Chapter One

INTODUCTION

1.1 BACKGROUND OF THE STUDY

Nepal, being a developing country, seeks an investor who can invest in different development
projects and in most profitable sectors. There are very few people in Nepal who solely invest in
high amounts. So for country like Nepal, one of the major sources of investment is bank.

A business establishment that safeguards people’s money and use it to make loan and
investment is known as bank. Bank is an institution which deals with money and credit widely
known as manufacturer of credit and machines for facilitating exchanges. In other words, a
bank is an institution that deals with money and by accepting various types of deposits,
disbursing loan and rendering other financial services. Since banks are rendering a wide range
of services to the people of different walks of life, they have become an essential part of
modern society.

Nepal investment bank was established in the year 1986. For my field work, investment
strategy of INVESTMENT bank is chosen due to the outstanding performance and services to
the customers, cooperativeness of the staff personnel and electronic availability of the required
data. A number of its branches in different locations add my interest to study it. Furthermore,
as the bank was rewarded as “Bank of the year 2008”. I am keenly interested in studying its
investment strategy as it is major source of income generation required for sound functionalism
of the bank.

This research has been carried out mainly as to know investment strategy of INVESTMENT Bank
Limited. Thus, it helps to study the sources and uses of funds of INVESTMENT Bank , to evaluate
the percentage of investments done in different sectors, and to calculate rate of return on
investment on government securities. Also, through this study , we will be able to know about
the contribution of investment to its total income and henceforth, the profit position of the
bank.

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1.2 BACKGROUND OF BANKING SECTOR
Besides, development of trade, commerce and industry in the country, for the attainment of
the economical, social or political goals of the proper management of the financial resources of
the country is needed. The size of the money supply and the methods of controlling it have
become highly crucial factor for the government in pursuing their economic policies. One of the
major financial institutions of the country which help to utilize and control the supply and
demand of money is Bank of the country. A bank is an financial institution, which deals with
money and credit. It accepts deposits from the public and mobilizes the fund to productive
sectors. Many economist and constitution of the country has defined the banks in there own
ways, some of them are written below:

According to US Law “Any kind of institution offering deposits subject to withdrawal on

demand and making loans of a commercial or business nature is a bank.”

According to R.S Sayers “ordinary banking business consists of changing cash for bank
deposits and bank deposits for cash; transferring bank deposits from one person or
corporation to another; giving bank deposits in exchange for bills of exchange, government
bonds, the secured or promises of businessmen to repay, etc.”

According to Oxford Dictionary “Bank is an organization or place that provides a financial

service.”

In conclusion we can say a bank is an financial institution which accepts deposits from the
public and in turn, advance loan to business and personal customers. It offers the widest range
of financial services like credit, saving, payment sources and perform the widest range of
financial functions of any business firm in the economy. Bank is the most important source of
any business firm, in the economy and financial activities. Cash collecting from the saver and
provides loan to the investor is the measure function of bank. It is an agent or say act as bridge
between the savers and investors.

1.2.1 History of Banking Sector

In the ancient time people like merchants, money lenders and goldsmiths used to perform the
work of the banking in every country. They use to exchange gold, silver coins and deposits with
written document like Goldsmith’s Note which was considered as equivalent to money. This
type of exchange was rapacious, money lender use to exploit the borrowers greatly. But
without a doubt the services they provide was necessary and had great importance. Seeing the
importance of lending and borrowing of the financial resources, demand and supply of money,

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the concept of banking must have been developed. Banks does the same function and regulates
the same services that goldsmith and merchants use to provide but in more systematic way.
Bank does not exploit the borrowers it give the loan in reasonable interest. Banks doesn’t only
provide loan but it accept deposits and give interest to depositer, it also carry out the works of
creating credit, issuing notes’ bills of exchanges and promissory note etc.

