project work -liquidity analysis of nepal investment bank ltd.

LIQUIDITY ANALYSIS OF

NEPAL INVESTMENT BANK LTD.

Contents

Acknowledgement …………………………………………………….I

Table of content……………………………………………………………II

List of table………………………………………………………………...III

Table of Contents
Chapter- one 1. Introduction 1.1. concept of banking 1.2. The banking in Nepal 1.3. List of commercial bank in Nepal 1.3.1. List of licensed commercial bank in Nepal 1.3.2. Functions of commercial bank 1.4. Overview of Nepal investment bank ltd. 1.4.1. Board of directors 1.4.2. Management team 1.4.3. Branches and Counters 1.4.4. Products and Services 1.5. Strategies and future plans of Nepal investment bank ltd. 1.6. Statement of problem 1.7. objectives of the study 1.8. Significance of the study 1.9. Limitations of the study 1.10. Scope and importance of the study	Page No. 1 1 1 2 3 4 5 5 6 7 8 8 9 9 10 10 10
Chapter -two
2. Review of Literature 2.1. Conceptual framework 2.1.1. Liquid Assets 2.1.2. Cash Reserve ratio(CRR) 2.1.3. Statutory Liquidity ratio(SLR) 2.1.4. Importance of the liquidity for the bank 2.1.5. Need of the liquidity for the bank 2.1.6. Demand for the liquidity 2.1.7. Supply for the bank liquidity 2.1.8.Criteria of measuring the bank liquidity 2.1.9. Liquidity to be maintained with the central bank 2.1.10. penalty for non-compliances 2.1.11. Applicable penalty rates	11 11 11 11 11 12 12 12 12 12 12 13 13
2.1.12. Composition 2.1.13 Basis for the liquidity Requirement prediction 2.1.14Review of related study	13 14 14
Chapter three
3. Research methodology 3.1. Research design 15 3.2. Data collection techniques 15 3.3. Data analysis tools 15 3.3.1. Ratios
Chapter Four
4.Data presentation and analysis 4.1. Participation of all deposits in the total deposit liability 17 4.2. Liquidity Ratio 17 4.2.1. saving deposit to total deposit ratio 18 4.2.2. fixed deposit to total deposit ratio 19 4.2.3. Cash and bank balance to current deposit ratio 20 4.2.4. Cash and bank balance to total deposit ratio 20 4.2.5. Cash and bank balance to total deposit 21 (Excluding fixed deposit ) ratio 4.2.6. Balance with NRB to current and saving 22 deposit ratio 4.2.7. Balance with NRB to fixed deposit ratio 23 4.2.8. Total investment to total deposit ratio 24 4.2.9. Liquid asset to total deposit ratio 25
Chapter five 5. Summary, Conclusion and Recommendation 5.1. Summary 27 5.2 Conclusion 27 5.3. Recommendation 28

Bibliography

List of table

Table No. Table Name Pege no.

1. Participation of the all the deposits in the total deposit liability 17

2. Saving deposit to total deposit ratio 18

3. Fixed deposit to total deposit ratio 19

4. Cash and bank balance to current deposit ratio 20

5. Cash and bank balance to total deposit ratio 20

6. Cash and bank balance to total deposit(excluding fixed deposit) ratio 21

7. Balance with NRB to current and saving deposit 22

8. Balance with NRB to fixed deposit ratio 23

9. Total investment to total deposit ratio 24

10. Liquid assets to total deposit ratio 25

CHAPTER – ONE

INTRODUCTION

1.1. CONCEPT OF BANKING:

Generally, bank is an institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, saving, and time deposit. There institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primary concerned with receiving deposits and lending to businesses.

In an economy the bank is regarded as one of the economic backbone of the country for its development. Bank is a financial institution that deals in money. The basic function of bank is collecting deposit and granting the loans. It involves in credit creation that in related to creation of deposit and loan. In the economy, the banks collects small saving of general people, accumulative it and lends the productive sectors of the society for the overall economic development.

Various writers have been defined the word “bank” in different ways.

According to Scholars, “The bank is defined as factory of money for credit where it does not purchase goods and sells it rather produces credit inform of deposit and sells it inform of loans.”

According to C.R. Crowther,”A banks collects money from those who have it to spare or who are saving it out of their income and lends this money to those who required it.”

Thus in conclusion, we can say that bank is an organization which deals with the monetary transactions for the mobilization of idle money or deposits in productive sectors, is essentially essential for the development of the whole net.

1.2. THE BANKING IN NEPAL

In the context of Nepal, like as in other country the goldsmiths and landlord was the ancient banker. The Nepalese people were highly exploited by shahu mahajan by charging higher interest rate that is compound interest rate and even by manipulating the principle amounts. If we try to see the history of banking transaction in depth then evidence of money landing function are found in practice before 8^th century in 780 B.S.

gunakamdev the ruler of Kathmandu reconstructed Kathmandu valley by borrowing dept from the people. In 14^th century tankdhari system had been running in the period of ranodip shing in Kathmandu established and office called tejarath adda. From the office the government distributed salary to their employees and provided loan to government employment @5% of interest against the security gold, silver etc.

Because of the development of economy activities in Nepal the above institutions could not be fulfilled the need of people. So in kartik 30, 1994 B.S. Nepal bank was established as one of the semi government commercial bank which had 10 million authorized capital and 842000 paid of capital. it has done the pioneering function in function spreading the banking habits among the people. Having felt a need of central bank to control and direct the commercial bank and help the government for making monitory polices Nepal rastra bank was set up in 14 baishakht, 2013 B.S.

