RATIO ANALYSIS OF NABIL BANK Ltd.



4000310515center6/14/201833000950006/14/2018right1531917RATIO ANALYSIS OF NABIL BANK Ltd. 00RATIO ANALYSIS OF NABIL BANK Ltd. 16384906237613SUBMITTED TO:MR. AKSHAY GAUTAMAPEX COLLEGEDEVKOTA MARGAKATHMANDU, NEPAL00SUBMITTED TO:MR. AKSHAY GAUTAMAPEX COLLEGEDEVKOTA MARGAKATHMANDU, NEPAL17869563414337SUBMITTED BY:NIRMAL GHARTISURAJ KUMAR TAMANGMBA 1ST TRIMSECTION : HIMALAYA00SUBMITTED BY:NIRMAL GHARTISURAJ KUMAR TAMANGMBA 1ST TRIMSECTION : HIMALAYACHAPTER-1?INTRODUCTION1.1 Industry informationOrigin of the word bankThe word bank was borrowed in Middle English from Middle French banque, from Old Italian banca, from Old High German bank, bank "bench, counter". Benches were used as desks or exchange counters during the Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths.One of the oldest items found showing money-changing activity is a silver Greek drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, and c. 350–325 BC, presented in the British Museum in London. The coin shows a banker's table laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the word Trapeza means both a table and a bank (in everyday speech). [The everyday word used for "table" is trapezi, a modern form of the archaic trapeza.Banking in NepalThe initiation of formal banking system in Nepal commenced with the establishment in 1937 of Nepal Bank Limited (NBL), the first Nepalese commercial bank, the country's central bank, Nepal Rastra Bank (NRB) was established in 1956 by Act of 1955, after nearly two decades of NBL having been in existence. A decade after the establishment of NRB, Rastriya Banijya Bank (RBB), a commercial bank under the ownership of His Majesty’s Government of Nepal (HMG/N) was established. Thereafter, HMG/N adopted open and liberalized policies in the mid 1980s reflected by the structural adjustment process, which included privatization, tariff adjustments, liberalization of industrial licensing, easing of terms of foreign investment and more liberal trade and foreign exchange regime was initiated. With the adoption of liberalization policy, there has been rapid development of the domestic financial system both in terms of number of financial institutions and as ratio of financial assets to the GDP. As of July 2005, the number of commercial banks has reached 17 and their branches numbered 375. A total of 60 finance companies and other Development Banks and numerous credit cooperatives have also been established. Total financial assets in 2004/2005 reached around 54.09 percent of GDP and the M2/GDP ratio, which shows the financial sector development or financial deepening increased from in 12.4 percent in 1975 to 50.9 percent in 2000.In the context of banking development, the 1980s saw a major structural change in financial sector policies, regulations and institutional developments. HMG/N emphasized the role of the private sector for the investment in the financial sector. The financial sector liberalization, started already in the early eighties with the liberalization of the interest rates, encompassed further deregulation of interest rates, relaxation of entry barriers for domestic and foreign banks, restructuring of public sector commercial banks and withdrawal of central bank control over their portfolio management (Acharya et al, 2003). These policies opened the doors for foreigners to enter into banking sector under joint venture. Consequently, the third commercial bank in Nepal, or the first foreign joint venture bank, was set up as Nepal Arab Bank Ltd (now called as NABIL Bank Ltd) in 1984.1.2 Introduction to NABIL Bank Ltd Nabil Bank Limited is the nation’s first private sector bank, commencing its business since July 1984. Nabil was incorporated with the objective of extending international standard modern banking services to various sectors of the society. Pursuing its objective, Nabil provides a full range of commercial banking services through its 67?points of representation. In addition to this, Nabil has presence through over 1500 Nabil Remit agents throughout the nation.Nabil, as a pioneer in introducing many innovative products and marketing concepts in the domestic banking sector, represents a milestone in the banking history of Nepal as it started an era of modern banking with customer satisfaction measured as a focal objective while doing business. Operations of the bank including day-to-day operations and risk management are managed by highly qualified and experienced management team. Bank is fully equipped with modern technology which includes international standard banking software that supports the E-channels and E-transactions.Nabil is moving forward with a Mission to be?“1st Choice Provider of Complete Financial Solutions”?for all its stakeholders; Customers, Shareholders, Regulators, Communities and Staff. Nabil is determined in delivering excellence to its stakeholders in an array of avenues, not just one parameter like profitability or market share. It is reflected in its Brand Promise?