The derivation of the word “Bank” according to Thomson’s Dictionary of banking is done from
Italian word “Banco” meaning a bench. However Macleod does not agrees and says that word
bank is derived from the German word “Back” which mean join stock fund and the German
word “Bank” came to used as its Italian equivalent “Monti” and was Italianized into “Banco”
and the loans were called in differently “Monti” or “Banchi”. Hence “Back” in Germany
language,”Banco”in Italian, “Banke in French and “Bank”in England was used.

The first bank in the world was established in 1157 A.D in Italy know as “Bank of Venice” After
that a lot of other banks were established in different place of the world. Some of them are
“Bank of Barcelona” in 1401 A.D.; “Bank of Genoa” in 1407 A.D.;”Bank of Amsterdam” in 1606
A.D.; “Bank of England” in 1694 A.D and “Bank of Hindustan” was established in year 1770 A.D.

After the establishment of ” Bank of England” the idea of establishing commercial banking
rapidly spread all over the world. To make the task much easier various types of other banks
emerged in banking industry specializing in different functional areas. Some of such specializing
banks are development banks, co-operative banks, industrial banks, agricultural banks, saving
banks, merchant funds, pension funds, housing bank, equipment bank, building banks, etc.

The head of all banks is central bank of the country. It develops the policy for all the banks and
makes regulations also which are to be followed by every other bank. Central bank is the father
of other banks. Central bank alone can not function well, commercial banks also play very
important role in mobilizing the resources in any developing countries by removing the habit of
hoarding, developing the banking habit among the people, collecting the scattered resources in
one bulk and utilizing them in further productivity purpose and rendering other valuable
services to the country.

1.2.2 Origin of Banking Sector in Nepal

For developing countries like Nepal, bank plays a significant role in the country for its economy
soundness. Like in other countries, Nepal’s banking history begins with goldsmith an d
merchants. In 1933 B.S. an institution was established for the financial transaction knows as
Tejarath Adda”. This institution provided loan but didn’t accept deposits.

Later in true sense, banking function in Nepal started with the establishment of Nepal Bank
Ltd”, in year 1994 B.S., 30th Kartik. After wards”Nepal Rastra Bank” the central bank of Nepal

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was established in 2013 B.S. 14th Baisakh under Nepal Rastra Bank Act 2012 B.S. But this Act has
been replaced and the Nepal Rastra Bank Act 2058 B.S.(2002 A.D.) has been enacted by the
parliament.”Rastriya Banijaya Bank” was established in 2022 B.S., 10th Magh as fully
government owned commercial bank and “Agricultural Development Bank” was established on
2024 B.S., 7th Magh. After democracy, there is tremendous development in banking sector.
Rural Development Banks like Eastern Rural Development Bank Ltd.” In Biratnagar, Far
Western Rural Development Bank Ltd.” In Dhangadhi, “Western Rural Development Bank
Ltd.” In Butwal, Mid Western Rural Development Bank Ltd.” In Nepal gung,” Middle Rural
Development Bank Ltd.” in Janakpur were also established. Other banks like exchange bank,
cooperative banks are also established in Nepal.

Commercial banks are the heart of financial system of the country. They held the deposit of
many persons, government establishment and business units. They make fund available to
borrowers, individuals, and business firm and government establishment. In doing so, they
assist both the flow of goods and policy is affected. This facts shows the commercial banking
system of the nation is important to the function of the economy. First commercial bank that
was established in Nepal was “Nepal Bank Limited” in year 1994 B.S. This bank was fully owned
by the government. After the year 2040 B.S. many Joint Venture commercial banks were
opened. The first joint venture commercial bank of Nepal is “Nepal Arab Bank Ltd”. Then
afterwards many other banks like “Nepal Investment Bank Ltd”, Standard Chartered Bank
Nepal Ltd”, “Nepal Bangladesh Bank Ltd”, Everest Bank Ltd”,and many more were established
under the commercial bank Act.