To fulfill the growing credit requirement of the country. The commercial bank i.e. Rastraya Banijya bank was establishes in 10^th bhadra 2022 B.S. this bank also provides facility for the economy welfare of the general public. Nepal is an agricultural country to develop agriculture system. Industry agriculture development bank and Nepal industrial development corporation was established in 2024 B.S. 2016 B.S. respectively.

The initiation of the financial sector; liberalization policy by Nepal rastra bank, a board of joint venture banks entered with the view to accelerate the race of development of nation. At present, there are many joint venture banks which are running successfully in a competitive environment. His majesty government deliberates policy of allowing foreign joint venture banks to operate in Nepal basically targeted, to encourage local tradition commercial bank to enhance their capacity through competitor’s efficiencies mechanization modernization prompt customer service. Nepal Arab bank ltd was established in 2041 as a first foreign joint venture bank.

Now in our country there are 31 commercial bank, 87 development bank, 79 finance company and 21 micro credit development banks after mid July 2011(licensed by NRB)

1.3. LIST OF COMMERCIAL BANKS IN NEPAL:

The history of financial and economic development in Nepal is not very old. It has gone through different stages, during the PM Ranodip shingh around 1972 A.D. “TEJARATH ADDA” was introduced, which brought a reform in economic and financial section. The main purpose of “TEJARATH ADDA” was to provide credit facilities to the general public at confessional rate. However the installment of “KHUSI KHANA” as a banking agency during the king Prithivi Narayan Shah could also be regarded as the first step towards banking in Nepal.

After that the first commercial bank of Nepal, Nepal bank

Limited (NBL) was lunched with the cooperation of imperial bank of India in November 1937. holding 51% government equity. The second commercial bank, Rastriya Banijya bank come into existence in 1966 A.D. with 100% government ownership. In early 1980, to meet the need of health completion in the financial system, Nepal allowed to entry of foreign banks as joint ventures with up to maximum of 50% equity participation.

Nepal arab bank limited was the first joint venture bank which was established with the joint venture of arab bank emirates in 1984. in 1986, Nepal grind lays bank limited (now chartered bank limited) entered in nepali financial market as a joint venture with ANZ-Grind lays.

1.3.1 LIST OF LICESCED COMMERCIAL BANK IN NEPAL:

S.No.	Name of commercial banks
1	Nepal Bank ltd.
2	Rastriya Banijya Bank Ltd.
3	Agriculture Development Bank Ltd.
4	Nabil Bank Ltd.
5	Nepal Investment Bank Ltd.
6	Standard Chartered Bank Nepal Ltd.
7	Himalayan Bank Ltd.
8	Nepal SBI Bank Ltd.
9	Nepal Banladesh Bank Ltd.
10	Everest Bank Ltd.
11	Bank of Kathmandu Ltd.
12	Nepal Credit and Commercial Bank ltd.
13	Lumbini Bank Ltd.
14	Nepal Industrial and Commercial Bank Ltd.
15	Machhapuchre Bank Ltd.
16	Kumari Bank Ltd.
17	Laxmi Bank Ltd.
18	Siddhartha Bank Ltd.
19	Global Bank Ltd.
20	Citizens Bank International Ltd.
21	Prime Commercial Bank Ltd.
22	Sunrise Bank Ltd.
23	Bank of Asia Nepal Ltd.
24	DCBL Bank Ltd.
25	NMB Bank Nepal Ltd.
26	Kist Bank Ltd.
27	Janata Bank Nepal Ltd.
28	Mega Bank Nepal Ltd. 3
29	Commerce and Trust Bank Nepal Ltd.

30	Civil Bank Ltd.
31	Century Commercial Bank Ltd.

Source:” www.nrb.org.np”

1.3.2 FUNCTIONS OF COMMERCIAL BANKS:

Although profit maximization is a major objective of commercial bank, to achieve this objectives commercial bank performs various functions under the mandatory rules and registrations and directives of NRB and commercial Bank Act 2031(1974) which are:

Primary functions

a) accepting Deposits:

Accepting deposits is the main function of commercial banks. Commercial banks collects money from those who want to deposit in different types of deposits accounts such as:

Fixed deposit account

Current deposit account

Saving deposit account

b) Advancing of Loans:

Commercial banks provide the required loan or credit to various sectors of economy such as industry, trade, agriculture, business deprived sector etc. in this way bank creates facilities. It provides loans from various procedures in different form such as:

Overdraft

Cash credit

Direct loan with collateral

Discounting bill of exchange

Loans of money at call and notice

General Utility functions

Commercial banks also form general utility functions such

Ø Issuing of letters of credit to customers

Ø Issuing of bank draft and travels cheque etc for transfer of funds from one place to another.

Ø Dealing in foreign exchange and financial foreign trade by accepting or collecting foreign bill of exchange.

Ø Underwriting loans to be raised public bodied and corporations.

Ø Providing safety vaults or lock for the safe custody of valuables and securities of the customers.

Ø Remittance of money

Agency Functions

Apart from the above function, commercial banks also perform agency functions for which they act as agent and claim commission on some facilities such as:

Ø Collection of customer’s money from other banks.

Ø Receipt and payment of dividend and interest.

Ø Security brokerage service

Ø Financial advisory services

Ø To underwrite the government and private securities.

1.4. OVERVIEW OF NEPAL INVESTMENT BANK LTD.

Nepal investment Bank Ltd. (NIBL), previously Nepal Indosuez bank Ltd., was established in 1986 as a joint venture between neplise and French partners. The French partner (holing 50% of the capital of NIBL) was credit agricole Indosuez, a subsidiary of one the largest banking group in the world.

