Financial Ratio Analysis Of Five Commercial Banks In Nepal

Submitted by:

Ganga Bahadur Thapa

Exam Roll No: 17031729

P.U. Regd. No: 2016-2-03-1358

A project work report submitted to Pokhara University in partial fulfillments of the requirements
of degree of Bachelor of Business administration.

Pokhara University

Boston International College

Bharatpur-10, Chitwan

2019
 Declaration

This is to certify that I have completed the project work titled: “Financial Ratio Analysis
of Five Commercial Banks in Nepal” under the guidance of “Dr. Shurendra Ghimire” in partial
fulfillment of the requirement for the award of degree of bachelor of Business Administration at
Boston International College, Nepal.

This is an original piece of work and I have not submitted it earlier elsewhere.

Signature:……………………….

Date:……………………………

Address: Bharatpur -09, Chitwan

Name: Ganga Bahadur Thapa

P.U. Reg. No. : 2016-2-03-1358

Exam Roll No: 17031729

ii
 Recommendation

This project work reported  entitled “Financial Ratio Analysis of Five Commercial
Banks in Nepal” prepared by Ganga Bahadur Thapa as accepted and recommended for viva-
voce presentation for the partial fulfillment of the requirement for the Bachelor’ in Business
Study in Pokhara University.

………………………………
Shurendra Ghimire

Supervisor

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 Viva-voce Sheet

The under signatories  read the thesis entitled "Financial Ratio Analysis of Five
Commercial Banks in Nepal " prepared by Ganga Bahadur Thapa, conducted the viva-voce
examination and awarded grade for the partial fulfillment of the requirement for BBA Degree,
Pokhara University.

……………………………..
Shurendra Ghimire, PhD
Supervisor

………………………….

Name..................................................

External. Expert

Date:…………………………

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 Acknowledgement

Apparently, I must be humble and gratitude to the helping hands even the job was
challenging, it’s possible to complete within a stipulated time. I am feeling splendid to get
opportunity being a part of new expedition of learning.

I am deeply indebted to my faculty advisor MR. Shurendra Ghimire for this whole-
hearted supervision during my research period.

My gratitude goes to entire departments of Boston International College and the website that
sharesansar.com for giving me required data that facilities integration of theoretical knowledge
with real life situation.

Moreover, I would also like to express my gratitude to respondents my fellows, seniors

I would like to say millions of thanks you to those who gave me good advice, suggestion,
inspiration and support.

Ganga Bahadur Thapa

BBA 6th Semester

Boston International College

Bharatpur -10, Chitwan

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 Abstract

This research has shows how financial ratios can be used to explore the sources of a
firm’s profitability and evaluate the “quality” of its earnings in a systematic fashion. Hence, the
aim of the study is to analyze the financial performance of commercial banks in Nepal for the
period between 2071 and 2074.A sample of five commercial banks was selected based on the
value of their total assets at the end of the 2071 financial year.The results of the study indicated
that standard charterd bank showed the highest level of ROE all the time but this was driven by
its high leverage levels.

Moreover, all banks were found to be unduly liquid affecting their revenue generating
capacity.This is partly because of government imposed loan restriction.Nepal Bank has
continuously improved its performance throughout the study period in most of the parameters
used to measure its performance. Nepal investment Bank had the most stable earnings over time
as a result of its policy to use high level of equity financing. Regarding liquidity of the banks
studied, no one has ever heard of a bank in Nepal being in problem meeting its cash demands but
there are important areas in which the banks can do something to improve their performance.
Liquidity is not seen in this study only from the perspective of banks facing a problem meeting
their cash demands but also from the potential effect on profitability.2074 was the year in which
the LTD ratio increased for all banks under study after the decline in 2072 and 2073. This is due
to the increase in the amount of loan extended in this year.

The government’s policy to restrict granting loans is most likely the cause for the low
level of loan to deposit ratio in the years before 2074.Generally the banks in Nepal are not
extending enough interest bearing loans to help their profits. This is especially true with Standard
Chartered Bank which stands to be the most liquid bank throughout the period under
study.Banks in Nepal show varying levels of gearing. Nepal Investment Bank Limited is the
bank that uses the highest proportion of equity in its total assets. In other words it is the bank
with the lowest level of gearing. This helps the bank to have a better capacity to absorb potential
fluctuations in its earnings.This is reflected in the stability of its ROE.For a sustained good
banking performance in the country, it is recommended that the banks invest more in interest
bearing assets, mainly loans, to fully utilize their revenue generating capacity. The Nepal
government is also recommended to balance its desire to control inflation with the need to
maintain lasting viability of the banking industry.

Keywords: Ratio analysis, financial performance, Bank performance, in Nepal.

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 Table of contents
Chapter-I: Introduction 1-5

Background of study 1

Research problem 2

Objective of the study 2

Significance of the study 3

Limitations of the study 4-5

Chapter-II: Review of literature 6-14

Conceptual framework 6-11

Review of articles that related studies 11-14

Chapter-III: Research methodology 15-16

Research design 15

Populations and sample 15

Data source and data collection technique 15

Data collecting processing 16

Data analysis 16

Results and discussion 16

Chapter-IV: Analysis and interpretation of data 17-29

Return on Equity

Return on Assets

Cost to income Ratio

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Net interest margin

Net Loan to deposit ratio (NLDST)

Net Loans to Total Assets Ratio (NLTA)

Long Term Equity ratio (Equity/ total Asset)

Chapter-V: Summary, conclusion and recommendation 30-32

Summary 30

Conclusion 30

Recommendation 31

Limitation of the study and recommendation for further study 32

References

Appendix-i: balance sheet of nepal investment bank 35-38

Appendix-2:balance sheet of standard chartered bank 39-42

Appendix-3:balance sheet of everest bank limited 43-46

Appendix-4:balance sheet of nabil bank limited ` 47-50

Appendix-5: balance sheet of nepal bank limited 51-54

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 List of Tables

SN Table

Table 1: Return on Equity 17

Table 2: Return on Assets 19

Table 3: Cost to income Ratio 21

Table 4: Net interest margin 23

Table 5: Net Loan to deposit ratio (NLDST) 25

Table 6: Net Loans to Total Assets Ratio (NLTA) 27

Table7: Long Term Equity ratio (Equity/ total Asset) 28

List of Figures

Figures 1: Return on Equity 17

Figures 2: Return on Assets 19

Figures 3: Cost to income Ratio 21

Figures 4: Net interest margin 23

Figures 5: Net Loan to deposit ratio (NLDST) 25

Figures 6: Net Loans to Total Assets Ratio (NLTA) 27

Figures 7: Long Term Equity ratio (Equity/ total Asset) 28

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