Number of banks and financial institutions and their branches is constantly increasing. List of
some different licensed commercial banks that has been established in Nepal under the
Commercial bank Act 2031 are given below

TABLE-1

LIST OF COMMERCIAL BANKS IN NEPAL

S.N Names Operation Date Head Office

(A.D)
1 Nepal Bank Limited 1937/11/15 Kathmandu
2 Rastriya Banijaya Bank 1966/01/23 Kathmandu
3 Agricultural Development Bank Ltd. 1968/01/02 Kathmandu
4 Nabil Bank Ltd. 1984/07/16 Kathmandu
5 Nepal Investment Bank Ltd. 1986/02/27 Kathmandu
6 Standard Chartered Bank Ltd. 1987/01/30 Kathmandu

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7 Himalayan Bank Ltd. 1993/01/18 Kathmandu
8 Nepal Bangladesh Bank Ltd. 1993/06/05 Kathmandu
9 Nepal SBI Bank Ltd. 1993/07/07 Kathmandu
10 Everest Bank Ltd. 1994/10/18 Kathmandu
11 Bank Of Kathmandu Limited 1995/03/12 Kathmandu
12 Nepal Credit And Commerce Bank Limited 1996/10/14 Rupendehi
13 NMB Bank Ltd. 1996/11/26 Kathmandu
14 Nepal Industrial And Commercial Bank Ltd. 1998/07/21 Morang
15 Machhapuchhre Bank Ltd. 2000/10/03 Pokhara
16 Lumbini Bank Ltd. 1998/07/17 Chitwan
17 Development Credit Bank Ltd. 2001/01/23 Kathmandu
18 Kumari Bank Ltd. 2001/04/03 Kathmandu
19 Laxmi Bank Ltd. 2002/04/03 Birgung
20 Siddhartha Bank Ltd. 2002/12/24 Kathmandu
21 Global Bank Ltd. 2007/01/02 Birgunj
22 Sunrise Bank Ltd. 2007/10/12 Kathmandu
23 Bank Of Asia Nepal Ltd. 2007/10/12 Kathmandu
24 Citizens Bank International Ltd. 2007/06/21 Kathmandu
25 Prime Bank Ltd. 2007/09/24 Kathmandu

Source:www.nepalstock.com

1.3 INTROUCTION OF INVESTMENT BANK LIMITED

Nepal Investment Bank Limited (NIBL) previously Nepal Indosuez Bank Ltd, was established in
1986 as a joint venture between Nepalese and French partners. The French partners holding
50%of the bank was credit Agricole Indosuez, a subsidiary of one of the largest banking group in
the world. The name of the bank has been changed to Nepal Investment Bank Ltd upon the
approval of bank’s annual general meeting, Nepal Rastra Bank and Company Registrar’s office
with the following shareholding structure.

 A group of companies holding 50% of the capital.

 Rashrtiya Banijaya bank holding 15% of the capital.
 Rastriya Beema Sansthan holding the 15% percentage.
 The remaining 20% being held by the general public.

Over the past 7 years, this bank has grown to become one of the biggest commercial bank in
Nepal. This bank has helped to fulfill growing requirements of credit and collects deposits for
the development project and support in the business. It is the no .1 lender in Nepal with total
loan and advances of NRs 36.83 Billion.velop products and

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Every bank has its definite objectives. These banks also have some strategic objectives which
are as follows:

 To develop the customer oriented service culture with special emphasis on customer
care and convenience.
 To increase a market share by following the disciplined growth strategy.
 To develop innovative products and services that attracts our customers and market
segments.
 To continue to develop products and services that reduces cost of our funds.
 To explore new avenues for growth and profitability.