With the decision of credit agricole Indosuez to divest, a group of companies comprising of bankers, professionals, industrialists and business man, had acquired on april 2002 the 50% share holding of credit agricole Indosuez in Nepal Indosuez bank Ltd.

The name of the bank has been change to Nepal investment bank Ltd.Upon approval of bank’s annual general meeting, Nepal rastra bank and company register’s office with the following share holding structure.

Ø A group of companies holding 50% of the capital

Ø Rastriya Banijya Bank holding 15% of the capital

Ø Rastriya Bima Sansthan holding 15% of the capital

Ø The remaining 20% being held by the general public(which means that NIBL is a company list on the Nepal stock exchange)

1.4.1 BOARD OF DIRECTORS

Mr. Prithivi Bahadur Pande	Chairman and CED	Group A
Mr. Prajanaya Raj Bhandari	Director	Group A
Mr. Dipak Man Sherchan	Director	Group A
Mr. Janardan Dev Panta	Director	Group A
Mr. Omkar Nidhi Tiwari	Director	Rastriya Bima Sasthan,-group C
Mr. Surendra Bahadur Singh	Public director	Group D
Mr. Mohan Madan Budhathoki	Professional director	-

1.4.2 MANAGEMENT TEEM

NAME	POSITIONS
Prithivi Bahadur Pande	Chairman
Jyoti Prakash Pande	General manager
Rajan Kumar Amatya	Retail banking
Birendra Suwal	Information technology
Anuj Mani Timlisina	Corporate banking
Manju Basnet	Putalisadak Branch manager
Shreechandra Bhatta	Branch co-ordination cell
Rabin Sijapati	Credit quality control

Name of department head	Department
Dipak Kumar Shrestha	Trade finance
Dipak Shrestha	Legal
Bikash Thapa	Cards and remittance
Sachin Tibriwal	Accounts
Sanjeeb Karki	Cash and transfer
Tul jungh pande	Reconciliation
Sarbir SJB Rana	Human resource
Sammit Bhandari	Credit administration
Binod kumar Upadhya	Internal audit and compliance
Shiv Nath Pande	Research and development

1.4.3. BRANCH AND COUNTERS

Kathmandu head office,Darabarmarga

P.O. Box no. 3412, tel. no. 4228229, 42425309(DISA)

Fax no. 977-1-4226349, 4228927

SWIFT: NIBLNPKT

Ø SEEPADOLE BRANCH , SURYABINAYAK, BHAKTAPUR

Ø BIRGUNJ BRANCH , ADARSANAGAR

Ø PULCHOCK BRANCH , LALITPUR

Ø BANEPA BRANCH, KAVRE

Ø JITPUR BRANCH , BARA

Ø NEW ROAD BRANCH , KATHMANDU

Ø BIRATNAGAR BRANCH , BIRATNAGAR

Ø BUTWAL BRANCH , TRAFIC CHOCK,BUTAWAL

Ø BHAIRAWA BRANCH , MAITRI ROAD , BHAIRAWA

Ø POKHARA BRANCH, CHIPLE DUNGA , POKHARA

Ø PUTALISADAK BRANCH , KATHMANDU

Ø NARAYANGHAT BRANCH, NARAYANGATH

Ø JANAKPUR BRANCH, MILS AREA, JANAKPUR

Ø NEPALGUNJ BRANCH , DHAMBOJI NEPALGUNJ

Ø THAMEL BRANCH, CHAKSABARI THAMEL

Ø KALIMATI BRANCH , KALIMATI CHOCK,KALIMATI

Ø BIRTAMOD BRANCH , TRAFIC CHOCK , BIRTAMOD

Ø BATTISPUTALI BRANCH ,KATHMANDU

Ø DHANGADI BRANCH, MAIN ROAD , DHANGADI

Ø GANGABU BRANCH , GANGABU CHOCK, KATHMANDU

Ø SURKHET BRANCH, NETA CHOCK , SURKHET

Ø JUMLA BRANCH, KHALGA BAJAR , JUMLA

Ø BOUDHA BRANCH , KATHMANDU

Ø HETAUDA BRANCH , BANK ROAD , HETAUDA

Ø PALPA BRANCH, TANSEN , PALPA

Ø LUKLA BRANCH , CHAURIKHARKA, LUKLA

Ø NAYABANESHWOR BRANCH, KATHMANDU

Ø DHUMBARAHI BRANCH , PIPALBOT CHOCK , KTM

Ø BHOTAHITY BRANCH, KATHMANDU

Ø TULASIPUR BRANCH , DHANG

Ø TRIPURESHWOR BRANCH , KTM

Ø DAMAULI BRANCH , SAFA SADAK , DAMAULI

Ø KRISHNA NAGAR BRANCH, KAPILBASTU

Ø GHAIGHAT BRANCH, UDAYAPUR

Ø LAZIMPAT BRANCH , KTM

Ø PARSA BRANCH , CHITAWAN

Ø MAHARAJGUNJ BRANCH ,KTM

Ø LALBANDI BRANCH, LALBANI,SARLAHI

Ø LAGANKHEL BRANCH,LALITPUR

Ø WALING BRANCH , SYANJA

1.4.4. Products and services:

Some products and services of Nepal Investment Bank Ltd Are given below:

ü Deposit

· Saving deposit

· Current deposit

· Fixed deposit

· Call deposit

ü Lending

ü Documentary credits

ü Guarantee

ü Collections (agency functions)

ü Credit card

ü Safe deposit locker

ü Fund transfer

ü Remittance

ü SWIFT member

ü ATM

· Fast cash

· Withdrawal

· Pin change

· Enquiry

1.5. STRATEGIES AND FUTURE PLANS OF THE NEPAL INVESTMENT BANK LTD.

The Nepal investment Bank Ltd.’s mission is to be the “Bank of the first choice” to attain the goal to be the “Bank of the first choice”, bank is concerting into the service of its customers and social issues. So Nepal investment is the customer focus and goal oriented.