“Together Ahead”. ?The entire Nabil Team embraces a set of Values “C.R.I.S.P”, representing the fact that Nabil consistently strives to be Customer Focused, Result Oriented, Innovative, Synergistic and Professional. At 16 July 2016, Nabil has a balance sheet of NRs. 127 billion, net worth around over Nrs.11 billion, customer deposits of NRs. 110 billion, gross customer lending of Nrs.78 billion and profit after tax of Nrs. 2.82 billion. In USD terms these figures translate to balance sheet of USD 1.2 billion, net worth over USD 102 million, customer deposits of USD 1.03 billion, gross customer lending of USD 726 million and profit after tax of USD 26.33 million,1.3 Introduction to Ratio AnalysisRatio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and Market Value Ratios. Ratio Analysis as a tool possesses several important features. The data, which are provided by financial statements, are readily available. The computation of ratios facilitates the comparison of firms which differ in size. Ratios can be used to compare a firm's financial performance with industry averages. In addition, ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time.Because Ratio Analysis is based upon accounting information, its effectiveness is limited by the distortions which arise in financial statements due to such things as Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in financial analysis, to obtain a quick indication of a firm's performance and to identify areas which need to be investigated further. Various ratios used in the report are:Liquidity RatioProfitability RatioLeverage Ratio1.4 Objective of the StudyThe main objective of this study is aimed to evaluate the performance of the Bank by using ratios as a yardstick to measure the efficiency of the Bank. It is also aimed to understand the liquidity, profitability and efficiency positions of the Bank during the study period. This study also objectives to evaluate and analyze various facts of the financial performance of the Bank, and to make comparisons between these ratios during different periods.?The basic objectives of this study are as follows:???????To study the financial data’s of last 2 years of NABIL Bank ltd.???????To determine profitability ratio and liquidity ratio.???????To evaluate the financial performance of NABIL Bank Ltd.???????To analyze the capital structure of the bank with the help of leverage ratio.???????To offer appropriate suggestions for the better performance of the organization.1.5 Significance of the studyRegarding the economic structure of the company, the banks do not have sufficient investment opportunity rapidly increasing financial intuition is creating threats of bank. This study attempts to find out cause of failure and success of bank using the various statistical tools. This will create awareness about utilization of the scare resource and help them the productivity of their fund and market value of their investment. This study will be useful to the following stakeholders:???????to the investor i.e. Shareholders???????to the management of banks (Management Committee)???????to the policy maker (while formulating the policy regarding commercial banks) This study is also significant to the researcher:???????To get the depth knowledge of banks???????To get valuable findings of research CHAPTER-2MAJOR FINDINGS2.1 Calculation of RatioThe basic objective of analysing the financial performance & return to investor and interpretation is to highlight the strength and weakness of the business. Therefore, this chapter includes the analysis and result of gathered data with a view to assessing financial performance of the bank for the period of two years. In this chapter, the data are presented, calculated and analyzed. The secondary data is used for the purpose and the data represents the duration of two years (2014/15 to 2015/16). The important and needed ratios, which are to be calculated for the purpose of this study as mention in objective, are mentioned below:??????Liquidity RatioCurrent Ratio = Current Assets / Current liabilitiesYearCurrent Asset (CA)Current Liabilities(CL) Current Ratio : CA/CL2014/1516325millions1961millions 8.322015/1611081millions3328millions 3.33 The current ratio of year 2014/15 was 8.32 which was decreased in 2015/16 to 3.33 Quick Ratio = Cash + Treasury bills / Current LiabilitiesYearCash + Treasury bills (CT)Current Liabilities(CL) Quick Ratio : CT/CL2014/1514744millions1961millions 7.512015/167466millions3328millions 2.24 The quick ratio of year 2014/15 was 7.51 which was decreased in 2015/16 to 2.24??????Profitability RatioReturn on Total Asset = Net profit after Tax(NPAT) / Total Assets * 100YearNet Profit After Tax (NPAT)Total Assets(TA) ROA : NPAT/TA * 1002014/152093millions115986millions 1.80%2015/162819millions127300millions 2.21% The Return on total asset of year 2014/15 was 1.80% which was increased in 2015/16 to 2.21%Return on Capital Employed (ROCE) = NPAT + Interest / Capital employed – 442912410795Intangible asset * 10000Intangible asset * 100YearNPAT + Interest (A)Capital Employed – Int.Asset (B) ROCE = A/B * 1002014/154329millions7412millions 58.40%2015/164648millions8664millions 53.65% The ROCE of year 2014/15 was 58.40% which