1

Contents
INTRODUCTION TO THE BANKING INDUSTRY & NIBL..................................2
1.1 Introduction......................................................................................................2
1.2 Origin of Bank in Nepal..................................................................................2
1.3 Commercial Bank in Nepal.............................................................................3
1.5 Growth of financial institutions......................................................................4
1.6 Introduction to Nepal Investment Bank Limited..........................................4
DATA ANALYSIS AND FINDINGS..........................................................................5
2.1 Data & Methodology......................................................................................5
2.2 Trend Analysis of Paid up Capital..................................................................6
2.3 Trend Analysis of total deposit........................................................................7
2.4 Trend Analysis of Total Loan.........................................................................8
2.5 Trend Analysis of Net Interest Income...........................................................9
2.6 Trend Analysis of Net Profit.........................................................................10
2.7 Trend Analysis of EPS..................................................................................11

INTRODUCTION TO THE BANKING INDUSTRY & NIBL

1.1 Introduction
According to Crowther "A bank is an institution which collects money from those
who have it spare or who are moving it out of their income and lends this out to
those who required it
According to Nepal Rastra Bank act 2002, Bank is a financial institution, which
provides financial services that may be in the form of accepting deposits, advancing
loan, providing necessary technical advices, dealing over foreign currencies,
remitting funds, etc.
History and Origin of Bank
When the word bank is used it is meant for commercial bank. Actually word bank
was originated from Germany though some people think it to be of French and Italic
origin. Before 1960 there was no such word as "banking". However, in the temple of
Babylon the practices of safeguarding and saving flourished as early as 2000 B.C.
Chanakya in his Arthashastra written in about 300 B.C mentioning about the
existence of powerful guilds of merchant's bankers received deposits, advance loans
and hundies (letter of transfer).
The origin of the "Bank" is linked to:
Latin word "Bancus", Italian word "Banco" meaning a bench, French word "Banque"
The establishment of the first modern banking institution called "The Bank of
Venice" in 1157 AD with a view of finance the monarch in wars was a landmark in
the history of Banking. Subsequently, the establishment of "The bank of England" in
1694 AD as the first central bank contributed a great deal to the history of banking.
History apart, it was the "Merchant Bank:" who first evolved the system by trading
in commodities than money. They used to do their trading activities by remitting the
money from one place to another. The next stage was the money lenders. They
started advancing the coins on loan by charging interest.

1.2 Origin of Bank in Nepal

The history of banking in Nepal is believed to be started from the time of Prime
Minister Ranoddip Singh in 1877 A.D. he introduced many financial and economic
reforms. The Tejaratha Adda was established at that time and its basic purpose was
2

to provide credit facilities to the general public at a very concessional interest rate.
The Tejarath Adda disbursed credit to the people on the basis of collateral of gold
and silver. All employees of government were also eligible for this type of
loan,which was settled by deducting from their salary. Tejaratha Adda extended
credit only; it did not accept deposits from the public.
But the real banking started with the establishment of Nepal bank limited in 1994
B.S which was founded by Judda Samsher. It was the first bank of Nepal. Its main
function was to provide loans and accept deposits. Later Nepal Rastra Bank was
established as a central bank in 2013 B.S. The bank was completely government
ownership bank and it also started to issues notes since 2016 B.S. Then after, several
commercial banks have been established in the recent years.
1.3 Commercial Bank in Nepal
The history of commercial bank in Nepal start forms the establishment of Nepal
Bank Limited on 1994 BS. It is the first bank in Nepal and prior to this, there was no
such organized banking system in the country.
As the time passed Banijya Bank was established on 2022 in order to play a major
role not only in domestic banking services but also in the foreign trade. After the
establishment of this bank, there was progress in the banking industry in Nepal.
Today, Nepal can take legitimate pride in the remarkable growth and progress in the
banking industry. Nepal has opened its door to foreign commercial banks to operate
in the kingdom. Till 2068 B.S. there are 32 commercial Banks are working smoothly
in Nepal; youngest being Sanima Bank Ltd. which was upgraded from development
bank to commercial bank.
1.4 Nature and Scope of Industry
Banking industry has stood as the most vulnerable yet most profitable sector in the
economy in the Nepalese context. Despite increasing problem in the nation, this
sector has yet been prospering with much lesser difficulty. As mentioned earlier
there are 19 commercial banks, which cater to the society with banking services.
Commercial banks have gained vital trust from the public side. With the wide reach
and wide diversity of services, it has become one of the most important sectors of
the economy.
Banking industry is one of the vital parts of the Nepalese financial sector .The
Nepalese financial sector is composed of banking sector and non banking sector.
Banking sector comprises Nepal Rastra Bank (NRB) and commercial banks. The
non-banking sector includes development banks, micro-credit development banks,
finance companies, co-operative financial institutions, non-government
organizations (NGOs) performing limited banking activities. Other financial
institutions comprise of insurance companies, employee's provident fund, citizen
investment trust, postal saving offices and Nepal stock exchange.