NIBL’s strategies and future plans:

Ø To develop a customer oriented service culture with special emphasis on customer care and convenience

Ø To increase its market share by following a disciplined growth strategy.

Ø To leverage its technology platform and pen scalable system to achieve cost effective operation, efficient MIS, improved delivery capability and high service standards.

Ø To develop innovative products and service that attracts its targets customer and market segments

Ø To continue to develop products and service that reduces its cost of funds.

Ø To maintain a high quality assets portfolio to achieve strong and sustainable returns and to continuously build share holders value.

Ø To explore new avenues for growth and profitability.

1.6. STATEMENT OF THE PROBLEMS:

Liquidity is the status and part of the assets which can be used to meet the obligation. Liquidity can be viewed in term of liquidity stored in the balance sheet and in term of liquidity available through purchased fund. The degree of liquidity depends upon the relationship between cash assets plus those assets which can be quickly turned into cash and liability awaiting payments.

Bank needs to maintenance some seasonable level of liquidity to fulfill different commitments such as provide money to depositors when they demand for administrative expenses, for maintaining cash reserve ratio in the central bank etc. so, liquidity is defined as the bank’s capacity to pay cash in exchange of deposits. Liquidity is crucial in the business like banking. Because if the bank has the high liquidity it can no on a desired profit and if the bank has the shortfall of the liquidity it can not satisfy its customers. Inadequate liquidity may lead to collapse of the bank while excess liquidity is determinant to bank’s profitability in order to remove demerits associated with maintaining inadequate and excess liquidity, bank should maintained and optimum level of liquidity. This possible only when bank’s liquidity needs is correctly predicted. Prediction covers inflows and outflows of liquidity. If prediction shows more outflows, bank should be prepared to cover the shortfall by borrowing or by liquidating assets. If inflow is greater than outflows, bank should plan where to invest so that income can be increase. Banks attach great importance short terms and long terms predictions. Prediction of liquidity need should be in the form of primary and secondary reserve so that bank generates income and at the same time does not compromise to liquidity. Banks got failure because of wrongly analyzed liquidity position and wrongly predicated liquidity requirement and management policy of liquidity. Thus to gain the trust of the customers and be success on the operation, the bank should maintain and forecast the liquidity need for the period and optimum level of liquidity based on the past liquidity position.

1.7. OBJECTIVES THE STUDY:

The main objective of the study is to analyze the Nepal investment bank’s liquidity position. Based on the analyzed liquidity position, the study will suggest the liquidity need and its management for the current year.

Other objectives can be listed below:

ü To check the liquidity position of the NIBL

ü To analyze the financial performance

ü To check the NIBL bank’s profitability

ü To suggest the amount of the optimum level of liquidity

ü To suggest the liquidity management policies

ü To fulfill the partial requirement of T.U. (department of management) for the degree of bachelor of business study.

1.8. SIGNIFICANCE OF THE DTUDY:

This report is prepared to analyze the liquidity position of Nepal investment bank. This report comprises the date from 2005 to 2010. This would help the bank to observe the trend of the liquidity position hold in those periods. Besides that, this study also evaluates the role of short term obligation and the bank ability to pay the currently maturity obligation. Moreover, the study will check the profitability of the bank. This will help the bank to take the corrective actions if there are any errors on the past performance and the study aims to recommend correcting the division if the standard has not been met.

1.9. LIMITATION OF THE STUDY

This study is simply conducted for the partial fulfillment of the requirement for the degree of the bachelor in business studies (BBS). And only the secondary data is used and analyzed which could not disclose the actual result. And being the first endeavor, the report can comprise some mistakes which may cause to misinterpretation of the results.

The other limitation of the study is listed below:

i. Data contains mostly of the annuals reports of the bank through fiscal year2005/2006 to 2009/2010.

ii. Only five years observation covering from fiscal year 2005/2006 to 2009/2010 is analyzed.

iii. Analysis is based on the ratio and trend lines of the corresponding ratios only.

iv. For the forecast of the liquidity requirement, daily and monthly data is needed. But due to time and cost constraints, only the annual data is used for analysis.

v. Only the secondary data is used.

vi. The study is only fulfill the requirement for the degree of bachelor in business studies, which can not cover all the dimension of the all subjects matter and resource and time period is also limited.

1.10. SCOPE AND IMPORTANCE OF THE STUDY:

This study will be useable and valuable to the various parties, which can be mentioned as follow:

a) To the investors

b) To the creditors

c) To management of the bank

d) To the customers

e) To the other parties

And this study will be equally useful to the other readers, students of related subjects and other people who are concern with banking field.

CHAPTER – TWO

Review of Literature

This chapter deals with the theoretical aspects of the topic of financial analysis of Nepal investment bank Ltd. in more detail and descriptive manner. For this study, journals, articles, and some research reports related with this topic have been reviewed. This study has to refer almost all books related with this topic published. Some of the prior reports by students of BBS regarding this topic have also been reviewed.