1.3.1 Head office, Branches and their address of Investment Bank

Head office of investment Bank

Durbar Marg, kathmandu

P.O. BOX 3412 kathmandu

Phone no: 4228229, 4242530

Fax no- 977-1-4226349, 4228927

Web site: www.nibl.com.np,

swift NIBLNPKT

TABLE-2

1 SEEPADOLE BRANCH: Suryabinayak, Bhaktapur

2 BIRGUNJ BRANCH: Adarshanagar
3 BANEPA BRANCH: Banepa, Kavre
4 PULCHOWK BRANCH: Pulchowk, Lalitpur
5 JEETPUR BRANCH: Jeetpur, Bara
6 NEWROAD BRANCH: Newroad, Kathmandu
7 BIRATNAGAR BRANCH: Golchat Chowk, Biratnagar
8 BUTWAL BRANCH: Traffic Chowk, Butwal
9 BHAIRAHAWA BRANCH: Maitri Road, Bhairahawa
10 POKHARA BRANCH: Chiple Dunga,Pokhara
11 PUTALISADAK BRANCH: Putalisadak, Kathmandu
12 NARAYANGARH BRANCH: Pulchowk, Narayangarh
13 JANAKPUR BRANCH: Mills Area, Janakpur
14 NEPALGUNJ BRANCH: Dhamboji, Nepalgunj

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 15 THAMEL BRANCH: Chaksibari, Thamel
16 KALIMATI BRANCH: Kalimati Chowk, Kalimati
17 BATTISPUTALI BRANCH: Batti sputali, Kathmandu
18 BIRTAMOD BRANCH: Traffic Chowk, Birtamod
19 DHANGADI BRANCH: Chauraha Chowk, Dhangadi
20 GONGABU BRANCH: Gongabu Chowk, Kathmandu
21 SURKHET BRANCH: Neta Chowk, Surkhet
22 JUMLA BRANCH: Khalanga Bazaar, Jumla
23 BOUDHA BRANCH: Boudha, Kathmandu
24 HETAUDA BRANCH: Bank Road, Hetauda
25 PALPA BRANCH: Tansen,Palpa
26 LUKLA BRANCH: Chaurikharka, Lukla
27 DHUMBARAHI BRANCH: Pipalbot Chowk,
28 NAYA BANESHWOR BRANCH: Naya Baneshwor,
29 BHOTAHITI BRANCH: Bhotahiti , Kathmandu
30 TULSIPUR BRANCH: Tulsipur, Dang
31 RIPURESHWOR BRANCH: Tripureshwor, Kathmandu
32 DAMAULI BRANCH: Safasadak, Damauli
33 MAHARGUNJ BRANCH: Maharajgunj,
34 LALBANDHI BRANCH: Lalbandhi, Sarlahi
35 GAIGHAT BRANCH:Gaighat, Udaypur
36 LAZIMPAT BRANCH, Lazimpat
37 PARSA BRANCH, Parsa
38 MAHARAJGUNJ BRANCH, Maharajgunj
39 LAGANKHEL BRANCH, Lagankhel, Lalitpur
40 BATTISPUTALI BRANCH, Battisputali Kathmandu

1.3.2 Board of directors and Management Team

Without a Leader and effective management no organization can run forever or we can say it
cannot survive in the absence of leadership and experienced management. In case of
Investment Bank Board of Directors governs it. There is one chairman and seven directors in
Bank. The bank is managed by highly experienced personals.

Names of the Board of Directors And Management Team of INVESTMENT Bank have been given
below.

Chairman

MR. PRITHVI BAHADUR PANDEY

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Board of Directors:

MR. PRAJANAYA RAJBHANDARI

MR.DEEPAK MAN SHERCHAN

MR.JANARDAN DEV PANT

MR.KRISHNA PRASAD SHARMA

MR.BINOD ARYAL

MR. DAMODAR PRASAD SHARMA PANDEY

Public Director

MR. SURENDRA BAHADUR SINGH

Senior Management Team

JYOTI P PANDEY (General Manager)

MR. BIJENDRA SUWAL (Assistant general manager)

RAJAN AMATYA (Assistant general manager)

Management Team

ANUJ TIMILSINA (Head Corporate Banking)

DEEPAK.K.SHRESTHA (Head Trade Finance)

DEEPAK SHRESTHA (Head Legal)

RABIN SIJAPATI (Head Operation)

SHREE CHANDRA BHATTA (Head Branch Coordination Cell)

BIKASH THAPA (Head cards and Remittance)

SACHIN TIBREWAL (Head accounts And Budgeting)

SANJEEV KARKI (Head Cash Transfer)

TUL JUNG PANDEY (Head reconciliation)

PRABIR SJB RANA (Head Human Resources)

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 SAMMIT BHATTARAI (Head Credit Administration)

SHIVANATH BAHADUR PANDEY (Head Research And Development)

BINOD UPADHAYA (Head Internal Audit and Compliance)

There are others many other highly experienced and professional personnel in the
management team of INVESTMENT BANK. Because of highly effective management and heartily
effort of these staffs INVESTMENT Bank has been able to reach where it is today.

