CHAPTER – I

INTRODUCTION

1.1 Evolution of the Bank

Banks are among the most important financial institution in the economy and
essential for business in thousands of local towns and cities.A Bank is an
organization whose primary functions are concerned with accumulation of idle
money from general public and advancing loans to individuals, traders, industries
and business houses for expenditure.Generally, the bank collect money from
general public for which it should pay interest regularly.The money thus
accumulated can be invested in different sectors such as business, foreign
trades,agriculture, industry and social works for which it charges certain
percentages of interest which is higher than interest paid by the bank to
accumulate fund.Such charges on advancing loan in the major revenue source of
the bank by which it can bear administration expenses incurring in the process of
operating its activities.Thus, the bank is a good mediator between depositors and
loan takers.`

According to Kent “A bank is an organization whose principle operations are

concerned with the accumulation of the temporarily idle money of the general
public for the purpose of advancing to other for expenditure.”

Hence, the bank may be summarized as an institution which excepts deposits

from the public and advance loans by creating money.There is no unanimity
amoung the economists about the origin of the word “Banking".The term bank
was derived from the Latin word bancus,which refers to the bench on which the
bankers would keep its money and records.History tells us that it was the
merchant bankers who first involved the system of banking by trading in
commodities than money. The next stage in the growth of banking was the
Goldsmith.Finally,money lenders in the early age also contributed in the growth
of banking in a large extent.Thus, it is believed that the ancestors of modern
banking system were merchants, Goldsmith and money lenders.The bank called
the “Bank of Venice” was established in Venice, Italy in 1157 was regarded as
the first modern bank.Subsequently, following its establishments various banks
such as the Bank of Barcelona (1401), Bank of Geneva (1407), Bank of
Amsterdam (1609), Bank of Hindustan (1770) were established.

Nabil Bank Limited was established in 2067 B.S. Nabil bank was the first joint
venture with Dubai bank Limited of United Arab Emirates.The second joint
venture bank was Nepal Indosuez Bank.It was established in falgun 2068 under
the collaboration with Indosuez Bank of Paris. In Magh 16 ,2068, Nepal Grindleys
Bank was establised under the collaboration with the Grindleys Bank of
London.As the country follower liberalization, there was massive entrance of

Liquidity Position of Nabil Bank 1

foreign banks as a joint Venture with Habib bank Limited, Pakistan, Nepal SBI
bank as the joint venture with the state bank of India, Nepal Bangladesh Bank as
the joint venture with International finance investment and commercial bank of
Dhaka, Nepal bank of Ceylon as the joint venture with the bank of Ceylon of
Srilanka are the example of expansion of banking industry in Nepal.

1.1.1 Concept of Banking

Banking is a business much like any other business. The commercial bank is
relatively business concern. A bank provides certain services for its customer
(Depositors and Borrowers) and in return, receives payment in one form or other.
It tries to earn profit for its stock owners.

R.S. Sayers defined the bank as, “Ordinary banking business consists of
changing cash for bank deposits and bank deposits for cash; transferring bank
deposits from one person or corporation to another;giving bank deposits in
exchange, government bonds, the secured or unsecured promises of business to
repay etc.

According to Nepal commercial Bank Act 2031, “A commercial Bank refers to

such type of bank which deals in money exchange, accepting deposit, advancing
loans and other commercial transactions other than one special functions
performed by specified banks. Such as co-operatives, agriculture and industrial
banks.”

Thus, from above definition, we can say that if any institution fulfills the following
conditions, it will satisfy the definition of banking company :

1. Accepting of deposits from the public or other source, re-payable on

demand or otherwise.
2. The deposit must be withdrawn by cheques, draft and order or otherwise.
3. Even money accepted as deposit must be for the purpose of lending or
investing, making advance and investment of fund are equally important
functions.
4. Commercial bank also provides miscellaneous services like letter credit,
traveler's cheque.

1.1.2 Development of Financial Institution in Nepal

In respect of formation of financial institutions in the Nepal, simple lending and

borrowing functions existed during the regime period. In 4 th century, king
Jayasthiti Malla divided the people in 64 casts on the basis of their professions.
One on them was named “Tankadari” who used to perform simple lending and
borrowing functions.

Liquidity Position of Nabil Bank 2

During the period of Rana prime Minister Ranodeep,”Tajarath Adda” was
established to provide loan facility to government staffs and general public under
the collateral of gold and silver in the term of 5 percent interest (1933 B.S–1942
B.S.)

There were moneylenders known as Marwari merchant,Jaminder, Goldsmiths,

Sahu and Pawan Brokers etc.They still exist in some remote part of nation.Indian
currency was accumulated in Terai Area. Hundi functions had been done through
merchants.

“Sainik Dravya Kosh” was established in 1993 B.S. specially established for the
future welfare of government staff and sainiks only.Since 2019 B.S. Karmachari
Sanchaya Kosh has been performing more functions than Sainik Dravya Kosh to
give facility not only to the staff of government but also to the staff of corporation.

In Nepal, the introduction of modern banking activities had been traced back to
1994 B.S. (1937A.D.) when the Nepal Bank Act 2031 was first Promulgated
during the period of Prime Minister Juddha Shamsher. Before that the credit
needs or people for commercial and other purpose were mostly fulfilled by the
unorganized market of private money lenders.

In 2007 B.S., there was great political change.Nepal Rastra Bank, central bank of
Nepal was established in 2018 B.S. with authorized capital of
NRs.10000000.Similarly, Rastriya Banijiya Bank as the second commercial bank
of Nepal was established in 2022 B.S. An Industrial Bank nearly Nepal Industrial
Development Bank (NIDC) was established in 2004 B.S., Agriculture
Development Bank (ADB) of Nepal established.