2.1. Conceptual framework:

One of the sensitive factor or element in the bank is liquidity. Liquidity refers to the convertibility assets into cash. It means how fast the assets can be change into cash. There are many assets which are easily converted into cash by the bank. Such as cash in hand, cash at bank, cash at central bank, investment in government securities. But some assets are difficult to get converted into cash such as loan and fixed assets.

Liquidity is also defined as the position or capability of a bank to meet the current obligation of customers such as payment of cheque. Payment of demand drafts, disbursement of approved loan etc. Bank needs to maintain some reasonable level of liquidity to fulfill different commitments such as provide money to depositors when they demand for administrative expenses, for maintaining cash bank’s capacity to pay cash in exchange of deposits. Liquidity is crucial in the business like banking. Because if the bank has high liquidity, it can no earn a desire profit and if the bank has the shortfall of the liquidity it cannot satisfy its customers. Inadequate liquidity may lead to collapse of the banks while excess liquidity is detrimental to bank’s profitability. In order to remove demerits associated with maintaining inadequate and excess liquidity, banks should maintain an optimum level of liquidity. This possible only when bank’s liquidity needs is correctly predicted. Prediction covers in present outflows of liquidity. If prediction shows more outflows, bank should be prepared to cover the shortfall by borrowing or by liquidating assets. If inflow greater than outflow, bank should plan where to invest so that income can be increase. Banks attach great importance short term and long term predictions. Prediction of liquidity need should be in the firm of primary and secondary reserves so that bank generates income and at the same time does not compromise to liquidity.

2.1.1. Liquidity assets: the assets which can be converted into cash immediately with or without a nominal loss of value. Liquidity can be in the firm of treasury bills, investments in government securities, gold and silvers, inventories and marketable securities etc.

2.1.2. Cash reserve Ratio (CRR): Central banks the world over make banks maintains the certain level of liquidity to total deposit liabilities in the form of the cash and bank balance. This ratio is known as the cash reserve ratio or primary reserve.

2.1.3. Statutory liquidity ratio (SLR): Central bank orders to the banks to maintain the certain level of liquidity to total deposit liabilities in the form of the cash and bank

balance and treasury bills and government securities and bonds. Such liquidity requirement is called the statutory liquidity ratio.

2.1.4. Importance of liquidity for the bank: The liquidity is important for the bank for the motives cited as follow:

Transaction motive

Speculative motive

Precautionary motive

2.1.5. Need of liquidity for the bank:

a) To meet the expenses for the bank’s administrative works

b) To pay all sorts of deposit on demand

c) To repay the dept

d) To gain trust or faith

e) To provide the security to the bank

2.1.6. Demand for the liquidity:

ü Withdrawal of customer deposit

ü Acceptable loan request

ü Repayment of non-deposit borrowing

ü Payment of interest on deposit

ü Payment of dividends

ü Expansion and growth

ü Miscellaneous liabilities

2.1.7. Supply of bank liquidity:

ü Capital issue

ü Retained earning

ü Borrowings

ü Bond issue

ü Repayments of loans

ü Other incomes

2.1.8. Criteria of the measuring the bank liquidity:

Criteria of measuring of the bank liquidity denotes

- attributes required being bank liquidity

- compliance test of liquidity requirement

In words criteria area bank liquidity refers to:

i. What conditions the assets have to meet to be bank liquidity?

ii. Whether CRR and SLR have been maintained as per instruction of the central bank?

2.1.9. Liquidity to be maintained with the central bank:

Nepal Rastra Bank, as the central bank of Nepal, had made it mandatory for commercial bankers to maintain liquidity as under:

Balance at Nepal Rastra bank – 7% current and saving deposit liabilities. 4.5% of fixed deposit liabilities.

Cash in vault – 2 % of deposit liabilities

2.1.10. Penalty for non-compliance:

Penalty will be levied for failing to maintain the adequate liquidity as above under any of the following conditions:

1) In the case of shortfall in maintenance of balance with Nepal Rastra bank but maintenance of cash at vault more than 2%, then on such shortfall amount.

2) In the case shortfall in maintenance of balance with Nepal Rastra bank but maintenance of cash at vault more than 2%, up to 1% excess cash of total deposit is added in the balance with NRB, than on such shortfall amount (after adding up to 1% excess)

3) In the case of shortfall in maintenance of cash in vault as well as shortfall in balance held with Nepal Rastra bank, than on total shortfall amount.

2.1.11. Applicable penalty rates:

1. first time shortfall	Equivalent to bank rate/highest refinance (currently 5.5%)
2. for second time shortfall	Equivalent to 2 times of bank rate
3.for third time shortfall and all subsequent shortfalls	Equivalent to 3 times of bank rate.

The penalty is imposed on the shortfall amount on weekly basis.

2.1.12. Composition:

Total deposit means current, saving and fixed deposit account as well as call money deposit and certificate of deposit. For the purpose, deposits held in convertible foreign currency, employees guarantee amount and margin account will not be included.
Fixed deposit means a deposit in local currency accepted under the condition to repay on completion so stipulated time period.
Current and saving deposit means all deposit accounts other than the fixed deposits.
Cash in vault shall include only the local currency and foreign currency (except clearing cheque etc.)
Balance held with Nepal rastra bank in ordinary account only will be eligible for liquidity calculation. Special accounts opened with Nepal rastra bank for specific purpose and foreign currency designated accounts will not be included for the purpose.
For the purpose of liquidity examination, all branches of the bank shall constitute one unit.