1.4 INVESTMENT
Investment can be derived as to employ money to generate more money in future.Person who
invests is called investor it can be natural or artificial person. When investor does the
investment they have to consider two major aspects one is Risk and other is Return. Return can
be considered as the primary motive for the investment, whereas risk is obstacle to reach the
target. Risk and profit are inter-related, higher the risk higher the profit and vice versa. Investor
can buy stock, bonds of companies or deposits into bank; buy a land, gold or silver, all these
activities involve sacrificing of present money in the expectation of future return so they are all
investment. The objective of the investment is to maximize Profit and Wealth of the investor.

Investment can be of two types Real Investment or Financial Investment. If investment is done
in tangible assets like land and machinery is real investment. It has productive capacity.
Investment is financial assets like common stocks and a bond is financial investment. It does not
directly possess productive capacity. The value of financial assets is derived from the values of
the real assets of the firm. True investor is interested usually in long term investment with a
good rate of return earned on a consistent basis with a low risk as possible but there may be
some irrational investor in the market. People seek opportunities promising high rate of return,
earned rather quickly, or say abnormal rate of return than the moderate rate of return, so
investment period may be a few days to few months. People invest with their saving money in
case of bank its source of funds are deposit equity capital and sometime even loans is borrowed
from other bank to invest. Deposit is one of the bank’s important sources of funds. Deposit is
the investment for the depositor as he receives interest from bank for his deposit. Bank
mobilizes its funds accumulated from different sources in various investment alternatives such
as government, corporate securities, mutual fund, industrial project, by providing loans,
advances, overdrafts, etc.

Even though profit and risk is important factor while investing they are not only the factor that
investor has to consider. There are other factors that investor has to take in account. They are

9
taxes, market environment, Govt. rules and regulations, etc. The word investment brings forth
vision of profit, risk, speculation and wealth.

1.4.1 Investment policy

A bank makes investment for the purpose of earning profits. Before that they keep primary and
secondary reserves to meet its liquidity requirement. So to match the liquidity position and to
gain the profit also investment policy has to be made. To maintain adequate liquidity in the
bank should be one of the major policies while investing

One of the most important problems in the banking industry is the investing its deposits and
capital in various forms of earning assets. This is also known as the portfolio management. The
investment policy of bank is highly influences by the nature of funds for its investment. There
are mainly two types of funds in the bank for investment i.e. capital and deposits. Deposits
constitute the major portion for the investment purpose. Bank can also take loans from other
bank to invest. The bank should be able to clear the policy of its investment by making deep
study on the subjects that which sector would be the more trustworthy and dependable to
invest by the amount collected.

In usual practice loan and investment is regarded to be a synonymous. The bank gives a loan to
customer for short period on condition of repayment. It is the customer who asks for loan. By
advancing a loan, the bank creates credit, which is a temporary source of fund for the bank. An
investment of the bank in the other hand is the outlay its funds for a long period without
creating any credit. A bank makes investment in government securities and the stock of large
reputed industries, in the case of loan, bank advances money against securities and bills
provided by the borrower.

A bank should lay down its investment policy in such a manner so as to ensure the safety and
liquidity of its funds to meet the potential demand of its customers and at the same time
maximize its profits. This requires adherence to certain principles. In regards to a commercial
bank there are basically some major principles, which they follow while they formulate their
investment policies.

