COMPARATIVE LIQUIDITY ANALYSIS

OF

NEPAL INVESTMENT BANK LIMITED

AND PRABHU BANK LIMITED

By
Nirmala Joshi
T.U. Registration number
7-2-0605-0071-2015

Exam Roll No : 2520007

A Field Work Report

Submitted to

Faculty of Management
Trivhuvan University
Kathmandu

In partial fulfillment of the requirements for the degree

of
Bachelor of Business Studies

Date:- 2076-01-20
 DECLARATION

I hereby declare that the project work entitled COMPARATIVE LIQUIDITY

ANALYSIS OF NEPAL INVESTMENT BANK LIMITED AND PRABHU

BANK LIMITED submitted to Faculty of Management, Tribhuvan University,

Kathmandu is an original piece of work and has been composed solely by me; and that

it has not been submitted in whole or in part, in any previous application for a degree.

Except where states otherwise by reference or acknowledgment, the work presented is

entirely my own. The work was done under the supervision of Mr. Nirendra Kuwar,

faculty member Adarsha Multiple Campus, Sanothimi, Bhaktapur and submitted in

partial fulfillment of the requirement for the award of the degree of Bachelor of

Business Studies (BBS).

Signature

Nirmala Joshi

Date: 2076-01-20
 SUPERVISOR’S RECOMMENDATION

The project work report entitled COMPARATIVE LIQUIDITY ANALYSIS OF

NEPAL INVESTMENT BANK LIMITED AND PRABHU BANK LIMITED

Submitted by Nirmala Joshi of Adarsha Multiple Campus, Sanothimi Bhaktapur is

prepared under my supervision as per the procedure and format requirements laid by

the Faculty of Management, Tribhuvan University, as partial fulfillment of the

requirements for the award of the degree of Bachelor of Business Studies (BBS). I,

therefore, recommend the project work report for evaluation.

………………………………..

Nirendra Kunwar
Adarsha Multiple Campus
Sanothimi Bhaktapur
Date: 2076-01-20
 ABSTRACT

Banking system plays significant role in the economic development of a country. A banking

institution is indispensable in a modern society. The basic function of the bank is to collect

deposits as much as possible from customers and mobilize it into the most preferable and

profitable sector like industry, commerce, agriculture, entertainment and so on. There are

various tools to measure financial position of banks. Liquidity analysis is the one of the major

tool to analyze liquidity position of the bank. Liquidity is crucial in the business like banking

sector. Banks have to maintain liquidity, if the bank has high liquidity it cannot gain desired

profit and if bank has the shortfall of the liquidity it cannot satisfy its customers and

inadequate liquidity may lead to collapse of the bank.

This study attempt to know the liquidity position of NIBL and PBL; which banks

performance is best and which bank’s liquidity position is better. This study is related with

comparative liquidity analysis of NIBL and PBL for the period of 2011/12 to 2015/16 A.D.

Necessary data are taken from the annual reports of these two banks: NIBL and PBL such

as published balance sheet/ unaudited balance sheet, profit and loss account and related

statement, net, website, and so on. This study is based on secondary data. For the study,

liquidity analysis of NIBL and PBL has been done. In this study liquidity ratio is calculated

to find out the liquidity position of these two banks. This study is useful to investors,

creditors, banks, customers and other parties who are related to these two banks.
This study reveals that liquidity position of both banks: NIBL and PBL. The current

ratio of both banks is less than normal ratio (2:1) which are 0.994 and 1.010

respectively. But in comparison, PBL has the better current ratio than the NIBL. From

this study, the researcher concluded that, both bank have to maintain its liquidity

position forwarded. The ratio of loan and advances to total deposit ratio of NIBL and

PBL are (i.e. 0.739 >0.671). From the analysis; it is concluded that PBL has been

successfully utilized their deposits in term of loan and advances for profit generating

purpose compared to NIBL. The Liquidity position of cash and bank balance to total

deposit ratio of PBL is higher than that of NIBL (i.e0.401 < 0.594). So, it is concluded

that PBL has sufficient cash and bank balance to current & saving deposit than that of

NIBL and so on. This analysis shows that both banks have to increase their liquid

position but in comparison PBL is liquid than the NIBL.

The major income sources of both banks are interest income where as expenses are

staff bonus, interest expense and so on.

 ACKNOWLEDGEMENT

First of all I am thankful to Tribhuvan University and Dillibazaar Kanya Multiple

Campus which are provide the opportunity to conduct a project report which helps to

increase my knowledge. I would like to express my sincere gratitude to my supervisor,

Mr. Ram Krishna Tiwari, for all his support, insights and valuable comments without

which this project report writing would not have been possible. I would like to thank

my brother Gokarna Aryal for his support; he creates the environment for me to

conduct Project Report. I would like to acknowledge the support I received from staff

of Prabhu Bank LTD and Nepal Investment Bank LTD; they provide the required

information at the time of the preparing project report.

I am also thankful to my friends and family; who are always been my additional source

of moral support and has encouraged me to proceed with this Project Report. I am very

grateful to the committee members for their valuable time in the evaluation of my

Project Report and their comments which was greatly benefited me to improve my

project report.

At the time of preparing this study, I have consulted with various personalities. So I

would like to extend my sincere thanks to all whose works and ideas helped me in

conducting the study. Sincerely, I would like to pay my sincere gratitude Pradeep Pant

and Ram Datta Mishra who gave me idea about the conduct of report.

Signature

Nirmala Joshi
 TABLE OF CONTENTS

Title page………………………………………………………………………………………i

Declaration……………………………………………………………….……………..……ii
Supervisor’s Recommendation……………….…………………….………………….…iii
Endorsement……………………………………………………….……….…………….…iv
Abstract……………………………………………………………...……….………………v
Acknowledgement…………………………………………………………………………...vii
Table of Contents……………………………………………………………………………viii
List of Tables………………………………………………………………………..………...x
List of Figures………………………………………………………………………………..xi
Abbreviations………………………………………………………………………………….xii

CHAPTER -I. INTRODUCTION

1.1 Background of the Study…………………………………………………………1
1.2 Problem statement …………………………………………………………...….2

1.3 Objective of the Study…………………………………………………...……….3

1.4 Rationale of the study…………………………………………………………….4

1.5 Report structure…………………………………………………………………...4

CHAPTER - II LITERATURE REVIEW

2.1 Conceptual Review………………………………………………………...……...6

2.3 Review of Previous work …………………………………………………………8

2.4 Research Gap…………………………………………………...………….....….15

CHAPTER- III METHODS

3.1 Types of Research ………………….……………………………………..……17

3.2 Population and Sample…………………………………………………...……..17

3.3 Types and Sources of Data………………………………………………...……19

3.4 Data Collection Procedures………………………………………………..……19

3.5 Analysis Techniques……………………………………………...……………..19

3.6 Limitation of the Study………………………………………………………….21

CHAPTER-IV RESULTS AND FINDINGS

4.1 Presentation of Data in Tables and Figures and their Analysis…………….…..22

4.2 Major Findings………………………………………………………………….37

CHAPTER-V DISCUSSION AND CONCLUSION

5.1 Discussion……………………………………………………………………… 39

5.2 Conclusion and Implication……………………………………………………..40

REFERENCES………………………………………………………………………43
 LIST OF TABLES

Table 4.1 Comparative Current Ratio of NIBL and PBL…………………………23

Table 4.2 Comparative Loan to Deposit Ratio of NIBL and PBL……………..…25

Table 4.3 Comparative Cash &Bank Balance to Total Deposit Ratio of NIBL &
PBL.............................................................................................................................. 27