Nature and scope of the banking industry can be known from the following facts and
figures about the banking industry, specifically commercial banks.
1.5 Growth of financial institutions
Types of financial institutions
Commercial banks
Development banks
Finance companies
Micro credit development banks
Saving and credit cooperatives
NGOs(performing
banking activities )
Total

Number of institutions in mid July

1980
2
2
-

limited -

1985
3
2
-

1990
5
2
-

1995
10
3
21
4
6

2000
13
7
45
7
19

2005
17
26
60
11
20

2012
32
89
79
21
15

47

45

4
6
7
44
98
181
Table 4: Growth of financial institutions
The financial institutions which are licensed by NRB are highlighted in the above
table.
From the above table we can see that there is a tremendous growth in the number of
financial institution in Nepal in the last two decades. At the beginning of the 1980s
when financial sector was not liberalized, there were only two commercial banks,
and two development banks performing banking activities in Nepal. There were no
micro-credit development banks, finance companies, cooperatives and NGOs with
limited banking transactions. After the liberalization of the financial sector, financial
sector has made a hall-mark progress both in terms of the number of financial
institutions and beneficiaries of financial services.
1.6 Introduction to Nepal Investment Bank Limited
Nepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez Bank Ltd., was
established in 1986 as a joint venture between Nepalese and French partners. The
French partner (holding 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 businessmen, had acquired
on April 2002 the 50% shareholding of Credit Agricole Indosuez in Nepal Indosuez
Bank Ltd.The name of the bank has been changed to Nepal Investment Bank Ltd.
upon approval of banks Annual General Meeting, Nepal Rastra Bank and Company
Registrars office with the following shareholding structure.
A group of companies holding 50% of the capital
Rashtriya Banijya Bank holding 15% of the Capital.
Rashtriya Beema Sansthan holding the same percentage.

281

 The remaining 20% being held by the General Public (which means that
NIBL is a Company listed on the Nepal Stock Exchange).
NIBL, which is managed by a team of experienced bankers and professionals
having proven track record, will be guided among other things by its reliability and
professionalism. It is first ever bank to get A credit rating in Nepal. NIBL is
currently the largest private sector bank in Nepal in terms of Deposit, Lending, Asset
size, Capital base, Customer base and has won the Bank of the Year Award awarded
by the London Financial Times, The Banker Magazine Published from London for
the fourth time in the span of 8 years.
To develop a customer oriented service culture with special emphasis on
customer care and convenience
To increase our market share by following a disciplined growth strategy
To leverage our technology platform and pen scalable systems to achieve
cost-effective operations, efficient MIS, improved delivery capability and
high service standards
To develop innovative products and services that attracts our targeted
customers and market segments
To continue to develop products and services that reduce our cost of funds
To maintain a high quality assets portfolio to achieve strong and sustainable
returns and to continuously build shareholders value
To explore new avenues for growth and profitability
DATA ANALYSIS AND FINDINGS
2.1 Data & Methodology
Nepal Rastra Bank has a provision that all commercial banks need to publish their
annual report with proper disclosures of financials at the end of every fiscal year. All
the necessary figures for this project have been collected from the annual reports of
the respective years.
Methodology:
The methodology used is trend analysis. The term "trend analysis" refers to the
concept of collecting information and attempting to spot a pattern, or trend, in the
information. In some fields of study, the term "trend analysis" has more formallydefined meanings. Although trend analysis is often used to predict future events, it
could be used to estimate uncertain events in the past. Trend analysis can be for
project management, Statistics Analysis, History analysis. We are here doing trend
analysis statistically. In statistics, trend analysis often refers to techniques for
extracting an underlying pattern of behavior in a time series which would otherwise
be partly or nearly completely hidden by noise. A simple description of these
techniques is trend estimation, which can be undertaken within a formal regression

