INVESTMENT POLICY ANALYSIS OF SIDDHARTHA BANK LIMITED

AND BANK OF KATHMANDU LIMITED

By

RAVI LAMA

Shanker Dev Campus

Campus Roll No.: 1892/062

T.U. Regd. No. : 7-2-422-69-2002

A Thesis Submitted to:

Office of the Dean

Faculty of Management

Tribhuvan University

In partial fulfillment of the requirement for the Degree of

Master's in Business Studies (M.B.S)

Kathmandu, Nepal

December 2010
 RECOMMENDATION
This is to certify that the Thesis

Submitted by:
Ravi Lama

Entitled:

INVESTMENT POLICY ANALYSIS OF SIDDHARTHA BANK LIMITED AND

BANK OF KATHMANDU LIMITED

has been prepared as approved by this Department in the prescribed format of

the Faculty of Management. This thesis is forwarded for examination.

….....................…………………… ............…………………………. ............……………………….

Dr. Shilu Manandhar Bajracharya Prof. Bishweshor Man Shrestha Krishna Prasad Acharya

(Thesis Supervisor) (Head of Research Department) (Acting Campus Chief)

 VIVA-VOCE SHEET

We have conducted the viva –voce of the thesis presented

by

Ravi Lama

Entitled:

INVESTMENT POLICY ANALYSIS OF SIDDHARTHA 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 partial fulfillment of the requirement for the
Degree of Master’s in Business Studies (M.B.S.)

Viva-Voce Committee

Head, Research Department …………………….………

Member (Thesis Supervisor) …..………………………..

Member (External Expert) …..………………………..

 TRIBHUVAN UNIVERSITY

Faculty of Management

Shanker Dev Campus

DECLARATION
I hereby declare that the work reported in this thesis entitled “Investment Policy
Analysis of Siddhartha Bank Limited and Bank of Kathmandu Limited”
submitted to Office of the Dean, Faculty of Management, Tribhuvan University, is
my original work done in the form of partial fulfillment of the requirement for the
Master’s Degree in Business Study (M.B.S.) under the supervision of Dr. Shilu
Manandhar Bajracharya of Shanker Dev Campus.

..………………………………

Ravi Lama

Shanker Dev Campus

Campus Roll No.: 1892/062

T.U. Regd. No. : 7-2-422-69-2002
 ACKNOWLEDGEMENT

The completion of this thesis is a matter of great pleasure for me. It has fulfilled
the partial requirement for the Degree of Master of Business Studies as well as
helped to enhance my practical knowledge on the subject matter. It wouldn’t have
been completed without invaluable support, supervision and suggestions from my
teachers, seniors, colleagues, and friends. Therefore, I would like to share the joy
with all who owe equal credit for it.

First of all my sincere gratitude goes to my honorable thesis supervisor, Dr. Shilu
Manandhar Bajracharya, Shanker Dev Campus, who mentored me by directing
significant ideas, encouraging to perform the thesis in time besides her invaluable
time. I would also like to thank Prof. Bisheshwor Man Shrestha for his valuable
suggestions.

Let me offer my sincere thanks to the staffs of SBL and BOK for their support and
cooperation in collecting data and other information during the study. I would like
to thank the library and all other staffs of Shanker Dev Campus and also the
Central Library of Tribhuvan University for providing me the reference for the
study. In addition, thanks are also due to all respondents who have shown
enthusiastic interest in responding the questionnaire.

Finally, I would like to thank each member of my family and the friends who have
consistently encouraged and cooperated to accomplish this task.

Ravi Lama
Researcher
 1.1 TABLE OF CONTENTS

Recommendation
Viva-Voce Sheet
Declaration
Acknowledgement
Table of Contents
List of Tables
List of Figures
Abbreviations
Page No.
1.2 CHAPTER – I: INTRODUCTION
1.3 1.1 Background of the Study 1
1.4 1.2 Statement of the Problem
3
1.5 1.3 Objectives of the Study
4
1.6 1.4 Significance of the Study
5
1.7 1.5 Limitations of the Study
5
1.8 1.6 Organization of the Study
6

CHAPTER – II: REVIEW OF LITERATURE

2.1 Conceptual Review 7
2.1.1 Meaning of Investment 7
 2.1.2 Investment Types 9
2.1.2.1 Capital Investment 10
2.1.2.2 Financial Market Investment 10
2.1.2.3 Stock Investment 11
2.1.2.4 Share Market Investment 12
2.1.2.5 Land Investment 13
2.1.2.6 Retirement Investment 13
2.1.2.7 Real Estate Investment 14
2.1.2.8 Gold Investment 14
2.1.2.9 Portfolio Investment 15
2.1.2.10 Business Investment 15
2.1.2.11 Equity Investment 16
2.1.3 Best Investment 17
2.1.4 Investment Strategy 18
2.1.5 The Fundamentals of Investment Management 20
2.1.6 Online Investment 22
2.1.6.1 Online Investment Services 23
2.1.7 Return on Investment 24
2.1.8 Investment Risk 26
2.1.8.1 Types of risk 26
2.2 Review of NRB Directives 27
2.3 Review of Related Studies 29
2.3.1 Review of Journals and Articles 29
2.3.2 Review of Thesis 32
2.4 Research Gap 37