Nabil Bank Limited was established in 2041 B.S. Nabil bank was the first joint
venture with Dubai Bank Ltd. of United Arab Emirates. The second joint venture
band was Nepal Indosuez Bank. It was established in Falgun 2042 under the
collaboration with Indosuez bank Paris.In Magh 16, 2043, Nepal Grindleys Bank
was established under the collaboration with Grindleys Bank of London.As the
country followed economic liberalization, there was massive entrance of foreign
bank in Nepla.The establishment o Himalayan Bank as a joint venture with Habib
Bank Ltd. Pakistan,Nepal SBI Bank Ltd. as a joint venture with I.F.I.C. Bank Ltd.
of Bangladesh, Bank of Kathmandu as a joint venture with Thailand Bank,
Everest Bank as a joint venture with Punjab National Bank, India, Nepal Bank of
Ceylon as a joint venture with Bank of Ceylon of Srilanka, are the example of
expansion of Banking industry in Nepal.

1.1.3 Banking Development of Nepal

The history of banking in Nepal may be described as a component of the gradual

and orderly evolution in the financial and economic spare of the Nepalese
life.Even, now the finance system is still in the evolutionary phase.The existence

Liquidity Position of Nabil Bank 3

of unorganized money market consisting of Landlord, shahukars(rich
merchants),shopkeepers and other indigenous individual moneylenders has
acted as barrier to institutionalized credit.

Simple lending and borrowing functions existed from Gunakamadev in the

Lichhavi period,780 B.S.And in 11 th century, in king Jayasthiti Mallas’s period
“Tenkadhari” used to perform simple lending and borrowing functions.

During the Rana prime Minister ship of Ranodip Singh “Tejarath Adda” was
established to provide loan facilities for government staffs and to general public
under the collateral of gold and silver in the term of 5% interest rate (1993
B.S.)There were money lenders known as Marawaris, Jamindar, Goldsmith,
Broker etc.They still exist in some remote part of the Nation.

“Sainik Dravya Kosh” was established in 1933 B.S. specially established for the
future welfare of government staff and sainiks only.Since 2019 B.S. Karmachari
Sanchaya Kosh has been performing more functions than Sainik Dravya Kosh to
give facility not only to the staffs of government but also to the staffs of
corporations.

In Nepal, banking in the true sense of term started with the inspection of nepal
Bank Limited on 30th kartik,1994 B.S.Right for the inspection,it carried out
function of commercial bank.Nepal bank act 1937 was 1 st Promulgated during the
prime ministership of Juddha Shamsher J.B.R. Before that the credit need for
commercial and other propose were mostly be unrecognized market of the
private money lenders.

Nepal bank Ltd. had a Herculear responsibility of attracting people towards

banking sector from pre-dominant Sahu mahajan’s transactions and of
introducing other banking services as well. Being a commercial bank, it was but
natural that Nepal Bank Ltd. paid more attention to profit generating business.But
it is the one of government to look into neglected sectors too.”Muluki Khanna”
which had banking perform some banking functions has issued notes of different
domination such as 1,2,10 and 100 rupees.

In 2007 B.S.,there was great political change.Nepal Rastra Bank” as a central

bank of Nepal was established in 2012 B.S. with one crore of authorized
capital.Similarly,Rastriya Banijiya Bank was established in 2022 B.S. In 2016
B.S. with the view to develop the industrial sector.Nepal Industrial development
corporation was established in 2034 B.S.,Agriculture development bank bank
was established.Since the year 2014 B.S.(1984 A.D.) HMG of Nepal has
established five rural development banks.Nepal commercial bank act 2031B.S.
(1975A.D.) has been amended several times in accordance with need.

In order to establish and develop other joint venture commercial banks and other
financial institution came into existence.Nepal adopted free economic policy,

Liquidity Position of Nabil Bank 4

HMG permitted the establishments of different joint venture banks with foreign
collaborations. In addition to those commercial banks other regional commercial
banks were also established.

Nepal is one of the least developed country under the rank of poverty
line.Agriculture plays a crucial role in the Nepalese economy.The development of
the bank in Nepal is in infant stage.In this way the bank plays a primitive role for
the economic development of Nepal.

1.2 Introduction of Nabil Bank Limited

Before the introduction of Nabil Bank Ltd. in 1984, the financial sectors of Nepal
was sluggish despite all the efforts of the government.The inception of Nepal
Arab Bank in 1984 as a first joint venture bank proved to be a milestone gave a
new ray of hope to the sluggish financial year.

Nabil Bank was established in 1984 under the Nepal commercial bank Act 2031.
It was the first foreign joint venture bank by the joint investment of Dubai Bank
Ltd. and Nepalese investors included local financial institution and general public
owing 20% and 30% of the total capital respectively and other half portion was
transferred to Emirates Bank International Ltd. of Bangladesh.Now,the current
promotor that owns the 50% shares of Nabil Bank Ltd. in N.B (International) Ltd.
of Ireland.

1.2.1 Share subscription of Nabil Bank Ltd.

Table No.1
N.B. (International) Ltd.,Ireland 50%
Nepalese Public 30%
Nepal Industrial Development Corporation 10%
Rastriya Beema Sansthan 9.67%
Nepal Stock Exchange Ltd. 0.33%
Total 100%

Figure No.1
Share Subscription of Nabil Bank Ltd. N.B.(International)
LTD. Ireland

Nepalese Public
9.67% 0.33%
10%
Nepal Industrial
Development
Corporation
Rastriya Beema
Sansthan

30% 50% Nepal Stock

Exchange Ltd.

