A COMPARATIVE FINANCIAL ANALYSIS OF

EVEREST BANK LIMITED AND BANK OF

KATHMANDU LIMITED
A Thesis Proposal

Submitted to:
Faculty of Management, TU
Ram Swarup Ram Sagar Campus
Janakpur, Dhanusha

Submmited By
Birendra Kumar
Roll No.: 92/ 065
T.U. Regd No: 38538-93
T.U Symbol No:140037

In Partial fulfillment for the requirement of the Degree of

Master of Business Studies (M.B.S.)

Janakpur, Nepal
Jan, 2014

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 RECOMMENDATION

This is to certify that the thesis

Submitted by:
Birendra Kumar

Entitled
A Comparative Financial Analysis of Everest Bank Limited and Bank Of Kathmandu Limited

Has been prepared by this department in the prescribed format of the Faculty of Management. This thesis is
forwarded for examination.

Dr. Binod Shah Prof Dr. Shailendra Labh Karna

……………………………….. ………………………………

(Thesis Supervisor) (Head of Res.Department)

Ram Naresh Thakur Navendra Kr. Nidhi

……………………………. ……………………………

(Asst. Campus Chief) (Campus Chief)

Date:

2
 VIVA-VOICE SHEET

We have conducted the Viva Voce examination of the Thesis

Submitted by:
Birendra Kumar

Entitled
A Comparative Financial Analysis of Everest Bank Limited and Bank Of Kathmandu Limited

And found the thesis to be the original work of the student and written according to the prescribed format. We
recommend the thesis to be accepted as the partial fulfillment of the requirements for
Master’s Degree in Business Studies (MBS)

Viva-Voce Committee

Head of research department: ………………………………………….

Member (Thesis Supervisor): …………………………………………

Member (External Expert): ……………………………………………

Date:

3
 DECLERATION

I hereby declare that the work report in this thesis entitled “A Comparative
Financial Analysis of Everest Bank Limited and Bank Of Kathmandu
Limited” submitted to the office of Dean, faculty of management, Tribhuvan
University is my original work done in the form of partial fulfillment of the
requirement of Master’s Degree of Business Studies (MBS) under the
guidance and supervision of Dr. Binod Shah Lecturer, Ram Swarup Ram
Sagar Multiple Campus, Janakpur.

Birendra Kumar
(Researcher)
Roll.: 92/065

T.U. Reg. No.:38538-93

Ram Swarup Ram Sagar Multiple Campus

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 ACKNOWLEDLGEMENT

I am grateful to my supervisor, Dr. Binod Shah,Lecturer , Ram Swarup Ram Sagar

Multiple Campus(RRM), T.U for his valuable advice, support and encouragement without
which it could have been difficult for me to complete this thesis. Like wise my respective
teacher , is the part of appreciation for their suggestions and encouragements.
I gratefully acknowledge my thanks to all Mr Bhabkant Jha, Mr Sudarshan Dhahal,
Mr Samit Sha, for their valuable guidance, support and suggestions. My special thanks go to
Mr Keshba Jha for their valuable guidance, support and suggestions.
It is a commendable task of Tribhuvan University to introduce the research work for
the fulfillment of the requirements for the degree of Master of Business Studies (MBS) as a
mandatory requirement. It helps to equip students with modern research techniques and
practical experience in real social settings. The knowledge gain through self –investigation
and analysis is ever lasting. For this opportunity, I would like to express thanks to the
Curriculum Development and Research Center. Tribhuvan University, Kritipur.
I am thankful to the staff of Everest Bank & Bank Of Kathmandu Bank for their help
to provide information and data.
I also express my gratitude to all my family members for their valuable support
without which it could have been difficult to complete this task.
I would to thank all the library and administrative staff of Ram Swarup Ram Sagar
Multiple Campus for their continues support to complete this work.

Thanking You

Birendra Kumar
Ram Swarup Ram Sagar Multiple Campus

April. 2014

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 TABLE OF CONTENTS

Recommendations

Viva-Voice Sheet
Declaration
Acknowledgement
Table of Contents
List of Tables
List of Graphs
List of Abbreviations

CHAPTER – I
1. INTRODUCTION 1-22
1.1 Background 1
1.2 Meaning and Origin of the Bank 2
1.2.1 Origin and Growth of Banking System in Nepal 4
1.2.2 Nature of Commercial Banks 13
1.2.3 Role of commercial Banks in the National Economy 14
1.3 Overview of the banks 16
1.3.1 Everest Bank Limited 16

1.3.2 Bank Of Kathmandu 17

1.4 Statement of problem 18

1.5 Objectives of the study 20
1.6 Significance of the study 20
1.7 Limitation of the study 21
1.8 Organization of the Study 22

CHAPTER – II
2. REVIEW OF LITERATURE 23-57
2.1 Conceptual Framework 23
2.1.1 Objectives of Financial Performance Analysis 25
2.1.2 Limitations of Financial Performance Analysis 26
2.1.3 Types of Financial Performance Analysis 28
2.1.4 Method of Financial Performance Analysis 29
2.1.5 Major Steps in Financial Performance Analysis 30
2.1.6 Tools & Techniques of Financial Performance Analysis 30
2.1.6.1 Funds Flow Analysis 31
2.1.6.2 Cash Flow Analysis 32
2.1.6.3 Trend Analysis 32
2.1.6.4 Ratio Analysis 33
1 Liquidity Ratio 36
2 Activity Ratio 39
3 Leverage Ratio 41
4 Profitability Ratio 43
5 Capital Adequacy Ratio 45
6 Assets Quality Ratio 46
7 Others Indicators 48
2.2 Review of Literature 49

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CHAPTER – III
3. RESEARCH METHODOLOGY 58-60
3.1 Introduction 58
3.2 Research Design 58
3.3 Period Cover 59
3.4 Populating and sampling 59
3.5 Source and nature of data 59
3.6 Data analysis tools and techniques 60
3.6.1 Financial tools 60
3.6.2 Statistical tools 60

CHAPTER – IV
4. DATA PRESENTATION AND ANALYSIS 61-105
4.1 Ratio Analysis 61
4.1.1 Liquidity Ratios 61
4.1.1.1. Current Ratio 62
4.1.1.2. Quick Ratio 63
4.1.1.3 Cash and Bank Balance to Total Deposit Ratio 64
4.1.1.4 Cash and Bank Balance to Deposits (Exp FD) Ratio 66
4.1.1.5 Fixed Deposit to Total Deposit Ratio 67
4.1.1.6 NRB Balance to Current and Saving Deposit Ratio 68
4.1.2 Efficiency /Activity/ Turnover Ratios 70
4.1.2.1 Loans and Advances to Total Deposit Ratio 70
4.1.2.2 Loans and Advances to Saving Deposit Ratio 71
4.1.2.3 Loans and Advances to Fixed Deposits Ratio 72
4.1.2.4 Investment to Total Deposit Ratio 74
4.1.3 Profitability Ratios 75
4.1.3.1 Return on Assets (ROA) 75
4.1.3.2 Return on Net Worth / Shareholders’ Equity (ROSE) 77
4.1.3.3 Return on Total Deposits 78
4.1.4 Capital Structure/ Leverage/ Solvency Ratios 79
4.1.4.1 Debt-Equity Ratio 80
4.1.4.2 Debt Assets Ratio 81
4.1.4.3 Interest Coverage Ratio 82

4.1.5 Capital Adequacy Ratios 83

4.1.5.1 Net Worth to Total Deposits Ratio 83
4.1.5.2 Net Worth to Total Assets Ratio 85
4.1.5.3 Net Worth to Total Credit Ratio 86
4.1.6 Assets Quality Ratios 87
4.1.6.1 Loan Loss Coverage Ratio 87
4.1.6.2 Loan Loss Provision to Total Income Ratio 88
4.1.6.3 Loan Loss Provision to Total Deposit Ratio 89
4.1.7 Other Indicators 91
4.1.7.1 Earning Per Share (EPS) 91
4.1.7.2 Price-Earnings Ratio (P/E ratio) 92
4.1.7.3 Market Value per Share to Book Value Per Share 93
4.1.7.4 Total Interest Expenses to Total Interest Income Ratio 94

4.2. Correlation Analysis 96

4.2.1 Correlation Analysis between Deposit and Loans and Advances 97
4.2.2 Correlation Analysis between Total Deposit and Net Profit 98
4.2.3 Correlation Analysis between Loans and Advances and Net Profit 99
4.2.4 Correlation Analysis between Total Deposit and Investment 100

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4.3. Trend Analysis 101
4.3.1 Trend Analysis of Total Deposits 102
4.3.2 Trend Analysis of Loans and Advances 103
4.3.3 Trend Analysis of Net Profit 103
4.3.4 Trend Analysis of Net Worth 104

CHAPTER – V
5. SUMMARY, CONCLUSION & RECOMMENDATIONS 105-110
5.1 Introduction 105
5.2 Summary 105
5.3 Conclusion 107
5.4 Recommendations 109

LIST OF TABLES

Table: 4.1 Current Ratio (Times) 62

Table: 4.2 Quick ratio (Times) 63
Table: 4.3 Cash and Bank Balance to Current Assets Ratio 65
Table: 4.4 Cash & Bank Balance to Deposit (except FD) Ratio 66
Table: 4.5 Cash and Bank Balance to Total Deposit Ratio 67
Table: 4.6 NRB Balance to Current and Saving Deposit Ratio 69
Table: 4.7 Loans and Advances to Total Deposit Ratio 70
Table: 4.8 Loan and Advances to Saving Deposit Ratio 71
Table: 4.9 Loans and Advances to Fixed Deposit Ratio 73
Table: 4.10 Investment to Total Deposit Ratio 74
Table: 4.11 Return on Assets (ROE) 75
Table: 4.12 Return on Net Worth 77
Table: 4.13 Return on Total Deposit 78
Table: 4.14 Debt-Equity Ratio 80
Table: 4.15 Debt-Asset Ratio 81
Table: 4.16 Interest Coverage Ratio 82
Table: 4.17 Net worth to Total Deposit 84
Table: 4.18 Net Worth to Total Assets Ratio 85
Table: 4.19 Net Worth to Total Credit Ratio 86
Table: 4.20 Loan Loss Coverage Ratio 87
Table: 4.21 Loan Loss Provision to Total Income Ratio 88
Table: 4.22 Loan Loss Provision to Total Deposits Ratio 90
Table: 4.23 Earning Per Share 91
Table: 4.24 Price-Earning Ratio 92

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Table: 4.25 Market Value per Share to Book Value per Share 94
Table: 4.26 Total Interest Expenses to Total Interest Income Ratio 95
Table: 4.27 Correlation Analyses between Deposit & Loans and Advances 97
Table: 4.28 Correlation Analyses between Total Deposit and Net Profit 98
Table: 4.29 Correlation Analyses between Loans & Advances and
Net Profit 99
Table: 4.30 Correlation Analyses between Total Deposit and Investment 100
Table: 4.31 Trend Analysis of Total Deposits 102
Table: 4.32 Trend Analyses of Loans and Advances 103
Table: 4.33 Trend Analysis of Net Profit 103
Table: 4.34 Trend Analysis of Net Worth 104

LIST OF FIGURE

Figure: 1 Current Ratio (Times) 63

Figure: 2 Quick ratio (Times) 64
Figure: 3 Cash and Bank Balance to Current Assets Ratio 65
Figure: 4 Cash & Bank Balance to Deposit (except FD) Ratio 67
Figure: 5 Cash and Bank Balance to Total Deposit Ratio 68
Figure: 6 NRB Balance to Current and Saving Deposit Ratio 69
Figure: 7 Loans and Advances to Total Deposit Ratio 71
Figure: 8 Loan and Advances to Saving Deposit Ratio 72
Figure: 9 Loans and Advances to Fixed Deposit Ratio 73
Figure: 10 Investment to Total Deposit Ratio 75
Figure: 11 Return on Assets (ROE) 76
Figure: 12 Return on Net Worth 78
Figure: 13 Return on Total Deposit 79
Figure: 14 Debt-Equity Ratio 80

Figure: 15 Debt-Asset Ratio 81

Figure: 16 Interest Coverage Ratio 83
Figure: 17 Net worth to Total Deposit 84
Figure: 18 Net Worth to Total Assets Ratio 85
Figure: 19 Net Worth to Total Credit Ratio 86
Figure: 20 Loan Loss Coverage Ratio 88
Figure: 21 Loan Loss Provision to Total Income Ratio 89
Figure: 22 Loan Loss Provision to Total Deposits Ratio 90
Figure: 23 Earning Per Share 92

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Figure: 24 Price-Earning Ratio 93
Figure: 25 Market Value per Share to Book Value Per Share 94
Figure: 26 Total Interest Expenses to Total Interest Income Ratio 96

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ABBREVIATIONS

NRB : Nepal Rastra Bank

NIDC : Nepal Industrial Development Corporation
RBB : Rastriya Banijya Bank
HBL : Himalayan Bank Limited
EBL : Everest Bank Limited
BOK : Bank Of Kathmandu
SBI : Nepal SBI Bank Limited
SCBL : Standard Chartered Bank
NIB : Nepal Investment Bank
F.D : Fixed Deposit
C.V : Coefficient of Variance
i.e : That is
NWPS : Net Worth per Share.
MVPS : Market Value Per Share
EBIT : Earning Before Interest and Tax
ATM : Automatic Teller Machine
F.Y : Fiscal Year
& : And
T.U : Tribhuvan University
A.D : Anno Domino
B.S : Bikram Sambat
JVB : Joint Venture Bank
P.E : Probable Error
P.N : Page Number

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 1. INTRODUCTION

1.1 Background:
Nepal, the steepest country in the world, descends from the height of Everest to the tiger prowling
jungles below. Between are valleys rich in more than 2500 years of culture where Hinduism and Buddhism have
met and created undreamed of glories of spiritualism through stone, brick and meal for the eye to behold and for
the soul to experience. The most beautiful Himalayan Republic countries discover the world of mountain, river,
jungle and culture in the world of Nepal. Visit Nepal 1998:1
Nepal is one of the least developed agricultural countries of the world. It is a small landlocked country
situated in heart of Asia. It is surrounded by People’s Republic of China in the North and India in the South,
East and West. Nepal is shaped almost as a rectangle. It is located between 26o 22’ and 30o 27’ North latitude
and 80o 4’ and 88o 12’ East longitude. It covers the area of 1, 47,181 square kilometres. It has an average length
of 885 kilometres East to West. The North-South width is not uniform. Its width is 241 kilometres in maximum
and 144 kilometres in minimum. An Introduction to Nepalese Economy; Dr. Shyam Joshi
Public enterprises is an institution operating a service of an economic character on behalf of the
government, but as an independent legal entity, largely autonomous in its management, though responsible to
the public through government and parliament and subject to some direction by the government. According to
Laxmi Narayan, “Public enterprises are autonomous bodies with are owned the managed by the government and
which provide goods and services for a price. The ownership with the government should be 51% or more to
make entity public enterprises.”
Public enterprises are established for rapid social-economic development of the country. Public enterprises
in Nepal constitute a vital instrument for social-economic development. It enjoys a strategic and crucial position
in our mixed economic. They have been established in many sectors for the overall development of the country
with different goals and objectives. Public enterprises can be classified as follows:-
a) Manufacturing enterprises
b) Commercial enterprises
c) Financial enterprises
d) Public enterprises engaged in social services
e) Development or services enterprises

1.2 Meaning and Origin of the Bank

A bank is an institution that deals with money by accepting various types of deposits, disbursing loan
and rendering other financial services. Broadly speaking, bank draws money from the people who are not using
it at time and lend to those who are in position to use it for productive purposes. Since banks are rendering a
wide range of services to the people from different lifestyle, they have become an essential part of modern
society. In other words, bank is an institution that accepts the deposits from people and in turn advance loan by
creating credit. In this process, they earn interest and commission, out of which they pay interest to the
depositors i.e. People who deposits fund with them. Banks have opened their branches in towns and villages
offering different types of services to the different level of people.

12
 Bank is also define as an institution for keeping, lending and exchanging of money. Banks’ debt-
usually referred as ‘Bank Deposit’ that is commonly accepted in final settlement of debt of other people. It is
different from other financial institution in the sense that they cannot create credit though they may be accepting
deposits and making advances. Thus, bank’s business was basically to buy and sale of credit. Credit instruments
are kept on stock-in-trade also based on its own credit and banks create money transferred by credit instruments.
They must gain the confidence and trust of the people to create credits. It is said that the flow of credit is very
much important like the circulation of blood in human life. If the circulation of blood is not smooth, it will do
irreparable harm to the body. Similarly, unsteady and unevenly flow of credit harms the economy.

Bank came in existence mainly with the objectives of collecting the idle funds, mobilizing them into
productive sectors and causing an overall economic development. That mobilized deposits contribute to the
development of economic infrastructure of the nation. Banks are not just storehouses of the wealth but are
reservoir of resources. The contribution of the bank has been very substantial in increasing production and
employment by motivating people to save and in collecting the scattered saving in the form of deposits. The
bankers have the responsibility of safeguarding the interest of the depositors, the shareholders and the society
they are serving.

The definitions of banking quoted by Dahal, Sarati and Bhuwan (2002:07) are as follows.
 A bank is an organization whose principal operations are concerned with accumulation of the
temporarily idle money of the public for the purpose of advancing to other for expenditure.
 Banking means the accepting for the purpose of lending or investment of deposits of money
from the public repayable on demand or otherwise, and withdrawal by cheque, draft or otherwise.
 Any institution offering deposits subject to withdrawal on demand and making loan of
commercial or business nature is a bank.

Above definitions are applicable to all types of financial intermediaries. In fact, ‘banks’ now a day, do
a large number of financial transactions while ‘financial institutions’ are authorized to do limit transaction only.
Hence, a bank can defined as a “financial departmental store” which renders a host of financial services besides
taking deposits and giving loans (Sarita & Bhuwan 2002:02)
The present- day bankers have three ancestors: Merchant, Moneylender and Goldsmith. A modern bank
is something of each of there. It is said money has two properties. It is flat so it can pile up and it is round so
that it can circulate. The progeny of the moneylender concern flat money piled up money and savings. The
progeny of goldsmith are concern with round money circulating money cash. Modern banks have been
developed from the beginning. The earlier bankers were merchants, goldsmith and moneylender. History tells us
that it was the merchant banker who first evolved the system of banking by trading in community then money.
Their trading activities required the remittance of money from one place to another.

Next stage in the growth of banking was goldsmith. The business of goldsmith was such that he had to
take deposit such as bullion, money and amendments for security from theft. This makes possible the goldsmith
to change something case of money and bullion. On the other hand, as the evidence of securing valuables, he

13
used to issue a receipt to the depositors as such receipts are used for payments equivalent to amount mentioned.
It became like a modern cheque as a medium of exchange and means of payments.
Finally, moneylender in the early age contributed in the growth of banking to large extent. He advances
the coins on loan by charging interest. As safeguard he used to keep some money in the reserve. Therefore,
moneylender became banker who started performing the two functions of modern banking i.e. accepting
deposits and advancing loans.
There are various concepts among the economist about the origin of the word ‘Banking’. The term
Bank derived from the Latin word-‘Bancus’ that refers to the bench on which the banker would keep its money
and his record. Some people trace its origin to the Italian word-‘Banca’ and the French word –‘ Banque’ that
means a bench for keeping and exchanging of money in the market.

Moneylenders in the streets of major cities of Europe used bench for acceptance and payment of
valuable and coins. When they were unable to meet their liabilities the depositors used to break their bench. The
term-Bankruptcy is derived thereof. It is difficult to say exactly whether the term ‘Bank’ has been derived from
‘bancus’ or German word ‘Bank’ that means Joint Stock Company.
Despite the strong criticism by the church on charging interest, modern banking sowed its seed in the
medieval italy. Bank of Venice was the first established in 1157 AD in Venice. Italy is regarded as the
motherland of first modern bank. The Bank of Barcelona and Bank of Geneva were established in 1401 and
1407 respectively. Bank of Amsterdam set up in1609 was very popular. These modern banks gradually
replaced goldsmith and moneylender in Europe. The Bank of Hindustan established in 1770 is regarded as the
first bank in India. However, Bank of England was established in 1694, the growth of banks accelerated only
after the introduction of banking act 1833 in United Kingdom as it allowed opening Joint Stock Company.

1.2.1 Origin and Growth of Banking System in Nepal

Like other countries, Goldsmith, Merchant and Moneylender were the ancient bankers in Nepal. In
respect to the evolution of banking system in Nepal, which is derived on the ground of historical facts that
existed during the Lichhabi period, King Gunkamdev had borrowed money from the rich people to build the
city. The historical record shows that Gunkamdev, the king of Kathmandu, borrowed money to rebuild his
kingdom in 723AD. Some fifty-seven years thereafter, a merchant ‘Shankhadhar’ introduced ‘Nepal Sambat’ by
clearing all the indebtedness of the people in 880AD. This clearly proved that money-lending practices were
prevalent at that time.
Later, during the regime of Mallas, money-lending business became more penetrating and popular.
Towards the end of the 14th century, Jayasthiti Mallas, the rular of Kathmandu, divided the people in sixty-four
classes based on their occupation. Among them, one was Tankadhari and the people belonging to this class were
engaged in money lending business. It was believed that the money lending business became quite popular in
the reign of Mallas, particularly in financing the trade with Tibet and India. Thus, the role of Tankadhari was
akin to that of a banking agent. However, these moneylenders advanced loan against personal security of land,
building etc. As they were free to charge any amount as interest and other charges on the loan advances.
Naturally, the interest rate was higher, discriminatory and unfair. Of course, this gave birth to malpractices,

14
frauds and exploitation in the whole Nepalese society. Even today, such practices of usury are prevalent in
Nepalese village, which are beyond the purview of modern banking system.

Thus, it was the duty of government to control the malpractices of the moneylenders and to set up a
financial institution to make easy credit facilities for the general people. As a result, with growing consciousness
and awareness of this, ‘Tejarath Adda’ had been established as an institution, during the period of Rana, under
the Prime ministership of Ranodip Singh in 1933 B.S. It was established for simple banking operation. It had
carried the finction of providing loan for the government’s servants and to the general people under the
collateral of gold and silver at the low interest rate. Tejarath Adda did not collect deposits from the public but
gave loan to employees and public against the bullion. Overall, it was not view as Bank. Ranodip Singh, who
had been Prime Minister for 8 years (1877-1885AD), was not interested in the problem and took concrete steps
by establishing a government financial institution known as ‘Tejarath’. Tejarath helped the public by supplying
easy and cheap credit at 5 percent interest on the security of gold and silver ornaments (Ojha & Rajbahak,
1968:08).
In the overall development of banking system in Nepal, Tejarath Adda considered as the father of
modern banking institution. It had rendered good services to the government servants as well as the general
public for long time. This institution adapted one of the elementary functions of granting loans against gold,
silver and other collateral, which is more or less similar to the modern banking system. It did not accept
deposits, which probably were not considered then to be the function of banking. Although, credit facilities of
Tejarath were extended to some other sectors during the Rana Primeministership of Chandar Shamsher (1901-
1929AD), it could not meet the credit needs of the entire society. It was the government institution, which
basically benefited the government officials. And the general public still had to depend chiefly on the local
moneylenders. They used to charge high rate of interest on loans, manipulate the account and purchased the
standing crops at a very nominal price and so on.

In such a complex and critical situation, it had become apparent to the government to take some
necessary steps in this regard. To make the property- ridden rural people free from the clutches of moneylenders
and to develop the trade and industry in the country, the need of commercial bank with the modern banking
facilities, was seriously felt by the government. In other word, a commercial bank was required for the sake of
the economic expansion of the country.

After then, another financial institution was established in 1991 BS as a named of ‘Sainik Drabya
Kosha’ especially for the future welfare of government staffs. Before commencement of ‘Sainik Drabya Kosha’
the government staffs of that period had to face much more economic difficulties after the retirement from the
office (Shakya 2040:40)

The council of industry was organized in 1993BS for the development of trade & industry, which was
eventually followed by a corporate sector commercial bank-Nepal Bank Limited (NBL) in the joint effort of
numbers of individual and the government. The Tejarath was replaced by Nepal Bank Limited, which marked
the beginning of new era in the history of modern banking in Nepal. Modern baking started with the inception

15
of NBL under the Nepal Bank Act 1936 in BS1994-07- 30(1937). NBL had Herculean responsibilities of
attracting people towards the banking system from pre-dominant moneylenders and to expand banking services.
Being a first Commercial Bank it was natural that NBL paid more attention to profit generating business and
opened branches at urban centers. NBL was established with 49% government share and 51% share of general
public. However, private shareholders controlled NBL until 1951 and it was only in 1952 that HMG increased
its share ownership in NBL to 51% in order to hold control over its management. The Bank was one of the
major ventures to be floated under the venture company principle with an authorize capital of Rs 10 million: one
fourth of which was issued at once. It was established to solve the prevailing financial inconvenience of the
people, to uplift the economic development of country by institutionalizing trade and commerce and by assisting
other development activities.