Table 4.4 Comparative Cash & Bank Balance to Current & Saving Deposit

Ratio of NIBL and PBL…………………………………..……………29

Table 4.5 Comparative NRB Balance to Current & Saving Deposit

Ratio of NIBL and PBL……………………………...………..……….30

Table 4.6 Comparative NRB Balance to Fixed Deposit Ratio of

NIBL and PBL……..………………………..…………………..……32

Table 4.7 Comparative Fixed Deposit to Total Deposit Ratio of NIBL and
PBL…………………………………………………………………....34

Table 4.8 Comparative Cash Reserve Ratio of NIBL and PBL…………….……36

 LIST OF FIGURES

Figure 2.1.Theoretical Framework……………………………………….…...….14

Figure 4.1.Comparative Current Ratio of NIBL and PBL …...................…….…24

Figure 4.2.Comparative Loan to Deposit Ratio of NIBL and PBL…………..….26

Figure 4.3.Comparative Cash &Bank Balance to Total Deposit Ratio of

NIBL and PBL………………………………………...…………....28

Figure 4.4.Comparative Cash & Bank Balance to Current &

Saving Deposit Ratio of NIBL and PBL………………………....…30

Figure 4.5.Comparative NRB Balance to Current & Saving

Deposit Ratio of NIBL and PBL………………………………….31

Figure 4.6.Comparative NRB Balance to Fixed Deposit

Ratio of NIBL and PBL……………………………………….…….33

Figure 4.7.Comparative Fixed Deposit to Total Deposit Ratio of NIBL and

PBL……………………………………………………………...….35

Figure 4.8.Comparative Cash Reserve Ratio of NIBL and PBL.………………36

 \

ABBREVIATIONS

& and

AHP Analytical Hierarchy Process

ANOVA Analysis of Variance

CAMEL Capital adequacy, Assets Quality, Management Quality,

Earning Quality and Liquidity Quality

CBBTDR Cash and Bank Balance to Total Deposit Ratio

CBBCSDR Cash and Bank Balance to Current and Saving Deposit Ratio

CHTDR Cash in hand to Total Deposit Ratio

CR Current Ratio

CRDB Cooperative Rural Development Bank

CRR Cash Reserve Ratio

EBL Everest Bank Limited

FCMB First City Monument

FTDR Fixed to Total Deposit Ratio

HBL Himalayan Bank Limited

i.e. that is

IBTC Investment Banking Trust Company

LDR Loan to Deposit Ratio

LFTDR Liquidity Fund to Total Deposit Ratio

LTD Limited

NIBL Nepal Investment Bank Limited

NIM Net Interest Margin

NRB Nepal Rastra Bank

NRBBCSDR NRB Balance to Current and Saving Deposit Ratio

NRBBFDR NRB Balance to Fixed Deposit Ratio

NSBIBL Nepal SBI Bank Limited

PBL Prabhu Bank Limited

ROA Return on Assets

ROE Return on Equity

SBH State Bank of Hyderabad

SBI State Bank of India

SBBJ State Bank of Bikaner and Jaipur

SBM State Bank of Mysore

SCBN Standard Chartered Bank Nepal

SBP State Bank of Patiala

SBT State Bank of Travancore

 CHAPTER-I
INTRODUCTION

This chapter includes the background of the study, problem statement, objectives
of the study, rationale of the study and report structure.

1.1 Background of the Study

Harsh, (2014) stated that the banking sector was always deemed to be one of the most
vital sectors for the economy to be able to function. Its importance as the “lifeblood”
of economic activity, in collecting deposits and providing credits to states and people,
households and businesses is undisputable. The researcher chooses this topic because
numerous researchers have conducted the research in related field and also for the
partial fulfilment of requirement for degree of BBS.

There are different methods to evaluate the performance of the bank. Some of them
are: capital adequacy, assets quality management, ratio analysis, liquidity analysis
and so on. Liquidity is one of the financial indicators of the business enterprise.
However, this study uses comparative liquidity analysis of NIBL and PBL.

Sayers ( 1967), in his book Modern Banking stated that ordinary banking business consists
of changing cash for bank deposits and bank deposits from one person to corporation
(one depositor to another) giving bank deposits in exchange for bill of exchange,
government banks, recurred and unsecured promises businessmen to repay.

1
 Pandey (1997), in his book, Financial Management stated that a firm should ensure
that it does not suffer from lack of liquid. And also that it is not too much high liquid.
The failure of a company to meet its obligations, due to lack of sufficient liquidity
will result in bad credit image. Loss of creditor’s confidence, or even in low suits
resulting in the closure of the company. A very high degree of liquidity is also bad;
idle assets earn nothing. The firm’s funds will be unnecessarily tied up in current
assets. Therefore, it is necessary to strike a proper balance between liquidity and lack
of liquid.

Many researchers have been conducted research on related topic in past. Kumbirai &

Webb (2010) conducted on a financial ratio of analysis of commercial performance in

South Africa; Shakya (2010) conducted on financial performance of Nepal SBI Bank

Limited and Everest Bank Limited; Mishra (2012) conducted on A CAMEL model

analysis of state bank group; Ally (2013) conducted on comparative analysis of

financial performance of Commercial Bank in Tanzania.

1.2 Problem Statement

Previous researchers have conducted research on comparative financial performance

of EBL and HBL, comparative analysis of commercial banks liquidity position,

financial performance of NSBIBL and EBL. Research on comparative liquidity

analysis of NIBL and PBL is rarely finding that’s why researcher chooses this topic.

Previous researchers have used the various models to test the hypothesis like CAMEL

model, ANOVA Test and so on. Researchers conducted research by taking sample of

EBL, HBL, NSBIBL among the population of commercial banks in past. Previous

studies reveals that banks have somehow maintain the moderate liquidity.

2
Researcher is conducted the research by taking sample of NIBL and PBL among

population of Nepalese commercial banks. This study uses the data of 2011/12-

2015/16. The study is conduct on year of 2017 and it uses the balance sheet, profit

and loss account, profit and loss appropriate account, cash flow of NIBL and PBL to

calculate the ratio for the purpose of analysis of liquidity position of these two banks.