Liquidity Position of Nabil Bank 5

1.2.2 Capital Structure of Nabil Bank Ltd.

Table No.2
Nrs. In million
Authorized Capital 500
Issued Capital 491.65
Paid up Capital 491.65

Figure No.2
Capital structure of Nabil Bank Ltd.
Authorized Capital
Issued Capital
Paid up capital
33% 34%

33%

1.2.3 Financial Highlight of Nabil in 2011/12

Table No.3
NRs. In million
This Year Last Year Growth (%)
Net Worth 1481.68 1314.19 12.74
Deposits 14119.03 13447.66 4.99
Gross Loans, Advances & Bills Purchase 8548.66 8113.68 5.36
Investments (Includes Money at call & Short Notice) 6754.80 6701.38 0.80
Interest Income 1001.62 1017.87 (1.60)
Interest expense 282.95 317.35 (10.84)
Net Interest Income 718.67 700.52 2.59
Other Income (excluding Provision Write Back) 424.82 403.36 5.32
Other Expenses 331.60 376.78 (11.99)
Profit before Provision / Write off ,Bonus & tax 811.89 727.10 11.66
Net Provision / Book write off 82.87 45.35 82.73
Staff Bonus 71.94 66.36 7.41
Corporate tax & Special fee 201.76 199.15 1.31
Net Profit after Tax 455.32 416.24 9.38

Liquidity Position of Nabil Bank 6

 1.2.4 Organization structure of Nabil Bank Ltd.

(Organization structure of Nabil Bank Ltd.)

Head office

Chief Executive Officer

(CEO)

Manager Internal Manager Senior Manager Senior Senior Manager

Audit Internal Credit & Marketing Manager Legal &
Control Operation Personal

Manager Manager Manager

Treasury Head Office Card Services
Operation

Manager Manager Incharge

Corporate Banking Head Office central
Credit Credit control

1.2.5 Branch Network

Nabil bank has 17 branches, the largest number of branches among the joint
venture banks in Nepal.
1. Nabil house corporation Banking
2. New Road
3. Kantipath
4. Lalitpur
5. Birgunj
6. Biratnagar
7. Itahari
8. Pakhara
9. Butwal

Liquidity Position of Nabil Bank 7

 10. Pokhara Lakeside
11. Bhairahawa
12. Jorpati
13. Bhalawadi
14. Nepalgunj

There are also two banking counters at 1) Airport and 2) Thamel.Nabil was
planning to open a branch office at Kolkota but the capital requirement of reserve
bank of India was high.Therefore,the proposal was dropped.The head office of
Nabil Bank is situated at kamaladi,Kathmandu.This head office co-ordinate the
activities of Nabil Bank branches all over Nepal to provide better services to its
VIP customer. One new branch is opened as corporate at round 30000
depositors at Nabil bank and around 1000 depositors at Kamaladi branch.

1.2.6 Product and services of Nabil Bank Ltd.

Nabil Bank is well known and famous for providing highly personalized services
to customers. It provides full range of commercial banking services through its
branch network nation wide.To extend more efficient services to its customers,
Nabil Bank has been adopting innovation and latest banking technology.Nabil
Bank provides the following services :

1.2.6.1 Deposit:

Following types of accounts can be opened at any Nabil branches upon

completion of simple documentary requirement.All the accounts can be opened
in various currencies (against which rates are provided) subject to rule of opening
and fulfilling the required documents.
 Saving
 Current
 Fixed
 Call

1.2.6.2 Guarantees:

Nabil bank issues guarantees and Bonds on behalf of customers to the

beneficiaries in Nepal.Upon fulfillment of requirement, Nabil also arranges
insurance of guarantees in the name of foreign beneficiaries through the reputed
International banks.

1.2.6.3 Credit Cards:

Nabil is the first bank in Nepal to issue Rupee (valid in Nepal and India) and
International (valid worldwide) master card in Nepal, a global prestigious services
to its esteemed clients.Nabil is also expanding credit card facilities by issuing
visa credit cards very soon.

Liquidity Position of Nabil Bank 8

1.2.6.4 Tele banking:

Telephone bank is another product provided by Nabil bank to its customer, under
this aggrement, customer can know the balance of his/her account through
telephone without human assistance.

1.2.6.5 Western Union Money Transfer:

Nabil bank has established unique money remittance system with Western Union
money remittance system where by money can be remitted anywhere in the
world within minutes. Through on-line computer system funds can be transferred
instantly to about 5500 location in 165 countries of the world.

Nepalese wage earners can send money to their near and dear ones in Nepal
within a very short time.By using the above services, you can now send and
receive money within minutes in 165 countries in the world.

1.2.6.6 Swift (Society for worldwide Inter Bank Financial Telecommunication):

Nabil has standard worldwide transfer of funds by this fast and efficient fund
transfer and messaging system. Messaging and funds transfer and carried
through SWIFT with minimum time and cost.

1.2.6.7 Safe Deposit Locker:

Nabil has provided safe deposit Locker to keep value safety at a minimum
cost.Presently, this facility available at kantipath offfice.

1.2.6.8 Automated Teller Machine (ATM):

Nabil has launched the ATM to its account holders to enable fast withdrawal of
funds.An account holder need not wait a long hours for withdrawing money and
sign cheques any more.A simple card with a unique PIN number known only to
the account holder will suffice.

1.2.6.9 Other facilities:

The bank provide the facilities for the customers like deposit the service loans
and advances,consumer finance, cash management remittance service etc.

1.2.7 Introduction to Liquidity

Liquidity Position of Nabil Bank 9

Liquidity is defined as banks capacity to exchange cash for deposits.In other
words,liquidity is bank capacity to meet immediate maturing liabilities.Public put
their money with a hope that bank repays it as demanded by them. This is the
great trust of public to the bank.If the bank fails to repay the money on demand,
in such a situation bank may loose the public trust towards the bank and even
very strong banks may collapse.Considering this fact,bank should maintain
enough liquidity to meet the demands.A bank needs liquidty for transaction
motive,precaution of security motive and speculative motive.

1.2.8 Importance of Liquidity

The liquidity management function of bank is regular one.Each and every bank
must attach with great importance of liquidity for maintaining confidence of
customer and its survival.The importance of liquidity management are as follows;

1.2.8.1 To meet the expenses for the banks daily administrative work:
A bank is a legal person.It can’t run without cash book.The transaction of the
bank is related to the money.many types of expenses go on taking place in the
bank daily.With the lack of expenses, it is nearly impossible for the bank to do its
transaction.So the liquidity is necessary for daily expenses that it is spent in the
administrative functions.The administrative expenditure can’t be fulfilled without
liquidity.Hence, liquidity is important for the banks.