Until the foundation of Nepal Rastra Bank (NRB), NBL remained the only one financial institution of
the country with the growing realization about the coordination and promotion of banking activities in the
country. The establishment of central bank had become immensely an urgent task. The Government however,
has onus of stretching banking services to the nook of the country and managing financial system in a proper
way. Thus, Nepal Rastra Bank (NRB) was set up on BS 2012-01-14 as a central bank with an authorized capital
of Rs 10 million fully subscribed by the HMG under Nepal Rastra Bank Act 2012 BS. NRB was credited for the
purpose of issuing notes, bringing stability in the exchange of Nepalese currency. Similarly, carrying out
transaction of Nepalese currency over the kingdom and encouraging industries after making the capital dynamic
for the development of the country, prior to emergence of NRB the note issuing authority was vested with the
‘MULUKIKHANA’ the Government treasurer office. Since then, it has been functioning as government’s bank
and has contributed to growth of financial sector. The major challenge before NRB today is to ensure the robust
health of financial institution. Accordingly, NRB has been trying to change them and has introduced a host of
prudential measure of safeguard to interest of public. NRB is yet to do a lot to prove them an efficient
supervision. NRB really requires strengthening their policymaking, supervision and inspection mechanism
(Sarita & Bhuwan, 2002:11)

The preamble of NRB Act lays down the aims of the bank as being that of regulating the issue of paper
money, securing countrywide circulating of Nepalese currency and achieving stability in its exchange rate;
mobilizing capital for economic development and for stimulating trade and industry and developing the banking
system in the country. And later on an incorporated by the amendment in 1964, ensuring facilities and
maintaining economic interest of general people.

The foundation of NRB set a milestone in the history of banking in Nepal. After this, novel way of
thinking and a new sort of spirit arose in the field of banking. A suitable, specialized and scientific banking
institution was felt necessary. By 2013 BS. Nepal Industrial Development Center (NIDC) was established with
an authorized capital of Rs 20 million as a financial institution. NIDC has made a great contribution for the
development of financial institution in Nepal. In 2016 (1959), it was converted to Nepal Industrial Development
Corporation (NIDC). Since its establishment in 1959, NIDC has been playing a significant role in
industrialization of Nepal by providing technical and financial assistance for the establishment, expansion and

16
modernization of the industrial projects in the private sectors. The basic objective of NIDC is to assist and
encourage private enterprise by providing financial resources and technical guidance.

Integrated and speedy development of the country is possible only when competitive banking services
reaches nooks and corner of the country. Keeping this in mind, the government set up Rastriya Banijya Bank
(RBB) in BS 2022-10-10 as a fully government owned commercial Bank (Sarita & Bhuwan, 2002:11). In the
view of providing facilities to the general people and to manage economic aids, it was identified with sole
ownership of the government with the authorized capital of Rs 10 million and paid up capital of Rs 3 million.
Its objectives were confined to facilitate economic aids for the general public to provide loan for industry, trade
and commerce and to supply banking services to the people properly.

In the development of financial institution, Agriculture Development Bank (ADB/N) was another
significant achievement. It was set-up 2024-10-07 (1967AD) with an authorized capital of Rs 50 million to
provide finance for agricultural products so that introducing modern agriculture techniques could enhance
agricultural productivity. Its functions are to provide loans for development of agriculture sectors, personal and
agricultural enterprise for the purpose of economic development of the country to work as a commercial bank
and to distribute loan for the execution of severs programs. No foreign banks were opened in the country before
1974. There were no provisions made in Commercial Bank Act for the entry of foreign bank into the financial
system of Nepal up to 1974.

Commercial Bank Act 1974 has however, made provisions to permit foreign banks to operate in the
country by obtaining the approval of NRB. The creation of efficient monetary arrangement and reformation of
the financial system of the country could make an important contribution to mobilize more domestic resources
and implement the policy of economic acceleration of the country. Therefore, the three, most dramatic and far-
reaching, financial reforms programs were carried out in 1980. They were allowing the foreign banks to operate
as joint venture, lifting the control on interest rate and introducing the Government’s action on securities.

With the aim to provide quality-banking services, enhance efficiency and healthy competition foreign
investment & new technology in banking sectors was introduced. Following the liberalization path for the
foreign banks, three joint ventures banks were initiated with a view to encourage efficient banking services,
which is the pre-condition for the economics development, industrialization and growth of the country in
1980s. However, excess political and bureaucratic interference and absence of modern managerial concept was
hurdled in the operation of institutions as conceived of. Banking service to the satisfaction of customer was
very different.

Nepal Arab Bank Limited, currently known as NABIL was established as the first Joint Venture Bank in
12th July 1984. It has proved to be a milestone in the history of modern Banking in Nepal. Nabil Bank gave a
new ray of hope to the sluggish financial sectors (Sarita & Bhuwan, 2002:12). It was established under the
company Act 1965 and executed in accordance with Commercial Bank Act 1974. Dubai Bank Limited (DBL)
was the initial foreign partner with 50% equity investment. Later on, the shares owned by DBL were transferred

17
to Emirates Bank International Limited (EBIL) in accordance with the joint venture and technical services
agreement between Nepalese promoters and DBL. NABIL has Rs 130 million authorized capital.

Similarly, Nepal Indosuze Bank Limited, currently known as Nepal Investment Bank was established as
second joint venture in BS 2042-11-16 (1986AD) with a view to encourage efficient banking services and
facilities. It was a joint venture between Nepalese & French partners. The French parterns, Credit Agricole
Indosuze, a subsidiary of one of the largest banking group in the world, had hold 50% of the capital of NIBL.
The Nepalese partners of the
NIBL were RBB with 15% share, of Rastriya Beema Sansthan and 20% share of general public. It had an
authorized capital of Rs 120 millions and paid up capital of Rs 60 million.
Nepal Grindlays Bank Limited was established as third joint venture bank, venture with Grindlays Bank
P.L.C London in 30th January 1987. The bank has been operated with authorized capital of Rs 200 million and
paid up capital of Rs 100 million and been formed under joint venture principal capitalizing on behalf of
foreign and domestic nation. The 50% investment was of Grindlays bank of London, NBL constitutes 35% of
its share and 15% share of general public. It had been executed under the direction of Australia and New
Zealand Banking Group (ANZG). Now, this group has been taken over by Standard Charted Group at
international level. It was renamed as Standard Chartered Bank Nepal Limited on 13 th July 2001.

With a novel zeal and cnfidence to compete, Himalayan Bank Limited (HBL) emerged among the
Nepalese people. HBL, a joint venture bank Habib Bank of Pakistan, was established in 1992 under the
Company Act 1964. This is the first joint venture bank managed by Nepalese chief executive. The operation of
bank started from 1993 February. The main objectives of bank is to provide modern banking facilities like Tele-
Banking to the businessmen, industrialists and other professionals and to provide loans for agriculture,
commerce and industrial sectors. Promoters’ holds 51% share, Habib Bank Limited of Pakistan has 20% share,
14% share of Employees Provident Fund and Nepalese citizen investment fund has 15% share. The bank has
authorizedCapital of Rs 240 million and paid up capital of Rs 120 million.

HBL was followed immediately by another venture bank. Nepal SBI Bank Limited was established under
joint venture with State Bank of India Limited and Nepali promoters under the Company Act 1964 in 8 th July
1993. State Bank of India manages the Bank under the joint venture and technical services agreement signed
between it and Nepali promoters’ viz. Employees Provident Fund and Agricultural Development Bank Nepal.
The State Bank of India has 50 % shares. The main objective of the Bank is to carry out modern banking
business in the country under the Commercial Bank Act, 1974. The bank provides loan to agriculture,
commerce and industrial sector. It has authorized capital of Rs 240 million and Rs 980 million paid up capital.

Later on, Nepal Bangladesh Bank Limited (NBBL) came into the horizon of the Nepalese banking
areas. It was inaugurated on June 6,1994. International Financial Investment and Commerce Bank Ltd (IFIC)
of Bangladesh and Nepali Promoters jointly made investment of the bank. IFIC has 50% share, Nepalese
promoters has 20% share and 30% share of public. NB Bank has authorized capital of Rs 240 million and Rs
60 million paid up capital.

18
 Immediately, after the operation of NB Bank, Everest Bank Limited (EBL) was started its banking
operation in October 1994 as per the Commercial Bank Act 1974. The bank has jointly financed by
United Bank of India and Nepalese promoters. United Bank of India has 20% share, Nepalese
promoters have 50% share and 30% share of public. It has authorized capital of Rs 240 million and Rs
60 million paid up capital.

After EBL, another Joint Venture Bank, Bank of Kathmandu Limited (BOK) has started its banking
operation from March 13, 1995. Siam Commercial Bank Thailand has financed BOK. Siam Commercial Bank
of Thailand has 30% share, promoters has 45% share and 25% share of public. Its authorized capital was Rs
240 million. When Siam Commercial Bank divested its full capital in 1988 and its ownership handed over to
the Nepalese Management (for details see an introduction of Sampled Banks).

Nepal Sri Lanka Merchant Bank Limited has started its operation since February,4 1996 as the first
Merchant Bank in Nepal. Merchant Bank of Sri Lanka has financed it. The Merchant Bank of Sri Lanka has
50% share, promoters have 25% share and 25% share of general public. It has authorized capital of Rs 120
million and paid up capital of Rs 30 million.

Nepal Bank of Ceylon Limited was established as a commercial bank on BS Aswin 28. After
withdrawal of the investment by Sri Lanka Merchant Bank, the bank come up with new management and
renamed as Nepal Credit and Commerce Bank limited since 2002, Sept 10. The equity share structure of bank
comprised 30% share of general public, 1% of NB Bank, 8.2 % of Nepal Insurance Company and 60.8% of the
Nepalese investors

Lumbini Bank Limited (LuBL) was set up on 2055 Shrawan 1. General public (30%), Emplyees
Provident Fund (14%), Citizen Investment Trust (6%), Lalitpur Finance (7%), NEFINSCO (2%) and Nepalese
investors (4%) have financed LuBL.

Nepal Industrial and Commercial Bank Limited (NIC) was set up on BS 2055-04-05 with 30% share
to general public, 5% share to RBB and 65% share to the Nepalese investors.

Similarly, Kumari Bank Limited (KBL) was set up on BS 2056-08-24 with 30% share to general public
and 70% shares to Nepalese promoters. It has started its operation from BS 2057-12-11 with an objective of
providing competitive and modern banking services in the Nepalese financial market (for details see an
introduction of Sample Banks).

Another Commercial Bank, Laxmi Bank Limited (LaBL) was established on BS 2058-06-11.Its total
capital composition has 35% share to general public and 10% to Citizen Investment Trust and remaining 55%
to Nepalese promoters. It has started its operation from BS 2057-12-21.

19
 Siddartha Bank Limited was set up on BS 2058-06-12 as seventeenth Commercial Bank. It has
commenced the transaction from 2059-09-09. Its capital structure has 40% from the general public and 60%
from the Nepalese promoters.

Before written this report other three banks has also established on the nature of Commercial view,
Global Bank, Citizen Bank and Sunrise Bank. There are also started its operation before 2065.

Because of financial sectors reform, there are 31 commercial banks operating in Nepal including two
public sectors banks. Beside there are 87 Development Banks, 5 Rural Development Banks, 79 Financial
Companies, 21 Licensed Cooperative Societies and 38 Licensed Micro Finance Non Government Organization.
(Mid- july 2011).d-July 2011

1.2.2 Nature of Commercial Banks

Commercial banks are those that accept deposits and finance to the business and finance to the business
and project. They provide short tem and long- term finance.
As per Commercial Bank Act 2031 B.S, “ A commercial Bank means the bank which deals in
exchanging currency, accepting deposits, giving loans and doing commercial transactions”

In the beginning, commercial bank’s functions were onaly-accepting deposits and giving loans but
now it is increased. Commercial Banks are found operating throughout the world. Bank of Venice set up in
1157, is the first commercial bank. Nepal Bank Limited established on 30 th, Kartik 1994 B.S is the first
commercial bank in Nepal. Major functions of commercial banks are accepting various types of deposits,
lending money in various productive sectors, Guarantee (G’ tee) Remittance, Bills and others.

Notwithstanding the functions of commercial banks have multiplied through time and a modern
commercial bank trifles with providing many ancillary services to its customers, providing lockers to
customers, advising its clients on tax matters acting as trustee of minors estate etc. which its ancestral
counterpart never even dared to think of performing its major function still consists of accepting the deposits
from public and lending those pooled deposits to the needy member of society mostly against the security of
collateral.

The term commercial bank lacks accurate description despite its long usages. It is in appropriate
because it fails to describe accurately the scope of commercial banks lending activities at present time.
Originally the term was applied because it was widely believed that Commercial bank loans should be for a
duration of less than one year, given only to traders and merchants to enable them finance the transportation of
goods in domestic and foreign trade and to finance the holding of trade inventories for short period required for
their sale. It was also believed that besides providing short term financing of trade, commercial bank could also
give short term loan to agriculturists for meeting current production expenses and marketing their crops (Vaish ,
1978: 04).

20
 With the development of industries, this principal gradually changed and the commercial bank’s
lending activities was extended to incorporated short term lending to producer for financing of inventories,
wages and other needs for circulating capital. Commercial banks, at present, are biggest providers of short-term
loans to commerce, industry and agriculture in economy. However, apart from providing short-term loan, they
finance to trade, industries and agriculture. Commercial banks today hold a wide verity of earning assets.

Today commercial banks not only issue and transfer deposits through cheque but they also operate
saving deposits accounts act as underwriters to new equity issues deal in foreign exchange, provide locker
facilities and handle tax matters on behalf of clients.

1.2.3 Role of commercial Banks in the National Economy

Every country of the world, developed or underdeveloped, is in pursuit of attaining the goal of rapid
economic development in the same way or other depending upon the prevailing prospects and nature of
instruments for economic growth. Commercial Banks play the role of financial intermediary collecting the fund
from surplus unit and supplying the to deficit units (investors). The structure of modern economy will be no
better than ancient period of barter system without financial intermediaries. Therefore, commercial banks play
an important role in development of national economy.

Commercial banks play a vital role in the affairs of the economy in various ways. Their operations
record the economic pulse of the economy. The size composition of their transaction is a mirror of the
economic happenings in the country. For example, the mass failures of commercial banks during the 1930s
reflected the phenomenon of serve global economic depression over the world. They have played an important
role in giving a direction to economic development over time by financing the requirements of trade and
industry in the country. By encouraging thrift among people, banks have fostered the process of capital
formation in the country. In the context of deposit mobilization, given the savings income ratio, commercial
banks induce the savers to hold their savings in the form of socially useful assets of which bank deposits
constitute the most important element. They draw the community saving into the organized sector, which can
than be allocated among the different economic activities according to priorities lay down by planning
authorities in the nation. Banks bring together the decision of the income earning together the decision of the
savers to save, the decision of the savers to hold their saving as bank deposit and the decision of the producers
to draw upon the saving of the community for the purpose of capital assets formation.

Commercial banks help the process of saving and of the holding of saving in a socially describe form.
However, their advances bank also help the creation of the incomes, which further saving by the community
and further growth potentials emerge for the good of economy. In a planned economy, bank emerges for the
good economy and makes the entire planned productive process possible by providing funds for all types of
production incorporated in the plan, regardless of whether the production is in the public sector or whether the
production is undertaken by one type of organization or another. All employment income distribution and
other objectives of plan are as far as possible subsumed into production plan which banks finance (Vanish,
1978:6-7). The importance of commercial banks is directing the economic activities in the system is indeed

21
overwhelming with the establishment of commercial banks the flood gates of development promising great
hopes for people in the life open.

However, poor economy may be there will be needed for institution, which allows such saving as are
currently forthcoming to be invested conveniently and safely and which ensure that they are channeled into the
most useful purpose (Vanish, 1978:75). Therefore, the tasks of commercial banks in underdeveloped countries
are almost self-evident. Therefore, the tasks of commercial banks in underdeveloped countries are collecting
small saving amount from a large number of individual, and make large capital. And utilize saving safely and
profitably sector available within an economy.
Nepal reveals a lot of feature towards the economic backwardness, for example, very low income,
unemployment, insufficient capital, lack of use of natural resources, weak human resource, and traditional
technique, predominance of agriculture, institutional inadequacy, market imperfection and political instability.
The investment in agriculture, by the both public and private sector is inadequate and is not helping agriculture
to play an important role in growth of the economy in context of Nepal, who’s more than 80% of the population
live on agriculture (south Asian Human development report, 2002) In such scenario, agriculture based economy
alone cannot solve the overcoming problem of poverty in Nepal. So, non agriculture sector should also be given
due priority. Non agriculture sector such as various industries, financial institutions health and educational
enterprises etc. will help in the economic development of the country and solve to some extent the problem of
unemployment.
The major role in the economic growth and prosperity of the country in the long run is played by
financial sector. When the first commercial bank, Nepal Bank Ltd, as semi government organization was
established in 1937 AD then concept of financial institutions was introduced on Nepal. It was established under
special Banking act 1936 having elementary functions commercial bank. Later on in 1953, and commercial bank
were established to mobilize scattered finds in the country. Since then many private commercial banks and joint
venture banks were established. Among the banks 31 commercial banks are listed in Nepal stock exchange,
which have highest contribution on the market capitalization as compared to other sectors. In Nepal, foreign
joint venture banks perform better than Nepalese ones because of their higher managerial efficiency and
decision making capability. But however, high potentialities to increase their risk attitude and improvement of
their internal management are seen by Nepalese Banks.

1.3 Overview of the banks

1.3.1 Everest Bank Limited (EBL)

Everest Bank was established in 2051 B.S. It started its operation on 1st kartik 2051 in the beginning; it had
started with united Bank of India Limited. But in 2053 B.S. United bank handover it's proportion of equity to
Punjab National Bank. Regarding the composition of equity share capital Nepalese promoters, General public
and Punjab national bank are shared 50%, 30% and 20% respectively. The technical service agreement signed
between two banks, Punjab national bank has been providing top management services and banking expertise to
Everest bank. Punjab National Bank has helped the bank in laying down sound system and procedures. The
bank operates with the objective of providing full range of quality banking service to both the business
community and general people.

22
 The bank has 50 branches in various parts of the country. It's head office is located in Baneshwor,
Kathmandu other Branches located within kathmandu valley are New road, Satungal Branch, Teku Branch,
Pulchowk Branch, Balaju Branch, Lazimpat Branch, Chabahil Branch , Gwarko Branch and Bhakatpur Branch
remaining Branches outside the valley are in Biratamod, Biratnagar, Duhabi, Ithari, Janakapur, Birgunj ICD
(Driport) Simara, Pokhara, Baglung, Butwal, Bhairawaha, Nepalgunj, Dhangadi, Lekhanath, Narayanghat and
one representative office in New Delhi.

The bank is using computerized banking technique 'EBL SUMMIT' is the name given to EBL's ambitious
project for replacing 'pumori plus' software by finacle. Finacle has been developed by infosys technologies
Limited, India. The old software 'pumori plus' was made by mercantile office systems, Nepal.

 Apart from conventional deposit schemes, it has offered cumulative deposit scheme, unfixed
deposit scheme and recurring deposit plan.

 It provides credit on competitive terms by way of term loans as well as working capital.

 It accepts foreign currency deposits at attractive rates and lends in competitive rate.

 It has been providing remittance facility to various part of the world by means of swift transfer.

 It has been facilitating merchant banking facilities and standing instructions.

 Any where banking, evening counter. 24 hour ATM services, safe deposit loader.

Performance review of Everest bank shows that the total deposit of bank reached 50006.1million rupees in
the fiscal year 2012/13 from 41127.9 million rupees in the previous year indicating an annual growth rate of
21.59% during same period total loans and advances reached 36616.8 million rupees from 31661.8 million
rupees showing the growth rate of 15.65% accordingly total investment reached 7863.6 million rupees from
7743.9 million rupees showing the growth rate of 1.54% net profit during the period reached 1090.6 million
rupees from 931.3 million rupees showing growth of 17.11%.

1.3.2 BANK OF KATHMANDU LIMITED (BOK)

BOK started its operation in March 1995 with the objective to stimulate the Nepalese economy and take it to
newer heights. BOK also aims to facilitate the nation's economy and to become more competitive globally.
Bank of Kathmandu Limited (BOK) has today become a landmark in the Nepalese banking sector by being
among the few commercial banks which is entirely managed by Nepalese professionals and owned by the
general public.

The bank has 50 Branches in various part of the Nepal. It corporate office is located in Kamal Pokhari,
Kathmandu, and main branch office in Kamal Pokhari, Kathmandu. It has other branches within the valley New
Road Branch, Thamel, Jawalakhel, etc. Branches outside of the valley are Biratnagar, Birgunj, Janakpur,
Dharan, PPO Dharan, Pokhara, Bhairahawa, Butwal, Nepalgunj, Gaur, Diktel etc.

23
 The bank has utilized advanced computerized technique in its operation. The software in the use is '
Bancas-2000' developed by infosis technology. India, the branches within the valley perform their routine works
from Sunday to Friday i.e. six days a week.

Apart from the conventional facilities, other facilities made available by the bank are listed below:

 It provides loan and advances by means of term loan as well as working capital.

 It provides its customer with letter of credit and guarantees.

 It provides remittance facility to various part of the world by means of swift transfer system.

 It provides merchant banking facilities like underwriting of public issues and standing instructions.

 Any branch banking, evening counter, 24 Hrs ATM services, safe deposit loader.

Performance review of bank depicts that the total deposits of the bank grow from 2499.1 karod rupees in
the fiscal year 2012/13 to 2101.8 karod rupees in 2012/13 with the growth 18.90% During the same period total
loans and advances reached the level of 1931.9 karod rupees from 1795.7 karod rupees recording a growth of
7.58% over the previous year. Net profit during the period increased to 60.8 karod rupees from 60.5 karod
rupees with the growth rate of 0.50%.

1.4 Statement of problem:-

The number of joint venture banks is being increased in response to economic liberalization policies of the
government. Besides joint venture banks, commercial banks are also being registered by Nepalese promoters
other institutions offering similar nature of service like finance companies, co- operative societies and
development Banks are growing in large number. These institutions have the tendency to centralize in major
cities focusing the activities among the industrialist's traders and entrepreneurs.

As per the economic survey of recent years, there is mix trend in Nepalese economy. Increase number
of financial institutions resulted higher ratio of fund utilization, there is unhealthy competition among financial
institution for attracting others deposit and lending.

Presently financial institutions are suffering liquidity problem due to poor economic environment which
resulted like in lending rates. Though lending rates are increased, there in negative impact on profitability of
financial institutions due to limited investment opportunities and increasing number of financial institutions
commercial banks are competitions for limited opportunity narrow clienteles bras and barring investment in
treasury bills. There are hardly an other opportunities available for short term investment on account of continue
slackness in the economic activities in the country the demand for credit has no picked up. Besides competition
in banking sector has turned more intense and lending opportunities in good project are very limited. With the
prevailing economic condition of the country, the investment in agriculture, manufacturing and industrial sectors
has not grown satisfactory. Hence the joint venture banks are also not succeeding perfectly to shift the deposit in

24
profitable sectors competing being in burning issues at present the related JVBs are at the high time to focus
their eyes for the better productive management for the survival and growth.

The problem of the study lies on the issues related to the comparative strength and weakness of EVEREST
BANK LIMITED and BANK OF KATHMANDU LIMITED. It also tries to seak the answers to the following
questions.

 How far have EVEREST BANK LIMITED and BANK OF KATHMANDU LIMITED been able to
sift the monetary resources from savers to users?

 How sound is the operational result in relation to their profitability?

 What is the comparative position of these banks in terms of liquidity, leverage and profitability?