1.4.2 Principle to be considered before formulating Investment policies

Some important principles that a bank needs to consider while formulating investment policies.
They are discussed below:

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a. Principle of Profitability: Even though bank is service oriented organization it must make a
profit because it ahs to pay interest to it’s depositors, it also have to pay operating and
administrative expenses such as rent, stationery, repair and maintenance, salaries bank that it
has to pay dividend to its shareholders. So the bank must earn profit as much as possible in
order to run the bank smoothly and efficiently. The bank can gain much profit from the safe
and long term investment but there is less liquidity in such investment. It can invest in place
where there might be high profit but it can include high risk in this situation bank may face the
great economic loss. A bank must pay attention how to equalize profit and liquidity and reduce
risk as much as possible.

b. Principle of liquidity.

Liquidity is another important principle of investment policy of bank. Profit and liquidity are two
opposite principles. To earn profit bank must invest but to earn safe profit, it must invest in
long term securities but it can not do so because banks public money, which can be withdrawn
at any time by depositor. They therefore advanced loans on the security into cash at a short
time. It is essential because if the bank needs cash meet the urgent requirement of its
customers, it should be in a position to sell some of the securities at a very short notice without
disturbing their market prices much. They are certain securities such as central state and local
government bond, which are easily sealable. So, the bank should make investment in
government securities shares and debentures of reputed industrial houses.

c. Principle of safety: The safety of fund invested is a principle of investment policy. Safety
means that the borrower should be able to repay the loans and interest in regular interval
without default. The repayment of the loans depends upon the nature of security, the character
of the borrower, his capacity to repay and his financial status. The share and debenture of
industrial concern are tied to their earnings which may fluctuate with business activity in the
country. The bank should also take into consideration the dent repaying ability of the
government which investing in their securities. It is safe to invest in the securities of a
government having high tax revenue and high borrowing capacity. While investing the bank
should choose securities of such govt., local bodies and industrial concerns which satisfy the
principle of safety.

d. Principle of Marketability: A bank should consider the principle of marketability in

investment policy. To invest bank should follow the policy of taking the security of high quality
as far as possible. In case of market in Nepal which is quite small, in order to give livingness to
its banking transaction, a bank should flow its loan by taking the first class securities. While
investing it should not forget the principle of marketability that is weather the taken securities

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are sealable in the market or not? Can the loan be recovered by selling it in the market or not?
Investor should study the market and evaluation must be done while investing.

e. Principle of National interest: No organization or individual should forget the liability toward
the society. Banks objective of gaining profit should not go against the national interest. The
central Bank of Nepal have prescribed directive to all bank such as to invest where and how
much according to situation and the policy and instruction. So bankers should follow these
directives and contribute in country’s development.

f. Principle of Price Stability: One of the major principles of investment is the principle of price
stability. Price must be stable; otherwise there is possibility of amount of a bank to be sunk in
the future. If the security is taken of the property which keeps the price stable it will be easy for
the bank to recover its loan. The bank should make investment by keeping the securities that
keep the price stable, should flow the investment also create such situation which keeps the
bank free from the fear of losing its loan.

g. Principle of Diversification: A bank would have to bear high risk to earn high profit. It can
reduce risk by diversifying its investment. In every advance given by the bank involves a risk
element no matter how secured it may look. Whole banking business is operated on calculated
risk. A successful banker should access the risk and diversify it by investment over a large
number of industrial sectors and over a large number of securities. A bank should not invest its
large portion of fund in one security or in one industry. If bank invest its large portion of fund in
one type of security a bank would be running a big risk if that type of security’s value steeply
decline. Principle of diversification means “One should not lay all its eggs in the same basket”.

h. Principle of Tax Immunity: Even though bank is a government bank and it should help in
the incensement in the wealth of the country it should invest in such sector which is entitled to
the tax immunity mainly the commercial banks who has to earn profit for its stability. By
increasing the investment to tax immunized sectors the bank can achieve goal of profit
maximization. Tax immunized areas like treasury bills; national bond development bonds, etc
are notable examples.

1.4.3 Factors affecting Investment policies

Every organization make there own investment policies and they would have been successful If
other factors did not influence it, but it is always influence by various factors. It can be broadly
categorized in to two.