1.2.8.2 To pay all sorts if deposits:

A bank opens the current, saving and fixed account for its customers and accept
the deposit from the customers.According to the nature of deposit, the banks
should pay in the time when the customers asks.

1.2.8.3 To control the economic fluctuation and to keep safe from the risk:
It can’t be said, there will be the same situation of transaction in the bank will
always remain in balanced conditions. There will be effect of internal and external
circumstance in the nation.Such condition may have effect on economic
sector.There is necessity of liquidity to keep the bank free from such economic
rise and fall or economic crisis.The bank should maintain some liquidity of some
certain percent cash fund to keep sage from such situation.

1.2.8.4 To fulfill the demand of debtors:

A bank provides loan to debtors.The bank earns income from it.Many kinds of
people come to the banks with the purpose of loan.After the loan is granted,the
bank is obliged to give the loan to the debtor.Therefore, there is necessity of
liquidity in bank to provide fresh loan to the debtors.

Liquidity Position of Nabil Bank 10

1.2.8.5 To gain trust of faith:
A bank has a great responsibility because of the financial institution that does
monetary transaction.It must gain trast of its banking transaction.For this, a bank
should do many types of function.It has to pay attention to the time and the will of
the customers to provide the banking services.For the name and fame, a bank
should earn the trust from the public including other sectors.

1.2.9 Criteria for measuring bank liquidity

It is very important to study criteria for measuring bank liquidity.The bank liquidity
is the most important aspect of a bank.If there is less bank liquidity, the bank
cannot be run.If there is much liquidity, the bank should bear great loss
economically.The bank should be able to keep the liquidity in balance.There are
certain criteria forwarded by Nepal Rastra bank,the central bank of Nepal by
which liquidity position of each and every commercial bank as a individualistic
view as well as whole can be measured.However, the bank liquidity can be
measured by the following ratios:

1.2.9.1 Deposit Investment Ratio:

We can measure the liquidity by the deposit investment ratio.The depository
deposit the cash in current,saving and fixed accounts.The bank receives the
most liquid as deposits.The bank invests the capital collected by the depositors in
the various profitable and productive sector in the form of loan.By earning much
profit from it, the bank can get a lot of amount from the amount of deposit.The
bank has the nature of paying low interest to the depositors and taking higher
interest from the place it invested. And the bank can’t invest all the cash on
loan.A part from the deposit invested, the bank also has other cash.We can find
out the criteria of liquidity from it,

1.2.9.2 Field of Investment :

The criteria of measuring liquidity in a bank depends on the type of assets which
the bank has made investment. The bank does not waste cash stock received
from different sources of capital.The bank can invest the money, it posses in
different types of assets.Such as house,land for the bank and other permanent
short of assets.In such condition,the bank has low liquidity because the
investment made in such nature of assets needs much cash.And the bank gain
income very low for such nature of assets.But in contrast to it, if the bank has
invested in the share of various companies, the investment in government
securities and treasury bills and in the debentures of different business
institution, bank liquidity is abundant.In this way, the investment that the bank
deed can be used the criteria of measuring liquidity.

Liquidity Position of Nabil Bank 11

1.2.9.3 Cash Reserve Ratio:
The cash reserve ratio too can be taken as criteria of measuring bank
liquidity.The commercial bank should maintain the cash reserve ratio as fixed by
the central bank and also should maintain the statutory liquidity ratio, in its own
treasury. It change from time to time.We can measure the bank liquidity from this
too.

1.2.9.4 Profitablity:
It is the another criteria for measuring banks liquidity position.In case of higher
profitability ratio, the liquidity position will be higher whereas a lower profitability
ratio then the liquidity will be lower.

1.2.9.5 Investment in loan:

The bank distributes loans in different sectors.The source of loan investment is
important for the various source of income of the bank.It is important to know
what sort of loan and how much loans the bank has distributed while the bank
distributes the loan.If the bank is identified with the concept of gaining profit,the
bank flows loan on a long term and mid term basis.If it has paid its attention to
the safety it invest in short term loan.If a great deal of amount is invested in the
short term loan,the bank retains high liquidity.If it has invested in long term, mid
term, there is more liquidity.Thus, loan investment too can be the criteria of
measuring the liquidity.

1.2.9.6 Structure of bank:

The organizational structure of a bank i.e. sub-division branches too gives
speculation of bank liquidity.If the structure of the bank is in single nature,there is
higher liquidity in the bank.I f the banks have many branches liquidity is lower
because the liquidity remains scattered in different branches and sub branches.In
this way, we can find out the bank’s liquidity from the structure and the
organizational structure of a bank.

1.3 Problem Identification

Though, many banks are being operated in different parts of Nepal.Thus exist
several problems,which are as follows:
i) In Nepal , the largest banks namely NB Ltd. and RBB are unable to earn
more profit as compared to joint venture banks.So, low profitability is the
problem.
ii) In Nepal, corruption and reposition occur mainly in the public sector
banks.In such banks loan are granted only if some benefits to the
concerned employees are granted.
iii) The another problem is the existence of organized banks which include
money lenders, merchants and goldsmiths who do the lending business
under personal basis.

Liquidity Position of Nabil Bank 12

iv) Another problem of banking in Nepal is traditional system.Some banks
namely Nepal bank Ltd. and Rastriya Banijiya Bank still operate with old
lenders and in many branches.
v) Many banks are still unable to maintain capital adequacy ratio in
accordance with the rule and regulation of NRB as well as internal
standard.
vi) The problem of banking in Nepal includes less investment in productive
sectors, repotism and favoritism over staffing concentration of banks in
city area, high liquidity.
vii) Cut through competition between commercial banks creat a lot of
problem.In the other hand, it helps to increase the efficiency and
effectiveness of banks.But mostly it creates various problems if ever can
lead the bank to liquidation.