2.1.13. Basis for liquidity requirement prediction:

a. Maturity of deposits g. seasonal need of liquidity

b. Maturity of borrowings h capital purchases

c. Maturity of placement i. central banks requirements

d. Maturity of bill payment j market situation

e. Repayment of the debt. k bonus to the staffs

f. Letter of credit outstanding l investment

2.1.14. Review from related studies:

Bank needs to maintain some reasonable amount of liquidity to fulfill different commitments. Such as provide money to depositors when they demand for administrative expenses, for maintaining cash reserve ratio in the central bank etc. so, liquidity is define bank’s capacity to pay cash in exchange of deposits. Liquidity needs of commercial banks are unique because in no other types of business there will be such large portion of deposits payable on demand. Inadequate liquidity does damage credits standing of other organization as well but a banks fails to pay the deposits on demands, the bank loose the faith of the public. Bank may maintain the liquidity in the form of :

· Cash and bank balance

· Placement money at short calls or short notice

· Investments in gov. securities and other securities convertible into cash

International federation of accountants has recommended the measuring the liquidity of bank by:

Cash and liquid securities
Interbank money deposit liabilities

Liquidity of the bank should be maintained according to standard; excel liquidity as well as lack of the liquidity indicates that a bank is serious financial problems. The implication of the financial problem results losing of deposits, which erodes its supply of cash and forces the institutions to dispose of its safer and more liquid assets. On the other hand, other banks that are strong in liquidity will be increasingly reluctant to lend the problem bank liquid funds at higher interest rates. Thus, we can say that it is optimism necessity of the bank to maintain a proper balance between high liquidity and low liquidity.

The tools used for analysis are:

ü Cash and bank balance to total deposit ratio

ü Current deposit to total deposit ratio

ü Saving deposit to total deposit ratio

ü Investment to total deposit ratio

ü And fund fluctuation trend line

CHAPTER – THREE

Research Methodology

The method which is use in the research is called research methodology. How the data is collected and which source the research use for getting the data is under the research methodology. Research methodology covers the data analysis tools as well.

3.1. Research Design:

A research design is the arrangement conditions, for the collection and analysis of data in a manner that aims to combined relevance to the research purpose with economy in procedures.

This study aims on the financial analysis of the Nepal investment bank Ltd. This study is mainly based on primary data and secondary data. The primary data, which are collected directly from the question answer, direct interview with customer and office staffs. The secondary data are collected from respective annual reports especially from the Nepal investment bank’s web sites and various other journals and from security bond Nepal (SUBO) and Nepal stock exchange (NEPSE).

3.2. Data collection techniques:

I went to the main office of Nepal investment bank ltd. Darbarmarga, Kathmandu, and get the important information. I collected the main annual reports of this bank directly from the web site. And other various articles and journals from various publication and some others from the SEBO, NEPSE and previous field reports are also taken in to accounts.

3.3 DATA ANALYSIS TOOLS:

Data analysis tools means which tools the research used for present and analyzed the data. The main tools of analysis are mathematical and statistical tools. In this reports statistical and financial ratio tools is used for data analysis. Mean and correlation is calculated for analysis the data as statistical tools.

3.3.1. Ratios:

An arithmetical relationship between two figures is called ratio. It is the most useful and analytical tools to evaluate in respect to one variable over another. Here, for our purpose, only the liquidity related ratios are calculated.

1) Liquidity ratio

2) Cash and bank balance to current deposit ratio

3) Saving deposit to total deposit ratio

4) Cash and bank to total deposit ratio

5) Fixed deposit to total deposit ratio

6) Cash and bank balance to total deposit ratio(excluding fixed deposit)

7) NRB balance to total deposit(excluding fixed deposit)

8) NRB balance to fixed deposit ratio

9) Deposit to investment ratio

3.3.2. Statistical tools:

ü Mean

ü Standard deviation

ü Coefficient of variance

ü Correlation of coefficient

ü Trend analysis

CHAPTER – FOUR

Data Presentation and Analysis:

Presentation means the presentation of the collected data through table; figure etc. presentation is the process of understanding the study or the report and calculating the opinion. An analysis of a data means the process where the statement or the report gets resolve by breaking them into simple statement. Analysis means to find out something and give opinion about the presented data.

4.1. PARTCIPATION OF THE ALL THE DEPOSIT IN THE TOTAL DEPOSIT LIABILITY:

Fiscal year	Current deposit	Saving deposit	Fixed deposit	Total deposit
2005/06	1705668495	8081980512	5412969595	15200618592
2006/07	2175020657	10742331625	7516686866	20424048148
2007/08	3138669428	13688766549	7944232558	24771668535
2008/09	3756570350	17066252467	11633380218	32456203035
2009/10	4025820180	14324255897	16825148284	35175224361

Source: - “annual report of Nepal investment bank ltd.”

In the above table and chart, we see that, in fiscal year 2005/06, the current deposit account occupied 11%, saving deposit account 53%, fixed deposit account 37%.in fiscal year 2006/7 the current deposit account occupied 10%, saving deposit account53%, fixed deposit account 36% occupied. In fiscal year 2007/08 the saving deposit account occupied 13%, saving deposit account 53%, fixed deposit account 37% occupied. In fiscal year 2008/09 the current deposit account occupied 13% saving deposit account55%, fixed deposit account32% occupied. In fiscal year 2009/10 the current deposit account occupied 11%, saving deposit account42%, fixed deposit account occupied 48%.

4.2. SAVING DEPOSIT TO TOTAL DEPOSIT RATIO:

Fiscal year	Saving deposit	Total deposit	Ratio
2005/06	8081980512	15200618592	0.53
2006/07	10742331625	20424048148	0.53
2007/08	13688766549	24771668535	0.55
2008/09	17066252467	32456203035	0.53
2009/10	14324255897	35175224361	0.41

Source: - “annual report of Nepal investment bank ltd.”