This study uses the simply table, trend line to analyse the liquidity position of these

two banks through the different ratios because of time and cost constraints. Liquidity

plays the significant role in banking sector. Banks have to maintain adequate

liquidity. Inadequate liquidity may lead to collapse of the bank. The research gap is

arising from the time variation; previous study did not cover the comparative analysis

of liquidity position of these two banks: NIBL and PBL. Thus, this research is

conduct to fulfil the research gaps. So, this study addressed the investigation the

following issues;

a. What is the liquidity position of NIBL and PBL?

b. Which banks do have the better liquidity position of NIBL and PBL?

1.3 Objective of the Study

The general objective of this study is to make comparative liquidity analysis

between NIBL and PBL.

The specific objectives of this study are as follows:

a. To examine liquidity position of Nepal Investment Bank Limited and

Prabhu Bank Limited.

3
 b. To analyse the comparative liquidity position of Nepal Investment

Bank Limited and Prabhu Bank Limited.

1.4 Rationale of the Study

This study is conducted to comparative analysis of liquidity position of these two

banks NIBL and PBL. The findings of this study will contribute to existing literature

on banks liquidity analysis. This study will also useful to investors for getting

information about the liquidity position of these banks before investment; creditors to

know the payable trend of the banks; banks to know actual liquidity position of bank

comparative to others; customers to know the credit worthiness; and other parties who

are related to these two banks to acquire required information related to liquidity

position of banks. Findings of this study facilitate to management team to amend the

rules and policies of the banks. NRB can use this report for different purposes.

1.5 Report Structure

This report can be classified into two parts i.e. preliminary part and main body part.

Preliminary part of this study includes title page, declaration, supervisor’s

recommendation, endorsement, abstract, acknowledgment, table of contents, list

of table, list of figure and abbreviation.

4
The main body part of this study includes 5 section i.e. chapter-I, chapter-II,

chapter-III, chapter-IV, chapter-V.

Chapter-I deals with background of the study, problem statement, objective of the

study, rational of the study, and so on.

Chapter-II deals with conceptual review, review of literature and research gap and

so on.

Chapter-III deals with methods which includes types research, population and sample,

types of data, data collection procedures, instruments and analysis techniques.

Chapter –IV deals with presentation of data and major findings. Researcher uses the

liquidity ratio to analyse liquidity position of these two banks. Findings are present in

the table, trend line and so on.

Chapter –V deals with discussion of findings and conclusion & implications of

this study.

5
CHAPTER-II

LITERATURE REVIEW

Literature review comprises upon the existing literature and research related to the

present study with a view to find out what had already been studied. Literature review

is a process of systematic way of accumulation, analysis and evaluation of facts or

knowledge of selected topic or problem. It provides direction for doing something

new with appropriate variables, and methodology. It is both summary and explanation

of current state of knowledge of intended research questions.

2.1 Conceptual Review

Banks play an important role in an economy of the country. Banks’ performance has

greatly affected by the liquidity position of the banks. . Liquidity is crucial in the

business like banking sector. Banks have to maintain liquidity, if the bank has high

liquidity it cannot gain desired profit and if bank has the shortfall of the liquidity it

cannot satisfy its customers. Inadequate liquidity may lead to collapse of the bank

while excess liquidity is determinant to banks’ profitability in order to remove

demerit’s associated with maintaining inadequate and excess liquidity, bank should

maintained and optimum level of liquidity. Banks have to maintain adequate liquidity

to smooth running of firm.

Theoretical framework is the structure that can hold or support a theory of a research

study. The theoretical framework is one of the more infamous components of a

6
dissertation. A good theoretical framework gives a strong research base and provides

support for the rest of the research. Theoretical framework of this study as follows:

CR
LDR

CBBTDR
CBBCSD
Comparative Liquidity Analysis of R
NIBL and PBL NRBCSD
R
NRBFDR

FDTDR

CRR

Fig 2.1.Theoretical Framework

This study conducted to analyse comparative liquidity position of NIBL and PBL.

Theoretical framework helps to conduct good report writing. So that researcher

prepared theoretical framework which includes different ratios which helps to analyse

liquidity position of these two banks.

Liquidity Ratio reflects the short-term obligation of the firm. This ratio shows that

if firm need cash amount in short period without any notice, can firm fulfil its need

or how it manage the need. Commercial banks need liquidity to meet loan demand

and deposit withdrawals. Liquidity is also needed for the purpose of meeting Cash

7
Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements prescribed

by the central Bank. The following ratios are calculated under the liquidity ratios.

a. Current ratio

b. Loan to deposit ratio

c. Cash and bank balance to total deposit ratio

d. Cash and bank balance to current & saving deposit ratio

e. NRB balance to current and saving deposit ratio

f. NRB balance to fixed deposit ratio

g. Fixed deposit to total deposit ratio

h. NRB balance to total deposit / Cash Reserve Ratio(CRR)

2.2 Review of Previous works

Many researchers have conducted various research on related topic in past. There

are some previous works are as follows which are related to present study:

Kumbirai & Webb (2010) investigated the performance of South Africa’s

commercial banking sector for the period 2005- 2009. Financial ratios are employed

to measure the profitability, liquidity and credit quality performance of five large

South African based commercial banks. The study found that overall bank

performance increased considerably in the first two years of the analysis. A

significant change in trend is noticed at the onset of the global financial crisis in

2007, reaching its peak during 2008-2009. This resulted in falling profitability, low

liquidity and deteriorating credit quality in the South African Banking sector.

8
Shakya (2010) analysed different ratio of NSBIBL and EBL for the period five years

till fiscal year 2008. In his study, some cases the liquidity position of EBL is slightly

stronger than the NSBIBL where NSBIBL‘s ratio is higher. It concludes that liquidity

position of these banks is sound. NSBIBL has better utilization of available resource

in income generating process than EBL. In the overall, this study concluded that EBL

is better than the NSBIBL and both banks are highly leveraged.

Xuezhi Qin and Dickson (2012) employed the liquidity measures of the commercial

banks; avid on that basis the performance in terms of the liquidity position was

established. The paper used the causal research design as the methodology of the

study since the causal design is best suited to determine cause and effects of the

phenomena. This paper utilizes the secondary data from National Bank of Commerce

(NBM) CRDB and National Microfinance Bank (NMB). The criteria used in total

deposit to core funding, liquid asset to demand liabilities and Gross loans to total

deposit Tanzania for the period of ten .

Nepal Investment Bank (2012), revealed the following key points: 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. 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. From the cash and bank balance to current

9
deposit liability is fluctuating. The ratio is moving around between 0.48 times to 0.95

times. It is satisfactory. 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.

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. 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.

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. 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. 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. Balance with NRB to current plus saving deposit should be

maintained at the below than 0.11 times. 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. Bank should not spend too much in the fixed assets because it

yields only a nominal portion, almost no yield.

