table 2.5 shows that total nonperforming Loan and Advance is fluctuating in
different years were given below.

Table 2.1.5

Non Performing Loan

(Amount in Million)

Year Non-PerformingLoan and Advance

2014 135.43

2015 442.7

2016 249.4

2017 294.71
 29

2018 230.03

Source: Annual Report of EBL 2014-2018

The table 2.5 shows the total nonperforming Loan and Advanceof different years. In
year 2014 the total non-performing Loan and Advance was minimum which is 135.45
million but there is sharp increase in the amount in 2015 which became 442.7 million
and again in year 2016 total nonperforming Loan and Advance decreased to 249.4
million. In year 2017 and 2018 total nonperforming Loan and Advance is 294.71 and
230.03 respectively. The table shows that total nonperforming Loan and Advance is
fluctuating in different years. The table2.5 data is presented in the trend line below for
better understanding.

Figure 2.1.5

Non Performing Loan

500
450
400
350
300
250
200
150
100
50
0
2014 2015 2016 2017 2018

Non Performing Credit

The percentage of total non-performing Loan and Advance to total Loan and Advance
which is given in Line diagram.
 30

2.1.6 Percent of Non-Performing Loan and Advance to Total Loan and Advance

Table 2.1.6

Year Percent of Non-Performing Loan and Advance to Total Loan and

Advance (%)
2014 3.7
2015 12.4
2016 5.4
2017 7.74
2018 4.03
Source: Annual Report of EBL 2014-2018

The Table 2.6 shows that the percentage of total non-performing Loan and Advance
to total Loan and Advance which is in fluctuating in manner. The percent of
nonperforming Loan and Advance was only 3.7% in year 2014 which raised to 12.4%
in year 2015. In year 2016, 2017 and 2018 the percent of nonperforming Loan and
Advance was 5.4, 7.74 and 4.03.

Figure 2.1.6
Percent of Non-Performing Loan and Advance to Total Loan and Advance

Percent of Non-
14 Performing Credit to
12 Total Credit (%)

10
8
6
4
2
0
2013 2014 2015 2016 2017
 31

2.1.7 Interest Percentage

The interest rate for different types of loan and advance by EBL was given in Table
2.7.

Table 2.1.7

Interest Rate

Types of Loan Interest %

Demand Loan 12

Term Loan 11.50

Industrial Loan 12.50

Agriculture 11.50

Service 12

Home Loan 11

Education Loan 12

Easy Loan 14.50

Hire Purchase 13

Share Loan 14.50

Source: Annual Report of EBL 2018

Table 2.7 shows the interest rate for different types of loan and advance by EBL. For
easy and share loan the interest rate is maximum which is 14.50% per annum
followed by hire purchase loan which is 13% per annum. For many sectors bank has
earning 11 to 12 percent interest per annum. The least rate of interest is for home loan
which is only 11% per annum.The above data is presented in the figure below for
better understanding.
 32

Figure 2.1.7

Interest Rate

16
14
12
10
8
6
4
2
0

2.1.8 Loan and Advance to Total Deposit Ratio

The loan and advance to total deposit ratio of EBL was given below in table.

Table 2.1.8

Loan and Advance to Total Deposit Ratio

Year Loan and Advance to total Deposit

2014 0.92
2015 0.72
2016 0.80
2017 0.81
2018 0.82
Source: Annual Report EBL 2014-2018

The Table 2.8 shows that the loan and advance to total deposit ratio which is found
fluctuating in different study year. The Loan and Advance to total deposit ratio was
0.92 in year 2014 which found decreasing in year 2015, 2016,2017 and 2018 the loan
 33

and advance to total deposit ratio is found increasing which is 0.80, 0.81 and 0.82
respectively.

2.2 Major Findings

Form the presentation and analysis of data in this chapter above following findings
are drawn:

 Total assets of the bank is 7883.3 million in year 2017 which is in increasing
years in study period.
 Total deposit of bank is 5981.3 million in year 2017 which is also found
increasing in the study period.
 Bank has provided loan and advance in various sectors. The major sectors for
Loan and Advance provided by the bank are manufacturing, construction, trade,
real estate, consumption, hotel etc.
 Total Loan and Advance provided by the bank is 5713.37 million in year 2017.
Only the year 2016 total Loan and Advance is found slightly decreasing in rest
of study period it is found increasing.
 Non-performing loan increased unexpectedly in year 2015 to 442.7 million but
in rest of the year bank has managed to keep it low. But it is found fluctuating in
the study period.
 No performing Loan and Advance is raised to 12.4 percent in year 2015 form
3.7 in year 2014. It is decreased in year 2016 to 5.4 percent and again increased
in 2017 to 7.74 percent and found least in year 2018 which is 4.03 percent.
 Interest rate is maximum for easy and share loan which is 14.50 percent and
least in home loan which is 11 percent per annum.
 Loan and advance to total deposit ratio was maximum in year 2014 which is
0.92 which decreased in 2015 to 0.72 percent and found increasing in rest of the
study years.
 34

CHAPTER THREE

SUMMARY AND CONCLUSION

3.1 Summary

EBL charges a uniform rate of interest on all taxes but it is preferable to have
variable rate of interest according to the degree of risk.The valuing the assets, it
is better to combine one of the method so that the resulting valuation safeguards
of the interest of the lender and also works out to be borrower. A proper
valuation of security requires assistance of technical and legal experts.

EBL should mention the feasibility report in their progress while approving the
Loan and Advance. In this report it is important that whether the purposed
planning is technically, economically and financially feasible or not and the
organization is capable or not to run according to the proposed planning .In
feasibility report, following item have to be clearly notified.In Loan and
Advance approval process, all the power is in Board of Directors. It should be
better if some liability is given to the manager to approve small scale Loan and
Advance.

EBL is concentrated to proving Loan and Advance to only urban area in service
and production sector mainly in should turn its concentration to rural area and
agriculture sector.

3.2 Conclusion

According to the analysis and presented to the calculated data in the table and pie
chart we can conclude that the Loan and Advance Management of EBL is categorized
efficiently and effectively so that it can understood in a systematic manner. The Loan
and Advance Management is divided in agriculture, mining, manufacture,
 35

construction, metal products, Machinery and Electronics Equipment and Assemblage,

Production and Assemble of transportation Equipment, Transport, Communication
and Public Utilities, Wholesalers and Retailers, Finance, Insurance and Real Estate.

The observation, research, presentation and analysis of the data provided by the EBL,
it clears that the bank is going towards the progressive path. And if the bank maintains
its services in this manner than, there may not arise any negative question to the bank
from its customers so that it may obtain its objectives and Total Loan and Advance
provided by the bank is 5713.37 million in year 2018. Only the year 2016 total Loan
and Advance is found slightly decreasing in rest of study period it is found increasing.
Non-performing loan increased unexpectedly in year 2015 to 442.7 million but in rest
of the year bank has managed to keep it low. But it is found fluctuating in the study
period.
 36

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