1.5 Objectives of the study:-

Main Objective of this research is to examine and evaluate the financial performance of joint venture
bank and non-joint venture banks namely EVEREST BANK LIMITED and BANK OF KATHMANDU
LIMITED. The specific objectives of the research are as follows:

 To explore the existing position of EVEREST BANK LIMITED and BANK OF KATHMANDU
LIMITED.

 To examine the financial position of EVEREST BANK LIMITED and BANK OF KATHMANDU
LIMITED and its comparison.

 To evaluate liquidity, leverage, capital adequacy turnover & profitability ratio and cash flow position of
EVEREST BANK LIMITED and BANK OF KATHMANDU LIMITED.

 To find out the future trend for total deposit, total investment, loan and advances, net worth, net profit,
earning per share and market value per share of these banks for coming five years.

 To evaluate the relationship among total deposit to total investment, loans and advances and net profit.

. 1.6 Significance of the study:

At present the joint venture bank are going a wide popularity through their efficient
management and professional service and playing an eminent role in the economy. Regarding the economic
structure of the country the banks do not have sufficient investment opportunities. Rapidly increasing financial
institutions are creating threats to the banks. In this contest, the financial analysis would analyze strengths,
weakness, opportunities and threats of related banks. The result of the research will be helpful for JVBS

25
especially for sampled ones to formulate strategies to face the increasing competitions. The study does not doubt
will also have multi dimensional importance for various areas. Which are mentioned below in brief:

 Importance to shareholders

 Importance to policy formulators and academically professional

 Importance to management bodies of these banks for the evaluation of the performance of their banks
and in comparison with other banks.

 Importance to government bodies and policymakers such as the central Bank.

 Interested outside parties such as investors, customers (depositors loan takers as well as other types of
client) competitors, personnel and the banks stock brokers, dealers and market makers etc.

 Significance to student and various groups those having interested in banking sectors as well as the
management bodies of these banks for the evaluation of performance of their banks an comparison with
other bank.

 The study helps these banks to identify its hidden weakness regarding financial administration and
necessity of the present study is justified.

1.7 Limitation of the study:

Present study are not without limitations. The limitations are as follows:
 The study covers the data of five years only i.e. from FY 2065/66 to FY 2069/70.
 The study is concerned on the financial aspect of EVEREST BANK LIMITED and BANK OF
KATHMANDU LIMITED. And it is not cover other aspects.
 The study is mainly based on secondary data such as annual report of the respective Banks, other
related journal, previous thesis, magazine and books.
 The comprehensibility and the accuracy of the study is based on the data availed from Banks.
 This study supports the partial fulfilment for master’s degree in business studies. So the study may
not meet the expectation of professional researchers and practitioners who have long experience in
this field. This in-fact is a first effort of a student for research.

1.8 Organization of the study:

The whole study has been divided into five chapters as:-
Chapter 1 Introduction
Chapter 2 Review of Literature
Chapter 3 Research Methodology
Chapter 4 Presentation and Analysis of Data
Chapter 5 Summary, Conclusion and Recommendation

26
 The first chapter deals with background, a brief overview of EVEREST BANK LIMITED and BANK
OF KATHMANDU LIMITED and statement of problems, objectives of the study, significance of the study,
limitation of the study and organization of the study.
The second chapter deals with conceptual framework including the fundamental concept of financial
analysis and the tools of financial analysis. It also deals with the various theoretical aspects of the Ratio analysis
and includes the brief review of previous research work.
The third chapter deals with the research methodology followed to achieve the purposes of the study. It
includes the whole producer of this research work i.e. research design, the period covered, nature and source of
data, tools used, research variables etc.

In the fourth chapter, analysis and evaluate the data with the help of analytical tools, i.e. ratio analysis,
income and expenditure analysis, bankruptcy test, correlation analysis and trend analysis and interpretation of
the results obtained.

In the fifth chapter, the last chapter deals with the summary, conclusion and recommendations. This
ends the study paper.
The bibliography, appendix and glossary have been included at the end of the study paper.

27
 CHAPTER II
Review of Literature

Review of the literature is focused and directed towards specific purposes. It is a selective subject. A
researcher has to select the kind of literature to be reviewed and determine the purpose. It starts with the
selections of a problem for research, continues through the various stages of the research process and end with
report writing. Reviewing different available literature from various source are the major objective of this
chapter. The prime focus for collecting external literacy information through various textbooks, research
journals and research thesis. Various articles relating to different aspects of commercial bank will help to
conduct the study smoothly. Review of literature is divided into two categories.
2.1 Conceptual Framework.
2.2 Review of related studies

2.1 Conceptual Frame Work/ Theoretical Review

Financial decisions are very sensitive and important and cannot be taken blindly or in a vacuum.
Financial decisions must be based on proper financial analysis by using, financial tools -such as financial ratios
are used to measure the financial performance of the company. According to Surendra Pradhan, “Financial
analysis is to analyze the achieved statement to see if the result meet the objectives of the firm, to identify
problems, if any, in the past or present and /or likely to be in the future, and to provide recommendation to solve
the problems” (Pradhan,2000:120).

According to Vanhorn, J.C & Watchowlcz, J.M, “Financial analysis is process of identifying the financial
strength and weakness of the firm by properly establishing relationship between the items of the balance sheet,
which represents analysis snapshots of the firm’s financial position analysis at analysis moment in time and
next, income statement, that deposits analysis summary of the firm’s profitability overtime” (Vanhorn &
Watchowlcz, 1997:120).
Similarly, Hampton has stated that “It is the process of determining the significant operating and financial
statements. The goal of such analysis is to determining the efficiency and performance of the firm management,
as reflected in the financial records and reports.” (Hampton, 1998:98)

In financial analysis, certain guideline or criteria are included:

a. Historical evidence of performance as a base of financial performance analysis
b. Economic consideration such as trend and averages of price level, business profit interest rates, dividend
policy, security price movements

Financial statement gives insight knowledge on the firm's financial position at a point of time and on its
operations over some past companies regarding what they have performed financially. Financial report is
reporting about what the company has done in terms of assets, liability, income and expenses. On the other hand

28
financial statement also highlights other aspects of company such as liquidity, profitability, activity, capital
structure and market.

Westorn, Besley and Brigham have stated, “Financial statement analysis involves a comparison of analysis
firm’s performance with that of other firms in the same line of business which often is identified by the firm’s
industry classification. Generally speaking, the analysis is used to determine the firm’s financial position in
order to identify the current strengths and weakness and to suggest actions that might enable the firm to take
advantage of the strength and correct its weakness” (Westorn, Besley & Brigham,1996:78).
Financial statement published by the' listed company in the stock exchange are collected and analyzed by Nepal
Stock Exchange for the calculation of the financial performance of the concerned company. In fact, financial
statement comprises of:

Balance sheet: It is very important means of analysis of financial performance of any company. It companies
assets, liabilities and shareholder's equity.

Statement of profit and loss account: It also very important means of financial performance of any company.
It comprises of income and expenses over the period of time.
Statement of Retained Earning: This statement explains about the Company’s position of earnings to be paid
as dividend and the portion of profit to be retained for future uses. It also explains how profit, dividend and
other transaction affect the retained earnings and share-holders' equity.

Financial analysis is done on the basis of financial statement of the concerned company.
The objective of financial analysis can be described as:
- To get the entire information that can be used at the time of decision making.
- To Judge overall performance and management effectiveness.
- To identify the deficiencies and weaknesses.
- To take corrective action in time to check such deficiencies and improve the performance.
- To evaluate the possible implications of alternative course of actions.
- To get in dept information of possibilities of bringing changes worthwhile.

2.1.1 Objectives of Financial Performance Analysis

From the concept of financial performance analysis, it has been evident that one can explore various
facts related to the past performance of business and predict out the future potentials for achieving expected
results. Various parties are involved in the business directly or indirectly. Therefore, objective of the analysis
also differs from one party to other. However, major objectives of analysis, in broad sense, can be started as
(Needles, 1989);

29
a) Assessment of past performance and current position
Past performance is often good indicator of future performance. Therefore, an investor or creditor is
interested in the past sales, expenses, net income, cash flow and return in investment. In addition, an analysis of
current position will tell what assets the business owns and what liabilities must be paid. Besides, it will provide
the information about various facts in relation to business such as:

 Earning capacity or the profitability of the concern.

 Operational efficiency of the concern as a whole and of its various departments
 Long term and short term solvency of the business for the benefit of debenture holders
and trade creditors
 Real meaning and significance of financial data.

b) Assessment of potential and related risks

The past and present information are useful only to the extent they have bearing on the future decisions. An
investor judges the potential earning capacity of a company because that will affect the value of the investment
or share and the amount of dividend the company will pay. The creditors judge the potential debt paying ability
of the company. The potentials of existing company are easier to predict than of others. This means there is less
risk of the investment or loan hinges on how easy it is to predict the future profitability and liquidity. Besides,
the managers of business concerns will get information about the potential, such as:
 Possibility of development in the future though forecast and budget allocation.
 Financial stability of the business concern.
 Reforms needed for in the present policies and procedures that will help reduce
weakness and strengthen performance.

2.1.2 Limitations of Financial Performance Analysis

From the above discussion, it has been evident that financial performance analysis of great significance
for investor, creditors, management, economist and other parties having interest in business. It helps
management to evaluate its efficiency in past performance and take decisions relating to future. However, it is
not free from drawbacks. Its limitations are listed below ( Jain & Narayan, 1989:B23-B25):
a. Reliability of Figures:- Reliability of analysis depends on reliability of figures of the financial
statements under scrutiny. The entire working of analysis will be vitiated by manipulation in the income
statement, window dressing in the balance sheet, questionable producers adopted by the accountant for the
valuation of fixed assets and such other facts.

b. Single year Analysis is not much valuable: - The analysis of these statements relating to single
year only will have limited use and value. From this, one cannot draw meaningful conclusion.

30
 c. Historical Nature of Financial Statements: - The basic nature of statements is historical. Past can
never be a precise and infallible index of the future and can never be perfectly helpful for the future forecast and
planning.

d. No Substitute for Judgment:- Analysis of financial analysis is a tool to be used by expert analyst to
evaluate the financial performance of a firm. That’s why; it may lead to faculty conclusion if used by unskilled
analyst.

e. Pitfall in inter-firm Comparison: - When different firms are adopting different procedures, records,
orendrabjectives, policies and different items under similar heading, comparison will be more difficult. If done,
it will not provide reliable basis to assess the performance, efficiency, profitability and financial condition of
firm as compared to whole industry.

f. Result may have different Interpretation: - Different users may differently interpret the result
derived from the analysis. For example, a high current ratio may suit the banker but it may be the index of
sufficiency of the management due to under-utilization of fund.

g. Changes in Accounting Methods: - Analysis will be effective if the figures derived from the
financial statements are comparable. Due to change in accounting methods, the figures of current period may
have no comparable base, and then the whole exercise of analysis will become futile.

h. Price level change reduces the validity of analysis: - The continuous and rapid changes in value of money,
in the present day, economically also reduces the validity of the analysis. Acquisition of assets at different levels
of prices make comparison useless as no meaningful conclusion can be drawn from a comparative analysis of
such items relating to several accounting period.

i. Selection of Appropriate Tool: - There are different tools of analysis available to the analyst. The
tools to be used in a particular situation depend on skill, training, intelligence and expertise of analyst. If wrong
tool is used, it may give misleading result and may lead to wrong conclusion, which may be harmful to the
interest of business.

2.1.3 Types of Financial Performance Analysis

The nature of financial analysis differs depending on the purpose of analyst. Financial statement
analysis can be categorized into different types on the basis of material use, objective of the analysis and the
modulus operandi of analysis (Jain & Narayan, 1989:B23-B25).

a) On the Basis of Material Used

On the basis of material available and used by analyst, financial analysis can either be external or
internal. Persons who don’t have access to the detailed records of the company make an external analysis. They
have to depend almost entirely on published financial statements. Investors, credit agencies, government
agencies and research scholars make such type of analysis. Those persons who have access to the books of

31
accounts and other related information to the business make an internal analysis. While conducting this analysis,
the analyst is a part of enterprise. For example, analysis for managerial purpose is the internal type of analysis.

b) On the Basis of Objective

On the ground of the objective or purpose of study, financial analysis can either be long-term or short-
term. Long-term analysis is made in order to study the long-term financial stability, solvency and liquidity as
well as profitability and earning capacity of a business concern. This analysis helps for long-term financial
planning which is essential for the continued success of a business. Short-term analysis is made to determine the
short-term solvency, stability and liquidity as well as earning capacity of the business concern. This analysis
helps for short-term financial planning which is essential for continuation of success of the business.

c) On the Basis of Modulus Operandi of Analysis

On the basis of modulus operandi of analysis it can either be horizontal or vertical. Horizontal analysis
is conducted to review and analyze financial statements of a number of years and therefore, it is based on data
taken from several years. Hence it is also known as dynamic analysis.
Vertical analysis is conducted to review and analyze the financial statement of one particular year only.
As it is based on data from one year, it is also called static analysis.

2.1.4 Method of Financial Performance Analysis

An enterprise communicates financial information to users through financial statement and reports.
Financial statements are summarized information of the firm’s financial affairs, organized systematically. They
are the means to present the firm’s financial situation to owners, creditors and general public. The preparation of
financial statement is the responsibility of top management. As investor and financial analysis to examine the
firm’s performance in use these statement under to make investment decisions. So concern authority should be
prepared very carefully and contain as much as information as possible.
Two basic financial statements are prepared for the purpose of external reporting to owner, investor and
creditors are:

1. Balance Sheet (or Statement of Financial Position)

2. Profit and Loss Account (or, Income Statement)

For internal management purpose i.e. for the planning and controlling much information than contained
in published financial statement is needed. The accountant or account officer prepares these financial statements
at the end of firm’s income year. Balance sheet and income statement undoubtedly provides useful financial data
regarding the operation of an enterprise but they fail to present all the useful financial data required for major
investing and financial decision by the management. Therefore, another financial statement fund flow statement
is also in use. It summarized the source from which funds have been applied. It is prepared to show additional
useful information not covered by the traditional statements.

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2.1.5 Major Steps in Financial Performance Analysis
The basis for financial analysis is financial information obtained from balance sheet and profit and loss
account. The analysis of financial statements is completed in three major steps (Srivastav, 1993:56).
The first involves the reorganization and rearrangement of the entire financial data as contained in the financial
statements. This calls for regrouping them into few principal elements according to their resemblance and
affinities. Thus the balance sheet and income statement are completely recast and presented in the condensed
from entirely different from original shape. The next step is the establishment of significant relationship
between the individual components of balance sheet and profit and loss account. This is done through the
application of tools of financial analysis.
Ultimately, significance of result obtained by means of financial tools is evaluated. This requires establishment
of standard against which actual be compared.

2.1.6 Tools & Techniques of Financial Performance Analysis

To evaluate the financial condition & performance of a company, the financial analyst needs certain
yardsticks. The yardstick frequently used is a ratio or index relating two pieces of financial data to each other.
Analysis & interpretation of various ratios should give experienced and skilled analyst a better understanding of
the financial condition & performance of the firm, than they will obtain from analysis of the financial data alone
(Vanhorn, 1999:691-692).

The techniques of analysis are employed to ascertain or measure the relationship among the financial statement
items of a single set of statement and changes that have taken place in these items as reflected in successive
financial statement. The fundament of the analytical technique is to simplify or reduce the data under review to
the understandable terms. Out of the various techniques, selection of a technique or combination of the
techniques depends on the purpose of analysis. Different techniques reveal different facts associated with the
business, so some or all of the following major techniques can be used for the analysis depending on the purpose
and availability of the materials demanded by the technique.

2.1.6.1 Funds Flow Analysis

The statements of the changes in financial position prepared to determine only the sources and uses of
fund between two dates of balance sheets is known as funds flow statement. It is prepared to uncover the
information that financial statement fail to describe clearly. It spells out the sources from which funds were
derived and uses to which these funds were put. This statement is prepared to summarize the changes in assets
& liabilities resulting from financial and investment transactions during the period as well as those changes
occurred due to change in owner’s equity. It is also aimed to depict the way in which the firm used its financial
resources during the period.

Method of preparing Funds flow statement depends essentially upon the sense in which the term ‘fund’ is used.
There are concepts of fund: cash concept, total resources concept & working capital concept. According to cash
concept, the word ‘fund’ is synonymous with cash. Total resources concept represents the total assets and

33
 resources as fund. The term ‘fund’ refers only to working capital on working capital concept. However, the
concept of fund as working capital has gained wide acceptance as compared to other concepts. Therefore, any
transaction that increases the amount of working capital is taken as source of fund while conducting funds flow
analysis. Transaction that decreases working capital is treated as application. But any transaction that affects
current liabilities or current assets without any change in working capital is not taken as source or use.

The utility of this technique stems from the fact that it enables shareholders, creditors and other interested
persons to evaluate the use of funds. It also enables them to determine how these uses were financed. In the light
of information so supplied by statement, the outsider can decide whether or not to invest in the enterprise. It
enables finance manager to detect the imbalances in the use of funds and undertaken remedial actions. It serves
as control device to measure the deviation between actual use of fund and the estimated budget. An analyst can
evaluate the financed pattern of concern (What portion of the growth was financed internally and what portion
externally).

In spite of the great significance of funds flow analysis to various parties associated with the business,
it is not free from drawbacks. Its shortcomings can be listed as:
 This is not full proof as it depends on conventional financial statements.
 It cannot introduce any new items, which causes changes in financial status of the business.
 It is not much relevant technique as study of change in cash position is more useful rather
than fund position.
 It is historical in nature, so, cannot estimate source and application of fund in near future
 It does not reflect the structure and policy changes.

2.1.6.2 Cash Flow Analysis

This statement is prepared to know clearly the various items of inflow and outflow of cash. Cash flow
analysis is different from funds flow analysis in the sense, the analysis relates to the movement of cash rather
than the inflow and outflow of working capital.
It summarizes the causes of change in cash position between dates of two balance sheets. While preparing cash
flow statement, only cash receipts from debtor against credit sales are recognized as the source of cash.
Similarly, cash purchases and cash payment to suppliers for credit purpose is regarded as the use of cash. The
same holds true for expenses and incomes outstanding and prepaid expenses are not to be considered under this
analysis.
This type of analysis is useful for short-run planning of firm. The firm needs sufficient cash to pay debt
maturing in near future, to pay interest and other expenses and to pay dividend to shareholders. The projection
of cash flow for near future can be made to determine the availability of cash. This cash balance can be matched
with the firm’s need for cash during the period and accordingly, arrangement can be made to meet the deficit or
invest the surplus cash temporarily.
Though it is more confidential than funds flow analysis for the decisions related to the near future, it is also not
free from drawbacks. Its drawbacks can be listed as:

34
 It is not perfect evident as it depends on conventional statements.
 It is historical in nature.
 It does not reflect structural and policy changes.

2.1.6.3 Trend Analysis

In finance analysis the direction of change over a period of years is crucial importance. Trend analysis
of the ratio indicates the direction of change. The kind of analysis is particularly applicable to the items of profit
and loss account. It is advisable that trend of sale and net income may be studies in the light of two factors. The
rate of fixed companion secular trend in the growth of business and general price level; it might be found in
practice that a number of firms would show a persistence growth over a period of years. But get a true trend of
growth; sales figure should be adjusted by suitable index of general prices. In other words, sales figures should
be deflected for raising price level, which the resulting figures are, graphed us will get a trend of growth devoid
a price change. Another method of securing trend of growth and one which can use instead of the adjusted sales
figures or as check on them is to tabulated and plot the output or physical volume of sale expressed in suitable
units of measure. If the general price level is not considered while analyzing trend of growth, it can mislead
management. They may because unduly optimistic period of prosperity and pessimistic in dull period.

This method is immensely helpful in making comparatively study of financial statements of several years. This
method of analysis involves the computation of percentage relationship that each statement item bears to the
same item in the base year. Base year for the purpose of comparison may be earliest year, the latest year or any
intervening year under the study. This exhibits the direction to which the concern is proceeding. Trend analysis
facilities the horizontal study of the data. But trend ratios are generally not computed for all of items in the
statement, as the fundamental objective is to make comparison between items having same logical relationship
to one another.

Trend analyst reveals whether the current financial position of the company has improved over the past years or
not. It shows which of the items have moved in a favorable direction and which of them in unfavorable
direction. Though it is the important tool of analysis, it is bound by certain limitation. They are:

 Trend for a single balance sheet or income statement is seldom very informative.
 It does not give accurate result if accounting principles followed by the accountants is not
consistent over the period of study.
 Price level change adversely affects the comparison
 Selected base year for some of the items in the statement may not be typical.

2.1.6.4 Ratio Analysis

An arithmetic relationship between two figures is known as ratio. Two number used in the ratio are
called the term of ratio. The first term is the antecedent and is the divided; the second is the second is the
consequent and is the divider. Ratio is computed by dividing one item of relationship with the other. Ratio

35
 simply means the relation of one quantity to another of the same kind is defined to be that pure (abstract)
number, integral, or fractional, which express the number of times the later is contained in the former.

Ratio analysis is a technique of analysis and interpretation of financial statement to evaluate the performance of
an organization by creating ratios from the figure of different accounts consisting in balance sheet and income
statement (P/L Account) is known as ratio analysis (Pandey, 994:436-437).
Financial ratios are the basic tools of financial analysis. The operational and financial problem of a corporation
can be ascertained by examining the behavior of these ratios. In financial analysis a ratio is used as an index or
yardstick for evaluating the financial position and performance of an enterprise. A financial ratio is a
relationship between two financial variables and a process of identifying the financial strength and weakness of
an enterprise. The liquidity ratio measures the corporations overall efficiency of operation. Similarly, leverage
ratio measures the extent to which the corporation has been finance by debt, and turnover ratios measure the
utilization of the corporation’s resources. These financial ratios help us to find symptoms of problems. The
cause of any problem may be determined only after locating the symptoms. Hence, the study of financial ratios
behavior of the corporations assumes great significant.

Ratio Analysis is carried out to develop meaning relationship between individual items or group of items usually
shown in the periodical financial statements. An accounting ratio shows the relationship between the two inter-
related accounting figures. Ratios are guides or shortcuts that are useful in evaluating the financial position and
operations of a company. When the relationship between two figures in the balance sheet is established, the ratio
so calculated is called ‘balance sheet ratio’. Ratio may be expressed in the form of quotient, percentage or
proportion.
Ratio analysis involves two types of comparison for the useful interpretation of the financial statement. A ratio
itself does not indicate the favorable or unfavorable position. Most commonly used standards to evaluate the
ratio are:
 Comparison of present ratio with past or expected future ratio.
 Comparison of the ratio of the firm with those of similar firms over the period of time or with
industry average at the same point of time

With the help of ratio, one can judge financial performance of a business concern over a period of time and
against the industry average. The ratio helps the analyst to form the judgment whether the performance of firm
is good, questionable or poor. Management of the firm can take strategic decisions on the basis of position
revealed by ratio. Investors can decide about the future of their investment. Creditors judge whether the firm is
able to meet its obligations and whether the more lending would be beneficial for them or not. In view of the
requirement of the various users of ratios, they can be classified into four major categories. They are: - liquidity
ratio, leverage ratio, activity ratio and profitability ratio.

Liquidity ratio measures the ability of firm to meet its current obligations. Leverage ratio evaluates the long-
term financial position of the firm. Activity ratios are employed to evaluate the efficiency with which the firm

36
 manages and utilizes its assets. Finally, profitability ratios are calculated to measure the operating efficiency of
the company.
Through ratio analysis is powerful technique of financial analysis; it should be used with extreme care and
considered judgment because it suffers from certain drawbacks. The drawbacks of the ratio analysis are listed
below:
 It is difficult to decide the proper basis of comparison
 It calls interpretation to certain aspects of the business, which need detailed investigation
before arriving at any final conclusion
 Unless there is a consistency in adoption of accounting methods, ratios may not prove of
greater use in case of inter-firm comparison.
 The price level changes make the interpretation of ratios invalid.
 The ratios are generally calculated from past financial statements and thus, are no indicators
of future
.
Ratio Analysis & Its Classification
In general ratio may be classified on the following base lending to somewhat overlapping categories
(Pandey, 1994:502-503).