10
Mishra & Aspal (2012) stated that the economic importance of banks to the

developing countries may be viewed as promoting capital formation, encouraging

innovation, monetization, influence economic activity and facilitator of monetary

policy. Performance evaluation of the banking sector is an effective measure and

indicator to check the soundness of economic activities of an economy. In the

present study an attempt was made to evaluate the performance & financial

soundness of State Bank Group using CAMEL approach. It is found that in terms of

Capital Adequacy parameter SBBJ and SBP were at the top position, while SBI got

lowest rank. In terms of Asset Quality parameter, SBBJ held the top rank while SBI

held the lowest rank. Under Management efficiency parameter it was observed that

top rank taken by SBT and lowest rank taken by SBBJ. In terms of Earning Quality

parameter the capability of SBM got the top rank while SBP was at the lowest

position. Under the Liquidity parameter SBI stood on the top position and SBM was

on the lowest position. SBI needs to improve its position with regard to asset quality

and capital adequacy, SBB should improve its management efficiency and SBP

should improve its earning quality.

Sthapit & Maharjan (2012) examined the effects of liquidity on profitability. To address

the objective, the article has taken NABIL and SCBN for the period between 2003/04

and 2010/11. Considering the liquidity management can increase the profitability, the

study has examined their liquidity management of NABIL and SCBN as well as

profitability positions, using various financial tools and indicators. It was found that trend

of average liquidity ratios and profitability of both banks are not

11
seems to be fluctuating but average variation in liquidity ratios as well as profitability

of SCBN is lower than that of NABIL. The study concluded that the LFTDR and

NRBTDR have a negative significant effect on ROA of SCBN whereas CHTDR has a

positive significant effect. But liquidity ratios have not significant effects on

profitability of NABIL. Therefore, the liquidity performance of SCBN is better than

NABIL and finally the hypothesis was tested to know whether there is a significant

difference in terms of liquidity position by using ANOVA test. The findings revealed

that the commercial banks under study have strongest liquidity level although it

varied over years and National Microfinance Bank maintained strongest liquid level

compared to the other two banks.

Ally (2013), analyzed the financial performance of commercial banking sector in

Tanzania for the period of 7 years from 2006 to 2012. Financial ratios were

employed to measure the profitability and liquidity of banks; in addition Analysis of

Variance (ANOVA) was used to test the significance differences of profitability

means among peer banks groups. The study found that overall bank financial

performance increased considerably in the first two years of the analysis. A

significant change in trend is noticed at the onset of the global financial crisis from

2008 to 2009. However, Tanzania banking sector remained stable; banks are

adequately capitalized and profitable and remained in a sound position. The study

found that, there is no a significant means difference of profitability among of peer

banks groups in term of ROA, however, a significance differences among banks

group is existed in term of ROE and NIM.

12
Bhandari A (2014) explored the determinants of performance exposed by the financial

ratios and determines the financial performance of commercial banks in Nepal

through Analytical Hierarchy Process based on their financial characteristics. The

financial parameters were derived by segregating 5 major criteria which were

Liquidity, Efficiency, Profitability, Capital Adequacy and Assets Quality. These

criteria were further classified into 21 hierarchical sub-criteria. The performance

evaluation was done for 13 commercial banks for financial data from year 2008/09 to

2011/12. The paper emphasizes financial decision problems to have strong multi

criteria character and establishes priorities for performance parameters of commercial

banks among financial indicators identified and ranks banks according to those

indicators. This study has added one more literature to demonstrate the utility of AHP

based bank evaluation to Nepalese banking community in particular, which not only

evaluates the performance of banks but also gives insights to focus in the area of

improvement to a particular bank in comparison to others

Islam (2014), attempted to measure the financial performance of National Bank

Limited which one of the largest and prominent private commercial banks in

Bangladesh for the period 2008-2013 and to identify whether any difference exists

between a banks’ years of operation and its performance classifying two period (2008-

10 & 2011-13). To complete my task I have to use various materials and take help form

online source. Analyze the ratio here used financial ratio analysis (FRA) method which

helps to draw a overview about financial performance of the National bank limited in

terms of profitability, liquidity and credit performance. To test the

13
hypothesis the study has been worked on Student t-test by using SPSS. These

analyses helps to see the current performance condition of this bank compare past

performance. Because now a day’s banking sector of Bangladesh is suffering the

disease of default culture which is the consequence or result of bad performance of

most banks. The performances of banks are dependent more on the management’s

ability in formulating strategic plans and the efficient implementation of its

strategies. The study findings can be helpful for management of National bank ltd.

always for private commercial banks in Bangladesh to improve their financial

performance and formulate policies that will improve their performance. The study

also identified specific areas for bank to work on which can ensure sustainable

growth for these banks.

Olarewaju & Adenyemi (2015) examined the existence and direction of causality

between liquidity and profitability of deposit money banks in Nigeria. Fifteen quoted

banks out of the existing nineteen banks were selected for the study. They are; Guarantee

Trust bank, Zenith bank, Skye bank, Wema bank, Sterling bank, First City Monument

bank, United Bank for Africa, Eco bank, First bank, Access bank, Diamond bank, Unity

bank, Fidelity bank, Union bank and IBTC bank. Pair wise Grange Causality test was

carried out to determine the presence and direction of causality between banks’ liquidity

and profitability. From the finding of this study, at 5% and 10% level of significance, it

was revealed that the F-statistics corresponding to the null hypotheses of no causal

relationship (both unidirectional and bidirectional) between LODEP (a proxy for

liquidity) and ROE (profitability measure) for banks like Guaranty trust bank, Zenith

bank, Sterling bank, Diamond bank, IBTC, Unity

14
bank, UBA, Fidelity bank, Wema bank, Union bank, and Eco bank, are too low and as

such there is no enough evidence for the rejection of the corresponding null

hypotheses. Thus, the result revealed that there is no causal relationship (be it

unidirectional or bidirectional) between liquidity and probability of Guaranty trust

bank, Zenith bank, Sterling bank, Diamond bank, IBTC, Unity bank, UBA, Fidelity

bank, Wema bank, Union bank, and Eco bank. The result also shows that there is a

trace of unidirectional causality relationship running from liquidity to profitability for

banks like Skye bank, First bank, Access bank and FCMB. Based on the findings and

conclusions, the study recommend that the apex bank (Central Bank of Nigeria)

should ensure close supervision and monitoring of deposit money banks’ strength and

level of liquidity in an attempt to stabilize and strengthen the financial sector of the

economy.

2.3 Research Gap

In this study, the major area is to disclose the liquidity analysis relates to Nepalese

commercial banks. This study shows that the unique feature of findings. Previous

researches on the basis of financial performance liquidity analysis of commercial

banks in Nepal. But this research is about comparative liquidity analysis of Nepalese

commercial with sample of Nepal Investment Bank Limited and Prabhu Bank

Limited. In the previous research, there is not taken NIBL and PBL for sample. The

research can help the people who wanted to know about the liquidity position of these

two banks.