1.4 Signification of the study

This is of field report writing mainly deal with the student.Through this type of
report writing fieldwork, students may enable to enchance their knowledge in the
field of problem, Marketing and public relation etc. And they able to deal with
such type of activities.Ihe main significance of the study are ;
i) To get desired data with some aspect of liquidity by performing various
finanacial analysis.
ii) To come to conclusion about the liquidity position of Nabil Bank.
iii) To find out the position of Nabil Bank.
iv) To find out strength and weakness of Nabil Bank.
v) To find out the marketing style and public relation of the bank.

1.5 Limitation of the study

i) The study only covers seven years beginning from 1998 to 2004.
ii) There are many factors that effect liquidity and valuation of firm.However
only related factor are taken to consideration in the study.
iii) The study has been felt to be in adequate to some extent due to
availability of sufficient literature journals.
iv) Lack of industry average ratios for comparision.
v) Only Nabil Bank Ltd.is taken.
vi) Only seven years trend is taken.

1.6 Research Methodology

Research methodology refers to the different techniques and tools under to make
the study significant and efficient.There are varieties of techniques and tools
available to accomplish the study.The financial analysis is major tools.This
analysis is useful to reflect the liquidity position of the concerned bank.

Liquidity Position of Nabil Bank 13

1.6.1 Research Design:

Research design regers to the prospective method to accomplish the study to

fulfill the objective of the study.The students have only secondary datas
available through the annual report published by the concerned bank.So, to get
desired result efficient, the interview and questions are most necessary process
for calculating, tabulating and interpretating.

1.6.2 Method Analysis:

Various finanacial analysis tools have been used in this study.The analysis of
data will be done according to the pattern of data available.The relationship
between different figures related to study topic will be drawn out using ratio
analysis.The various calculated results are tabulated in a choronology order
under different heading which are later on compared with each other to interpret
the result.

1.6.3 Source of Data:

The source of data means the place or materials from which the required data
have been found.There are mainly secondary datas available for study i.e.the
main source of data is balance sheet of the concerned bank i.e. Nabil Bank from
1998 to 2004 has been used.

1.6.3.1 Primary data source:

The data which are originally collected by an investigator or an agent for the first
time, for the purpose of statistical enquiry are known as primary data.The primary
data are collected personally through the questionnaries, observation and
interviewing method.These data highlight the real and fact information of Nabil
Bank Ltd.In this report structured interview and unstructured observation method
were used.

1.6.3.2 Secondary data:

The source of secondary data are those which has been collected by other
people.Some of the secondary data of Nabil Bank’s annual report (2005/06 to
2011/12) were used for making this report.

1.6.4 Population and sample

In our country also there is mainly joint venture bank have been established
when Nepal has also adopted the economic liberalize.Although there is many
joint venture banks participating in banking business, to study about these all
banks can not be possible so sampling is required to select one.The population
of joint venture banks are as follows:
a) Standard Chartered Bank Nepal Ltd.
b) Nabil Bank Ltd.

Liquidity Position of Nabil Bank 14

 c) Nepal Indosuez Bank Ltd.
d) Nepal IISI Bank Ltd.
e) Everest Bank Ltd.
f) Himalayan Bank Ltd.
g) Bank of kathmandu Ltd.
h) Nepal Bank of Ceylon Ltd.

1.6.5 Tools Used

Different tools were use for analyse;

a) Financial Tools.
b) Cash and Bank Balance (exe. Money at call to CD ratio);

= Cash and Bank Balance (Exc.m/c) x 100%

Current Deposit

c) Cash and Bank Balance (Inc. m/c) to Deposit (Exc. FD) ratio;

= Cash and Bank Balance (Inc. m/c) x 100%

Deposit (Exc. FD)

d) Cash and Bank Balance (Inc. m/c) to Total Deposit ratio;

= Cash and Bank Balance (Inc. m/c) x 100%

Total Deposit

e) Saving Deposit To Total Deposit Ratio;

= Saving Deposit x 100%

Total Deposit

f) Fixed Depsit To Total Deposit Ratio;

= Fixed Deposit x 100%

Total Deposit

g) NRB Balance To Total Deposit Ratio;

= NRB Balance x 100%

Total Deposit

h) Cash in Hand to Total Deposit Ratio;

= Cash in Hand x 100%

Liquidity Position of Nabil Bank 15

 Total Deposit

i) Mean (X) = ΣX
n
(Y) = Σ Y
n

j) Standard deviation (s.d)

σ = √ Σ(X-X) 2
n

= √ Σ(Y-Y) 2
n
k) Coefficient of variation (c.v)

C.V. = σ x 100
X
l) Karl Pearson’s Correlation coefficient

Σxy
r=
√ Σx2 . Σ y2

CHAPTER – II

PRESENTATION AND ANALYSIS OF DATA

2.1 Introduction

Liquidity Position of Nabil Bank 16

The discussion and analysis section is the heart of the report. This is the section
in which data are presented and analyzed.The discussion of finding will normally
be the longest section of report to get desired objectives described previously
objectives of the study several analytical tools had been employed and used
research methodology and research design. This chapter is basically concerned
with presentation and analysis of datas.In this chapter the effort had been made
to analyze the liquidity position of the Nabil Bank.

Every presentation of the data follows its analysis so that can be drawn out and
future prediction can be initiated.For the propose of the analysis simple method
of financial tools, ratio analysis and statistically tools, mean, standard deviation,
coefficient of variation are used.

2.2 Ratio Analysis

Ratio analysis is widely used as a tool of financial analysis.It is defined as a

systematic use of ratio’s to interpreted the financial statement so that the strength
and weakness of a firm as well as its historical performance and current financial
condition can be defined.