1. Internal Factor
Internal factors are controllable in nature. It means bank’s management can control these

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factors by its changing policies and forming rules and regulation. Some of the factors are as
follow

 Budget: To invest there should be enough budgets with firm. Budget can be
capital or loan. In case of bank capital, loan, reserve and deposits are the major source
of the budget for the investment. There should be appropriate budget with bank to
invest.
 Type of deposit: People deposit in various accounts so according to kind of
deposit made by the depositor bank should make its investment policy. Like if the
deposit is in interest bearing account mostly in fixed account bank can invest in long
term investment and if it is in noninterest bearing like current account it should invest
such funds in short term investments.
 Management efficiency: Another major internal factor that influences the
investment policies is the management efficiency. If the management efficient is high
then the investment policy can be regulated easily and smoothly. For this there should
be proper communication.


2. External factor:
Another important factor that affects the investment policy is external factor. This external
factor cannot be control by the organization. In other words it is uncontrollable. Some of the
external factor affects the investment policy is discussed below

 Government rules, regulation and budget: One of the major external factors which
cannot be avoided is government rules, regulation and its budget. This affects the
investment policy greatly. This can keep on changing according to government formed.
 Competition: Another major external factor which affects investment policy of the
banking sector is stiff competition among the different banks. New establishment of the
bank and old to survive they may lead to unhealthy competition.
 Market environment: One of the major factors that influence the investment policy is
market environment. Some of the product may have high elasticity and some may be of
low elasticity. Banks have to carefully analysis where to invest or might face the loss.
 Central Bank direction: This can be considered as the one of the major external
factor that influences the investment policy of the bank. Central Bank is supreme body
of all the banks so all the banks have to follow the direction given by the central bank
regarding the investment otherwise they might have to face penalty or they are closed
by the central bank.

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1.4OBJECTIVE OF THE STUDY
Every people work to achieve their goal or target in other words we can say ever work has its
objective. In this report I have tried to study the investment of INVESTMENT BANK LTD from
which I am hoping to know their investment policies and its contribution towards the
fulfillment of banks target. To achieve primary objective are also considered In this study:

1) To compare the source and uses of funds of INVESTMENT BANK LTD to total
commercial banks.
2) To evaluate the percentage of investment made by the INVESTMENT bank
ltd. In different sectors.
3) To calculate rate of return on investment on government securities.
4) To compare the investment made by INVESTMENT bank ltd. To total
deposits.

5) To evaluate the contribution of investment to total income.

6) To find out the profit position of the bank.

1.6 SIGNIFICANCE OF THIS STUDY

A developing country like Nepal needs investor who can invest in different development
projects and in profitable sectors. There are very few people in Nepal who can invest in high
amount so for country like Nepal one of the major sources of the investment is Bank. Many
banks and financial companies are establishing each year among them some are commercial
banks; some are development banks, and some finance companies and many more will be
established In future.

The competition has become stiff because of large no. of competitor. Many banks and financial
companies are being liquidated because of various reasons. One of the major reasons for the
liquidation of the organization is implementation of poor investment policies. Those banks who
have implemented well studied investment policies properly have been succeeded and are
thriving now.

I have focused on a study of investment done by a commercial bank. I have chosen

INVESTMENT bank for my study which is one of the biggest commercial bank in Nepal. This
study will hopefully help to know the investment policies of the bank. It will find out the profit
position as well. Investment policies are guidelines that banker should not neglect as it might

14
cause heavy loss to the bank and if the bank become failure it cause loss not only to itself but to
the nation also.

1.7 METHODOLOGY
The prime objective of research is to know about the investment policy of Investment Bank
Limited. The research is always based on collection and analysis of data which are processed to
create knowledge.

1.7.1 SOURCE OF DATA

In any kind of work weather it is field report or of starting new business we need lots and lots
of information regarding the subject matter. Without source of information no idea or decision
can be generated or we can say that we can not achieve the goal. It is source of data in which
published result and conclusion will depend on. If the source of data are reliable like say mostly
primary data then it is more reliable like say mostly primary data then it is more reliable but it
does not mean that the secondary data are fake it also plays a vital role. Like while preparing
field reports and for other purpose also. So that source of data is very important.