15
Chapter-III

Methods

The method which is using in the research to plan the how the data is collected and

which source the study use for getting data is under the research methodology. It

includes the Type of Research, Population and Sample, Types and sources of Data,

Data collection Procedure and Analysis techniques which are as follows:

3.1 Types of Research

To fulfil the objectives of the study, certain research type is essential; so the

research type of this study is based on the nature and tools for analysis. To put the

objectives stated above into effect a descriptive analytical research design is

employed. Descriptive analytical means discuss the problem and objectives of the

study and analyse the data.

3.2 Population and Sample

For this research all commercial banks are regarded as population and out of these

two banks NIBL and PBL are taken as sample. All commercial are as follows:

1. Siddartha Bank Limited

2. Nepal Bank Limited

3. Rastriya Banijya Bank Limited

4. Agriculture Development Bank Limited

16
5. Nabil Bank Limited

6. Nepal Investment Bank Limited

7. Standard Chartered Bank Nepal Limited

8. Himalayan Bank Limited

9. Nepal SBI Bank Limited

10. Nepal Bangladesh Bank Limited

11. Everest Bank Limited

12. Bank of Kathmandu Lumbini Bank Limited

13. Nepal Credit and Commerce Bank Limited

14. Kumari Bank Limited

15. Laxmi Bank Limited

16. Global IME Bank Limited

17. Citizens Bank International Limited

18. Prime commercial Bank Limited

19. Sunrise Bank Limited

20. NMB Bank Nepal Limited

21. NIC Asia Bank Limited

22. Machhapuchchhre Bank Limited

23. Mega Bank Nepal Limited

24. Civil Bank Limited

25. Century Bank Limited

26. Sanima Bank Limited

27. Janata Bank Nepal Limited

28. Prabhu Bank limited

17
 3.3 Types and Sources of Data

Researcher uses the secondary and quantitative data for this study. To gather data

which is used in the present study, financial information were collected from audited

financial statements, articles, previous studies on related topic, published articles of

different authors and journals. Furthermore, other necessary data are collected from

the annual reports of these two banks: NIBL and PBL.

3.4 Data Collection Procedures

This study is conducted to comparative liquidity analysis of NIBL and PBL. So, it

needs various data to analyse liquidity position of such banks. For the purpose of data

collection researcher visit at head office of both banks and collect the data.

Researcher also collects the data by using website of banks, annual report of both

banks and so on.

3.5 Analysis Techniques

To analyse the liquidity position of these two banks through the financial tools.

Findings are present in the table, trend line and so on.

3.5.1 Financial Tools

Financial tools are those, which are used for the analysis and interpretation of

financial data. These tools can be used to get the precise knowledge of a business,

winch in turn, are fruitful in exploring the strengths and weaknesses of the financial

18
 policies and strategies. For the sake of comparative liquidity analysis of NIBL and

PBL ratio analysis have been used in order to meet the purpose of the study.

3.5.1.1 Ratio Analysis

Ratio analysis is very much powerful & widely used tool of financial analysis. It is

define as the systematic use of ratio to interpret the financial statements so that the

strength and weakness of a firm as well as its historical performance and current

financial condition can be determined. It helps the analysis to make qualitative

judgment in about the financial position and performance of the firm. Therefore, it is

helps to establish relationship among various ratios and interpret there on specially,

based on comparison between two or more firms or inters firm comparison and

comparison between present and past ratios for the same firm give enormous and

fruitful results to examine the liquidity position of the banks.

3.5.1.1.1Liquidity ratio analysis

Ratio analysis is very much powerful & widely used tool of liquidity analysis. It is

define as the systematic use of ratio to interpret the financial statements so that the

strength and weakness of a firm as well as its historical performance and current

financial condition can be determined. It helps the analysis to make qualitative

judgment in about the financial position, performance and liquidity position of the

firm. Therefore, it is helps to establish relationship among various ratios and interpret

there on specially, based on comparison between two or more firms or inters firm

comparison and comparison between present and past ratios for the same firm give

enormous and fruitful results to examine the comparative liquidity position of the

19
banks. Liquidity ratio includes current ratio, loan to deposit ratio, Current ratio, loan to

deposit ratio, cash and bank balance to total deposit ratio, cash and bank balance to

current & saving deposit ratio, NRB balance to current and saving deposit ratio, NRB

balance to fixed deposit ratio, fixed deposit to total deposit ratio, NRB balance to total

deposit / Cash Reserve Ratio (CRR).

3.6 Limitation of the Study

This report is held within the following limitations and constraints, they are:

i. The study is limited only in the liquidity analysis of the two banks.

ii. Due to the shortage of the time volume and budget, new method may

not be developed.

iii. Report is based on the data of NIBL and PBL.

iv. Certain period’s data (5years.) has been taken for the analysis; result is

based on this data.

v. Because of the bank's secrecy they don't provide adequate information.

Due to availability of Limited information this study will not cover every

part of the performance aspect.

20
 CHAPTER-IV
RESULTS AND FINDINGS

This chapter includes presentation of data in tables & figures and analysis of
data; major findings of the study.

4.1 Presentation of Data in Tables and Figures and their Analysis

Subject matter and objective of this study have been introduced in the first chapter.

In order to achieve those objectives necessary analytical tools and techniques have

been discussed in unit research methods. In this unit relevant data have been it banks.

Data are analysed by using ratio analysis and present in the table. Ratio analysis is

one of the most commonly used techniques in the analysis of liquidity position of the

banks. Ratio analysis points out the problem in any operational areas and provides a

basis to recommend corrective actions. There is variety in ratio calculation. Data

contained in financial statement as the requirement of the types of ratio.

4.1.1 Liquidity position

Liquidity analysis is the one of the major tool to analyse liquidity position of the

banks through liquidity ratio. Liquidity ratio reflects the short term obligation of the

firm. This ratio shows that if firm need cash amount in short period without any

notice, can firm fulfil its need or how it manage the need. Commercial banks need

21
liquidity to meet loan demand and deposit withdrawals. Liquidity is also needed for

the purposes of meeting cash reserve ratio (CRR) and statutory liquidity ratio (SLR)

requirements prescribed by the central banks. The following ratios are calculated

under the liquidity ratios which show the liquidity position of the bank.

4.1.1.1 Current ratio.

It measures the degree to which current assets cover current liabilities. A high ratio

indicates greater assurance of ability to pay current liabilities. A current ratio of 2:1 is

generally considered to be an acceptable standard though it is only a rule of thumb

standard. A low ratio indicates that the corporation may not be able to meet short -

term obligations. Symbolically,

Table 4.1

Comparative Current Ratio of NIBL and PBL

Year CR of NIBL CR of PBL

2011/12 1.110 1.032

2012/13 0.461 0.970
2013/14 1.122 0.994
2014/15 1.121 1.009
2015/16 1.157 1.047

Average 0.994 1.010

Table 4.1 shows that comparative current ratio of NIBL and PBL. NIBL has the

minimum 0.461 over a five years where as PBL has 0.970. From the results of this

22
table study concluded that both banks have week liquidity position but in comparison,

PBL has better liquidity rather than NIBL which is 1.010.