2.3 Cash and bank balance (Exe. M/c ) to current Deposit ratio

Table No. 4
(NRs. In million)
Year ( FY) Cash and Bank Balance Current Deposit Ratio (In %)
(exc.m/c)
2005/06 1314.3 2334.3 56.30
2006/07 568.6 2333.3 24.36
2007/08 910.1 2935.3 31.01
2008/09 810.8 2957.1 27.42
2009/10 911.9 2723.0 33.49
2010/11 1147.7 3025.0 37.94
2011/12 914.1 2723.4 33.55
Average 34.87
(Source : Nabil bank’s annual reports)

Liquidity Position of Nabil Bank 17

Figure No. 3

Cash and bank balance (Exe. M/c ) Cash & Bank

to current Deposit ratio
Balance
Current Deposit
3500
3000
NRs. in million
2500
2000
1500
1000
500
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Year

Figure No. 4
Ratio Series
60
56.3
50
Percentage

37.94
40 33.49
31.01
30 33.55
27.42
24.36
20

10

0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

year

The above figure shows that there is fluctuation in cash and banks balance to
current deposit ratio.The ratio of the Nabil bank has decreased from 56.30 in
2006/07 to 24.36 in 2007/08.Then after there is a fluctuation in the cash and
bank balance to deposit CD ratio.

Liquidity Position of Nabil Bank 18

2.4 Cash and Bank Balance (inc. m/c) to Deposit (Exc F.D.)

Table No.5

(NRs. In million)
Year ( FY) Cash and Bank Balance Current Deposit Ratio (In %)
(Inc. m/c)
2005/06 3725.2 6422.1 58.01
2006/07 3782.7 7366.3 51.35
2007/08 5541.9 9585.4 57.81
2008/09 6284.9 12119.7 51.85
2009/10 4999.3 12923.8 38.67
2010/11 4162.1 11185.1 37.211
2010/12 3624.3 10905.4 33.22
Average 46.86
(Source : Nabil bank’s annual reports)

Figure No. 5

Cash & Bank balance(Inc. m/c) to deposit(Exc.F.D)

Cash & Bank
Balance (Inc.m/c)
Deposit (Exc F.D.)
14000
12000
NRs. in million

10000
8000
6000
4000
2000
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Year

Liquidity Position of Nabil Bank 19

Figure No. 6

Ratio
Series
70
58.01 57.81
60
50
Percentage

51.35 51.85
40
38.67
30 37.211
33.22
20
10
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Year

In the fiscal year 2005/06 ratio has decreased from 58.01% to 51.35% and in
the fiscal year 2006/07 it has increased from 51.35% to 57.81% The above figure
shows that there is fluctuation in the cash and bank balance to deposit.The ratio
in fiscal year 2011/12 was 33.22% which was the lowest.Thus, the bank has less
liquidity then the previous year.But in the fiscal year 2002/03 the ratio is
37.211%.Thus, the bank has more liquidity than the previous year.The bank has
more chance to fulfill the demand of depositors. The average ratio is 46.86%.

2.5 Cash and Bank Banlance (Inc. m/c) to Total Deposit ratio

Table No. 6
(NRs. In million)
Year ( FY) Cash and Bank Balance Total Deposit Ratio (In %)
(Inc. m/c)
2005/06 3725.2 8737.5 42.62
2006/07 3782.7 9464.4 39.97
2007/08 5541.9 127801.1 43.35
2008/09 6284.9 15838.9 39.67
2009/10 4999.3 15370.6 32.53
2010/11 4162.1 13437.7 30.96
2011/12 3624.3 13402.4 27.04
Average 36.59
(Source : Nabil bank’s annual reports)

Liquidity Position of Nabil Bank 20

Figure No. 7

Cash & Bank balance(Inc. m/c) Cash & Bank Balance

(Inc.m/c)
to Total Deposit Ratio Total Deposit
16000
14000
12000
NRs. in million

10000
8000
6000
4000
2000
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Year

Figure No.8

Ratio
Ratio in %
50
42.62 43.35
45
40
35 39.97 39.67
Percentage

30 32.53
25 30.96
27.04
20
15
10
5
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Year

2.6 Saving Deposit to Total Deposit Ratio

Table No.7
(NRs. In million)
Year ( FY) Saving Deposit Total Deposit Ratio (In %)
2005/06 2546.7 8737.5 29.15
2006/07 3352.6 9464.4 35.42
2007/08 4150.2 12780.1 32.47
2008/09 4917.1 15838.9 31.03
2009/10 4889.0 15370.6 31.81
2010/11 5237.4 13437.7 38.98
2011/12 5445.8 13402.4 40.62
Average 34.21
(Source : Nabil bank’s annual reports)

Liquidity Position of Nabil Bank 21

Figure No. 9

Saving Deposit to Total Deposit Ratio

Saving Deposit
Total Deposit
16000

14000

12000
NRs. in million

10000

8000

6000

4000

2000

0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Year

Figure No.10

Ratio Ratio in %
50
38.98 40.62
40 35.42
31.81
Percentage

29.15
30 32.47 31.03
20

10

0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
year
The ratio of saving deposit to Total Deposit are 29.15%, 35.42%, 32.47%,
31.03%, 31.81%, 38.98% and 4062% in fiscal year 2005/06, 2006/07, 2007/08,
2008/09, 2009/10, 2010/11 and 2011/12 respectively.Saving deposits in sort of
short term Liquidity, which can be withdraw by deposits.Lower the ratio of Saving
deposit to total deposit higher the liquidity ratio.