was decreased in 2015/16 to 53.65%Return on Shareholder’s Equity??? =????Net Profit after tax / Total shareholder equityYearNPAT (A)Total Shareholder’s Equity (B) ROSE = A/B * 1002014/152093millions9484millions 22.07%2015/162819millions11592millions 24.32% The ROSE of year 2014/15 was 22.07% which was increased in 2015/16 to 24.32%Interest earned to total assets ratio =????Interest earned / Total assetYearInterest Earned (A)Total asset (B) IETR = A/B 2014/155762millions115986millions 0.052015/166155millions127300millions 0.05 The Interest Earned to total asset of year 2014/15 was 0.05 times which remained same in 2015/ Profit to Total Deposit Ratio =????Net Profit / Total DepositYearNet Profit (A)Total Deposit (B)NPTR = A/B 2014/155762millions104237millions 0.052015/166155millions110267millions 0.05 The Net Profit to total deposit of year 2014/15 was 0.05 times which remained same in 2015/16.??????Leverage RatioProprietary Ratio = Stockholder’s Fund / Total Assets Where, Shareholder’s Equity = fixed Assets+ Current Assets - Long-term Debt- Current Liabilities.YearStockholder’s fund (A)Total Asset (B)Proprietary Ratio = A/B 2014/15113725millions115986millions 0.982015/16123672millions127300millions 0.97 The Proprietary ratio of year 2014/15 was 0.98 which was decreased in 2015/16 to 0.97The above ratios were calculated in from the datas collected from the Annual Report of NABIL Bank ltd. 2015/16. The reference page for the report is attached in the reference page in the last page of the report.CHAPTER-3CONCLUSIONS3.1 Analysis of RatioGenerally, it is difficult to determine the actual position of liquidity and profitability of NABIL Bank Ltd depending only on the result achieved by the ratio analysis. Ratio analysis does not consider the quantitative factor of the statement. It is only the analysis tool of comparing the numerical factors. Although all of these weakness of this technique, it has taken as a strong and powerful tool to study financial performance. Following are the conclusions drawn from the ratio analysis: Current ratio of year 2014/15 was 8.32 which was decreased in 2015/16 to 3.33. The trend of the Bank is good since current ratio is greater than 2:1 but since it is decreasing, it seems that bank is not able to manage its current asset in compared to current liabilities. Quick ratio of year 2014/15 was 7.51 which was decreased in 2015/16 to 2.24. Theoretically, the result shows that the super-fast assets are not enough to meet the obligation of current liabilities in NABIL Bank Ltd. Return on total asset of year 2014/15 was 1.80% which was increased in 2015/16 to 2.21%. It means that asset are significantly managed and used. ROCE of year 2014/15 was 58.40% which was decreased in 2015/16 to 53.65%. The decline is the result of lower or decreasing efficiency in the utilization of funds.ROSE of year 2014/15 was 22.07% which was increased in 2015/16 to 24.32%. The increment is the result of increase in net profit and is increasing trend in business.The Interest Earned to total asset of year 2014/15 was 0.05 times which remained same in 2015/16. It means interest earned is effective in compared to total asset. Net Profit to total deposit of year 2014/15 was 0.05 times which remained same in 2015/16.Proprietary ratio of year 2014/15 was 0.98 which was decreased in 2015/16 to 0.97. This ratio indicates the extent to which the assets of the company can be lost without affecting the interest of the bank. But here, the ratio has decreased. CHAPTER-4RECOMMENDATIONSBased on the financial analysis and the observation of study, following recommendation is suggested to overcome the weakness and inefficiency and to improve the present financial performance of NABIL Bank Ltd.ROCE has been decreased in the current year in comparison to the previous year. In order increase ROCE, net profit should be increased. Net profit can be increased by:?Increasing the service charge such as remittance charge, processing charge, bank charge & interest on loan?Minimize the expenses.?Minimize the idle fund.?LC facility should be given.?Investment should be increased.Likewise, PR had been decreased in the current year in comparison to the previous year. In order to make it favourable there should be:?Investment in effective portfolio.?Proper utilization of fund.As per the analysis, the bank’s financial performance according to financial data obtained from the report seems sound and satisfactory. But due to competition and people awareness, the stable position may be dangerous in long run. Hence, bank should focus on such major parts. Current scenario of not only of NABIL Bank ltd, but also all Banks in Nepal is successful, but the still position is not upto the mark. Has this trend been changed and converted into more meaning full and healthy competition, each and every Nepalese would have been happier than before. References Statement of NABIL Bank Ltd. 2015/16The Balance sheet of Nabil Bank Ltd is as below:-37147512846000 The Profit and loss of Account of NABIL Bank Ltd is as below:-142875000 ................
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