1.4

1.2
1.11 1.122 1.121 1.157

1
1.032 0.994 1.009 1.047
0.97

0.8
NIB
L
0.6 PBL

0.461
0.4

0.2

0
2011/12 2012/13 2013/14 2014/15 2015/16

Fig 4.1.Comparative Current Ratio of NIBL and PBL

Fig 4.1 shows that comparative current ratio of NIBL and PBL. NIBL has the

increasing trend of liquidity where as PBL has same liquidity position over five years.

NIBL has improvement in liquidity position of bank where as PBL has not noticeable

improvement. However, PBL has weaker liquidity position rather than NIBL. Ratio

of NIBL is more fluctuating than PBL.

4.1.1.2 Loan to deposit ratio.

Loan to deposit ratio, also known as the LTD ratio or LDR, is a ratio between the

banks total loan and advances and total deposit. NRB prescribed 0.8 LDR for every

23
commercial bank. If the ratio is lower than one, the bank relied on its own deposit to

make loan to its customer, without any outside borrowing. If on the other hand, the

Ratio is greater than one the bank borrowed money which is re-loaned at higher rates,

rather than relying entirely on its own deposits. Banks may not be earning an optimal

return if the ratio is too low. If the ratio too high, the banks might not have enough

liquidity to cover any unforseen funding requirement or economic crises. It is a

commonly used static for assessing a bank’s liquidity. Symbolically,

Table 4.2
Comparative Loan to Deposit Ratio of NIBL and PBL

Year LDR of NIBL LDR of PBL

2011/12 0.703 0.726

2012/13 0.743 0.701
2013/14 0.705 0.549
2014/15 0.731 0.658
2015/16 0.787 0.721

Average 0.739 0.671

Table 4.2 shows that comparative loan to deposit ratio of NIBL and PBL. NIBL has the

minimum 0.705 loan to deposit ratio over the five years where as PBL has 0.549. From

the result of this table study concluded that both banks has moderate liquidity position

but in comparison, NIBL has better liquidity than PBL which is 0.739.

24
 0.9

0.8 0.787
0.7 0.7263 0.743 0.705 0.731 0.721
0.701

0.658
0.6
0.549
0.5 NIB
L
0.4 PBL

0.3

0.2

0.1

0
2011/12 2012/13 2013/14 2014/15 2015/16

Fig 4.2.Comparative Loan to Deposit Ratio of NIBL and PBL

Fig 4.2 shows that comparative loan to deposit ratio of NIBL and PBL. PBL has the

increasing trend of loan to deposit ratio where as PBL has same ratio over a five

years. NIBL has mentioned same liquidity position of bank where as PBL has more

fluctuating loan to deposit ratio. In comparison, NIBL has better liquidity position

rather than PBL.

,

4.1.1.3 Cash and bank balance to total deposit ratio.

The ratio shows the ability of banks immediate fund to cover their deposit. Higher the

ratio shows higher liquidity position and ability to cover the deposit and vice-versa.

The ratio computes by dividing cash and bank balance by total deposit. Cash and bank

balance comprises cash in hand, foreign cash in hand, cheques and other cash items,

balance with domestic bank and balance held in foreign banks. Current and saving

25
 deposit consists of all type of deposit excluding fixed deposit. The ratio measures

the ability of banks to meet its immediate up to total deposit legations. Symbolically,

Table 4.3

Comparative Cash and Bank Balance to Total Deposit Ratio of NIBL and PBL

Year CBBTDR of NIBL CBBTDR of PBL

2011/12 0.211 0.152

2012/13 0.217 0.170
2013/14 0.230 0.104
2014/15 0.132 0.245
2015/16 0.121 0.213

Average 0.182 0.177

Table 4.3 shows that comparative cash and bank balance to total deposit ratio of

NIBL and PBL. NIBL has lower rate in year 2014/15 which is 0.123 over a five

period of where as PBL has lower rate in 2013/14 which is 0.104over a five years.

Both banks have low liquidity position but in comparison PBL has higher rate

rather than NIBL which is 0.594.

26
 0.3

0.25 0.245
0.23
0.211 0.217 0.213
0.2

0.17
NIB
0.15 0.152 L
0.132 0.121 PBL
0.1 0.104

0.05

0
2011/12 2012/13 2013/14 2014/15 2015/16

Fig 4.3.Comparative Cash and Bank Balance to Total Deposit ratio of NIBL and PBL

Fig 4.3 shows that comparative cash and bank balance to total deposit of NIBL and

PBL. NIBL and PBL both have increasing trend of cash and bank balance to total

deposit ratio but NIBL has more increase in year 2015/16 rather than PBL. This

study shows the better liquidity position of NIBL comparison to PBL.

4.1.1.3 Cash and Bank Balance to Current and Saving Ratio.

The ratio shows the ability of banks immediate funds to cover their (current, margin

call and saving deposit). Higher the ratio shows higher liquidity position and ability to

cover the deposits and vice-versa. The ratio is compute cash and bank balance by

current and saving deposits. Symbolically,

27
Table 4.4

Comparative Cash and Bank Balance to Current and Saving Ratio of NIBL and PBL

Year CBBCSR of NIBL CBBCSR of PBL

2011/12 0.238 0.276

2012/13 0.529 0.296
2013/14 0.480 0.146
2014/15 0.329 0.404
2015/16 0.247 0.208

Average 0.365 0.265

Table 4.4 shows that comparative cash and bank balance to current and saving deposit

ratio of NIBL and PBL which find out the 0.247 ratio of NIBL in year 2015/16which

is lowest rate over a five year’s period. PBL has the 0.146minimum rate in

year2013/14. NIBL somehow manage liquidity position where as PBL has weaker

liquidity position. The average rates of two banks (NIBL & PBL) are 0.365 & 0.265

respectively. This shows that NIBL is Liquid than PBL.

28
 0.6

0.529
0.5
0.48

0.4 0.404

0.329 NIB
0.3 0.296 L
0.276
0.247 PBL
0.238
0.2 0.208
0.146
0.1

0
2011/12 2012/13 20113/14 2014/15 2015/16

Fig 4.4.Comparative Cash and Bank Balance to Current and Saving Deposit of NIBL
and PBL

Fig 4.4 shows that comparative cash and bank balance to current and saving ratio of

NIBL and PBL. NIBL has the fluctuating rate rather than PBL over five year’s period

where as PBL has approximately same rate over four years and at last year it has

increase rate of cash and bank balance to current and saving ratio.