Fiscal year

From the above table and trend line chart, the ratio is fluctuating state. In the fiscal year 2005/06, the bank has the saving deposit of 0.53 times of total deposit liability. And 0.53, 0.55, 0.53, 0.41 times of total deposit liability in fiscal year 2006/07, 2007/08, 2008/09, 2009/

10 respectively.

4.2.2. FIXED DEPOSIT TO TOTAL DEPOSIT RATIO:

Fiscal year	Fixed deposit	Total deposit	Ratio
2005/06	5412969595	15200618592	0.36
2006/07	7516686866	20424048148	0.37
2007/08	7944232558	24771668535	0.32
2008/09	11633380218	32456203035	0.35
2009/10	16825148284	35175224361	0.48

Source:- “annual report of Nepal investment bank ltd.”

Fiscal year

From the above table and trend line chart, the ratio is fluctuating in increasing and decreasing trend. The highest ratio is 0.48 times in year 2009/10 and lowest ratio is 0.32 times in fiscal year 2007/08. And 0.36 times, 0.37 times and 0.35 times in year 2005/06, 2006/07, and 2008/09 respectively.

4.2.3 CASH AND BANK BALANCE TO CURRENT DEPOSIT RATIO:

Fiscal year	Cash and bank balance	Current deposit	Ratio
2005/06	810454736	1705668495	0.48
2006/07	1060162644	2175020657	0.49
2007/08	1934935533	3138669428	0.62
2008/09	3578672803	3756570350	0.95
2009/10	3506870807	4025820180	0.87

Source:- “annual report of Nepal investment bank ltd.”

Fiscal year

From the above table and trend line chart, the ratio is fluctuating in not normally. In fiscal year 2005/06, the bank has the liquidity against current deposit is 0.48 times. And the bank has the liquidity against current deposit are0.49, 0.62, 0.95, 0.87times in year 2006/07, 2007/08, 2008/09, 2009/10 respectively.

4.2.4. CASH AND BANK BALANCE TO TOTAL DEPOSIT RATIO:

Fiscal year	Cash and bank balance	Total deposit	Ratio
2005/06	810454736	15200618592	0.05
2006/07	1060162644	20424048148	0.05
2007/08	1934935533	24771668535	0.08
2008/09	3578672803	32456203035	0.11
2009/10	3506870807	35175224361	0.10

Fiscal year

From the above table and trend line chart, the ratio is fluctuating. In fiscal year 2005/06, the bank has the liquidity for total deposit in the ratio of 0.05 times. And in fiscal year 2006/07, 2007/08, 2008/09, and 2009/10, the bank has the liquidity for the total deposit in ratio of 0.05, 0.08, 0.11 and 0.10 times respectively.

4.2.5. CASH AND BANK BALANCE TO TOTAL DEPOSIT (EXCLUDING FIXED DEPOSIT) RATIO:

Fiscal year	Cash and bank balance	Total deposit	Ratio
2005/06	810454736	9787648997	0.08
2006/07	1060162644	12917361282	0.08
2007/08	1934935533	16827435977	0.11
2008/09	3578672803	20822822817	0.17
2009/10	3506870807	18350076077	0.19

Source: - “annual report of Nepal investment bank ltd.”

Fiscal year

From the above table and trend line chart, the ratio is fluctuating in increasing state. In fiscal year 2005/06, the bank has the liquidity against current and saving deposit account deposit account liability in the ratio of 0.08 times. And in fiscal year 2006/07, 2007/08, 2008/09, and 2009/10, the bank has the liquidity against current and saving deposit account liability in the ratio of 0.08 times, 0.11 times, 0.17 times and 0.19 times respectively.

4.2.6. BALANCE WITH NRB TO CURRENT AND SAVING DEPOSIT RATIO:

Fiscal year	Balance with NRB	Current + saving	Ratio
2005/06	1526066660	9787648997	0.16
2006/07	1381351556	12917361282	0.11
2007/08	1820006035	16827435977	0.11
2008/09	4411133083	20822822817	0.16
2009/10	3237217030	18350076077	0.18

Source: - “annual report of Nepal investment bank ltd.”

Fiscal year

From the above table and trend line chart, the ratio has been maintained in fiscal year 2005/06 by 0.16 times. And the bank has been maintained its ratio in fiscal year 2006/07, 2007/08, 2008/09, 2009/10 by 0.11 times, 0.11 times, 0.16 times and 0.18 times respectively.

4.2.7. BALANCE WITH NRB TO FIXED DEPOSIT RATIO:

Fiscal year	Balance with NRB	Fixed deposit	Ratio
2005/06	1526066660	5412969595	0.28
2006/07	1381351556	7516686866	0.18
2007/08	1820006035	7944232558	0.23
2008/09	4411133083	11633380218	0.38
2009/10	3237217030	16825148284	0.19

Source: - “annual report of Nepal investment bank ltd.”

Fiscal year

From the above table and trend line chart, the ratio is fluctuating. In fiscal year 2005/06, the bank has the balance with NRB against fixed deposit liability in the ratio of 0.28 times. And in fiscal year 2006/07, 2007/08, 2008/09, 2009/10, the bank has the balance with NRB against fixed deposit liability in the ratio of 0.18 times, 0.23 times, 0.38 times and 0.19 times respectively.

4.2.8. TOTAL INVESTMENT TO TOTAL DEPOSIT RATIO:

Fiscal year	Total investment	Total deposit	Ratio
2005/06	5602808649	15200618592	0.37
2006/07	6505679987	20424048148	0.32
2007/08	6874023625	24771668535	0.28
2008/09	7399811700	32456203035	0.23
2009/10	8635530125	35175224361	0.25

Source: - “annual report of Nepal investment bank ltd.”