A) Traditional Classification
It is classification according to the statement from which ratios are derived. By for the most convenient
mode of classification, it has the sanctity of tradition in much as since the advent of ratio analysis. Ratio has
grouped in this manner from this angle ratios are classified as:
 Balance sheet ratios or financial ratios: - These ratios deal with relationship between two
items or groups of items, which are together to the balance sheet e.g. debt equity ratio.
 Revenue statement ratio: These ratios sometimes also referred as operating ratio establish the
relationship between two items or group, which are in the revenue statement e.g. stock
turnover.
 Inter statement ratio or combine ratio: - These ratio portray the relationship between items of
one of which part of balance sheet and profit & loss account (income statement)

B) Functional Classification
Ratios are grouped in accordance with certain test which they are intended to sub-serve from the point
of view of varies parties having a financial interest in an enterprise test are:
 Test of liquidity
 Test of profitability

37
 Market test etc.

C) Classification According to Nature

These ratios are classified from the point of view of financial management. They are:
1) Liquidity Ratio
2) Activity Ratio
3) Leverage Ratio
4) Profitability Ratio
5) Capital Adequacy Ratio

1) Liquidity Ratio: - A liquidity ratio is assigned to find out the current assets intensifies and financial
structure. In other words, liquidity ratio measures the ability of an enterprise to meet its current obligations. A
core of liquidity ratio has emerged over the year which, when viewed in their totality and with respect to risk, is
expected to yield a rough approximation of the business to pat its current liabilities and when they fall due for
payment. Regarding the position of liquidity ratio, a current ratio of 2:1 is considered acceptable for most of
firm although it is only rule of thumb standard and it is 1:1 for quick ratio. Though, it depends much on
circumstances in case of seasonal business (Pradhan, 1986:17).

a) Current Ratio
Current ratio is also known as Working capital ratio. It shows the bank’s short-term solvency. It is the
ratio of current assets and current liabilities. It indicates the availability of the current assets in rupees for every
one rupee of current liability. As a conventional rule, a current ratio of 2 to 1 in considered satisfactory.
However, this rule should not be blindly followed, as it is the test of quantity not quality. In sprite of its
shortcoming, it is a crude-and quick measure of firm’s liquidity (Pandey, 1994:115). Higher the current ratio
better the liquidity poison and otherwise.
The ratio is calculated by dividing current assets by current liabilities,

Current Assets
Current Ratio =
Current Liabilities
Current assets include cash and assets are just like cash, which can be converted into within a year.
These include cash and bank balance, money at call and short notice, loans and advances, overdrafts, bill
purchase and discounted bills for collection, investment in government securities, interest receivables and other
miscellaneous current assets. All obligations maturing within a year are included in current liabilities. These
consist of current, saving and short-term deposits, fixed deposits maturing in that year, borrowings and accrued
expenses, bills payable, bank overdrafts, dividend payable, customer acceptances and miscellaneous current
liabilities.
\

38
b) Quick Ratio
Quick ratio established a relationship between quick asset and current liabilities. An asset is liquid if it
can be converted into cash immediately or reasonable soon without a loss of value cash is the most liquid asset.
Other assets which are considered to be relatively liquid are included in quick assets are book debts and
marketable securities. This quick ratio can be calculated by dividing the total of liquid assets by total current
liabilities.
Quick Assets
Quick Ratio =
Current Liabilities

c) Cash and Bank Balance to Current Assets Ratio

This ratio is found out the ability of banks to pay total call made on current deposit. Cash and Bank
Balance are highly liquid assets than others in current assets proportions. Higher ratio indicates the bank’s
ability to meet the daily cash requirement of their customer deposit and vice versa. But higher ratio is not
preferred as the bank has to pay more interest in deposit and will increase the cost of fund. Lower ratio is also
very risky as the bank may not be able to make the payment against the cheque presented by the clients. So, the
bank has must be maintain such ratio in such way that it should have sufficient cash for the clients demand
against deposits when required and less interest is required to pay against the cash deposit. These ratios not only
analyzed the use of total resources of the firm but also the use of resources component of total assets. The
formula to obtain this ratio is;
Cash & Bank Balance
Cash & Bank Balance to Current Assets Ratio =
Current Assets
Cash and Bank balance includes cash in hand, foreign cash in hand, clearing cheque and other cash items,
balance with NBR current account, other domestic bank current account and balance held in foreign banks.

d) Cash and Bank Balance to Current, Saving & Margin Deposit Ratio.
The ratio measures the ability of bank to meet its immediate obligations. The bank should maintain
adequate cash and bank balance to meet the unexpected as well as heavy withdrawal of deposits. High ratio
indicates sound liquidity position of the bank. However, too high ratio is not good enough as it reveals the under
utilization of fund. The ratio is computed by dividing the total amount of cash and bank balance held in the bank
by total deposit (expect fixed deposits) collected by the bank.

Cash & Bank Balance to Deposits (Expect FD) Ratio

Cash & Bank Balance
=
Total Deposit(Except Fixed Deposit)

Cash and Bank balance comprises cash on hand, foreign cash on hand, cheque and other cash items,
balance with domestic bank and balance held in foreign banks. Current and saving deposits consist of all types
of deposits excluding fixed deposits.

39
 e) Cash and Bank Balance to Total Deposits Ratio
The ratio is employed to measure whether cash & bank balance is sufficient to cover its current call
margin including deposits. It shows the proportion of total deposits held as most liquid assets. High ratio shows
the strong liquidity position of the bank. But too high ratio is not favorable for the bank because it produces
adverse effect n profitability due to idleness of high-interest bearing fund. The ratio is calculated using
following formula;
Cash & Bank Balance
Cash and Bank Balance to Total Deposit Ratio =
Total Deposit
Total deposit consists of both interest bearing deposits & non-interest bearing deposits i.e. current
deposits, saving deposit, fixed deposit, money at call and short notice and other deposits.

f) NRB Balance to Current Saving Deposit Ratio

The ratio shows the percentage of amount deposited by the bank in Nepal Rastra bank (NRB) as
compared to current & saving deposits. Commercial banks are required to hold certain portion of current and
saving deposits in Nepal Rastra Bank’s account. It is to ensure th e smooth functioning and sound liquidity
position of the bank. As per the directive of Nepal Rastra Bank, the required ratio is 8%. Therefore, the ratio
measures whether the bank is following the direction of NRB or not. The ratio is computed by dividing the
balance held with Nepal Rastra Bank by saving deposits. It express as;
NRB Balance
NRB Balance to Current and Saving Deposit Ratio =
Current & Saving Deposit

g) NRB Balance to Fixed Deposit Ratio

The ratio shows the percentage of the amount deposited by the bank in Nepal Rastra Bank as compared
to fixed deposits. According to the direction of NRB, this ratio should be maintained 6%. Hence the ratio so
calculated finds whether the bank has obeyed the direction of central bank or not. The ratio is computed by
dividing the balance held with Nepal Rastra Bank by fixed deposits accepted.
NRB Balance
NRB Balance to Fixed Deposit Ratio =
Fixed Deposit

2) Activity Ratios: - Activity ratio also known as turnover ratio, indicate the speed with which assets are
being converted or turned over into sales. This ratio is employed to evaluate the sales efficiency or activity and
short-term liquidity or activity of an enterprise. These ratios also measure the degree of effectiveness in use of
fund by a firm. The common ratios of activity/ turnover ratios are as follows:
 Inventory turnover ratio
 Debtors turnover ratio
 Average assets turnover ratio
 Fixed assets turnover ratio
 Current assets turnover ratio
 Total assets turnover ratio
 Capital employed turnover ratio
40
a) Loans and Advances to Total Deposit Ratio
The ratio indicates the proportion of total deposits invested in loans and advances. It is calculated to
find out how the banks are successfully utilizing their total deposits for profit generating purpose on loan and
advances. High ratio means the greater use of deposit for investing in loans and advances. In other words,
Greater the ratio implies the better utilization of outsiders fund (Total Deposits). But very high ratio shows poor
liquidity position and risk in loans. On the contrary, too low ratio may be the cause of idle cash or use of fund in
less productive sector. The ratio is computed by dividing total loans and advances by total deposit liabilities.
Loan and Advance
Loans and Advances to Total Deposit Ratio =
Total Deposit
Loan and advanced consist of loans, advances, cash credit, overdrafts, and foreign bills purchased and
discounted.

b) Loans and Advances to Fixed Deposit Ratio

The ratio indicates what proportion of fixed deposits has been used for loans and advances. Loans and
advances are the major sources of investment to generate income by the commercial banks. Fixed deposits are
long-term interest-bearing obligation. It carries high rate of interest. Funds collected are needed to invest in such
sectors, which yield at least sufficient return to meet the obligations. The ratio measures the extent to which the
fixed deposits are utilized for the income generating purpose. High ratio means utilization of fixed deposit in
form of loans. The ratio is calculated by dividing loans and advances by fixed deposits.
Loan and Advance
Loans and Advances to Fixed Deposits Ratio=
Fixed Deposit

c) Loans and Advances to saving Deposit Ratio

The ratio indicates how many times the short-term interest bearing deposits are utilized for generating
the income. Saving deposits are the short-term interest bearing liabilities. Loans and advances are the major
sources of investment to generate income in commercial banks. Loans and advances to saving deposits ratio is
measured to find out how many time of fund is used in loan and advances against saving deposit. High ratio
indicates greater utilization of the saving deposits in advancing loans. The ratio is calculated dividing the
amount of loan and advances by total deposit in saving account. The following formula is used to calculate this
ratio as:
Loan and Advance
Loans and Advances to Saving Deposit Ratio=
Saving Deposit

d) Investment to Total Deposit Ratio

The ratio shows how efficiency the major resources of the bank have been mobilized. High ratio
indicates managerial efficiency regarding the utilization of deposits. Low ratio is the result of less efficiency in
use of funds. The ratio is obtained by dividing investment by total deposits collected in the bank.
Total Investment
Investment to Total deposit ratio=
Total Deposit
Investment comprises investment its HMG treasury bills, development bonds, company shares and other type of
investment.

41
 e) Performing Assets to Total Assets Ratio
The ratio measures what percentage of assets has been funded for income generation. High ratio
indicates greater utilization of assets and hence sound profitability position. It is calculated by dividing
performing assets by total assets.
Performing Assets
Performing Assets to Total Assets Ratio=
Total Assets
Performing assets include those assets, which are invested for income generating purpose. These consist of loans
& Advances; bills purchased and discounted investment and money at call or short notice.

3) Leverage/Capital Structure/ Solvency Ratios

Short-term financial positions refer to the liquidity position of the firm. Long-term financial position
refers to the capital structure or financial leverage. Long-term financial position of the firm is judged by the
capital structure ratio or leverage ratio or structure ratio. The leverage ratio or structural ratio is calculated to
measure the financial risk and the firm’s ability of the using for debt the benefit for the shareholders.
Leverage refers to the ratio of debt to equity in the equity in the capital structure of the firm. Debt &
equity are long-term obligation and remaining parts in the ability side of the balance sheet are termed as short –
term obligation. Both types of obligations are required in forming the capital structure of the firm. The long-
term financial position of the firm is determined by leverage or capital structure.
Debt is more risky from the form the firm’s point of view. The firm has legal obligation to pay interest to debt
holders irrespective of the profit made or losses incurred by the firm. But use of debt is advantageous to
shareholders in two ways:

 They can retain control on the firm with a limited stake.

 Their earning is magnified when rate of return of the firm on total capital is higher than the
cost of debt.
Following ratios are calculated to test the optimality of capital structure;-
a) Debt-Equity Ratio
This ratio is calculated to find out the proportion of the outsider’s fund to owner’s fund to finance the
total assets. It is also called the proportion of outsider’s claim and insider’s claim on total assets of the banks. It
is also called debt to net worth ratio. The ratio shows the mix of debt and equity in capital. It measures creditors’
claims against owners’. High ratio shows that the creditors’ claims are greater than those of owners. Such a
situation introduces inflexibility in the firm’s operation due to the increasing interference and pressures from
creditors. Low ratio implies a greater than claim of owners than creditors. In such a situation, shareholders are
less benefited if economic activities are good enough. Therefore, the ratio should neither be too high
nor too low. The ratio is calculated by dividing total debt by shareholder’s equity.
Total Debt
Debt-Equity Ratio=
Shareholder's Equity
'

42
 Total debt consists of all interest-bearing long-term debts. These include loans and short-term debts.
These include loans advances taken from other financial institutions, deposits carrying interest etc.
Shareholder’s equity includes paid-up capital, reserves and surplus and undistributed profit.

b) Debt- Asset Ratio

This ratio shows the contribution of creditors in financing the assets of the bank. It is the proportion of
debt on the total capital or proportion of outsider’s claim on total assets. Greater proportion of the bank’s assets
has been financing through outsider’s funds. High ratio indicates that the greater portion of the bank’s assets has
been financed through outsider’s fund. The ratio should neither be too high per too low. The ratio can be
calculated by dividing total debt by total assets.
Total Debt
Debt-Assets Ratio=
Total Assets

c) Interest Coverage Ratio

This ratio is calculated to find out the bank’s ability to meet interest obligation. The ratio also known as
times interest-earned ratio is used to test the debt servicing capacity of the bank. It shows the number of times
the interest charges are covered by funds that are ordinarily available for their payment. It indicates the extent to
which the earning may fail without causing any embarrassment to the firm regarding the payment of interest.
Higher ratio is desirable, but too high a ratio indicates the firm is very conservative in using debt. A lower ratio
indicates excessive use of debt or insufficient operation. The ratio calculated by dividing net profit before
deduction of interest and tax by interest charges.
Earning Before Interest & Tax(EBIT)
Interest Coverage Ratio=
Interest Changed
EBIT or Earnings before Interest and Tax Net Profit Before Interest and Tax (NPBIT) is amount of
operating profit before deduction of the amount of interest and tax.

4) Profitability Ratio: -
Profitability ratio shows the overall efficiency of the business Concerns corporations. The relation of
return of firm to either its sales or its equity or its assets is known as profitability ratios. In other words, we can
say that profitability ratios is used to measure the success of an enterprise in terms of its earning on sales or on
investment, profitability ratios are of two types.
 Profitability in relation to sales
 Profitability in relation to investment

A company should earn profits to survive & grow over a long period of time. It is a fact that sufficient
profit must be earned to sustain the operations of the business; to be able to obtain funds from investors for

43
expansion and growth; and to contribute towards the social overheads for the welfare of society. The
profitability ratios are calculated to measure the operating efficiency of the company. Management of the
company, creditors and owners are interested in the profitability of the firm. Creditors want to get interest and
repayment of principal regularly. Owners want to get a reasonable return from their investment (Pandey,
1994:116)
Profitability ratios are calculated to measure the operating efficiency of the company. Various profitability ratios
are calculated to measure operating efficiency of business enterprises. Though profitability ratios the lender &
investors want to decide whether to invest in particular business or not. To meet the objective of the study,
following ratios are calculated in this group.

a) Return on Total Asset

The ratio is measuring the profitability of funds invested in the bank’s assets. In other words, it
measures the efficiency of bank in utilization of the overall assets. High ratio indicates the success of
management in overall working fund i.e. total assets. It is also called net profit or loss to working fund i.e. total
assets ratio or simply called ROA. The firm has to earn satisfactory return on assets or working funds otherwise
its survival is threatened. High ratio indicates the success of management in overall operation. Lower ratio
means insufficient operation of the bank. It is calculated by dividing net profit after tax (NPAT) by total assets
of the bank
Net Profit After Tax(NPAT)
Return on Assets =
Total Assets
Net profit refers to the profit after deduction of interest and tax. Total assets means the assets that
appear in asset side of balance sheet.

b) Return on Net Worth

The ratio is tested to see the profitability of the owner’s investment. It reflects the extent to which the
objective of business is accomplished. All commercial banks have its main objective to earn the maximum
profit, so that they can run smoothly and get the fame. For that they must mobilize resources and its equity
capital properly. Equity capital is owned capital of banks. The ratio is also called net profit (or loss) to net worth
or net profit (or loss) to shareholder’s equity or return on shareholders’ equity or simply called ROSE. The ratio
is of great interest to present as well as prospective shareholders and also of great significance to management,
which has the responsibility of maximizing the owner’s welfare. So, higher ratio is desirable. It is computed by
dividing net profit after tax by net worth.
Net Profit After Tax(NPAT)
Return on Net Worth=
Net Worth
Net worth refers the owner’s claim on banks. It can be find out subtracting the total liabilities from total
assets. It includes shareholder’s reserve and share capital.

c) Return on Total Deposit

Major financial source of a bank is deposit collection. And deposits are mobilized for loan and
advances, investment etc. to earn profit. The ratio shows the relation of net profit earned by the bank with the

44
total deposit accumulated. Higher ratio is the index of strong profitability position. The ratio is computed by
dividing net profit after tax by total deposit.
Net Profit After Tax(NPAT)
Return on Total Deposit=
Total Deposit

d) Total Interest Expenses to Total Interest Income Ratio

The ratio shows the percentage of interest expenses incurred in relation to the interest income realized.
Lower ratio is favourable from profitability point of view. The ratio is obtained by dividing total interest
expenses by total interest income.
Total Interest Expenses
Total Interest Expenses to Total Interest Income Ratio=
Total Interest Income
Total interest expenses consist of interest expenses incurred for deposits, borrowing and loans taken by
the bank. Total interest income includes interest income received from loans, advances, cash credit, overdrafts,
and Government securities, interbank and other investments.

e) Interest Earned to Total Assets Ratio.

The ratio shows percentage of interest income as compared to the assets of the bank. High ratio
indicates the proper utilization of the bank’s assets for income generating purpose. Low ratio represents
unsatisfactory performance. The ratio is calculated by dividing interest income by total assets of the bank.
Interest Earned
Interest Earned to Total Assets Ratio=
Total Assets

5) Capital Adequacy Ratio

Capital adequacy ratio measures whether the firm has maintained sufficient capital or not. In other
words, it helps to decide whether the existing capital is adequacy or there is the not need of reforms. The ratio is
tested to ensure the safety and stability of the firm in long run. Over capitalization and under capitalization both
have adverse effect on profitability of the firm. If the capital is excess, it remains idle. If the capital is
insufficient, the firm may not be able to grasp the opportunity from potential profitable sectors. Therefore, the
commercial banks have been directed to retain sufficient ratio by the central bank. Here, capital fund refers to
the core capital and supplementary capital. Commercial banks cannot declare and distribute dividend until they
meet capital adequacy ratio. Under this group, following ratios are tested.

a) Net Worth to Total Deposit Ratio

This ratio measures the percentage of net worth n relation to the total deposits collected in the bank.
The ratio is a yardstick to see whether the bank has maintained the capital fund according to the direction of
Nepal Rastra Bank. The ratio is calculated by dividing net worth by total deposits.
Net Worth
Net Worth to Total Deposit Ratio=
Total Deposit

45
b) Net Worth to Total Assets Ratio
The ratio measure what is the percentage of shareholders’ fund is relation to the total assets owned by
the bank. High ratio means greater contribution of investors’ fund and strong capital adequacy position. The
ratio is calculated by dividing the net worth by total assets of the bank.
Net Worth
Net Worth to Total Assets Ratio=
Total Assets

c) Net Worth to Total Credit Ratio

It measures the relative proportion of the shareholders fund with respect to the credit. High ratio shows
that the firm has adequacy capital, which is the index of safety. Moreover, a bank with higher ratio is less
affected by the instability of the financial market. The ratio is obtained when net worth is dividend by the total
credit of the bank
Net Worth
Net Worth to Total Credit Ratio=
Total Credit
Total credit refers to the total of loans and advances granted, cash credit, overdrafts, bill purchased and
discounted.

6) Assets Quality Ratios

As explained earlier, turnover ratios measure the turnover of economic resource in terms of quality.
Only the investment is not of great significance, but the return from them with minimum default in payment by
debtors is significant. A firm may be in a state of enough profit and through unable to meet liabilities. Therefore,
asset quality ratios are intended to measure the quality of assets contained by the bank. Following ratios are
dealt in this group.

a) Loan Loss Coverage Ratio

Nepal Rastra Bank has directed commercial banks to maintain provision for loan loss on the basis of
category of loans and risk grade. The ratio, therefore, measures whether the provision is sufficient to meet the
possible loss created by defaulted in payment of loan or not. High ratio indicates that the major portion of loan is
risky. The ratio is calculated by dividing provision for loan loss by total risk assets.
Loan Loss Provision
Loan Loss Coverage Ratio=
Total Risk Assets
For the study purpose, risk assets constitute loans and advances, bill purchased and discounted.

b) Loan Loss Provision to Total Income Ratio

This ratio shows what portion of total income has been held as safety cushion against the possible bad
loan. Higher ratio indicates that the greater portion of loan advanced by the bank is inferior in quality. Low ratio
means that the bank has provided most of its loans and advances in secured sector. The ratio is obtained by
dividing loan loss provision by total income.
Loan Loss Provision
Loan Loss Provision to Total Income Ratio=
Total Income

46
c) Loan Loss Provision to Total Deposit Ratio
It shows the proportion of bank’s income held as loan loss provision in relation to the total deposit
collected. Higher ratio means quality of assets contained by the bank in form of loan is not much satisfactory.
Low ratio is the index of utilization of resources in healthy sector. The ratio is obtained by dividing the
provision for loan loss by total deposit in the bank.
Loan Loss Provision
Loan Loss Provision to Total Deposit Ratio=
Total Deposits

d) Accrued Interest to Total Interest Income Ratio

This ratio shows the percentage of accrued interest with respect to total income in form of interest. High
ratio indicates the large portion interest remained to be collected. Lower ratio reflects the better quality of
assets in the bank. The ratio is obtained by dividing accrued interest by total interest income.
Accrued Interest
Accrued Interest to Total Income Ratio =
Total Interest

Accrued interest refers to the interest that is accrued but not collected. Total interest income includes the
interest received from the investment in various sectors.

7) Others Indicators
Above stated ratios, throw light on various aspects of bank. Management, investors and creditors can get
information regarding their interest. Some indicators are dealt here which provide more knowledge about the
performance of bank. They are listed below.

a) Earning Per Share (EPS)

Earnings per Share refer to the income available to the common shareholders on per share basis. It enables us to
compare whether the earning based on per share basis has changed over past period or not. The investors
favor high EPS. It reflects the sound profitability position of the bank. It is obtained by dividing earning
available to common shareholders by number of equity shares outstanding.

Earning Available Common Shareholder (EAC)

Earnings Per Share=
No. of Equity Share Outstanding

Earnings available to common shareholders is the amount of that profit which can be found after deducting the
amount of interest to the outsiders' fund, dividend to the preferred shareholders and income tax to the
government. For this purpose, it is net profit after tax.

b) Price -Earning Ratio (P/E ratio)

P/E Ratio is widely used to evaluate the bank's performance as expected by investors. It represents the
investors' judgment or expectation about the growth in the bank's earning. In other words, it measures how
the market is responding towards the earning performance of the concerned institution. High ratio indicates

47
greater expectation of the market towards the achievement of firm. It is obtained by dividing market value per
share by earning per share.

Market Value Per Share (MVPS)

Price-Earning Ratio =
Earning Per Share (EPS)
c) Market Value per Share to Book Value per Share (MVPS/BVPS)
The ratio measures the value that the financial market attaches to the management and organization of the
bank as a growing concern. High ratio is the indication of strong management and organization. It is the ratio of
market value per share to book value per share.
Market Value Per Share (MVPS)
Market Value per Share to Book Value per Share =
Book Value Per Share (BVPS)

2.2 Review of Literature

Some of the thesis done in the related subject matters and their objectives, findings and
recommendations are as follows;
A. Mr. Keshab Jha
Mr. Keshab Jha has conducted a research entitled “A Comparative Financial Analysis of Nepal SBI Bank
Limited, Everest Bank Limited and Himalayan Bank Limited” This was submitted to Nepal Commerce
Campus, TU in partial fulfilment of Master’s Degree in the year 2008.
The following are the objectives of the study:-

 To study and highlight the existing situation of three joint venture banks.

 To examine and compare the financial position of NEPAL SBI BANK LIMITED, EVEREST BANK
LIMITED and HIMALIYAN BANK LIMITED.

 To evaluate liquidity, leverage, capital adequacy turnover, cash flow and profitability position of
NEPAL SBI BANK LIMITED, EVEREST BANK LIMITED and HIMALAYAN BANK LIMITED.