CHAPTER – III: RESEARCH METHODOLOGY

3.1 Research Design 38
3.2 Population and Sample 38
3.3 Nature and Sources of Data 38
3.4 Data Analysis Tools 38
3.4.1 Financial Tools 39
3.4.2 Statistical Tools 41

1.9 CHAPTER – IV: DATA PRESENTATION AND ANALYSIS

1.10 4.1 Secondary Data Analysis
44
4.1.1 Total Net Investment to Total Assets 44
4.1.2 Investment in Government Securities to Total Investment 46
4.1.3 Investment in Corporate Shares & Debentures to Total Investment 49
4.1.4 Investment in Inter Bank Lending to Total Investment 51
4.1.5 Return on Government Securities 53
4.1.6 Return on Corporate Shares and Debentures 55
4.1.7 Return on Inter Bank Lending 58
4.1.8 Provision on Investment 60
4.1.9 Statistical Analysis 61
4.1.9.1 Relationship between Investment on Government
Securities and Net Profit 62
4.1.9.2 Relationship between Investment on Corporate
Shares & Debentures and Net Profit 63
4.1.9.3 Relationship between Investment on Interbank
Lending and Net Profit 63
4.1.9.4 Trend Analysis of Total Net Investment 64
4.1.9.5 Trend Analysis of Net Profit 65
4.2 Primary Data Analysis 66
4.2.1 Appropriateness of Investment Policy 66
4.2.2 Priority in Making Investment 68
4.2.3 Sensitivity of Investment Process 70
 4.2.4 Crucial Element in Equity Share Investment 71
4.2.5 Suitability of Investment Directive of NRB 72
4.2.6 Necessity of Strengthening for Optimum Investment Policy 74
4.2.7 Main Reason for Low Proportion of Investment 75
4.2.8 Suggestion for Optimum Investment Policy 77
4.3 Major Findings of the Study 79

CHAPTER – V: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary 82
5.2 Conclusion 83
5.3 Recommendations 84

BIBLIOGRAPHY
APPENDICES
 LIST OF TABLES

No. Title Page No.

4.1 Total Net Investment to Total Assets 44
4.2 Investment in Government Securities to Total Investment 47
4.3 Investment in Corporate Shares & Debentures to Total Investment 49
4.4 Investment in Inter Bank Lending to Total Investment 51
4.5 Return on Government Securities 53
4.6 Return on Corporate Shares and Debentures 56
4.7 Return on Inter Bank Lending 58
4.8 Provision on Investment 60
4.9 Relationship between Investment on Government Securities
and Net Profit 62
4.10 Relationship between Investment on Corporate Shares
& Debentures and Net Profit 63
4.11 Relationship between Investment on Interbank Lending
and Net Profit 64
4.12 Trend Analysis of Total Net Investment 64
4.13 Trend Analysis of Net Profit 66
4.14 Appropriateness of Investment Policy 67
4.15 Priority in Making Investment 68
4.16 Sensitivity of Investment Process 70
4.17 Crucial Element in Equity Share Investment 71
4.18 Suitability of Investment Directive of NRB 73
4.19 Necessity of Strengthening for Optimum Investment Policy 74
4.20 Main Reason for Low Proportion of Investment 76
4.21 Suggestion for Optimum Investment Policy 77
 LIST OF FIGURES

No. Title Page No.

4.1 Total Net Investment to Total Assets 46
4.2 Investment in Government Securities to Total Investment 49
4.3 Investment in Corporate Shares & Debentures to Total Investment 51
4.4 Investment in Inter Bank Lending to Total Investment 53
4.5 Return on Government Securities 55
4.6 Return on Corporate Shares and Debentures 58
4.7 Return on Inter Bank Lending 60
4.8 Provision on Investment 61
4.9 Trend Analysis of Total Net Investment 65
4.10 Trend Analysis of Net Profit 66
4.11 Appropriateness of Investment Policy 68
4.12 Priority in Making Investment 69
4.13 Sensitivity of Investment Process 71
4.14 Crucial Element in Equity Share Investment 72
4.15 Suitability of Investment Directive of NRB 74
4.16 Necessity of Strengthening for Optimum Investment Policy 75
4.17 Main Reason for Low Proportion of Investment 77
4.18 Suggestion for Optimum Investment Policy 79
 ABBREVIATIONS

BOK : Bank of Kathmandu

CB : Commercial Bank
C.V. : Coefficient of Variation
CSD : Corporate Shares and Debentures
DB : Development Bond
Deb. : Debenture
Div. : Dividend
GS : Government Securities
IBL : Inter Bank Lending
IGS : Interest on Government Securities
Inc. : Income
Int. : Interest
Inv. : Investment
IOCSD : Investment on Corporate Shares and Debentures
IOGS : Investment on Government Securities
IOIBL : Investment on Inter Bank Lending
NEPSE : Nepal Stock Exchange
NP : Net Profit
P.E. : Probable Error
Prov. : Provision
r : Correlation Coefficient
ROCSD : Return on Corporate Shares and Debentures
ROGS : Return on Government Securities
ROIBL : Return on Inter Bank Lending
S.D. : Standard Deviation
SBL : Siddhartha Bank Limited
Shr. : Share
TA : Total Assets
TB : Treasury Bond
TI : Total Investment
TNI : Total Net Investment