Fiscal year

From the above table and trend line chart, the ratio is fluctuating. In fiscal year 2005/06, the bank has invested 37% of the deposit in investment. In fiscal years 2006/07, 2007/08, 2008/09, 2009/10, the bank has invested 32%, 28%, 23% and 25% of the deposit in investment respectively.

4.2.9. LIQUIDITY ASSETS TO TOTAL DEPOSIT RATIO:

Fiscal year	Liquidity assets	Total deposit	ratio
2005/06	4068425766	15200618592	0.26
2006/07	5203482662	20424048148	0.51
2007/08	5403444347	24771668535	0.51
2008/09	5561846381	32456203035	0.50
2009/10	5683996571	35175224361	0.48

Source: - “annual report of Nepal investment bank ltd.”

Fiscal year

From the above table and trend line chart, the ratio is fluctuating slightly except fiscal year 2005/06 in fiscal year 2005/06; the bank has invested 26% of the deposit in the liquid assets. In fiscal year 2006/07, the bank has invested 51% of deposit in liquid assets. In fiscal year 2007/08, 2008/09 and 2009/10, the bank has invested 51%, 50%, and 48% of the deposit in the liquid assets respectively.

CHAPTER – FIVE

Summary, Conclusion and Recommendation

5.1. SUMMARY

Nepal is one of the least developed countries of the world. For most of the developing process, it is financially depending upon the foreign countries. It is economically too weak. Thus, the economic condition of the people is weak. In Nepal 85% of the people are depended upon agricultural sector which is unable to provide full employment to the people. Nepal government has to activate people in the nation’s development through overall industrialization of nation. For this purpose, development of sound banking system is essential.

In neplese banking sector, commercial banks including ventures banks are operating at present. In the absences of modern banking any country cannot develop the economic activity. Therefore, it is essential to find out whether or not the banks are serving an important contribution to develop sectors of economy. Liquidity is said to be general business of fund, which shows the bank ability to meet cash requirement. In this record, this study has been based upon the objective to evaluate the liquidity position of Nepal investment bank ltd.

5.2. CONCLUSION

a) The saving deposit account is nearly constant trend. The highest ratio is 0.55 times in fiscal year 2007/08 and the lowest ratio is 0.41 times in fiscal year 2009/10. But the ratio is not satisfactory due to the last year ratio was decline.

b) Fixed deposit is fluctuated. The lowest ratio is 0.32 times and highest ratio is 0.48 times. It is decrease up to fiscal year 2007/08 and grows up then. And it is 0.48 times on 2009/10. It is satisfactory. Bank made good ratio after 2007/08.

c) From the cash and bank balance to current deposit liability is fluctuating. The ratio is moving around between 0.48 times to 0.95 times. It is satisfactory.

d) Cash and bank balance to total deposit ratio is fluctuating. But the ratio is somehow satisfactory even though the ratio is higher than the central banks prescription. The ratio is moving around the between 0.05 times to 0.11 times.

e) Cash and bank balance to total deposit (excluding fixed deposit) ratio is fluctuating in increasing state. The ratio is satisfactory. It is moving around between 0.08 times to 0.19 times.

f) The ratio of balance with the NRB to current and saving deposit has been fluctuating. The ratio is declined in year 2006/07 and constant in 2007/08 and then it is grow up. so, the ratio is satisfactory.

g) The balance with the NRB to fixed deposit ratio is fluctuating. It is moving around between 0.18 times to 0.39 times.

h) The investment to total deposit ratio is fluctuating adversely. Since the ratio is fluctuating the bank has unsatisfactory result. However the investment from source of deposit is

higher. It will give a higher return without risk only if the ratio is stabilized.

i) The liquid assets to total deposit ratio is fluctuating slightly except fiscal year 2005/06. However the ratio is higher and somehow may be considered satisfactory.

5.3 RECOMMENDATION

a) The overall results are satisfactory. But in some case the Nepal investment Bank should take certain steps to improve the bank current financial condition. Therefore some recommendations are being put forward for its improvement along with its development of the country.

b) The proportion of the saving deposit account is high in total deposit liability. So, it is recommended that the bank should utilize the amount collected from the saving deposit account carefully. It should be invested in the higher yielding areas.

c) The cash and bank balance in the Nepal investment bank is satisfactory. It is higher a bit though. Bank should analyze the opportunities for short term investment.

d) Balance with NRB to current plus saving deposit should be maintained at the below than 0.11 times.

e) Investment to deposit ratio is fluctuating adversely. It may harm the operation of the bank. So, the investment from the deposit source should always be aware of liquidity need and keep in mind to maintain the optimum liquidity.

f) Bank should not spend too much in the fixed assets because it yields only a nominal portion, almost no yield.

BIBLIOGRAPHY

Bajracharya, B.C. (2053), Business statistics & mathematics, M.K. publishers and Wistributors.

Brigham, Weston, Essentials of Managerial Finance”, Eleventh Edition, University Publishers, USA.

Kothari, C.R., Research Methodology”, Mc. Grow Hill Company, second Edition.

Shekhar and Shekhar “Banking Theory & Practice”, Eighteenth Revised Edition, 1996.

Nepal Rastra Bank, Banking and Financial Statistics,

Nepal investment Bank Ltd., “annual report 2006-2010

http:// www.nrb.org.np

http://www.nibl.com.np

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Monday, February 27, 2012

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