Liquidity Position of Nabil Bank 22

2.7 Fixed Deposit to Total Deposit Ratio

Table No.8

(NRs. In million)
Year ( FY) Fixed deposit Total Deposit Ratio (In %)
2005/06 2315.4 8737.5 26.49
2006/07 2098.1 9464.4 22.17
2007/08 3194.3 12780.1 24.98
2008/09 3719.2 15838.9 23.92
2009/10 2446.8 15370.6 15.92
2010/11 2252.6 13437.7 16.76
2011/12 2497.0 13402.4 18.63
Average 21.27
(Source : Nabil bank’s annual reports)

Figure No.11

Fixed Deposit to Total Deposit Ratio

Fixed Deposit
Total Deposit
16000

14000

12000
NRs. in million

10000

8000

6000

4000

2000

0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Year

Liquidity Position of Nabil Bank 23

Figure No. 12

Fixed Deposit to Total Deposit Ratio Ratio in %

30
26.49 24.98
25
18.63
Percentage

20 22.17 23.93

15 15.92 16.76
10
5
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
year

The above figure shows that is fluctuation in fixed deposit to total deposit
ratio.The ratio from 2005/06 to 2011/12 are as follows : 28.49%, 22.17%, 24.98%
23.93%, 15.92%, 16.76% and 18.63% respectively.

2.8 NRB Balance to Total Deposit ratio

Table No.9
(NRs. In million)
Year ( FY) NRB Balance Total Deposit Ratio (In %)
2005/06 559.1 8737.5 6.39
2006/07 290.4 9464.4 3.06
2007/08 533.3 12780.1 4.172
2008/09 510.2 15838.9 3.22
2009/10 366.3 15370.6 2.38
2010/11 892.8 13437.7 6.64
2011/12 404.9 13402.4 3.02
Average 4.126
(Source : Nabil bank’s annual reports)

Liquidity Position of Nabil Bank 24

Figure No.13

NRB Balance to Total Deposit Ratio

NRB Balance
Total Deposit
16000

14000

12000
NRs. in million

10000

8000

6000

4000

2000

0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Year

Figure No. 14

Ratio Ratio in %
7 6.39
6.64
6
Percentage

5 4.172
4
3
3.06 3.22 3.02
2 2.38
1
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
year

The above table and chart shows that the ratio of NRB Balance to total deposit
ratio from 2005/06 to 2011/12 are as follows; 6.39%, 3.06%, 4.172%, 3.22%,
2.38%, 6.64%, 3.02% and 4.126% respectively.
Thus the ratio in 2002/03 which is higher than the ratio of 2001/02 (2.38%).This
shows that Nabil bank has dept less balance with NRB and has utilized the
remaining cash balance in productive sectors.

Liquidity Position of Nabil Bank 25

2.9 Cash in Hand to Total Deposit Ratio

Table No.10
(NRs. In million)
Year ( FY) Cash in hand Total Deposit Ratio (In %)
2005/06 112.5 8737.5 1.28
2006/07 123.6 9464.4 1.31
2007/08 178.9 12780.1 1.39
2008/09 182.3 15838.9 1.15
2009/10 285.4 15370.6 1.86
2010/11 157.6 13437.7 1.16
2011/12 166.7 13402.4 1.23
Average 1.34
(Source : Nabil bank’s annual reports)

Figure No.15

Cash in hand to Total Deposit Ratio

Cash in hand
Total Deposit
16000

14000

12000
NRs. in million

10000

8000

6000

4000

2000

0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Year

Liquidity Position of Nabil Bank 26

 Figure No. 16

Ratio
Ratio in %
2
1.86
Percentage

1.5 1.39
1.28
1.16
1.31
1 1.15 1.23
0.5
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Year

The above table and chart shows that the ratio of cash in hand to total deposit
from 2005/06 to 2011/12 are as follows; 1.28%, 1.31%, 1.39%, 1.15%, 1.86%,
1.165 and 1.23%.respectively.

2.10 Statistical Analysis

Calculation of mean, standard deviation,coefficient between cash and bank

balance (Exc. m/c) and Total deposit.

Table No.11

Cash and y2 xy
2
Year Bank Total Deposit x= X-X x y= Y-Y
( FY) Balance (X) (Y) (X-939.6)
2005 1314.3 8737.5 374.7 140400.09 (3981.3) 15850749.69 (1491793.11)
2006 568.6 9464.4 (371) 137641 (3254.4) 10591119.36 1207382.4
2007 910.1 12780.1 (29.5) 870.25 61.3 3757.69 (1808.35)
2008 810.8 15838.9 (128.8) 16589.44 3120.1 9735024.01 (401868.88)
2009 911.9 15370.6 (27.7) 767.29 2651.8 7032043.24 (73454.86)
2010 1147.7 13437.7 208.1 43305. 61 718.9 516817.21 149603.09
2011 914.1 13402.4 (25.46) 648321 683.6 467308.96 (17404.46)
Σ X=6577.5 ΣY=89031.6 Σx2=340221.89 Σ y2=44196820.16 Σ xy=(629344.16)

Mean
It is the sum of all observation divided by the number of observation or
value.Mean is the arithematic average of total observation or values.
Average C.B.B (X) = ΣX .
n
= 6577.5
7

Liquidity Position of Nabil Bank 27

 = 939.6

Average T.D (Y) = ΣY

n
= 89031.6
7
= 12718.8

Therefore, the average of cash & bank balance of Nabil bank Ltd.,for the last
seven year is NRs.939.6 million and the average of total deposit of Nabil bank
Ltd. is NRs.12718.8 million.

Standard deviation (s.d)

σ (TD) = √ Σ(Y-Y) 2
n

= √ 44196820.16
7
= 2512.73

σ (CBB) = √ Σ(X-X) 2
n

= 340221.89
7
= 220.46

Therefore,the standard deviation based on cash and bank balance of Nabil bank
Ltd. for the last seven year is NRs.220.46 million and standard deviation of total
deposit of Nabil bank Ltd. is NRs.2512.73 million.

Coefficient of Variation
The coefficient of variation of despersion based on standard deviation multiplied
by 100 is known as the coefficient of variation (c.v).It is independent of unit.