analysis. Two different methods have been used in this study for forecasting. They
are:
Linear Trend (First Degree Equation)
This method is used for fitting a straight line to a time series. Linear trend is more
accurate when the data set follows an arithmetic progression. The linear trend line is:
= b0 + b1x
Where b0 is intercept of data and calculated by, b0 = y / n (number of year)
And b1 is the slope of the trend and calculated by b1 = xy / x
To transform X into x, we use the following method,
x= X X (if total number of years is odd)
x= 2(X X) (if total number of years is even)
Curvi Linear Trend(Second Degree Equation)
Many time series are best described by curves, not straight lines. In these instances,
the linear trend model does not adequately describe the change in the variable as
time changes. To overcome this problem, we often use a parabolic curve, which is
described mathematically by a second degree equation. This method is more
accurate when the data set follows a geometric progression. The second degree
equation is,
= b0 + b1x + b2x2
Where,
X= time period
To transform X into x, we use the following method,
x= X X bar (if total number of years is odd)
x= 2(X X bar) (if total number of years is even)
To determine the values of b0, b1 and b2 we have to solve the following three normal
equations:
Y= n b0 + b2x2
xY= b1x2
x2Y= b0x2 + b2x4
However, if data are in Arithmetic progression we use first degree equation and if
the data re in Geometric progression, we use second degree equation.
2.2 Trend Analysis of Paid up Capital
Paid up Capital is the amount of capital from authorised capital that has been issued
and subscribed by the general public or more specefically the shareholders.
Using trend line for forecasting, b 1 denotes the average change in Paid up Capital
per annum. So, the average change in the Paid up Capital (Y) per annum is 286.70
Million. Similarly, the value of b0 or constant is 1,085 Millions.
So, the trend line is
y^= b0 + b1 x
or,
y^= 1085 + 286.70x

Table1 :Trend Analysis of Paid up capital ( Figures in 000,000)

Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Total
2011-12
2012-13
2013-14

Paid up capital
(Million) (y)

x=X-6
1
2
3
4
5
6
7
8
9
10
11

-5
-4
-3
-2
-1
0
1
2
3
4
5

12
13
14

6
7
8

169
169
295
295
587
590
801
1,203
2,407
2,409
3,011
11,936
2,805
3,092
3,379

xy

(845)
(676)
(885)
(590)
(587)
801
2,406
7,221
9,636
15,055
31,537

25
16
9
4
1
0
1
4
9
16
25
110
b1
b0

y^
(348.35)
(61.65)
225.04
511.74
798.43
1,085.13
1,371.83
1,658.52
1,945.22
2,231.91
2,518.61

286.70
1,085

Due to its rapidly increasing trend it has shown some unrealistic trend of paid up
capital for upcoming three fiscal years, especially in 2011-12. The capital is unlikely
to decrease thought trend line predicts it to be decreased. This is mainly due to its
lower paid up capital throughout first eight years of our trend analysis. However, it
shows that NIBL has increased its capital base rapidly from 2007-08.
2.3 Trend Analysis of total deposit
NIBL has been grown tremendous since Nepalese promoters taking over from
foreign investors. The growth rate was very high till 2010-2011, where pace of
growth was slow. Using trend line for forecasting, b1 denotes the average change in
Deposits per annum. So, the average change in the deposits(Y) per annum is Rs.
5,516.22 Millions. Similarly, the value of b0 or constant is 24,267 Millions.
So, the trend line is
y^= b0 + b1 x
or,
y^= 24,267+ 5,516.22x

Table 2: Trend Analysis of Total Deposit ( Figures in 000,000)

Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Total
2011-12
2012-13
2013-14

x=X-6
1
2
3
4
5
6
7
8
9
10
11

-5
-4
-3
-2
-1
0
1
2
3
4
5

12
13
14

6
7
8

Total
Deposit(in
Million (y)
4,256.20
4,174.80
7,922.77
11,525.00
14,255.00
18,927.30
24,488.85
34,451.73
46,698.34
50,094.73
50,138.12
266,932.84
57,363.95
62,880.17
68,396.39

xy

y^

(21,281)
(16,699)
(23,768)
(23,050)
(14,255)
24,489
68,903
140,095
200,379
250,691
606,784