 To find the future trend for total deposit, total investment, loan and advances, net worth, net profit,
earning per share and market value per share of these banks for coming five years.

 To evaluate the relationship between the two variables in term of total deposit to total investment, total
deposit to loans and advances, total deposit to net profit.

 To provide suggestions to the concerned banks on the basis of study findings.

The major findings of the study are as follows:

1. Current ratio of the banks showed slightly fluctuating trend. Banks could not maintain
the conventional standard on 2:1 However, the average of the ratios appeared higher
in SBI.

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2. Average cash and bank balance to Total Deposits ratio of EBL appeared greater than
that of HBL and SBI. It indicates that the solvency position of EBL is better than that
of HBL and SBI.
3. Return on net worth of EBL was better as compared to NSBIBL. The ratio varied less
in the same bank.
4. Average mean Loans and advance to Total Deposit ratio was higher in EBL which
indicates that turnover of Total Deposit in form of loans and advances is better in
EBL. The ratio varied less in the same bank.

5. Average mean Investment to Total Deposit ratio was higher in HBL which indicates
that turnover of Total Deposit in form of Investment is better in HBL. The ratio varied
less in the EBL.

6. Average return on assets in HBL was higher than in EBL and SBI. It implies that the
profitability position of HBL in the study period proved to be stronger.

7. Return as total deposit was considerably higher in EBL which signifies that EBL is
more successful to utilize deposit for making profit.

8. Interest coverage ratio in the banks is satisfactory it is good in EBL. Ratio is slightly
difference in each year in each bank.

9. Net worth to total credit ratio appeared slightly higher in HBL, which signifies that
HBL, has used significantly larger extent of net worth for credit creation.

10. Loan loss provision to total deposit ratio came to be less in EBL and hence it can be
concluded that loan loss advances granted by the bank are less risky. In the
consistency of the ratios, EBL came to be better.

11. Utilization of the deposit for income generating purpose as reveals by greater
coefficient of correlation in EBL.
12. Correlation between deposits and investment of the HBL is moderated negative
correlated and not significant. The relationship between Deposit and Investment is
just opposite.
13. Correlation between deposits and investment of the bank (SBI) are highly positively
correlated at significant.
14. With respect to Earnings per Share (EPS) EBL seems more aware than HBL and SBI.
Earnings per Share of EBL high than HBL and SBI.

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 15. High degree of correlation seems to occur between loans and advances and total
deposit in the banks.

The researcher provides the following recommendations:

 The banks could not maintain the conventional standard of liquidity and quick ratios. It
indicates the poor liquidity position in these banks. It may create the problem of
working capital if they need to pay the short-term obligation at demand. With the delay
in payment of liabilities of banks may lose their goodwill and may have the problem in
winning the confidence of current depositors and short term lenders. So, banks are
recommended to maintain the adequate net working capital.
 In average EBL and SBI bank have maintained NRB Balance to total deposit ratio, but
in average EBL remarkable higher than standard prescribed by NRB. In average HBL
bank has not maintained NRB Balance to Current and Saving Deposit Ratio. But
maintain in FY 2064/65 and 2069/70. The fund tied in NRB balance cannot yield a
good return. So the EBL is suggested to lower this ratio and invest the surplus fund in
other current assets such as loans and advances, bill purchase discount & money at call
and short notice. HBL is suggested to maintain the ratio as per NRB directives.
 SBI have higher mean ratio of Debt-Equity ratio, compare than HBL and EBL. A high
ratio shows the large share of financing by the creditors as compared to that of owners.
High ratio is more risky than low ratio. Higher ratio shows that more of the funds
invested in the business are provided by the outsider. So SBI is suggested to increase
Equity capital.
 Mean ratio of SBI seemed higher than that of HBL and EBL, which indicates that net
worth in it has covered comparatively greater portion of total assets. In other words,
SBI is superior to HBL and EBL to check the possible risk that might arise due to high
leverage.
 The imbalance between the operating income and operating expenses has made banks
less profitable. In our analysis, the operating income and operating expenses of SBI is
higher than HBL and EBL. So from the view of operating profit in the SBI better than
HBL and EBL in average. So every commercial bank should increase the operating
income and cut down the unnecessary expenses by using modern banking technology,
computer networking, expert and well trained personnel.

50
  Introducing the latest and sophisticated banking system, developing the high
motivational strength in management and increasing turnovers etc are some of
techniques to improve and increase the gap between income and expenses.
 The bank must collect more funds from current deposits, compared to other interest
bearing deposits. The banks must located and explore new technique and facilities for
collection.
 HBL and SBI should be more serious to improve the efficiency in utilizing its deposit
in Loan and Advance for generating the profit.
 For commercial banks, it is very important to maintain a good balance between
liquidity and profitability. If banks keep large portion of money under its control it
affects in profit because idle money earn nothings but other hand the bank should have
enough cash balance with it to fulfill the requirement of short-term liabilities .
 Mean of the EPS was much higher in EBL in contrast to HBL and EBL; which
indicates that the profitability position of the former is far better than that of the latter.

B. Miss. Anita Shrrestha

Anita Shrrestha has studied on the topics of “Financial Performance analysis of commercial bank of
Nepal (with special reference to Nepal Investment Bank (NIB) and NABIL Bank Ltd)”. This was submitted to
Nepal Commerce Campus, TU in partial fulfilment of Master’s Degree in the year 2007.
The main objectives of the research were:-
1. To conduct cash flow analysis and measure the operating efficiency, stability and profitability of
NABIL and NIBL.
2. To measure the ability to meet the short term and long term obligations.
3. To point out the weak and strong areas of the business performance.
4. To analyze financial strengths and weakness of the banks.
5. To provide further suggestions for improvement.
The major findings of the study are as follows:
1. NIBL has comparatively sufficient level of current assets, cash and bank balance and fixed deposit then
that of NABIL.
2. NABIL has utilized the debt more than NIBL. It says that NABIL has more ability on using debt.
3. The analysis of capital Adequacy ratios show that shareholders fund with respect to total deposit and
total assets are higher in NIBL than that of NABIL.
4. NIBL has better turn over in terms of loans and advances total deposits, loans and advances to fixed
deposit, loans and advances to saving deposit and performing assets to total debt. On the other hand
NIBL has better turnover ratio in terms of investment to total deposits.
5. The profitability ratio of both banks revealed that the profitability position of NABIL is better than
NIBL. On the other hand NIBL has better position in terms of interest expenses to interest income.

51
 6. Other Financial indicators of NABIL are better than that of NIBL like EPS, DPS and MVPS/ BVPS are
better of NABIL except P/E ratio.
7. The major source of income remained interest income for both the banks. In the same way the interest
expenses also remained as the major portions of expenditure.
8. Coefficient of correlation analysis showed the positive relationship between total debt and NPAT for
both bank.

The researcher also provides the following recommendations:

1. It has found that the banks are suffered from liquidity position. In this context, they need to improve
their liquidity position. Otherwise they may lose their credibility.
2. It is recommended that NIBL can earn more by adding debt in its capital structure of NIBL.
3. It is requested to the banks to be nature and serious to generate high profit by utilizing the performing
assets in returnable area, i.e. loans, advances etc.
4. Profitability position of NIBL is much weaker than NABIL. It should improve overall efficiency by
investing assets in more returnable sectors i.e. risky area after proper risk analysis. Expenses on office
operation should be minimized by withdrawing unnecessary expenses and maximum utilization of
available manpower.
5. Variance with respect to different ratios has been found fluctuating and it does not express the
favourable situations. So both of the banks are advised to keep more uniformity in ratios.
6. The banks are suggested not to limit their activities within the urban areas only. So, it is advised to
diversify their services by spraying branches all over the country as per the directive of NRB.
7. In this full competitive financial world, the banks are advised to introduce new banking systems and
improve their services.

C. Miss Manisha Bhusal

Manisha Bhusal has studied on the topics of “Financial performance analysis of commercial banks in
Nepal in the framework of camel (a comparative study of Kumari Bank Limited (KBL) and Machhapuchchhre
Bank Limited (MBL))” This was submitted to Nepal Commerce Campus, TU in partial fulfilment of Master’s
Degree in the year 2006.
The main objectives of the research were:-
1. To analyze the capital adequacy of KBL and MBL.
2. To assess the quality of assets of KBL and MBL.
3. To evaluate whether KBL and MBL is managing its expenses with respect to incomes.
4. To study the trend of earning performance made by KBL and MBL.
5. To measure the liquidity position of KBL and MBL.
The major findings of the study are as follows:
1. Over the five study years period, the core capital adequacy ratios of both the banks are in decreasing
trend except in the F.Y. 063/64.

52
 2. The supplementary capital adequacy ratio of KBL is higher than that of MBL. Both the banks have
maintained the supplementary capital adequacy ratio as per NRB standard, which should not be more
than the core capital ratio of the company.
3. The non-performing loan ratio of both KBL and MBL are in decreasing trend.
4. The loan loss ratios of KBL are fluctuating over the study period while the loan loss ratios of MBL
are in decreasing trend.
5. The earning per employee ratios of KBL and MBL are in increasing trend in all the years except of
KBL in the F. Y. 063/64.
6. The return on equity ratios of KBL and MBL are in increasing trend except in the F. Y. 063/64 of
KBL.
7. The mean average of earning per share of KBL is Rs. 14.03 and of MBL is Rs. 11.37. The higher
average earning per share of KBL shows the higher earning power of the bank.
8. The liquid assets to total deposit ratios of KBL are in decreasing trend except in the F.Y. 060/61 but
the ratios of MBL are fluctuating.
9. It is found that both the banks have maintained the balance as per the standard set by Nepal Rastra
Bank in all the observed years.
10. The cash in vault to total deposit ratios of KBLand MBL are in fluctuating trend during the review
period.
The researcher also provides the following recommendations:
1. The total capital adequacy ratios of both KBL and MBL are as per the NRB standard over the review
period. But the ratios are in decreasing trend and if it further goes down, NRB may provide directions
to maintain at the mark. So the recommendation is provided to maintain and keep open eye for the
stable and adequate capital adequacy ratio in the future.
2. The assets quality ratios of both the banks show the satisfactory level. So the recommendation is to
maintain this lower and appropriate rate of non-performing loan ratio.
3. The total expenses to total incomes ratios of the banks are in fluctuating trend over the review period.
So it is recommended to the management of the banks to try to reduce the operating expenses.
Decreasing in total expenses to total incomes ratio will positively affect the company’s profitability.
4. The company is recommended to increase its yield as its net profit to gain the trust of the equity
holders and other stakeholders.
5. The liquidity position of the commercial banks should meet their current and contingent obligations.
Liquid assets to total deposit ratios, NRB balance to total deposit ratios and cash at vault to total
deposit ratios of KBL and MBL are very low and most of them have not met the benchmark set by
NRB which need to be monitored and complied in accordance with the NRB requirements.

D. Mr. Ramesh Singh

A research work conducted by Ramesh Singh “ A comparative study on Financial performance of
Nepal Bangladesh Bank Limited (NBBL) & Himalayan Bank Limited HBL)” this was submitted to Nepal
Commerce Campus, TU, in partial fulfilment of Master’s Degree in the year 2005.
The following are the objectives of the study:-

53
 1. To evaluate the relationship between the two variables in term of total deposit to total investment, total
deposit to net profit net worth to net profit of NBBL and HBL.
2. To evaluate liquidity, earnings, activity, assets management, capital structure, capital adequacy positions
of HBL and NBBL.
3. To evaluate the trends in growth of total deposits, loans and advances and net profit of the two banks.
4. To draw the conclusion and to recommend some strategies for implementation to the concerned bankers
based on the analysis.
The major findings of the study are as follows:
1. Current deposit ratios of HBL and NBBL were fluctuating. NBBL had higher average ratios than HBL,
which showed better solvency position of NBBL than HBL.
2. Debt equity ratio of HBL and NBBL were fluctuating and increasing respectively. The average ratio of
HBL was higher than that of NBBL.
3. Net worth to total deposits ratio of HBL and NBBL were below the standard of 8% set by NRB.
4. The ratios of investment of government securities to total deposits of both the banks NBBL and HBL
were same i.e. 12%.
5. Return on total assets ratios of the NBBL and HBL were 1.30% and 1.24% respectively. NBBL was
found to be slightly better than HBL.
6. Loan loss coverage ratio of HBL and NBBL were 5.5% and 4.72% in average respectively. Higher
ratio of HBL indicates higher risk on loans and advances or poor quality of loans.
7. Income analysis shows that the major source of income was the interest income, which covered 77%
and 83% of the total income of NBBL and HBL respectively.
The researcher also provides the following recommendations:
1. Overall liquidity position of HBL was better than that of NBBL. NBBL is recommended to increase its
liquidity strength in order to meet the obligations due to the increase in its turnover.
2. Turnover position of HBL was better than that of NBBL. Both the banks are recommended to open
branches in rural sectors as well to make themselves accessible to all classes of society.
3. Capital structure of HBL was highly leveraged by employing higher proportion of debts. It had better
to reduce its debt-equity ratio.
4. HBL’s profitability position was better than that of NBBL. NBBL is recommended to use its resources
in high profit potential sectors. Further, its should keep the operating expenses at minimum level.
5. NBBL was found to be more efficient in creating credit. So, HBL had better to focus towards credit
creation by investing in government as well as other sectors.
6. Capital adequacy position should be healthy in order to safeguard the banks against the risk of
confidence and risk arising from the instability of financial market. As per the standard set by NRB,
HBL should increase its net worth to total deposits and net worth to total assets ratios to 8% to maintain
adequate capital.
7. Investment of both banks is increasing but net profit is not increasing in the ratio of investment. So
both banks make a policy how to return from investment is increase.

54
 CHAPTER - III
Research Methodology

3.1 Introduction
Research methodology deals with the road map of the study. It deals with the way the data are
collected, analyzed, figured out and necessary conclusions and recommendations are made. It deals with the
researchers planning of the study of the project or research work. It is the bridge, which links the researcher
from where s/he is to where s/he wants to be. So, it is the true way of finding of the research work. It can be said
that research methodology is the real agent of research findings and destinations.

Stating in other words it is the process of arriving to the solution of research problem in planned and systematic
manner through the collection, analysis and interpretation of the facts and figures. It includes the sources of data
collected for the research, statistical and financial tools used for the analysis of the data, data collection
procedures.

3.2 Research design

The term research design is employed in the sense of overall framework or plan for the collection and
analysis of data. It serves as a framework for the study, guiding the collection and analysis of the data. The
research design then focuses on the data-collection procedures, research instrument utilization, and the sampling
plan to be followed. Specifically speaking, research design describes the general plan for collecting, analyzing
and evaluating data after identifying;

 What the researcher wants to know; and

 What has to be dealt with in order to obtain the required information?
The research design is an organized approach and not a collection of loose, unrelated parts. It is an
integrated system that guides the researcher in formulating, implementing and controlling the study. Useful
research design can produce the answers to the proposed research questions. The research design is thus an
integrated frame that guides the researcher in planning and executing the research work.

A research design is the arrangement of conditions for collection and analysis of data in a manner that aims
to combine relevance to the research purpose with economy in procedure [Kothari, 1990, P39].

Current research work entitled A comparative financial analysis of the EVEREST BANK LIMITED
and BANK OF KATHMANDU LIMITED involves the relationship among the various ratios within the
conceptual framework. This study is closely related to financial statements. These information and data are
presented by analytical method. But the qualities aspects of the research such as effectiveness of financial
analysis in the both banks, views of various managers and personnel, and the theoretical prescriptions are

55
explained in words wherever necessary. Therefore, analytical as well as descriptive research has been applied as
the research design for the study.

3.3 Period Covered

The period covered by the study is five years for trend analysis, a comparative financial analysis and
related aspects. The period covered is from FY 2065/66 to FY 2069/70.

3.4 Population and sampling

Population in its real sense is the people residing in certain location classified by geographically or
politically. There are 31th commercial banks functioning in Nepal. There stocks are traded actively in the stock
market. In the research, financial performance has been compared each other of EVEREST BANK LIMITED
and BANK OF KATHMANDU LIMITED, which are selected from population. As per the norms and values of
the methodology of the thesis work, minimum five years data has been included in the study.

3.5 Source and nature of data

Nature and source of data of this research is both from primary and secondary source.

Primary source of data

Primary source of data are the data, which are original in nature collected by direct visit by
the researcher himself/herself to the field. These data are not used by other people and are
collected by the researcher for the fulfillment of his research work.

Secondary source of data

Data already used are the secondary source of data. Following are the main secondary source of data of
the both banks used in this study;

 Financial statements especially income statement / profit and loss account published by the banks.
 Annual report published by the both banks.
 News papers, magazines, booklets and related articles of the banks.
 Other related data available in the subject area.

3.6 Data analysis tools and techniques

To satisfy the research questions different statistical as well as accounting tools has been used in this research
work. These tools are the real agent of convenient, reliability and authentic of the research work.

3.6.1 Financial tools

56
As per the demand of the research topic a comparative financial analysis of the EVEREST
BANK LIMITED and BANK OF KATHMANDU LIMITED, different tools of financial
analysis are to be used. On the basis of available time constraint, data constraint and other
resource constraint different tools viz. liquidity ratio, activity ratios, capital structure ratios,
profitability ratios, capital adequacy ratios and cash flow etc. have been used on financial
tools in this research work.
3.6.2 Statistical tools
For the purpose of analysis and presentation of research work in beautiful manner different
statistical tools and techniques have been used in this thesis. It is hoped that the tools and
techniques will be sufficient to present the analysis and findings of the research work in
simple but beautiful manner. Data tabulation, graphic approach, means, standard deviation,
correlation etc. have been used for this study.

57
 CHAPTER - IV
DATA PRESENTATION AND ANALYSIS

This Chapter deals with the analysis and interpretation of data following the research methodology
dealt in the third chapter. In course of analysis, data gathered from the various sources have been inserted in the
tabular form according to their homogeneous nature. The various tables prepared for the analysis purpose have
been shown in annexes. Using financial and statistical tools, the data have been analyzed. The result of the
analysis has been interpreted keeping in mind the conventional standard with respect to ratio analysis, directives
of NRB and other factors while using other tools. Moreover, financial performance of the sampled banks has
especially been analyzed in cross sectional manner. Specially, the chapter includes an interpretation of the
following:
 Ratio Analysis
 Correlation Analysis
 Trend Analysis

4.1 Ratio Analysis

Ratio analysis has been adopted to evaluate the financial health, operating result and growth of the sampled
banks. In order to analyze and interpret the tabled data, the following ratios have been used.
 Liquidity Ratios
 Efficiency/Activity/Turnover Ratios
 Profitability Ratios
 Capital Adequacy Ratios
 Assets Quality Ratios
 Other indicators

4.1.1 Liquidity Ratios

Liquidity ratios have been employed to test the ability of the banks to pay immediate liabilities (i.e.
short term liabilities). These include current ratio, quick ratio, cash & bank balance to current assets ratio, cash
& bank balance to deposit (expect Fixed Deposits) ratio, cash & bank balance to total deposit ratio, NRB
balance to current and saving deposit ratio and NRB balance to Fixed deposits ratio.

4.1.1.1. Current Ratio

Current ratio is also known as working capital ratio. It is computed by dividing the current assets
liabilities.
Current Assets
Current Ratio =
Current Liabilities

Table4.1

58
 Current Ratio (Times)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 1.07 1.07 1.08 1.08 1.07 1.08 0.62%
BOK 1.07 1.09 1.10 1.12 1.10 1.10 1.31%
Source; Appendix;-1
Table 4.1 clearly shows that current ratio of EBL for the study period remained 1.07, 1.07, 1.08, 1.08
and 1.07 times respectively from the FY 2065/66 to FY 2069/70. Mean of the ratios appeared 1.08times and CV
appeared .60%. Similarly, the ratios of BOK for the corresponding period remained 1.07, 1.09, 1.10, 1.12 and
1.10 times. Mean of the ratios came 1.10 times whereas CV came 1.31%.
The ratios of EBL were fluctuating trend. Highest ratio was 1.08 times in FY 2067/68 & 2068/69 and
constant ratio 1.07 times in remaining period. The ratio of BOK was increasing trend, but decrease in FY
2069/70. It was highest in FY 2068/69 i.e. 1.12. Mean of the ratios of BOK was greater than EBL, mean ratio
of the banks could not maintain the conventional standard of 2:1. The nature of assets & liabilities of
commercial banks, the ratio below the stated standard may be accepted as satisfactory, but it signifies that the
banks have the poor liquidity position. The banks may face the problem of working capital if they need to pay
the current liabilities at demand. Delay in payment of liabilities may lead the banks to lose their goodwill.
For commercial banks, it is very important to maintain a good balance between liquidity and
profitability. If banks keep large portion of money under its control it affects in profit because idle money earn
nothings but other hand the bank should have enough cash balance with it to fulfill the requirement of short-
term liabilities . This can be also shown in following figure-1.

FIGURE-1
2.5

1.5
BOK
1 EBL

0.5

0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.1.2 Quick Ratio

Quick ratio establishes a relationship between quick or liquid assets & current liabilities. It is computed
by dividing the quick assets by current liabilities.
Quick Assets
Quick Ratio=
Current Liabilities
Table4.2

Quick Ratio (Times)

59
 FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.32 0.36 0.34 0.33 0.35 0.34 3.77%
BOK 0.29 0.28 0.29 0.30 0.35 0.30 8.71%
Source; Appendix;-2

Table 4.2 clearly shows that quick ratio of EBL were 0.32, 0.36, 0.34, 0.33 and 0.35times respectively
from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared 0.34 times and whereas
CV appeared 3.77%. Similarly, the ratios of BOK were 0.29, 0.28, 0.29, 0.30 and 0.35times respectively from
FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared 0.30 times and whereas CV
appeared 8.71%.
The ratios of EBL were fluctuating trend, highest ratio was 0.36times in FY 2066/67 and lowest ratio
in FY 2065/66 i.e.0.32. The ratios of BOK were also in fluctuating trend, highest ratio was 0.35 times in
2069/70 and lowest is 0.28 times in FY 2066/67. The standard quick ratio is 1:1 i.e. quick assets must be equal
to current liabilities. Banks showed poor liquidity position because of quick ratios of every year were below
than standard form. It indicates that they have very weak position of immediate payment of short-term
obligation (i.e. current liabilities) because current liabilities were greater than that of quick assets. From the
standard point of view we can here say that though the EBL ratio is higher than BOK. This can be also shown in
following figure-2
FIGURE-2
0.8

0.7

0.6

0.5

0.4 BOK
0.3 EBL

0.2

0.1

0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
.