C.V. TD = σ (TD) x 100

X
= 2512.73 x 100
12718.8

= 19.75%

C.V. CBB = σ (CBB) x 100

Liquidity Position of Nabil Bank 28

 Y
= 220.46 x 100
939.6

= 23.46%

The coefficient of variation measures the consistence (variation) of the

observation with reference to above calculation, there is uniformity in the change
of cash and bank balance as compared to the total deposit because coefficient of
variation of cash and bank balance (23.46%) is more than the coefficient of
variation of total deposit (19.75%).

Karl Pearson’s correlation between cash and bank balance (Exe. M/c) and
total deposit

One of the widely used mathematical methods of calculating the correlation

coefficient between two or more than two variables is Karl Pearson’s correlation
coefficient.It is also known as Pearson’s correlation. It is denoted by “r” or simple
‘r’ and is defined by;
Σxy
r=
√ Σx2 . Σ y2
The value always lies between –1 and +1 .+1 denotes the perfect correlation
between the two variables and +1 denotes negative correlation between two
variables.
Σxy
r=
√ Σx2 . Σ y2
-629344.16
=
√ 340221.89 x 44196820.16
= -629344.16
3877685.63

= -0.162298

The value of correlation shows the degree of relationship between the two or
more than two variable. The negative correlation -0.162298 shows the negative
relationship. Hence, the correlation between cash and bank balance and total
deposit of Nabil bank Ltd. is negative.

CHAPTER – III
SUMMARY AND CONCLUSION

Liquidity Position of Nabil Bank 29

3.1 Summary

Nepal is one of the less developed countries of the world for most of the
developing process. It is financial depend on the foreign countries;it is
economically too week in Nepalese banking industries.

Modern commercial banks make the economy always alive and smart to run and
maintain day to day commercial economic and banking transactions.In short
banking transactions help a country to develop its economy swifty.It there were
systematic and scientific programs for economic and scientific developments
countries like Nepal would have developed if its economy as much as those
countries which have development like might have been perhaps narrowed
down.

At present commercial banks including joint venture banks are operating in

Nepalese Industry.It is remarkable fact that any country cannot have a developed
economy in the absence of modern banking system.Because any development
works needs a sufficient capital and lack of sufficient capital is also one of the
main reason as to why Nepal has been backward for developing its economy.

So it is very important to find out whether or not the banks are serving an
important contribution to developed different sector of the economy.Liquidity is
aid to be the general business of fund, which shows the banks ability to meet
cash requirements.In this record, this study has been based upon the objective to
evaluate the liquidity position of Nabil bank Ltd.

3.2 Major Findings

The major findings of this study are as follows ;

 The cash and bank balance to current deposit ratio is 33.55% in 2003/04.
 The cash and bank balance (Inc. m/c) to deposit (Exe. Fixed deposit) is
33.22 in 2003/04.
 The cash and bank balance (Inc.m/c) to total deposit ratio is 27.04 in
2003/04.
 The saving deposits to total deposit ratio is 40.62 in fiscal year 2003/04.
 The fixed deposit to total deposit ratio is 18.63 in fiscal year 2003/04.
 The NRB balance to total deposit ratio is 3.02 in the financial year
2003/04.
 The cash in hand to total deposit ratio is 1.23 in the financial year 2003/04.

3.3 Conclusion

Liquidity Position of Nabil Bank 30

Thus banks play vital role for the country.It should utilize the resources of the
country and its people in the proper way making all the policy properly.General
activities and management and commercial banks directly effect the economic
development of Nepal.

By the study of a liquidity position of the Nabil bank Ltd.,the current deposit of the
financial year is less then the precious year and its ratio is decreased from 37.94
to 33.55.The ratio of cash and bank balance (Inc. m/c) to deposit (Exc. FD) is
decreased from 37.211% to 33.22,the cash and bank balance (Inc. m/c) to total
deposit ratio is decreased from 30.96% to 27.04%, the saving deposit is more in
precious year than current year, NRB balance to total deposit ratio is decreased
from frevious year and the ratio of cash in hand to total deposit is increased from
the year 2002/03 (1.16%) to 2003/04 (1.23%).

3.4 Recommendation

Some suggestion and recommndation forwarded on the basis of the study are ;

 Economic condition of the country is deteriorating, there is danger in

slacking of the business and industial activities.So, the bank should be
interested only in collecting huge amount of deposit by increasing the
interest rate.
 Other than shareholders annual report, the bank should publish and
distribute booklets containing detail information about its activities and
percormance as well
 The bank should follow the discipline and adopt directions of Nepal Rastra
bank.This helps to maintain harmonious relationship between other joint
venture banks as well.
 Considering the present economic condition of the country, the banks
should play pivotal rales for the economic development of the
country.They should promote balances regional development by finanacial
funds in remote areas and other priority sections.
 High interest rate is tool to attract customer, which effent the collection of
fund.The cash deposited by the customer are liquid asset,which help to
maintain adequate liquidity position of bank.
 Nabil bank should broaden its basic operational areas other than banking
like agrifulture, industry, financial sectors etc.
 Government, NRB and commercial banks should take necessary steps to
form and regulate banking habit of Nepalese people especially people of
rural areas.

BIBLIOGRAPHY

Liquidity Position of Nabil Bank 31

1. Prof. GD Pant, Chaudhary A.K. “Business Statistics and Mathemetics.”
(2058 B.S.)

2. “Annual Report of Nabil Bank” from fiscal year 2008 to 2012.

3. “Banking & financial statistics”. – NRB mid july 2012

4. “Commercial Bank Act 2031”, -NRB.

5. Bhandari Dilli Raj, “Principles & Practice of Banking &

Insurance”,Jan.2011 Edition.

6. Pradhan, Radhe Shyam, ”Management of Working Capital”, New Delhi;

7. Gupta S.P.,” Statistical Method”.

8. National Book Organization,1986.

9. Khadka, Sher Jung,“Analysis of Financial Ratio”, Kathmandu Institute of

Management,T.U.

10. Pant, Prem Raj. Fieldwork Assignment And Report Writing.

(1st Edition 2005)

Liquidity Position of Nabil Bank 32