4.1.1.4 NRB Balance to Current & Saving Deposit Ratio.

Commercial banks are required to hold certain portion of current and saving deposits in

NRB’s account. It is to ensure the smooth fluctuating and sound liquidity position of the

bank. As per the direction of NRB, the required ratio is 10% therefore the ratio measures

whether the bank is following the direction of NRB or not. Symbolically,

29
Table 4.5

Comparative NRB Balance to Current and Saving Deposit Ratio of NIBL and PBL

Year NRBBCSDR of NIBL NRBBCSDR of PBL

2011/12 0.356 0.186

2012/13 0.343 0.199
2013/14 0.358 0.637
2014/15 0.207 0.235
2015/16 0.457 0.199

Average 0.344 0.275

Table 4.5 shows that comparative NRB balance to current and saving deposit ratio of

NIBL and PBL. The data shows the NIBL and PBL minimum ratio 0.207 in year

2014/15 where as PBL has 0.119 over a five years period. NIBL has the highly liquid

than PBL.

30
 0.7
0.637
0.6

0.5
0.457
0.4
NIB
0.356 0.343 0.358 L
0.3 PBL
0.235
0.2 0.186 0.199 0.207
0.119
0.1

0
2011/12 2012/13 2013/14 2014/15 2015/06

Fig 4.5.ComparativeNRB Balance to Current and Saving Deposit Ratio of NIBL

and PBL

Fig 4.5 shows that comparative NRB balance to current and saving deposit ratio of

NIBL and PBL.NIBL has the approximately same ratio up to 2014/15 and then in

year 2014/15 ratio is increased and same case in PBL. But, in comparison, NIBL has

better condition in liquidity position.

4.1.1.5 NRB Balance to Fixed Deposit Ratio.

It shows the percentage of amount deposited by the bank in NRB as compared to

the fixed deposits. According to the direction of NRB, this ratio should be

maintained 6%. Hence, the ratio finds whether the bank has obeyed the direction of

NRB or not. Symbolically,

31
Table 4.6

Comparative NRB Balance to Fixed Deposit Ratio of NIBL and PBL

Year NRBBFDR of NIBL NRBBFDR of PBL

2011/12 0.242 0.353

2012/13 0.548 0.357
2013/14 0.702 0.250
2014/15 0.424 0.777
2015/16 0.239 0.639

Average 0.467 0.452

Table 4.6 shows that comparative NRB balance to fixed deposit ratio of NIBL and

PBL. This study concluded that NIBL has minimum rate 0.239 in year 2015/16where

as PBL has 0.250 in year 2013/14 and NIBL has maximum rate 0.702. However,

PBL has 0.777. In comparison, PBL has higher ratio than the NIBL which is 0.777.

0.9

0.8
0.777
0.7 0.702
0.639
0.6
0.548
0.5
NIBL
0.424 0.424
0.4 PBL0
0.353 0.357
0.3
0.25 0.239
0.2

0.1

0
2011/12 2012/13 2013/14 2014/15 2015/16

Fig 4.6.Comparative NRB Balance to Fixed Deposit Ratio of NIBL and PBL

32
Fig 4.6 shows that comparative NRB balance to fixed deposit ratio of NIBL and

PBL. High ratio indicates better opportunity available to the bank to invest in the

fund of low cost in short-term loans. Symbolically,

4.1.1.6 Fixed to Total Deposit Ratio

The ratio shows that percentage of fixed to total deposit has been collected in form

of deposit. High ratio indicates better opportunity available to the bank to invest in

sufficient profit generating long-term loans. Low ratio means bank should invest the

fund of low cost in short –term loans. Symbolically,

Table 4.7

Comparative Fixed to Total Deposit Ratio of NIBL and PBL

Year FTDR of NIBL FTDR of PBL

2011/ 12 0.352 0.291

2012/13 0.256 0.320
2013/14 0.244 0.181
2014/15 0.234 0.183
2015/16 0.244 0.193

Average 0.266 0.233

Table 4.7 shows that comparative fixed to total deposit ratio of NIBL and PBL. This

study concluded that NIBL has minimum rate 0.234 in year 2014/15 here as PBL

33
has 0.181 in years 2013/14 and NIBL has maximum rate 0.352 however, PBL has

0.320. In average, NIBL has higher ratio than the PBL which are0.266 and 0.233.

0.4

0.35 0.352
0.32
0.3
0.291

0.25 0.256
0.244 0.244
0.234
NIB
0.2 0.193 L
0.181 0.183
PBL
0.15

0.1

0.05

0
2011/12 2012/13 2013/14 2014/15 2015/16

Fig 4.7.Comparative Fixed to Total Deposit Ratio of NIBL and PBL

Fig 4.7 shows that comparative fixed to total deposit ratio of NIBL and PBL has

more fluctuating liquidity where as NIBL as decreasing trend to 2013/14 and then

increase slowly.

4.1.1.8 Cash Reserve Ratio (CRR) /NRB Balance to Total Deposit Ratio.

The reserve requirement (or CRR) is a bank, regulation that sets the minimum

reserve so that each bank must hold to customer deposits and notes. These reserve are

designed to satisfy withdrawal demand, and would normally be in the form of fiat

currency stored in a bank vault (cash vault), or with potential of the banking to create

deposits. CRR is the percentage of banks reserves to deposits and notes. Every

34
commercial banks need to deposit 10% fund in NRB as the form of CRR.

Symbolically,

Table 4.8

Comparative Cash Reserve Ratio of NIBL and PBL

Year CRR of NIBL CRR of PBL

2011/12 0.149 0.103

2012/13 0.140 0.114
2013/14 0.171 0.0453
2014/15 0.0992 0.142
2015/16 0.0715 0.123

Average 0.126 0.101

Table 4.8 shows that comparative CRR of NIBL and PBL over five year’s period

from 2011/12 to 2015/16. In table, NIBL and PBL both have the fluctuating rate

from 0.0715 & 0.0453 to 0.171 & 0.142. in comparison, NIBL has the higher

cash reserve ratio rather than PBL which shows NIBL is liquid than PBL.

35
 0.18
0.171
0.16
0.149
0.14 0.14 0.142
0.12 0.123
0.114
0.1 0.103 0.0992
NIBL
0.08 PBL
0.0715
0.06
0.0453
0.04

0.02

0
2011/12 2012/13 2013/14 2014/15 2015/16

Fig 4.8.Comparative Cash Reserve Ratio of NIBL and PBL

Fig 4.8 shows that comparative cash reserve ratio of NIBL and PBL. In the figure,

NIBL and PBL both have fluctuating CRR. But, in comparison, NIBL has high

balance reserve in NRB which shows the better liquidity position of NIBL than PBL.

4.2Major Findings

This study reveals the some major points which are as follows:

1. The liquidity position of the banks in term of current ratios show that the ratios of

both banks NIBL and PBL are always below the normal standard (i.e. 2:1) where as

NIBL average ratio is lower than PBL. It shows that the liquidity position in term of

current assets to current liabilities of PBL is better than NIBL. So, it is concluded that

PBL is better liquidity position as compared with NIBL.

36
2. Loan and advances to total deposit ratio of NIBL and PBL are (i.e. 0.739 >0.671).

From the analysis; it is concluded that PBL has been successfully utilized their

deposits in term of loan and advances for profit generating purpose compared to NIBL.