25
16
9
4
1
0
1
4
9
16
25
110

(3,314.48)
2,201.74
7,717.96
13,234.18
18,750.40
24,266.62
29,782.84
35,299.06
40,815.29
46,331.51
51,847.73

b1
b0

5,516.22
24,267

As per the forecasting, we can say the deposits scenario of this bank is making
headway and it is expected to increase further more in the coming years which is
really good news for Nepal Investment Bank Limited. Due to lack of trust of
depositors in small banks/FIs, deposit base of commercial banks will increase
hugely in coming days.
2.4 Trend Analysis of Total Loan
Providing the loan is primes source of any banks income. Growth in lending of
NIBL is not as per the growth in deposits; its due to strong credit appraisal system
of the bank. Using trend line for forecasting, b 1 denotes the average change in Loan
per annum. So, the average change in the Loans (Y) per annum is Rs. 4,387.64
Millions. Similarly, the value of b0 or constant is 18,622 Millions.
So, the trend line is
y^= b0 + b1 x
or,
y^= 24,267+ 5,516.22x

Table: 3 Trend Analysis of Total Loans & Advances (figures in 000,000)

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Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Total
2011-12
2012-13
2013-14

x=X-6

1
2
3
4
5
6
7
8
9
10
11

-5
-4
-3
-2
-1
0
1
2
3
4
5

12
13
14

6
7
8

Total Loans (in

Million) (y)
2,713.50
2,713.50
5,796.43
7,338.00
10,450.00
12,776.20
17,286.42
27,529.17
36,827.27
40,318.31
41,095.51
204,844.31
44,948.06
49,335.70
53,723.34

xy

(13,568)
(10,854)
(17,389)
(14,676)
(10,450)
17,286
55,058
110,482
161,273
205,478
482,641

y^

25
16
9
4
1
0
1
4
9
16
25
110

(3,316.00)
1,071.64
5,459.29
9,846.93
14,234.57
18,622.21
23,009.85
27,397.49
31,785.13
36,172.78
40,560.42

b1
b0

4,387.64
18,622

As per the analysis, loans of NIBL are in very constant growth rate under review
period. The trend is going to continue in next three fiscal years too. As per current
situation, banks are not being able to lend amount due to unfavorable market
conditions, real estate exposures etc. Maximum money lent for project financing like
Hydropower projects, Industrial projects and other manufacturing & service sectors
that can emphatically help in sustainable growth of economy.
2.5 Trend Analysis of Net Interest Income
As all the commercial banks in Nepal are focused more towards providing vanilla
banking products, their major source of income is interest income. Using trend line
for forecasting, b1 denotes the average change in Interest income per annum. So, the
average change in the Interest income (Y) per annum is Rs. 213.57 Millions.
Similarly, the value of b0 or constant is 931 Millions.
So, the trend line is
y^= b0 + b1 x
or,
y^= 931+ 213.57x

Table: 4 Trend Analysis of Net Interest Income( Figures in 000,000)

Year

x=X-6

Net Interest income

(Million) (y)

Xy

y^

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Total
2011-12
2012-13
2013-14

1
2
3
4
5
6
7
8
9
10
11

-5
-4
-3
-2
-1
0
1
2
3
4
5

12
13
14

6
7
8

186.30
195.80
270.30
405.20
532.20
681.79
899.45
1,202.12
1,580.97
2,099.67
2,183.10
10,237
2,212.04
2,425.61
2,639.18

(932)
(783)
(811)
(810)
(532)
899
2,404
4,743
8,399
10,916
23,493

25
16
9
4
1
0
1
4
9
16
25
110
b1
b0

(137.22)
76.35
289.92
503.49
717.06
930.63
1,144.20
1,357.77
1,571.33
1,784.90
1,998.47

213.57
931

The interest income of Bank has gradually increased over the 10 eight years.
However the pace of growth is high after 2004-05. Similarly, the banks high
increment in interest income in fiscal year 2009-10, when the financial system is
facing liquidity crunch, points towards the efficiency of the bank. The interest
income in the following three years is also expected to increase. However, the rate of
increment is not steady but fluctuating.
2.6 Trend Analysis of Net Profit
Net profit is final profit of the bank after deducting all the necessary expenses.
However, this income doesnt consider distribution of dividend to the shareholders
NIBL has topped the chart of highest earners few times. Its among the one of the
most profitable banks in Nepal. Using trend line for forecasting, b 1 denotes the
average change in NPAT per annum. So, the average change in the deposits(Y) per
annum is Rs. 128.59 Millions. Similarly, the value of b 0 or constant is 500.63
Millions.
So, the trend line is
y^= b0 + b1 x
or,
y^= 500.63+ 128.592x