4.1.1.3 Cash and Bank Balance to Total Deposit Ratio

The ratio measures the ability of the banks to meet its immediate obligation. The bank should adequate
cash and bank balance to meet the unexpected as well as the heavy withdrawal of deposits. The ratio computed
by dividing the cash & bank balance by total deposits.
Cash & Bank Balance
Cash and Bank Balance to Total Deposit Ratio =
Total Deposit

Table4.3

60
 cash and Bank Balance to Total Deposit Ratio (Times)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.11 0.18 0.21 0.15 0.21 0.17 22.03%
BOK 0.09 0.12 0.09 0.08 0.14 0.10 20.78%
Source; Appendix;-3
Table 4.3 clearly shows that Cash and Bank Balance to Total Deposit ratio of EBL for the study
period-remained 0.11, 0.18, 0.21, 0.15 and 0.21 times respectively from the FY 2065/66 to FY 2069/70. Mean&
CV were 0.17 times and 22.03% respectively. Similarly, the ratios of BOK were 0.09, 0.12, 0.09, 0.08 and
0.14times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared
0.10 times and whereas CV appeared 20.78%.
The mean ratio of BOK lower than EBL, which means that BOK have not greater ability to repay the
deposits i.e. BOK is not more efficient to serve the customers from liquidity point of view. A high ratio
represents the greater ability to meet their all types of deposits. But too high ratio of cash and bank balance to
total deposits may be unsuitable and harmful because it affects their profitability position and also low ratio is
unfavorable as capital will be tied up and opportunity cost will be higher. Higher CV of ratios in EBL as
compared BOK signifies greater variation in the ratios. This can be also shown in following figure-3

FIGURE-3

0.25

0.2

0.15

EBL
0.1
BOK
0.05

4.1.1.4 Cash and Bank Balance to Deposits (Except Fixed Deposits) Ratio
The ratio measures the ability of the banks to meet its immediate obligation. The bank should adequate
cash and bank balance to meet the unexpected as well as the heavy withdrawal of deposits. The ratio is
computed by dividing the cash and bank balance to total short-term deposits i.e. Saving Deposits, Current
Deposits, Margin Deposits & Call Deposits. It express as;
Cash & Bank Balance to Deposit (except FD) Ratio =

Cash & Bank Balance

Total Deposit(Except Fixed Deposit)

61
 Table4.4

Calculation of Cash and Bank Balance to Deposits (Except Fixed Deposits) Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.15 0.23 0.30 0.23 0.28 0.24 20.81%
BOK 0.12 0.16 0.13 0.13 0.20 0.15 19.49%
Source; Appendix;-4
Table 4.4 clearly shows that Cash and Bank Balance to Total Deposit (Except Fixed Deposits) Ratio of
EBL for the study period-remained 0.15, 0.23, 0.30, 0.23 and 0.28 times respectively from the FY 2065/66 to
FY 2069/70. Mean& CV were 0.24 times and 20.81% respectively. Similarly, the ratios of BOK were 0.12,
0.16, 0.13, 0.13 and 0.20 times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of
the ratios appeared 0.15 times and whereas CV appeared 19.49%.
The ratio of EBL fluctuated every year during the study period. It was highest in year 2067/68 and
lowest in 2065/66. The ratio in BOK was highest in 2069/70 and lowest in 2065/66. The mean ratio of BOK
lowers than EBL. Which means that BOK has not greater ability to repay the deposits i.e. BOK are not more
efficient to serve the customers from liquidity point of view. A high ratio represents the greater ability to meet
their deposits. But too high ratio of cash and bank balance to total deposits may be unsuitable and harmful
because it affects their profitability position and also low ratio is unfavorable as capital will be tied up and
opportunity cost will be higher. Higher CV of ratios in EBL as compared BOK signifies greater variation in the
ratios. This can be also shown in following figure-4

FIGURE-4

0.6

0.5

0.4

0.3 BOK
EBL
0.2

0.1

0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.1.5 Fixed Deposit to Total Deposit Ratio

The ratio measures the position of Fixed Deposit into Total Deposit of the Banks. Fixed Deposit is the
main source of the Deposit which Bank invests. Fixed Deposit is the deposit which only returns after the turn off
agreed time. It express as;

62
 Fixed deposit
Fixed deposit to total deposit ratio =
Total deposit

Table4.5

Calculation of Fixed Deposit into Total Deposit Ratio

FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.27 0.21 0.28 0.37 0.26 0.28 18.10%
BOK 0.23 0.25 0.31 0.37 0.31 0.29 17.13%
Source; Appendix;-5

Table 4.5 clearly shows that Fixed Deposit to Total Deposit Ratio of EBL for the study period-
remained 0.27, 0.21, 0.28, 0.37, and 0.26 times respectively from the FY 2065/66 to FY 2069/70. Mean& CV
were 0.28 times and 18.10% respectively. Similarly, the ratios of BOK were 0.23, 0.25, 0.31, 0.37 and 0.31
times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared 0.29
times and whereas CV appeared 17.13%.

The ratio of EBL fluctuated every year during the study period. It was highest in year 2068/69 and lowest in
2066/67. The ratio of BOK was increasing trend during the study period but decrease in the last studies year.
Mean ratio of BOK came higher than EBL. It suggests that greater portion of total deposit of BOK has been
occupied by fixed deposit in contrast to EBL. It can grasp the opportunity of investing the fund in more
profitable sector like long - term loans. C V of EBL is higher than BOK, it denote that EBL is very risky into
liquidity position. This can be also shown in following figure-5.

FIGURE-5

0.8

0.7

0.6

0.5

0.4 BOK
0.3 EBL

0.2

0.1

0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

63
4.1.1.6 NRB Balance to Current and Saving Deposit Ratio

The ratio shows the percentage of amount deposits by the banks in Nepal Rastra Bank (NRB) as compare to the
current and saving deposits. Commercial banks required holding certain position of current and saving deposits
in NRB account. It is computed by dividing the NRB balance by current and saving deposits.
NRB Balance
NRB Balance to Current and Saving Deposit Ratio =
Current & Saving Deposit

Table4.6
NRB Balance to Current and Saving Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.06 0.18 0.21 0.18 0.22 0.17 33.35%
BOK 0.05 0.10 0.05 0.05 0.11 0.07 39.04%
Source; Appendix;-6

Table 4.6 clearly shows that NRB Balance to Current and Saving Deposit Ratio of EBL for the study
period-remained 0.06, 0.18, 0.21, 0.18 and 0.22 times respectively from the FY 2065/66 to FY 2069/70. Mean&
CV were 0.17 times and 33.35% respectively. Similarly, the ratios of BOK were 0.05, 0.10, 0.05, 0.05 and 0.11
times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared 0.07
times and whereas CV appeared 39.04%.

The ratios of Banks are fluctuated every year during the study period. EBL have higher mean and lower CV in
the NRB Balance to Current and Saving Deposit Ratio than BOK. It shows that EBL deposited more percentage
of its deposit into Nepal Rastra Bank’s account, but data are more equitable than BOK. This can be also shown
in following figure-6.

FIGURE-6

0.45
0.4
0.35
0.3
0.25
EBL
0.2
BOK
0.15
0.1
0.05
0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

64
4.1.2 Efficiency /Activity/ Turnover Ratios

Turnover ratios have been used to evaluate the efficiency with which the banks have managed and
utilized their assets. So, it is also called Efficiency ratio. These ratios are also employed to evaluate the speed
with which assets are being converted and turnover. These ratios moreover help in measuring the bank’s ability
to utilize their available resources. In this study these ratios include; loans and advances to total deposit ratio,
loans and advances to saving deposit ratio, loans and advances to fixed deposit ratio, investment total deposit
ratio and performing assets to total assets ratio.
4.1.2.1 Loans and Advances to Total Deposit Ratio
This ratio is calculated to find out how the banks are successful utilizing the outsiders’ fund i.e. total deposits for
profit generating purpose in the form of extending loan and advances. It is calculated as;
Loan and Advance
Loans and Advances to Total Deposit Ratio =
Total Deposit

Table4.7
Calculation of Loans and Advances to Total Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.76 0.72 0.75 0.76 0.72 0.74 2.64%
BOK 0.79 0.81 0.82 0.83 0.75 0.80 3.48%
Source; Appendix;-7
Table 4.7 clearly shows Loans and Advances to Total Deposit Ratio of EBL for the study period-
remained 0.76, 0.72, 0.75, 0.76 and 0.74 times respectively from the FY 2065/66 to FY 2069/70. Mean & CV
were 0.74 times and 2.64% respectively. Similarly, the ratios of BOK were 0.79, 0.81, 0.82, 0.83 and 0.75 times
respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared 0.80 times
and whereas CV appeared 3.48%.
The ratios of EBL are fluctuated during the study period. But the ratios of BOK have increasing trend
and decrease in last study period. Mean ratio of BOK higher than EBL, which signifies that BOK is more
successful in utilizing the resource in profitable sectors than EBL. Main source of income of the bank’s are
generated from providing loan. CV of EBL is less than BOK; it means EBL more equitable than other in Loans
and Advances to Total Deposit. This can be also shown in following figure-4.7.
FIGURE-7

65
 1.8
1.6
1.4
1.2
1
BOK
0.8
EBL
0.6
0.4
0.2
0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.2.2 Loans and Advances to Saving Deposit Ratio

Saving deposits are interest- bearing obligation for short- term purpose where as loan and advances are long-
term investment for generating income. So the ratio indicates how many time’s short –term interest-bearing
deposits are utilized for income generating purpose. It is calculated as;
Loan and Advance
Loan and Advances to Saving Deposit Ratio =
Saving Deposit

Table4.8
Loans and Advances to Saving Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/7 Mean CV
0
EBL 1.54 1.62 2.06 2.38 2.08 1.94 16.20%
BOK 1.89 2.02 2.48 2.64 2.32 2.27 12.37%
Source; Appendix;-8

Table 4.8 clearly shows Loans and Advances to saving Deposit Ratio of EBL for the study period-
remained 1.54, 1.62, 2.06, 2.06 and 2.08 times respectively from the FY 2065/66 to FY 2069/70. Mean & CV
were 1.94 times and 16.20% respectively. Similarly, the ratios of BOK were 1.89, 2.02, 2.48, 2.64 and 2.32
times respectively from FY 2065/66 to 2069/70 of corresponding years. Mean of the ratios appeared 2.27 times
and whereas CV appeared 12.37%.
The ratios of EBL and BOK have increasing trend up to fourth year and then it began to decrease.
Mean ratio of EBL higher than that of BOK, which indicates that EBL has more successfully utilized the interest
bearing deposit in terms of loans and advances. But weak in liquidity position because EBL invest over than
saving deposit. The consistency in the ratio was found higher in EBL from the CV analysis. This can be also
shown in following figure-4.8;-
FIGURE-8

66
 6

3 BOK
EBL
2

0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.2.3 Loans and Advances to Fixed Deposits Ratio

The ratio examines that how many the fund is used in loans and advance against fixed deposits. They
are interest bearing long-term obligation where as loans and advance are the major sources of investment in
generating income for commercial banks. It is calculated as;
Loan and Advance
Loans and Advances to Fixed Deposit Ratio =
Fixed Deposit

Table4.9
Loans and Advances to Fixed Deposits Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 2.84 3.39 2.64 2.06 2.76 2.74 15.50%
BOK 3.37 3.27 2.61 2.23 2.46 2.79 16.24%
Source; Appendix;-9

Table 4.9 clearly shows Loans and Advances to fixed Deposit Ratio of EBL were 2.84, 3.39, 2.64, 2.06
and 2.76 times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios
appeared 2.74 times and whereas CV appeared 15.50%. Similarly, the ratios of BOK were 3.37, 3.27, 2.61, 2.23
and 2.46 times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios
appeared 2.79 times and whereas CV appeared 16.24%.
The ratios of Banks are fluctuated during the study period. BOK has higher mean and higher CV in the
Loans and Advances to Fixed Deposits Ratio. BOK has higher mean and higher CV, which means it utilized the
high interest bearing fixed deposits in yielding sector satisfactory return or utilizes its fixed deposits more
efficiently. For the Stable point of view EBL is better because EBL have lower CV. This can be also shown in
following figure-4.9;-

67
 FIGURE-9
4

3.5

2.5

2 EBL
1.5 BOK

0.5

0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.2.4 Investment to Total Deposit Ratio

Investment is the other main source of the income for the commercial banks. Total investment includes its HMG
treasury bills, development bonds, other company’s share and other types of investment. The ratio shows how
efficiently the major sources of bank have been mobilized. It is calculated as;
Total Investment
Investment to Total Deposit Ratio =
Total Deposit

Table4.10
Investment to Total Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.21 0.18 0.14 0.19 0.16 0.17 15.05%
BOK 0.20 0.15 0.16 0.20 0.21 0.19 12.91%
Source; Appendix;-10

Table 4.10 clearly shows Investment to Total Deposit Ratio of EBL were 0.21, 0.18, 0.14, 0.19 and
0.16 times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared
0.17 times and whereas CV appeared 15.05%. Similarly, the ratios of BOK were 0.20, 0.15, 0.16, 0.20 and 0.21
times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared 0.19
times and whereas CV appeared 12.91%.
The ratio of EBL and BOK are fluctuating during the study period. BOK was invested more percentage
of deposit in Investment compare than EBL because BOK has higher mean ratio. For the Stable point of view
BOK is better because BOK has lower CV. This can be also shown in following figure-4.10;-

68
 FIGURE-10

0.25

0.2

0.15
EBL
0.1 BOK

0.05

0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.3 Profitability Ratios

Profit is an important factor that determines the firm’s expansion & diversification. A required level of
profit is necessary for the firm’s growth and survives in the competitive environment. Profitability ratios have
been employed to measures the operating efficiency of the sampled banks. For the purpose, return on assets,
return on net worth, return on total deposit, total interest expenses to total interest income ratio and interest
earned to total asset ratio have been analyzed and interpreted.
4.1.3.1 Return on Assets (ROA)
The ratio is useful in measuring the profitability of all financial resources invested the firm’s assets. It
is also called net profit or loss to total assets or working fund ratio and denoted by ROA. It is calculated as;
Net Profit After Tax(NPAT)
Return on Assets =
Total Assets
Table4.11
Return on Assets (ROA)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 1.66% 1.73% 2.01% 2.01% 1.95% 1.87% 10.44%
BOK 2.04% 2.25% 2.18% 2.44% 2.10% 2.20% 11.13%
Source; Appendix;-11

Table 4.11 clearly shows Return on Assets Ratio of EBL for the study period-remained 1.66%, 1.73%,
2.01%, 2.01% and 1.95% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the
ratios appeared 1.87% and whereas CV appeared 10.44%. Similarly, the ratios of BOK were 2.04%, 2.25%,
2.18%, 2.44% and 2.10% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the
ratios appeared 2.20% and whereas CV appeared 11.13%.
The Return on Assets ratio of EBL is increasing first two year after the FY2068/69 ratio is decreasing.
The Return on Assets ratio of BOK is fluctuating trend during the study period. The higher mean ratio of BOK
is represented higher profitability position compare than EBL. If bank earns high profit, it will increase its

69
goodwill in competitive market and it can gives attractive bonus and dividend to staffs and shareholders
respectively. But the point of view CV of the ratio EBL is better because it is more equitable and less variable.
This can be also shown in following figure-4.11;-

FIGURE-11

25.00%

20.00%

15.00%
BOK
10.00% EBL

5.00%

0.00%
2065/662066/672067/682068/692069/70 Mean CV

4.1.3.2 Return on Net Worth / Shareholders’ Equity (ROSE)

The ratio is tested to see the profitability of owners’ investment. It reflects the extent to which the
objective of business is accomplished. The ratio is of great interest to present as prospective shareholders’ and
also of great significance to management, which has the responsibility maximizing the owners’ welfare. It is
also called net profit to shareholders equity ratio on shareholder equity simply denoted by ROSE. It is calculated
as;
Net Profit After Tax(NPAT)
Return on Net Worth =
Net Worth

Table4.12
Return on Net Worth / Shareholders’ Equity (ROSE)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 21.88% 26.38% 27.40% 25.24% 25.92% 25.36% 7.54%
BOK 26.29% 25.39% 22.63% 22.73% 19.97% 23.40% 9.73%
Source; Appendix;-12

Table 4.12 clearly shows Return on Net worth of EBL were 21.88%, 26.38%, 27.40%,
25.24% and 25.92% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios
appeared 25.36% and whereas CV appeared 7.54%. Similarly, the ratios of BOK were 26.29%, 25.39%,

70
22.63%, 22.73% and 19.97% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the
ratios appeared 23.40% and whereas CV appeared 9.73%.
The Return on Net worth of EBL is fluctuating during the study period. The high ratio is 27.40% in FY
2067/68. Return on Net worth of BOK is decreasing trend during the study period. The higher mean ratio of
EBL indicates that EBL has effectively utilized the owners’ capital and able to give regular & significant return
to them. Higher CV of the ratios in BOK signifies that the lesser uniformity in the ratio or the ratios were far
from the mean ratios. If bank earns high profit, it will increase its goodwill in competitive market and it can
gives attractive dividend to shareholders. This can be also shown in following figure-4.12;-

FIGURE-12

60.00%

50.00%

40.00%

30.00% BOK
EBL
20.00%

10.00%

0.00%
2065/662066/672067/682068/692069/70 Mean CV

4.1.3.3 Return on Total Deposits

Return on Total Deposits shows the relation of net profit earned by bank with the total deposits accomplished. It
is calculated as;
Net Profit After Tax(NPAT)
Return on Total Deposit =
Total Deposit

Table4.13
Return on Total Deposits
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 1.88% 1.92% 2.25% 2.26% 2.18% 2.10% 9.13%

BOK 2.28% 2.55% 2.51% 2.88% 2.43% 2.53% 20.16%

Source; Appendix;-13

Table 4.13 clearly shows Return on Total deposits of EBL were 1.88%, 1.92%, 2.25%, 2.26%
and 2.18 respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared

71
2.10% and whereas CV appeared 9.13%. Similarly, the ratios of BOK were 2.28%, 2.55%, 2.51%, 2.88% and
2.43% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared 2.53%
and whereas CV appeared 20.16%.
The Return on total deposit ratio of EBL is increasing trend but decrease in the FY 2069/70. Return on
total deposit ratio of BOK is fluctuating during the study period. The higher mean ratio of BOK is represented
higher profitability position or (return on deposit) compare than EBL. If bank earns high percentage of profit on
deposit, it will increase its goodwill in competitive market, but EBL is better from the Point of view CV of the
ratio because it is more equitable and less variable. This can be also shown in following figure-4.13;-
FIGURE-13

35.00%

30.00%

25.00%

20.00%
BOK
15.00%
EBL
10.00%

5.00%

0.00%
2065/662066/672067/682068/692069/70 Mean CV

4.1.4 Capital Structure/ Leverage/ Solvency Ratios

The leverage ratios are calculated to judge the long term financial position of a firm.
These ratios measure the enterprise’s ability to pay the interest regularly and to repay the principal on maturity.
Leverage refers to the ratio of debt to total equity in the capital structure of the firm. Debt and equity are long-
term obligation and remaining part of the liabilities side of Balance Sheet are term as short-term obligation.
Both types of obligations are required in forming capital structure of firm. The appropriate mixed of all types of
structure in capital structure result sound position of firm. Therefore a firm has strong short-term liabilities as
well as long-term financial position. Long-term financial position of the firm is determined by leverage or
capital structure. So, leverage ratios have been analyzed and interpreted to judge the long-term financial health
of the sampled banks. These include debt-equity ratio, debt-assets ratio, debt to total capital ratio and interest
coverage ratio.
4.1.4.1 Debt-Equity Ratio
The relationship between long term debt and owner’s equity is known as Debt-Equity Ratio. It is a
popular measure of the long term financial solvency of a firm. It is calculated as follows:
Total Debt
Debt-Equity Ratio =
Shareholder's Equity

72
 Table4.14
Debt-Equity Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 940.82% 949.08% 830.75% 799.15% 757.29% 855.42% 8.97%

BOK 774.68% 664.46% 606.10% 568.62% 531.54% 629.08% 13.52%

Source; Appendix;-14
Table 4.14 clearly shows Debt-Equity Ratio of EBL were 940.82%, 949.08%, 830.75%, 799.15% and
757.29% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared
855.42% and whereas CV appeared 8.97%. Similarly, the ratios of BOK were 774.68%, 664.46%, 606.10%,
568.62% and 531.54% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios
appeared 629.08% and whereas CV appeared 13.52%.
EBL have higher mean ratio of Debt-Equity ratio, compare than BOK. A high ratio shows the
large share of financing by the creditors as compared to that of owners. High ratio is more risky than low ratio.
Higher ratio shows that more of the funds invested in the business are provided by the outsider. So in compare
BOK is better than EBL, because BOK has low Debt-Equity ratio. But EBL is better from the Point of view CV
of the ratio because it is more equitable and less variable. This can be also shown in following figure-4.14;-
FIGURE-14

2000.00%
1800.00%
1600.00%
1400.00%
1200.00%
1000.00%
800.00% BOK
600.00%
400.00% EBL
200.00%
0.00%

4.1.4.2 Debt Assets Ratio

The ratio shows the contribution of creditors in financing the assets of the bank. It is calculated as;
Total Debt
Debt-Asset Ratio =
Total Assets

Table4.15
Debt-Assets Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 71.46% 62.26% 60.93% 63.79% 57.10% 63.11% 7.49%

BOK 60.10% 58.97% 58.31% 61.16% 56.00% 58.91% 2.96%

Source; Appendix;-15
Table 4.15 clearly shows Debt-Assets Ratio of EBL for the study period-remained 71.46%, 62.26%,
60.93%, 63.79% and 57.10% respectively from FY 2065/66 to FY 2069/70. Mean of the ratios appeared 63.11%
and whereas CV appeared 7.49%. Similarly, the ratios of SBI were 60.10%, 58.97%, 58.31%, 61.16% and
56.00% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the ratios appeared
58.91% and whereas CV appeared 2.96%.

73
 The Debt-Assets Ratio of the bank is fluctuating trend during the study period. Higher mean Debt-
Equity ratio of EBL indicates that the greater portion of the bank’s assets has been financed through outsider’s
fund. From the CV analysis, it can be noticed that the ratios of BOK varied considerably throughout the review
period. This can be also shown in following figure-4.15;-
FIGURE-15

140.00%
120.00%
100.00%
80.00%
60.00% BOK
40.00% EBL
20.00%
0.00%

4.1.4.3 Interest Coverage Ratio

This ratio indicates the ability of a firm to pay interest charges on its borrowed capital. It is also called
“Debt service ratio” or “Time interest earned ratio”. It shows the number of times the interest charged are
covered by fund that ordinary available for their payment. It is calculated by dividing the EBIT by interest
charged.
Earning Before Interest & Tax(EBIT)
Interest Coverage Ratio=
Interest Changed

Table4.16
Interest Coverage Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 204.12% 243.28% 175.53% 152.47% 154.22% 185.92% 18.40%
BOK 225.50% 217.43% 180.70% 170.98% 158.98% 190.72% 13.71%
Source; Appendix;-16

Table 4.16 clearly shows Interest Coverage Ratio of EBL for the study period-remained 204.12%,
243.28%, 175.53%, 152.47% and 154.22% respectively from FY 2065/66 to FY 2069/70. Mean of the ratios
appeared 185.92% and whereas CV appeared 18.40%. Similarly, the ratios of BOK were 225.50%, 217.43%,
180.70%, 170.98% and 158.98% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of
the ratios appeared 190.72% and whereas CV appeared 13.71%.
Interest Coverage Ratio of EBL for the study period was fluctuating trend. Interest Coverage Ratio of
BOK for the study period was in decreasing trend. A high ratio is a sign of low burden of borrowing capacity.
So creditors are interested to invest who have high ratio of Interest Coverage. So BOK is better than EBL,
because BOK have greater Interest Coverage Ratio. From the CV analysis, it can be noticed that the ratios of
BOK varied considerably throughout the review period. This can be also shown in following figure-4.16;-

74
 Figure-4.16

250.00%

200.00%

150.00%

EBL
100.00%
BOK
50.00%

0.00%

4.1.5 Capital Adequacy Ratios

Capital adequacy Ratio measures whether the firm has maintained sufficient capital or not. In other
words, it helps to decide whether the existing capital is adequate or there is the not need of reforms. The ratio is
tested to ensure the safety and stability of the firm in long run.

Over capitalization and under capitalization both have adverse effect on profitability of the firm. If the
capital is excess, it remains idle. If the capital is insufficient, the firm may not be able to grasp the opportunity
from potential profitable sectors. Therefore, the commercial banks have been directed to retain sufficient ratio
by the central bank. As per the directive, this ratio should be 8 % of their total risk weighted assets and total off
balance sheet transitions. Here, capital fund refers to the core capital and supplementary capital. Commercial
banks cannot declare and distribute dividend until they meet capital adequacy ratio.