3. Cash and bank balance to total deposit ratio of NIBL and PBL are 0.182 and 0.177

respectively which shows the NIBL has higher liquid than PBL.

4. Cash & bank balance to current & saving deposit ratio of NIBL and PBL are 0.365

& 0.265 respectively which shows the NIBL is more liquid than PBL.

5. NRB balance to current and saving deposit ratio of NIBL and PBL are 0.344 and

0.275 respectively which indicates NIBL has higher NRB balance over current &

saving deposit rather than PBL.

6. NIBL and PBL have 0.467 and 0.452 on NRB balance to fixed deposit ratio

respectively which shows the NIBL is liquid than PBL.

7. Fixed to total deposit ratio of NIBL and PPL are (0.266> 0.233) which indicates

that NIBL has more fixed deposit than PBL.

8. Cash reserve ratio of NIBL and PBL are 0.126 & 0.101 which shows NIBL has

higher balance in NRB account.

37
 CHAPTER –V

DISCUSSION, CONCLUSION AND IMPLICATION

This chapter presents a discussion of findings & presented in the previous chapter and

dedicated to provide conclusions after comparatively analysing the liquidity position

of two banks named NIBL and PBL. It also tries to provide some implications to the

concerned banks from the conclusion derived from the study.

5.1 Discussion

This research is conducted comparative liquidity analysis of NIBL and PBL.

Liquidity analysis is one of the major tools to analyse financial performance of the

banks that’s why this study chooses this topic. This study is taking as sample of NIBL

and PBL among population of Nepalese commercial banks over 5 year’s period i.e.

2011/12 to 2015/16. The liquidity ratio measures the ability of a firm to meet its

short-term obligations and select the short-term financial solvency of a firm.

On the basis of data analysis and presentation, the researcher extracted some major

findings. The liquidity position of the banks in term of current ratios shows that the

ratios of both banks NIBL and PBL are always below the normal standard (i.e. 2:1)

where as NIBL average ratio is lower than PBL. It shows that the liquidity position in

38
term of current assets to current liabilities of PBL is better than NIBL. So, it is

concluded that PBL is better liquidity position as compared with NIBL. The minimum

ratio of NIBL is 0.705 where as the maximum ratio of NIBL is only 0.787. Loan and

advances to total deposit ratio of NIBL and PBL are (i.e. 0.739 >0.671). From this

analysis; it is concluded that PBL has been successfully utilized their deposits in term

of loan and advances for profit generating purpose compared to NIBL. The Liquidity

position of cash and bank balance to total deposit ratio of PBL is higher than that of

NIBL (i.e0.401 < 0.594). So, it is concluded that PBL has sufficient cash and bank

balance to current & saving deposit than that of NIBL. Likewise, the liquidity position

of NIBL in terms of CRR / NRB balance to total deposit ratio is found higher than

PBL (i.e. o.126 > 0.101). In fixed to total deposit ratio NIBL and PBL have 0.266 and

0.233 respectively which is the moderate liquidity. This analysis shows that both

banks have to increase their liquid position but in comparison PBL is liquid than the

NIBL. In the same way, fixed deposit to total deposit ratio of NIBL is better than that

of PBL.

So, on the basis of major findings the researcher reached in the conclusions keeping

in the previously set objectives in mind. Ultimately, the researcher will recommend

on the research problem to its stakeholders. To know the actual liquidity position of

the banks, the researcher observed and analysed the comparative liquidity analysis of

two commercial banks. It is hoped that the comparative liquidity analysis of the

commercial banks will give a rational result and represent the overall banking

scenario in terms of liquidity analysis.

39
 5.2 Conclusion and Implications

Establishment of commercial banks have continued in response to the economic

liberalization policies of the government. Nowadays, under the new monetary policy

banks have to increase their paid up capital so that many banks are going to merger

and acquisition. So, now in Nepal there are twenty eight (research period) commercial

banks competing with each other in their business. These commercial banks are

mainly concentrated themselves on deposit collection and mobilization, provide

banking services for customer satisfaction, financing foreign in different project and

areas. This study has been mentioned already that the research concentrates. The

researcher has evaluated data for the least 5 years period i.e. 2011/12 to 2015/16. The

researcher has analysed the data by using financial tools like ratio analysis.

The liquidity ratio measures the ability of a firm to meet its short-term obligations and

select the short-term financial solvency of a firm. The liquidity position of the banks

in term of current ratios shows that the ratios of both banks NIBL and PBL are always

below the normal standard (i.e. 2:1) where as NIBL average ratio is lower than PBL.

It shows that the liquidity position in term of current assets to current liabilities of

PBL is better than NIBL. So, it is concluded that PBL is better liquidity position as

compared with NIBL. The minimum ratio of NIBL is 0.705 where as the maximum

ratio of NIBL is only 0.787. And the 0.739 average ratios of loan and advances to

total deposit ratio of NIBL and PBL are (i.e. 0.739 >0.671). From the analysis; it is

concluded that PBL has been successfully utilized their deposits in term of loan and

advances for profit generating purpose compared to NIBL. The Liquidity position of

cash and bank balance to total deposit ratio of PBL is higher than that of NIBL

40
(i.e0.401 < 0.594 on an average). So, it is concluded that PBL has sufficient cash and

bank balance to current & saving deposit than that of NIBL. Likewise, the liquidity

position of NIBL in terms of CRR / NRB balance to total deposit ratio is found

higher than PBL (i.e. o.126 > 0.101 in an average). In fixed to total deposit ratio

NIBL and PBL have 0.266 and 0.233 respectively which is the moderate liquidity.

This analysis shows that both banks have to increase their liquid position but in

comparison PBL is liquid than the NIBL. In the same way, fixed deposit to total

deposit ratio of NIBL is better than that of PBL.

The analysed data proved that the major source of income of both banks i.e., NIBL

and PBL is interest receipt and the major expenses, for the banks NIBL and PBL,

are interest expenses, staff expenses, office expenses and provision for bonus.

This study is conducted to comparative analysis of liquidity position of these two

banks NIBL and PBL Based on the conclusion, the following suggestions and

implications are forwarded.

1. The findings of this study will contribute to existing literature on banks liquidity

analysis.

2. This study will also useful to investors for getting information about the liquidity

position of these banks before investment; creditors to know the payable trend of

the banks;

3. This is also useful to relate banks to know actual liquidity position of

bank comparative to others;

41
4. This study facilitates to customers to know the credit worthiness; and other parties

who are related to these two banks to acquire required information related to liquidity

position of banks.

5. Findings of this study facilitate to mgmt team to amend the rules and policies of the

banks.

6. NRB also will be using this study for different purposes.

7. This study will also useful to the future researcher for conduct new project work

on related topics because this study will provide guidelines to new researchers.

42
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Harsh. (2014). Retrieved from liakos-speech-1.d0c

Kumbirai, M., & Webb, R. (2010). A Financial Ratio Analysis of Commercial Bank
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