Table 5: Trend Analysis Net Profit (Figures in 000,000)

Year
2000-01
2001-02
2002-03

x=X-6
1
2
3

-5
-4
-3

Net Profit (In

Million) (y)
56.40
57.10
116.81

Xy
(282)
(228)
(350)

x
25
16
9

y^
(142.34)
(13.74)
114.85

10

2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Total
2011-12
2012-13
2013-14

4
5
6
7
8
9
10
11

-2
-1
0
1
2
3
4
5

12
13
14

6
7
8

152.67
232.14
350.53
501.39
696.73
900.62
1,265.95
1,176.64
5,506.98
1,272.20
1,400.80
1,529.39

(305)
(232)
501
1,393
2,702
5,064
5,883
14,145

4
1
0
1
4
9
16
25
110

243.45
372.04
500.63
629.23
757.82
886.42
1,015.01
1,143.61

b1
b0

128.59
500.63

As per the analysis, NIBL has been able to maintain steady growth in terms of
NPAT. However its profit decreased in 2010-11 compared to 2009-10, its due to
high amount of provisioning for non performing loan. As real estate sector is down,
banks having high exposure in this sector have suffered to keep high loan loss
provision. NIBL will continue to increase its NPAT in next three years too.
2.7 Trend Analysis of EPS
The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability. Using
trend line for forecasting, b1 denotes the average change in EPS per annum. So, the
average change in the EPS(Y) per annum is Rs. 9.768 Millions. Similarly, the value
of b0 or constant is 4.44 Millions.
So, the trend line is
y^= b0 + b1 x
or,
y^= 4.44+9.768x

Table 5: Trend Analysis EPS (Figures in 000,000)

Year
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006

EPS(Y)
33.18
33.59
39.56
51.70
39.5
59.35

x=(X - X/n)
1
2
3
4
5
6

-5
-4
-3
-2
-1
0

x2
25
16
9
4
1
0

xy
-165.9
-134.36
-118.68
-103.4
-39.5
0

11

2006/2007
2007/2008
2008/2009
2009/2010
2010/2011
Total
2011/2012
2012/2013
2013/2014

62.75
57.87
37.42
52.55
48.84
516.31
56.94
58.60
60.27

7
8
9
10
11
66

1
2
3
4
5
6
7
8

1
4
9
16
25
110

62.75
115.74
112.26
210.2
244.2
183.31

b1
b0

9.768
4.44

As per the analysis,

As per the analysis, there has been many up and down in EPS in 2003/4, 2004/5.In
2007/8, there has been drastic downfall in EPS. However, our analysis comes to the
point that it would be in increasing trend in 2011/12-2012/13-2013/14.

Conclusion
Nepals Banking sector has grown in stature over the decades. The actual concept of
commercial banking started to materialize less than 20 years back which points out
how young our banking sector is in comparison to other sectors. In the banking
sector too, with the exception of government run banks only few privately owned
banks have managed to grasp the concept of commercial banking and in amongst
those banks falls Nepal Investment Bank Limited.
Since its inception in the year 1986, Nepal Investment Bank has come a long way as
one of the key players of the financial sector. During that time Nepal has gone
through various political crises from Panchayat to Maoist revolutionary movement.
Despite all these turbulent times NIBL has managed to gain the general publics
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confidence in them as one of the premier banking institutions of the country which
in itself says a lot about the companys standings in the financial sector.
By listing itself in the Nepal stock, NIBL has become a truly public company and
unlike other institutions who have mismanaged peoples trust, NIBL has come out
on top securing top 3 position in terms of net profit on a consistent basis.NIBL is the
award holder as a Best Bank of the year on 2003,2005,2006 and 2010.People
certainly have been misguided with the conception that the banks dont have enough
opportunities to invest in and they all have reached a saturation point. Its a
misguided statement because there is so much room for investment in this country
and not only hydropower but also alternative energy like wind which one can
explore. And in doing such explorations a financial institution with a strong base
must be there. Since the case is on Investment Bank, the bank perfectly fits the bill
with is strong base. Its growth opportunity is limitless as it goes hand in hand with
the countries growth potential.
The only drawback for all these to materialize in the countrys political situation,
once its get stabilize banks like Nepal Investment Bank with such good financials
even in dire times will definitely prosper with the country.

13