4.1.5.1 Net Worth to Total Deposits Ratio

The ratio measures the percentage of shareholders’ fund in relation to the total deposits collected in the
bank. It is the yardstick to see whether the bank has maintained the capital fund according to the direction of
Nepal Rastra Bank. It is calculated as;
Net Worth
Net worth to Total Deposit =
Total Deposit

Table4.17
Net Worth to Total Deposits Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 8.60% 7.27% 8.22% 8.97% 8.41% 8.29% 7.73%

BOK 8.68% 10.06% 11.08% 12.67% 12.18% 10.93% 13.22%

Source; Appendix;-17
Table 4.17 clearly shows Net worth to Total Deposit Ratio of EBL for the study period-remained
8.60%, 7.27%, 8.22%, 8.97% and 4.41% respectively from FY 2065/66 to FY 2069/70 of corresponding years.
Mean of the ratios appeared 8.29% and whereas CV appeared 7.73%. Similarly, the ratios of BOK were 8.68%,

75
10.06%, 11.08%, 12.67% and 12.18% respectively from FY 2065/66 to FY 2069/70 of corresponding years.
Mean of the ratios appeared 10.93% and whereas CV appeared 13.22%.
Net worth to Total Deposit ratio of EBL for the study period was fluctuating trend. Net worth to Total
Deposit ratio of BOK for the study period was in increasing trend during the study period but decrease in the
last FY 2068/69. Average ratio of BOK appeared higher than that of EBL, which means the
former is better with respect to the capacity adequacy position. Higher CV of the ratios of
BOK shows less consistency in the maintaining net worth with respect to deposits. This can be
also shown in following figure-4.17;-
Figure-4.17

14.00%

12.00%

10.00%

8.00%

6.00% EBL

4.00% BOK

2.00%

0.00%

4.1.5.2 Net Worth to Total Assets Ratio

The ratio measures the percentage of net worth in relation to the total assets owned by the banks. It is
calculated as;
Net Worth
Net Worth to Total Assets Ratio =
Total Assets

Table4.18
Net Worth to Total Assets Ratio
FY 2065/66 2066/67 2067/68 2068/6 2069/7 Mean CV
9 0
EBL 7.60% 6.56% 7.33% 7.98% 7.54% 7.40% 8.36%
BOK 7.76% 8.87% 9.62% 10.76% 10.54% 9.51% 12.71%
Source; Appendix;-18
Table 4.18 clearly shows Net Worth to Total Assets Ratio of EBL for the study period-remained
7.60%, 6.56%, 7.33%, 7.98% and 7.54% respectively from FY 2065/66 to FY 2069/70 of corresponding years.
Mean of the ratios appeared 7.40% and whereas CV appeared 8.36%. Similarly, the ratios of BOK were 7.76%,
8.87%, 9.62%, 10.76% and 10.54% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean
of the ratios appeared 9.51% and whereas CV appeared 12.71%.

76
 Mean ratio BOK seemed higher than that of EBL, which indicates that net worth in it has covered
comparatively greater portion of total assets. In other words, BOK is superior to EBL to check the possible risk
that might arise due to high leverage. Higher CV of the ratios of BOK shows less consistency in the
maintaining net worth with respect to Total Assets ratio. This can be also shown in following figure-
4.18;-
Figure-4.18

14.00%
12.00%
10.00%
8.00%
6.00% EBL
4.00%
2.00% BOK
0.00%

4.1.5.3 Net Worth to Total Credit Ratio

The ratio is obtained when net worth is divided by the total credit of the bank. It measures the relative
proportion of the shareholders fund with respect to the credit. High ratio shows that the firm has adequate
capital, which is the index of safety. Moreover, a bank with higher ratio is less affected by the instability of the
financial market.

Net Worth
Net Worth to Total Credit Ratio=
Total Credit

Table- 4.19

Net Worth to Total Credits Ratio

FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 10.63% 10.54% 12.04% 12.51% 13.20% 11.78% 9.07%
BOK 12.91% 15.05% 16.50% 17.59% 18.81% 16.17% 12.71%
Source; Appendix;-19

Table 4.19 clearly shows Net Worth to Total Credit Ratio of HBL for the study period-remained
10.63%, 10.54%, 12.04%, 12.51% and 13.20% respectively from FY 2065/66 to FY 2069/70 of corresponding
years. Mean of the ratios appeared 11.78% and whereas CV appeared 9.07%. Similarly, the ratios of BOK were
12.91%, 15.05%, 16.50%, 17.59% and 18.81% respectively from FY 2065/66 to FY 2069/70 of corresponding
years. Mean of the ratios appeared 16.17% and whereas CV appeared 12.71%.
The ratio of BOK was increasing every year through the review period. The ratio of EBL was
increasing trend after the FY 2066/67. Mean ratio of BOK was higher than EBL. High ratio shows that the firm
has adequate capital, which is the index of safety. Banks are equal in capital adequacy position. But uniformity

77
in maintaining the ratio different year seems higher in EBL as per lower CV. This can be also shown in
following figure-19;
Figure-4.19

35.00%
30.00%
25.00%
20.00%
BOK
15.00%
10.00% EBL
5.00%
0.00%
2065/662066/672067/682068/692069/70 Mean CV

In totality, capital adequacy position of BOK appeared stronger than EBL. In this sense, BOK
bank is successful to reassure creditors and depositors about its soundness. Similarly, the banks differ
significantly with respect to capital adequacy position.

4.1.6 Assets quality ratios

Assets quality ratios intend to measure the quality of assets owned by the banks, these include loan loss
coverage ratio, loan loss provision to total income ratio, loan loss provision to total deposit ratio and accrued
interest to total interest income ratio.

4.1.6.1 Loan Loss Coverage Ratio

Nepal Rastra Bank has directed Commercial banks to maintain provision for loan loss on the basis of
category of loan & risk grade. The ratio therefore measures whether the provision is sufficient to meet the
possible loss created by defaulted in payment of loan or not. It is computed by dividing loan loss provision by
total risk assets.

Loan loss provision

Loan loss coverage ratio =
Total risk assets

Table4.20
Loan Loss Coverage Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 2.71% 2.45% 2.18% 1.95% 1.97% 2.25% 17.11%

BOK 2.29% 2.04% 2.28% 2.80% 2.69% 2.42% 20.91%

Source; Appendix;-20
Table 4.20 clearly shows Loan Loss Coverage Ratio of EBL for the study period-remained 2.71%,
2.45%, 2.18%, 1.95% and 1.97% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of

78
the ratios appeared 2.25% and whereas CV appeared 17.11%. Similarly, the ratios of BOK were 2.29%, 2.04%,
2.28%, 2.80% and 2.69% respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the
ratios appeared 2.42% and whereas CV appeared 20.91%.

The ratio of the EBL was in decreasing trend but increase in FY 2068/69. The ratio of BOK was
fluctuating trend during the study period. Mean ratio of EBL was lower than BOK. It indicates that EBL has
been more successful to foresee the quality of loans lent. Conversely, the asset possessed by BOK has higher
degree of risk as compared to EBL. That’s why, the former bank has maintained comparatively higher ratio to
prevent itself from possible default in payment by borrowers. CV of the ratios seemed less in EBL, which
reveals that consistency in the ratios greater in EBL. This can be also shown in following figure-20;

Figure-4.20

25.00%
20.00%
15.00%
EBL
10.00%
5.00% BOK
0.00%
2065/662066/672067/682068/692069/70 Mean CV

4.1.6.2 Loan Loss Provision to Total Income Ratio

The ratio shows that portion of total income has been held as safety cushion against the possible bad
loan. It is calculated as;

Loan Loss Provision

Loan Loss Provision to Total Income Ratio =
Total Income

Table4.21
Loan Loss Provision to Total Income Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 26.64% 22.75% 16.68% 12.62% 12.47% 18.23% 30.88%

BOK 21.23% 17.58% 16.56% 17.42% 16.29% 17.82% 10.02%

Source; Appendix;-21

Table 4.21 clearly shows Loan Loss Provision to Total Income Ratio of EBL for the study period-
remained 26.64%, 22.75%, 16.68%, 12.62% and 12.47% respectively from FY 2065/66 to FY 2069/70 of
corresponding years. Mean of the ratios appeared 18.23% and whereas CV appeared 30.88%. Similarly, the
ratios of BOK were 21.23%, 17.58%, 16.56%, 17.42% and 16.29% respectively from FY 2065/66 to FY
2069/70 of corresponding years. Mean of the ratios appeared 17.82% and whereas CV appeared 10.02%.

79
 Mean ratio of the banks are slightly difference. The ratio of EBL was higher than BOK, which
indicates that EBL held comparatively greater position of risky assets. Moreover, EBL has been forced to retain
greater portion of its income idle as the cushion against loans of inferior quality. CV analysis signifies that the
ratios of BOK remained less uniform through the period of study. This can be also shown in following figure-
21.

Figure-4.21

35.00%

30.00%

25.00%

20.00%
EBL
15.00%
BOK
10.00%

5.00%

0.00%
2065/662066/672067/682068/692069/70 Mean CV

4.1.6.3 Loan Loss Provision to Total Deposit Ratio

The ratio shows the proportion of banks income held as loan loss provision in relation to total deposits
collected. It is calculated as;
Loan Loss Provision
Loan Loss Provision to Total Deposits Ratio =
Total Deposits

Table4.22
Loan Loss Provision to Total Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 2.07% 1.76% 1.62% 1.47% 1.41% 1.67% 24.54%

BOK 1.80% 1.65% 1.87% 2.33% 2.02% 1.93% 12.42%

Source; Appendix;-22

Table 4.22 clearly shows Loan Loss Provision to Total Deposit Ratio of EBL for the study period-
remained 2.07%, 1.76%, 1.62%, 1.47% and 1.41% respectively from FY 2065/66 to FY 2069/70 of
corresponding years. Mean of the ratios appeared 1.67% and whereas CV appeared 24.54%. Similarly, the ratios
of BOK were 1.80%, 1.65%, 1.87%, 2.33% and 2.02% respectively from FY 2065/66 to FY 2069/70 of
corresponding years. Mean of the ratios appeared 1.93% and whereas CV appeared 12.42%.

80
 Average ratio in BOK exceeded that EBL, which means assets owned by EBL, IS superior to that of
BOK. In other words, BOK has lent greater portion of its loans in riskier sector. Lower CV of BOK means that
the consistency in the loan loss provision with respect to the deposits was higher in BOK. This can be also
shown in following figure-4.22:

Figure-4.22

30.00%
25.00%
20.00%
15.00% EBL
10.00% BOK
5.00%
0.00%
2065/662066/672067/682068/692069/70 Mean CV

1.7 Other Indicators

Above stated ratio shows light on various aspect of the banks management, investment & creditors can
get information regarding their investment. Besides the above-analyzed ratios, some indicators have been tested
to have the boarder knowledge of financial performance of the banks. For this, EPS, P/E ratio and MVPS to
BVPS have been analyzed.
4.1.7.1 Earning Per Share (EPS)
EPS refers to the income available to the common shareholder on per share basis. It is computed as;
Earning Available Common Shareholder (EAC)
Earnings per Share=
No. of Equity Share Outstanding

Table4.23
Earning Per Share (EPS)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 91.82 99.99 100.16 83.18 88.55 92.74 7.11%

BOK 59.94 54.68 43.08 44.51 37.88 48.02 16.81%

Source; Appendix;-23

Table 4.23 clearly shows Earning per Share (EPS) of EBL for the study period-remained 91.82, 99.99,
100.16, 83.18 and 88.55times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the
ratios appeared 92.74times and whereas CV appeared 7.11%. Similarly, the ratios of BOK were 59.94, 54.68,
43.08, 44.51 and 37.88times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean of the
ratios appeared 48.02times and whereas CV appeared 16.81%.

81
 The ratio of EBL fluctuated through the review period. The ratio of BOK was decreasing trend but
increase in FY 2068/69. Mean ratio is also highly difference in banks. EBL have high mean ratio, EBL seems
more successful to attract the investors. Uniformity in maintaining the ratio different year seems higher in EBL
as per lower CV. This can be also shown in following figure-23;

Figure-4.23

180
160
140
120
100
BOK
80
EBL
60
40
20
0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.7.2 Price-Earnings Ratio (P/E ratio)

P/E ratio s widely used to evaluate the banks performance as expected by investors. It represents the
investor’s judgment or expectation about the growth in banks earning. In other words, it measures how the
market is responding toward the earning performance of the concerned banks. It is obtained as;

Market Value Per Share (MVPS)

Price-Earnings Ratio =
Earning Per Share (EPS)

Table4.24
Price-Earnings Ratio (P/E ratio)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 34.11 24.55 16.27 13.15 11.67 19.95 41.94%

BOK 39.21 33.38 19.50 12.81 16.58 24.29 41.95%

Source; Appendix;-24
Table 4.24 clearly shows Price-Earnings Ratio (P/E ratio) of EBL for the study period-remained 34.11,
24.55, 16.27, 13.15 and 11.67times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean
of the ratios appeared 19.95times and whereas CV appeared 41.94%. Similarly, the ratios of BOK were 39.21,
33.38, 19.50, 12.81 and 16.58times respectively from FY 2065/66 to FY 2069/70 of corresponding years. Mean
of the ratios appeared 24.29times and whereas CV appeared 41.95%.

82
 The ratio of EBL and BOK were decreasing trend during the study period, but ratio of BOK increase in
FY 2069/70. BOK have high mean ratio it indicates that the investors are well satisfied with the performance of
the bank or market has positively judged the performance of BOK bank. CV of the banks slightly difference, but
uniformity in maintaining the ratio different year seems higher in EBL as per lower CV. This can be also shown
in following figure-24;

Figure-4.24

80
70
60
50
40 BOK
30 EBL
20
10
0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.7.3 Market Value per Share to Book Value per Share (MVPS/BVPS)
The ratio measures the value that the financial market attaches to the management and organization of
the banks as a growing concern. It is calculated as;
Market Value Per Share (MVPS)
Market Value per Share to Book Value per Share =
Book Value Per Share (BVPS)

Table4.25
Market Value per Share to Book Value per Share (MVPS/BVPS)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 9.73 7.12 4.91 4.14 3.17 5.81 40.42%

BOK 10.56 8.85 4.79 3.18 3.73 6.22 47.26%

Source; Appendix;-25
Table 4.25 clearly shows Market Value per Share to Book Value per Share (MVPS/BVPS) of EBL for
the study period-remained 9.73, 7.12, 4.91, 4.14 and 3.17times respectively from FY 2065/66 to FY 2069/70 of
corresponding years. Mean of the ratios appeared 5.81times and whereas CV appeared 40.42%. Similarly, the
ratios of BOK were 10.56, 8.85, 4.79, 3.18 and 3.73times respectively from FY 2065/66 to FY 2069/70 of
corresponding years. Mean of the ratios appeared 6.22times and whereas CV appeared 47.26%.

The ratio of EBL and BOK were decreasing trend during the study period, but ratio of BOK increase in
FY 2069/70. BOK have higher mean ratio, which indicates comparatively stronger management and
organization BOK than EBL. CV of the indicators came less in EBL, which means the indicators, varied less
over the period of study. This can be also shown in following figure-25;

Figure-4.25

83
 12

10

6 EBL
BOK
4

0
2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV

4.1.7.4 Total Interest Expenses to Total Interest Income Ratio

The ratio shows the percentage of interest expenses incurred in relation to the interest income incurred.
In other words, it indicates the how much percent of interest income is used as interest paid and expressed as;
Total Interest Expenses
Total Interest Expenses to Total Interest Income Ratio =
Total Interest Income

Table4.26
Total Interest Expenses to Total Interest Income Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 40.85% 46.32% 50.70% 58.55% 57.93% 50.87% 13.33%

BOK 40.38% 41.78% 48.26% 51.06% 56.64% 47.63% 12.63%

Source; Appendix;-26
Table 4.26 clearly shows Total Interest Expenses to Total Interest Income Ratio of EBL for the study
period-remained 40.85%, 46.32%, 50.70%, 58.55% and 57.93% respectively from FY 2065/66 to FY 2069/70
of corresponding years. Mean of the ratios appeared 50.87% and whereas CV appeared 13.33%. Similarly, the
ratios of BOK were 40.38%, 41.78%, 48.26%, 51.06% and 56.64% respectively from FY 2065/66 to FY
2069/70 of corresponding years. Mean of the ratios appeared 47.63% and whereas CV appeared 12.63%.
The ratio of EBL and BOK were increasing trend during the study period, but ratio of EBL decrease in
FY 2069/70. Lower average mean ratio in BOK indicates better profitability position as compared to EBL.
Overall picture shows that BOK is more successful in allocating the interest bearing debt in profitable sectors.
CV of the ratios appeared greater in EBL, which means that its ratios were less uniform throughout the review
period. This can be also shown in following figure-26;

84
 Figure-4.26

70.00%
60.00%
50.00%
40.00%
EBL
30.00%
20.00% BOK
10.00%
0.00%
2065/662066/672067/682068/692069/70 Mean CV

4.2. Correlation Analysis

Correlation coefficient is the statistical tools that can be describe to which one variable is linearly
related to another the coefficient of correlation measures the degree of relationship between two sets of figures.
Among the various methods of finding out coefficient of correlation, Karl Pearson’s Method is applied in the
study. It is the most common and useful tool to measure the relationship between two variables in the bank. The
correlation coefficient(r) between two variables X and Y can be obtained by using following formula:

Where,

n = number of observation in series X and Y

ΣX= Sum of observations in series X
ΣY= Sum of observation in series Y
ΣX2= Sum of squared observations in series X
ΣY2= Sum of squared observations in series Y
ΣXY= Sum of the product of observations in series X and Y

Here,
r =1 implies that two variables are positively and perfectly correlated.
r = -1 implies that two variables are negatively perfectly correlated.
r = 0, does not necessarily mean that the variables are independent. They may, however be related in some other
form such as quadratic, logarithm or exponential.

Under the correlation analysis, the intensity of linear relation between the following variables has been
measured:
 Total Deposit and Loans and Advances
 Total Deposit and Net Profit
 Loans and Advances and Net Profit
 Total Deposit and Investment

85
4.2.1 Correlation Analysis between Total Deposit and Loans and Advances
The correlation coefficient between total deposits and loan and advances to measure the relationship
between major financial sources i.e. total deposits and major component of income generating assets i.e. loans
and advances. In Correlation Analysis, deposit is the independent variable (X) and loan and advances is
dependent variable (Y). The purpose of computing the coefficient of correlation is to justify whether the
deposits are significant used in loan and advances or not and whether there is any relationship between these
two variables.
Table4.27

Correlation Analysis between Total Deposit and Loans and Advances

Banks rxy PE® 6PE® Condition
EBL 0.99496 0.003033 0.018199 rxy>6PEr
BOK 0.967016 0.019571 0.117426 rxy>6PEr
Source; Appendix;-27

Table 4.27 depicts that the coefficient of correlation between the total deposits and loans and advances
in EBL remained 0.99496 whereas the probable error of coefficient remained 0.003033. Correlation coefficient
appeared greater than six times the probable error i.e. rxy > 6PE(r): 0.99496>0.018199. It signifies that deposits
and loans and advances of the bank are positively correlated at significant. The bank may raise the volume of
loans and advances with rise in the volume of total deposit.
On the other hand, coefficient of correlation between the total deposits and loans and advances in BOK
remained 0.967016 whereas the probable error of coefficient remained 0.019571. Correlation coefficient
appeared greater than six times the probable error i.e. rxy > 6PE(r): 0.967016>0.117426. It signifies that deposits
and loans and advances of the bank are positively correlated at significant. The bank may raise the volume of
loans and advances with rise in the volume of total deposit.
From above table analysis, high degree of correlation seems to occur between loans and advances and
total deposit in banks. Banks seems to increase or decrease the investment in loans and advances portfolio with
the increase or decrease in the deposit. In other words, banks have utilized its total deposits on loan and
advances effectively. But higher value of r in EBL shows better relationship as well as utilization of deposits on
loans and advances than BOK.

4.2.2 Correlation Analysis between Total Deposit and Net Profit

Coefficient of correlation between total deposits and net profit measures the degree of relationship
between total deposits and net profit. In Correlation Analysis deposit is the independent variable (X) and net
profit is dependent variable (Y). The purpose of computing the coefficient of correlation is to justify whether the
banks significantly utilization of deposits for income generating purpose or not and whether there is any
relationship between these two variables. To find out the correlation (r) various calculations are done.
Table4.28

Correlation Analysis between Total Deposit and Net Profit

Banks rxy PE® 6PE® Condition
EBL 0.98496 0.009005 0.054031 rxy>6PEr

86
 BOK 0.910971 0.051319 0.307915 rxy>6PEr
Source; Appendix;-28

Table 4.28 shows the coefficient of correlation and probable error of the correlation coefficient
between total deposit and net profit in EBL remained 0.98496 and 0.009005 in the review of period
respectively. Correlation coefficient came greater than six times the probable error i.e. 0.98496>0.054031. It
implies that total deposits and net profit in the bank are highly positively correlated at significant. In other
words, net profit of the bank increases almost to the same degree with increase in the amount of deposit.
Similarly, depicts that the coefficient of correlation and probable error of the coefficient between the
same variables in BOK were 0.910971 and 0.051319 respectively. Correlation coefficient came greater than six
times the probable error i.e. 0.910971>0.307915. It implies that total deposits and net profit in the bank are
highly positively correlated at significant. In other words, net profit of the bank increases almost to the same
degree with increase in the amount of deposit.
Between the banks, EBL seems more efficient regarding the utilization of the deposit for income
generating purpose as reveals by greater coefficient of correlation in EBL. In the review of period, net profit of
EBL seemed increase in the line with increase in deposit. That’s why; it retains the potentiality of increasing net
profit by accumulating more deposits.

4.2.3 Correlation Analysis between Loans and Advances and Net Profit
The basis function of commercial banks to collect deposits and used these funds on loan and advances
to generate higher profit. Large amount of Loan and advances generate higher profit. Correlation coefficient
between loans and net profit measures the degree of relationship between loan and advances and net profit. In
Correlation Analysis, loans and advances is the independent variable (X) and net profit is dependent variable
(Y). The purpose of computing the coefficient of correlation is to justify whether the banks loans and advances
are significantly generate profit or not and whether there is any relationship between two variables. To find out
the correlation (r) various calculations are done.
Table4.29

Correlation Analysis between Loans and Advances and Net Profit

Banks rxy PE® 6PE® Condition
EBL 0.995996 0.002411 0.014463 rxy>6PEr
BOK 0.972092 0.016602 0.099611 rxy>6PEr
Source; Appendix;-29

Table 4.29 highlights that the coefficient of correlation and probable error of the coefficient between
Loan and advances and net profit of EBL were remained 0.995996 and 0.002411 respectively. Correlation
coefficient came greater than six times the probable error i.e. 0.995996>0.014463. The result indicates that the
correlation between loans and advances and net profit in the bank highly positively correlated and significant.
Similarly, Table 4.29 depicts that the coefficient of correlation and probable error of the coefficient
between Loan and advances and net profit in BOK were 0.972092 and 0.016602 respectively. Correlation
coefficient came greater than six times the probable error i.e. 0.972092>0.099611. The result indicates that the
correlation between loans and advances and net profit in the bank highly positively correlated and significant.

87
 Between the banks, EBL seems more efficient regarding the utilization of the Loan and advances for
income generating purpose as reveals by greater coefficient of correlation in EBL. In the review of period, net
profit of EBL seemed increase in the line with increase in deposit. That’s why; it retains the potentiality of
increasing net profit by accumulating more Loan and advances.
4.2.4 Correlation Analysis between Total Deposit and Investment
The correlation coefficient between total deposits and Investment measure the relationship between
total deposits and Investment. In Correlation Analysis, deposit is the independent variable (X) and Investment is
dependent variable (Y). The purpose of computing the coefficient of correlation is to justify whether the
deposits are significant used in loan and advances or not and whether there is any relationship between these
two variables.

Table4.30

Correlation Analysis between Total Deposit and Investment

Banks rxy PE® 6PE® Condition
EBL 0.813511 0.102016 0.612099 rxy>6PEr
BOK 0.874788 0.07081 0.424861 rxy>6PEr
Source; Appendix;-30

Table 4.30 depicts that the coefficient of correlation between the total deposits and investment in EBL
remained 0.813511 whereas the probable error of coefficient remained 0.102016. Correlation coefficient
appeared greater than six times the probable error i.e. r xy > 6PE(r): 0.813511>0.612099. It signifies that deposits
and investment of the bank are highly positively correlated at significant. The bank may raise the volume of
investment with rise in the volume of total deposit.
On the other hand, coefficient of correlation between the total deposits and investment in BOK
remained 0.874788 whereas the probable error of coefficient remained 0.07081. Correlation coefficient
appeared greater than six times the probable error i.e. r xy > 6PE(r): 0.874788>0.424861. It signifies that deposits
and investment of the bank are highly positively correlated at significant. The bank may raise the volume of
investment with rise in the volume of total deposit.
From above table analysis, high degree of correlation seems to occur between total deposit and
investment in banks. Banks seems to increase or decrease the investment portfolio with the increase or decrease
in the deposit. But higher value of r in BOK shows better relationship as well as utilization of deposits on
investment than EBL.

4.3 Trend Analysis

Trend analysis is very useful to predict the future events on the basis of the past tendencies. This
method is based on the assumption that past tendency continues in the future. The future trend of any variable is
forecasted using the equation,
Yc= a + bX

88
 Where,

Yc=The dependent variable

a= Y-intercept
b= The slope of the trend line
X= Year-2065/66 (with regard to the data used in the study)

The normal equations on fitting the trend equation are:

Y=Na + bΣX

With the help of the trend equation, future values of the following variables for coming five years have
been predicted:

 Total Deposits
 Loan and Advances
 Net Profit
 Net Worth
4.3.1 Trend Analysis of Total Deposits;-

Table4.31
Forecasted value of Total Deposit (in '000')

Banks A b y= a+bx
EBL 37,073,113.80 5,986,457.00 37073113.8+5986457x
BOK 20,048,683.60 2,124,985.90 20048683.6+2124985.9x
Source; Appendix;-31

Table 31 shows the trend value formula of Total deposit of the banks. Expected Total Deposit of the
banks are in increasing trend for following five FY (2070/71 to 2074/75). Expected Total Deposit of the banks
are as follow;-

Forecasted value of Total Deposit (in '000')

FY EBL BOK
2070/71 55,032,484.80 26,423,641.30
2071/72 61,018,941.80 28,548,627.20
2072/73 67,005,398.80 30,673,613.10
2073/74 72,991,855.80 32,798,599.00
2074/75 78,978,312.80 34,923,584.90

89
4.3.2 Trend Analysis of Loans and Advances;-
Table4.32
Forecasted value of Loan And Advanced (in '000')

Banks a b y= a+bx
EBL 27,349,756.40 4,231,679.50 27349756.4+4231679.5x
16,011,399.40 1,552,349.50 16011399.4+1552349.5x
BOK
Source; Appendix;-32

Table 32 shows the trend value formula of Loan and Advance of the banks. Expected Total Deposit of
the banks are in increasing trend for following five FY (2070/71 to 2074/75). Expected Loan and Advance of
the banks are as follow;-
Forecasted value of Loan And Advanced (in '000')
FY EBL BOK
2070/71 40,044,794.90 20,668,447.90
2071/72 44,276,474.40 22,220,797.40
2072/73 48,508,153.90 23,773,146.90
2073/74 52,739,833.40 25,325,496.40
2074/75 56,971,512.90 26,877,845.90

4.3.3 Trend Analysis of Net Profit

Table4.33
Forecasted value of Net profit (in '000')
Banks a b y= a+bx
EBL 788,717.20 157,126.10 788717.2+157126.1x
63,574.70
BOK 509,061.80 509061.8+63574.7x
Source; Appendix;-33

Table 33 shows the trend value formula of Net Profit of the banks. Expected Net Profit of the banks are
in increasing trend for following five FY (2070/71 to 2074/75). Expected Net Profit of the banks are as follow;-

Forecasted value of Net profit (in '000')

FY EBL BOK
2070/71 1,260,095.50 699,785.90
2071/72 1,417,221.60 763,360.60
2072/73 1,574,347.70 826,935.30
2073/74 1,731,473.80 890,510.00
2074/75 1,888,599.90 954,084.70

4.3.4 Trend Analysis of Net Worth

Table4.34
Forecasted value of Net Worth (in '000')
Banks a b y= a+bx

90
 EBL 3,083,503.00 556,058.00 3083503+556058x

BOK 2,230,081.60 417,992.90 2230081.6+417992.9x

Source; Appendix;-34
Table 34 shows the trend value formula of Net Worth of the banks. Expected Net Worth of the banks
are in increasing trend for following five FY (2070/71 to 2074/75). Expected Net Worth of the banks are as
follow;-

Forecasted value of Net Worth (in '000')

FY EBL BOK

2070/71 4,751,677.00 3,484,060.30

2071/72 5,307,735.00 3,902,053.20

2072/73 5,863,793.00 4,320,046.10

2073/74 6,419,851.00 4,738,039.00

2074/75 6,975,909.00 5,156,031.90

91
 CHAPTER V
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This is one of the essential chapters in the thesis writing. In this chapter, summary of previous chapters
are made. Similarly, conclusion of the study is given in the next part of the chapter. Necessary recommendations
are also made in the ending part of this chapter. Hence, this chapter does not possess less importance in
compassion with other chapters.
5.2 Summary

Commercial banks have played significant role in the economic development of the country. They have
introduced new technology in the banking system mobilized the saving of community. They have focused their
services on the commerce trade and industry along with general public. But the internal competition and lack of
sufficient Deposit have created threats to the banks. Therefore, the study has been conducted to evaluate the
performance of banks especially, that of EBL and BOK in order to find out their strengths and weakness. Null
hypothesis for the purpose of study is "there is no significant difference between the financial performance of
EBL and BOK bank ". To avoid the chances of duplication in the study and confirm whether the study is in
accordance with the principles and doctrines, supportive text and the previous dissertation have been reviewed
for analyzing the financial data of the sampled banks, the financial tools- ratio analysis, and the statistical tools-
mean, Correlation and CV have been used from the analysis and interpretation of the data. The following major
Findings have been derived from the analysis and interpretation of the data;-

 Current ratio of the banks showed slightly fluctuating trend. Banks could not maintain the
conventional standard on 2:1 However, the average of the ratios appeared higher in BOK.
This signifies that BOK is more capable of meeting immediate liabilities in contrast to
EBL. The ratio was found more consistent in EBL.
 Average cash and bank balance to Total Deposits ratio of EBL appeared greater than
BOK. It indicates that the solvency position of EBL is better than BOK. Conversely, EBL
seems less successful to utilize the fund raised from the Total Deposits that may
ultimately affect the profitability adversely. The ratio appeared more uniform in BOK.
 Average cash and bank balance to current and saving deposits ratio of EBL appeared
greater than BOK. It indicates that the solvency position of EBL is better than BOK.
Conversely, EBL seems less successful to utilize the fund raised from the current and
saving deposits that may ultimately affect the profitability adversely. The ratio appeared
more uniform in BOK.
 Average Fixed Deposit into Total Deposit Ratio of BOK appeared greater than EBL.
Greater portion of total deposit of BOK has been occupied by fixed deposit in contrast to
EBL. It can grasp the opportunity of investing the fund in more profitable sector like long
- term loans. The ratio appeared more uniform in BOK.
 NRB balance to current and saving deposit ratio is in fluctuating trend, standard set by NRB i.e. 8% in each
year of the review period of the banks. Average mean ratio of BOK under the standard set by NRB. Where
EBL maintained the standard.

92
 Average mean Loans and advance to Total Deposit ratio was higher in BOK which indicates that turnover
of Total Deposit in form of loans and advances is better in BOK. The ratio varied less in EBL bank.

 Average mean Loans and advances to saving ratio were higher in BOK, which indicates that turnover of
Saving Deposit in form of loans and advances is better in BOK. BOK was utilized it's Deposit better than
EBL. The ratio varied less in the same bank.

 Average mean Loans and advances to Fixed Deposit ratio were higher in BOK, which indicates that
turnover of Fixed Deposit in form of loans and advances is better in BOK. BOK was utilized it's Deposit
better than EBL. The ratio varied less in the EBL.

 Average mean Investment to Total Deposit ratio was higher in BOK which indicates that turnover of Total
Deposit in form of Investment is better in BOK. The ratio varied less in the BOK.

 Average return on assets in BOK was higher than in EBL. It implies that the profitability position of BOK
in the study period proved to be stronger.

 Return on net worth of EBL was better as compared to BOK. The ratio varied less in the same bank.

 Return as total deposit was considerably higher in BOK which signifies that BOK is more successful to
utilize deposit for making profit.

 Debt equity ratio of the banks depicted the employment of debt to the greater extent in their capital.
Comparatively capital structure of EBL seemed more levered i.e. more risky.

 Interest coverage ratio in the banks is satisfactory it is good in BOK. Ratio is highly difference in each year
in each bank.

 Net worth to total deposit ratio was greater in BOK than in EBL. It means that BOK is more successful to
build up confidence among creditors. But the ratio remained more consistent in EBL.

 Net worth to total credit ratio appeared slightly higher in BOK, which signifies that BOK, has used
significantly larger extent of net worth for credit creation.

 Loan loss coverage ratio of EBL over the period remained lesser which indicates those assets financed by
the bank are superior in contrast to BOK. The consistency in maintaining the quality of asset appeared
better in EBL

 With respect to loan loss provision to total income ratio, BOK seems more aware in quality while
advancing loans as the ratio is less in the bank. Portion of loan loss provision in total income varied less in
the same bank.

 Loan loss provision to total deposit ratio came to be less in EBL and hence it can be concluded that loan
loss advances granted by the bank is less risky. In the consistency of the ratios, EBL came to be better.

 With respect to Earnings per Share (EPS) EBL seems more aware than BOK. Earnings
per Share of EBL high than BOK.
 Price-Earnings average mean ratio was higher in BOK than EBL. But the ratio remained more consistent in
EBL.

93
 High degree of correlation seems to occur between loans and advances and total deposit
in the banks.
 Utilization of the deposit for income generating purpose as reveals by greater coefficient
of correlation in EBL.
 EBL seems more efficient regarding the utilization of the Loan and advances for income
generating purpose as reveals by greater coefficient of correlation in EBL.
 Correlation between deposits and investment of the bank (BOK) are highly positively
correlated at significant.
 Total Deposit, Net Profit, Loan and Advance and Net Worth of the banks are in
increasing trend for following five FY (2070/71 to 2074/75).

5.3 Conclusion
1. The current ratios of both banks could not maintain the conventional standard of 2:1. The banks may face
the problem of working capital if they need to pay the current liabilities at demand.
2. The quick ratios of both banks showed poor liquidity position because of quick ratios of every year were
below than standard form. It indicates that they have weak position of immediate payment of short-term
obligation (i.e. current liabilities) because current liabilities were greater than that of quick assets.
3. The mean ratio of Cash and Bank Balance to Total Deposit ratio of EBL appeared greater than BOK,
which means that EBL has greater ability to repay the deposits i.e. EBL is more efficient to serve the
customers from liquidity point of view.
4. As per direction of Nepal Rastra Bank, cash and bank balance to total deposit required ratio is 8%. Mean
ratio of EBL came higher than that of BOK, which means that EBL has greater ability to repay the
current & saving deposits i.e. EBL is more efficient to serve the customers from liquidity point of view.
5. Loans and Advances to Total Deposit Mean ratio of BOK appeared considerably higher than EBL, which
signifies that BOK is more successful in utilizing the resource in profitable sectors than EBL.
6. The Loans and Advances to Fixed Deposit Ratio of BOK varied to greater than EBL. In comparing the
saving deposits turnover ratio the fixed deposits turnover gives good performance of the banks.
7. Average mean ratio of Investment to Total Deposit Ratio has greater in BOK than EBL, which indicate
that BOK utilized more part of total deposit in Investment than EBL.
8. Overall profitability of BOK is better than EBL.
9. Return on Net worth Mean ratio of EBL appeared more than BOK, which indicates that EBL has
effectively utilized the owners’ capital and able to give regular & significant return to them.
10. Total Interest Expenses to Total Interest Income Ratio of banks were in satisfactory, but better in EBL.
11. EBL have higher mean ratio of Debt-Equity ratio, compare than BOK. A high ratio shows the large share
of financing by the creditors as compared to that of owners. High ratio is more risky than low ratio.
Higher ratio shows that more of the funds invested in the business are provided by the outsider.
12. Higher Debt-Assets Ratio in EBL indicates that the greater portion of the bank’s assets has been financed
through outsider’s fund.

94
 13. The Mean Loan Loss Coverage ratio of BOK was greater than EBL. It indicates that EBL have been
more successful to foresee the quality of loans lent.
14. Mean of the EPS was much higher in EBL in contrast to BOK, which indicates that the profitability
position of the former is far better than that of the latter. In this sense, EBL seems more successful to
attract the investors.

15. Price-Earnings Ratio (P/E ratio) responding toward the earning performance of the concerned banks.
Average mean ratio was higher in BOK than EBL. But the ratio remained more consistent in EBL.

16. Higher mean ratio of MVPS to BVPS ratio in BOK signifies strong management in BOK than EBL.
17. After trend analysis, Total Deposit, Net Profit, Loan and Advance and Net Worth of the banks are in
increasing trend for following five FY (2070/71 to 2074/75).
18. Correlation between deposits and investment of the bank (BOK) are highly positively
correlated at significant.
5.4 Recommendations
In the light of above facts and figures, the objective of present study is to find out to what extent these
banks have succeeded in realizing the stated objectives. Such in depth study will provide the basis for
evaluating financial success or failure and also suggest suitable measures to improve their operating
financial performance of EBL and BOK are listed below.
The banks could not maintain the conventional standard of liquidity and quick ratios. It indicates the
poor liquidity position in these banks. It may create the problem of working capital if they need to pay
the short-term obligation at demand. With the delay in payment of liabilities of banks may lose their
goodwill and may have the problem in winning the confidence of current depositors and short term
lenders. So, banks are recommended to maintain the adequate net working capital.
1. In average EBL bank have maintained NRB Balance to total deposit ratio, but in average EBL
remarkable higher than standard prescribed by NRB. BOK bank has not maintained average NRB
Balance to Current and Saving Deposit Ratio. But maintain in FY 2066/67 and 2069/70. The fund tied in
NRB balance cannot yield a good return. So the EBL is suggested to lower this ratio and invest the
surplus fund in other current assets such as loans and advances, bill purchase discount & money at call
and short notice. BOK is suggested to maintain the ratio as per NRB directives.
2. EBL have higher mean ratio of Debt-Equity ratio, compare than BOK. A high ratio shows the large
share of financing by the creditors as compared to that of owners. High ratio is more risky than low
ratio. Higher ratio shows that more of the funds invested in the business are provided by the outsider. So
EBL is suggested to increase Equity capital.
3. Average Debt-Assets mean ratio of EBL seemed higher than BOK, which indicates that net worth in it
has covered comparatively greater portion of total assets. In other words, EBL is superior to BOK to
check the possible risk that might arise due to high leverage.
4. The imbalance between the operating income and operating expenses has made banks less profitable. In
our analysis, the operating income and operating expenses of EBL is higher than BOK. So from the
view of operating profit in the EBL better than BOK in average. So every commercial bank should

95
 increase the operating income and cut down the unnecessary expenses by using modern banking
technology, computer networking, expert and well trained employees.
5. Introducing the latest and sophisticated banking system, developing the high motivational strength in
management and increasing turnovers etc are some of techniques to improve and increase the gap
between income and expenses.
6. The bank must collect more funds from current deposits, compared to other interest bearing deposits.
The banks must located and explore new technique and facilities for collection.
7. There should be continuous flow of financial information among various groups of employees. The goal
and objective of the banks should be carefully communicated to lower level of management.
8. A systematic approach of financial performance analysis should be made annually. This would
considerably contribute to increase the financial strength of banks. The banks should have debt analysis
of their financial strength and weakness. It should try to come out its weakness by using its strength
aspect the financial performance of these sampled banks is at the satisfactory level. The best is yet to
come.
9. EBL should be more serious to improve the efficiency in utilizing its deposit in Loan and Advance for
generating the profit.
10. For commercial banks, it is very important to maintain a good balance between liquidity and
profitability. If banks keep large portion of money under its control it affects in profit because idle
money earn nothings but other hand the bank should have enough cash balance with it to fulfill the
requirement of short-term liabilities .
11. Average mean of the EPS was much higher in EBL in contrast to BOK, which indicates that the
profitability position of the former is far better than that of the latter.
12. Market Value per Share to Book Value per Share (MVPS/BVPS) of BOK average mean ratio was
higher than BOK, which indicates comparatively stronger management and organization in BOK than
EBL.
13. A high Interest Coverage ratio is a sign of low burden of borrowing capacity. Creditors are interested to
invest who have high ratio of Interest Coverage. So BOK is better than EBL, because BOK have greater
Interest Coverage Ratio.

96
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Annual Report of Everest Bank Limited
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www.everestbankltd.com
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 Appendix;-1
Current Ratio (Times)
FY 2065/656 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 1.07 1.07 1.08 1.08 1.07 1.08 0.62%

BOK 1.07 1.09 1.10 1.12 1.10 1.10 1.31%

Source; - Annual report
Appendix;-2
Quick Ratio (Times)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.32 0.36 0.34 0.33 0.35 0.34 3.77%

BOK 0.29 0.28 0.29 0.3 0.35 0.30 8.71%

Source; - Annual report
Appendix;-3
cash and Bank Balance to Total Deposit Ratio (Times)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.11 0.18 0.21 0.15 0.21 0.17 22.03%
BOK 0.09 0.12 0.09 0.08 0.14 0.10 20.78%
Source; - Annual report
Appendix;-4
Calculation of Cash and Bank Balance to Deposits (Except Fixed Deposits) Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.15 0.23 0.30 0.23 0.28 0.24 20.81%
BOK 0.12 0.16 0.13 0.13 0.20 0.15 19.49%
Source; - Annual report
Appendix;-5
Calculation of Fixed Deposit into Total Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.27 0.21 0.28 0.37 0.26 0.28 18.10%
BOK 0.23 0.25 0.31 0.37 0.31 0.29 17.13%
Source; - Annual report

Appendix;-6
NRB Balance to Current and Saving Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.06 0.18 0.21 0.18 0.22 0.17 33.35%
BOK 0.05 0.10 0.05 0.05 0.11 0.07 39.04%
Source; - Annual report
Appendix;-7
Calculation of Loans and Advances to Total Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.76 0.72 0.75 0.76 0.72 0.74 2.64%
BOK 0.79 0.81 0.82 0.83 0.75 0.80 3.48%
Source; - Annual report

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 Appendix;-8
Loans and Advances to Saving Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 1.54 1.62 2.06 2.38 2.08 1.94 16.20%
BOK 1.89 2.02 2.48 2.64 2.32 2.27 12.37%
Source; - Annual report
Appendix;-9
Loans and Advances to Fixed Deposits Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 2.84 3.39 2.64 2.06 2.76 2.74 15.50%
BOK 3.37 3.27 2.61 2.23 2.46 2.79 16.24%
Source; - Annual report
Appendix;-10
Investment to Total Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 0.21 0.18 0.14 0.19 0.16 0.17 15.05%
BOK 0.20 0.15 0.16 0.20 0.21 0.19 12.91%
Source; - Annual report

Appendix;-11
Return on Assets (ROA)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 1.66% 1.73% 2.01% 2.01% 1.95% 1.87% 10.44%
BOK 2.04% 2.25% 2.18% 2.44% 2.10% 2.20% 11.13%
Source; - Annual report
Appendix;-12
Return on Net Worth / Shareholders’ Equity (ROSE)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 21.88% 26.38% 27.40% 25.24% 25.92% 25.36% 7.54%
BOK 26.29% 25.39% 22.63% 22.73% 19.97% 23.40% 9.73%
Source; - Annual report
Appendix;-13
Return on Total Deposits
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 1.88% 1.92% 2.25% 2.26% 2.18% 2.10% 9.13%
BOK 2.28% 2.55% 2.51% 2.88% 2.43% 2.53% 20.16%
Source; - Annual report
Appendix;-14
Debt-Equity Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 940.82% 949.08% 830.75% 799.15% 757.29% 855.42% 8.97%
BOK 774.68% 664.46% 606.10% 568.62% 531.54% 629.08% 13.52%
Source; - Annual report

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 Appendix;-15
Debt-Assets Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 71.46% 62.26% 60.93% 63.79% 57.10% 63.11% 7.49%
BOK 60.10% 58.97% 58.31% 61.16% 56.00% 58.91% 2.96%
Source; - Annual report

Appendix;-16
Interest Coverage Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 204.12% 243.28% 175.53% 152.47% 154.22% 185.92% 18.40%
BOK 225.50% 217.43% 180.70% 170.98% 158.98% 190.72% 13.71%
Source; - Annual report
Appendix;-17
Net Worth to Total Deposits Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 8.60% 7.27% 8.22% 8.97% 8.41% 8.29% 7.73%
BOK 8.68% 10.06% 11.08% 12.67% 12.18% 10.93% 13.22%
Source; - Annual report
Appendix;-18
Net Worth to Total Assets Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 7.60% 6.56% 7.33% 7.98% 7.54% 7.40% 8.36%
BOK 7.76% 8.87% 9.62% 10.76% 10.54% 9.51% 12.71%
Source; - Annual report
Appendix;-19
Net Worth to Total Credits Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 10.63% 10.54% 12.04% 12.51% 13.20% 11.78% 9.07%
BOK 12.91% 15.05% 16.50% 17.59% 18.81% 16.17% 12.71%
Source; - Annual report
Appendix;-20
Loan Loss Coverage Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 2.71% 2.45% 2.18% 1.95% 1.97% 2.25% 17.11%
BOK 2.29% 2.04% 2.28% 2.80% 2.69% 2.42% 20.91%
Source; - Annual report

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 Appendix;-21
Loan Loss Provision to Total Income Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 26.64% 22.75% 16.68% 12.62% 12.47% 18.23% 30.88%
BOK 21.23% 17.58% 16.56% 17.42% 16.29% 17.82% 10.02%
Source; - Annual report
Appendix;-22
Loan Loss Provision to Total Deposit Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 2.07% 1.76% 1.62% 1.47% 1.41% 1.67% 24.54%
BOK 1.80% 1.65% 1.87% 2.33% 2.02% 1.93% 12.42%
Source; - Annual report
Appendix;-23
Earning Per Share (EPS)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 91.82 99.99 100.16 83.18 88.55 92.74 7.11%
BOK 59.94 54.68 43.08 44.51 37.88 48.02 16.81%
Source; - Annual report
Appendix;-24
Price-Earnings Ratio (P/E ratio)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 34.11 24.55 16.27 13.15 11.67 19.95 41.94%

BOK 39.21 33.38 19.50 12.81 16.58 24.29 41.95%

Source; - Annual report
Appendix;-25
Market Value per Share to Book Value per Share (MVPS/BVPS)
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 9.73 7.12 4.91 4.14 3.17 5.81 40.42%
BOK 10.56 8.85 4.79 3.18 3.73 6.22 47.26%
Source; - Annual report

Appendix;-26
Total Interest Expenses to Total Interest Income Ratio
FY 2065/66 2066/67 2067/68 2068/69 2069/70 Mean CV
EBL 40.85% 46.32% 50.70% 58.55% 57.93% 50.87% 13.33%
BOK 40.38% 41.78% 48.26% 51.06% 56.64% 47.63% 12.63%
Source; - Annual report
Appendix;-27
Correlation Analysis between Total Deposit and Loans and Advances
Banks rxy PE® 6PE® Condition
EBL 0.99496 0.003033 0.018199 rxy>6PEr
BOK 0.967016 0.019571 0.117426 rxy>6PEr

103
Source; - Annual report
Appendix;-28
Correlation Analysis between Total Deposit and Net Profit
Banks rxy PE® 6PE® Condition
EBL 0.98496 0.009005 0.054031 rxy>6PEr
BOK 0.910971 0.051319 0.307915 rxy>6PEr
Source; - Annual report
Appendix;-29
Correlation Analysis between Loans and Advances and Net Profit
Banks rxy PE® 6PE® Condition
EBL 0.995996 0.002411 0.014463 rxy>6PEr
BOK 0.972092 0.016602 0.099611 rxy>6PEr
Source; - Annual report
Appendix;-30
Correlation Analysis between Total Deposit and Investment
Banks rxy PE® 6PE® Condition
EBL 0.813511 0.102016 0.612099 rxy>6PEr
BOK 0.874788 0.07081 0.424861 rxy>6PEr
Source; - Annual report
Appendix;-31
Forecasted value of Total Deposit (in '000')

Banks a b y= a+bx

EBL 37,073,113.80 5,986,457.00 37073113.8+5986457x

BOK 20,048,683.60 2,124,985.90 20048683.6+2124985.9x

Source; - Annual report
Appendix;-32
Forecasted value of Loan And Advanced (in '000')
Banks a b y= a+bx
EBL 27349756.4+4231679.5x
27,349,756.40 4,231,679.50
16011399.4+1552349.5x
BOK 16,011,399.40 1,552,349.50
Source; - Annual report
Appendix;-33
Forecasted value of Net profit (in '000')
Banks a b y= a+bx
EBL 788717.2+157126.1x
788,717.20 157,126.10

BOK 509,061.80 63,574.70 509061.8+63574.7x

Source; - Annual report

104
 Appendix;-34
Forecasted value of Net Worth (in '000')
Banks a b y= a+bx
EBL 3,083,503.00 3083503+556058x
556,058.00
2,230,081.60 2230081.6+417992.9x
BOK 417,992.90
Source; - Annual report

105