To achieve primary objective of this study that is to know about the investment policy and their
contribution from the study of investment of the INVESTMENT Bank, mostly secondary data has
been provided by “Nepal Rastra Bank”. Mainly used sources of data are like web site
www.nibl.com.np and “23rd Annual Report” (2066/2067 B.S) of INVESTMENT Bank are used.
“Banking and Financial Statistics” form INVESTMENT has also been used.

Other many sources of data for the preparation of this field report are used. They are course
books like Fundamental of investment, banking and insurance are used, further sources like
booklets, published journals, and articles published in newspaper and other secondary sources
are also used.

1.7.2 Tools and Method Analysis

Without the proper analysis of data we can not determine anything of any institution. To
determine any policy or any thing of any bank we must properly analyses the data that are
available. So likewise to study the investment made by the bank and to determine investment
policy of the bank corrective and the proper analysis of collected data is needed for which
proper financial tools and method of analysis should be used then only it can give appropriate
results. For the proper tools books and previous fields report on the investment policy were
consulted.

15
For this field report tools and methods like ratio analysis, average , percentage, trend, etc, is
done. The calculated mathematical results of the data is also presented graphical figures like
bar diagrams, line charts etc. so that it would be more easier to understand by the reader.

1.8 LIMITATION OF THE STUDY

While writing the field report there was some limitation that I could not over come. So this
report is drafted by considering those limitations. Following limitation are taken into account
while writing the field report.

 This field report is based on annual report and other secondary data which were
published by the bank. This was prepared in the limited time period.
 This report is concentrated in the investment of INVESTMENT bank in the securities
only other investment like in credit and fixed assets has been not dealt.
 Only some methodology has been considered for computation and analysis of data.
 It may lack many other requirements necessary for this fieldwork.
 Data of recent year is not available.

1.9 CHAPTER SCHEME

Chapter I is the introduction describing the background of the study, history of bank,
introduction of Investment Bank Ltd. Including its board of directors, share capital pattern and
other financial aspects and services rendered. Furthermore, this Chapter highlights the
significance of the study, its objectives and methods used in collecting information and data.
Lastly, the limitations of the study are enlightened.

Chapter II is the Data Presentation and Analysis showing share capital and reserve structure of
the bank, its overall investment strategy in risky and risk free area, net profit trend for 5 year
period, its deposit and loan advancement and its comparison to other commercial bank.

Chapter III highlights the Summary, Conclusion and Recommendations after the research has
been carried out.

16
 Chapter two

DATA PRESENTATION AND ANALYSIS

This report aims to study the investment made by “INVESTMENT Bank Ltd.” Regarding the
investment in securities. For these purposes many financial tools have been used in the study.
Financial tools like ratio analysis, means percentage correlation; trend line analysis etc has been
the major tool in the research. Basically the research questions have been answered by the
secondary data available by different sources. Amount taken in these research is not exact
these are converted into million for the easy calculation.

2.1 Share Capital and Reserve Structure

Table 3
A table showing share capital reserve and retained earnings.
(Rs in million)
F/Y Share Capital Reserves Retained Shareholder’s
earning equity
2004/05 587.738 345.668 24.923 958.329
2005/06 590.586 415.775 45.950 1052.311
2006/07 801.352 516.056 121.354 1438.762
2007/08 1203.915 655.856 67.478 1927.249
2008/09 2407.068 835.980 156.558 3399.606
Source: Annual report

Table-3 shows the capital, reserve and retained earnings of INVESTMENT bank, as a whole
shareholder’s equity. If we look at the above table we can see share capital is increasing fiscal
year 2004/05 to 2008/09.

The reserves have been increasing from fiscal year 2004/05 to 2008/09. Retained earning is
increased from fiscal year 2004/05 to 2006/07 but is decreased in the fiscal year 2008/09 which

17
shows retained earning is volatile. As a whole Shareholder’s equity has increased in last five
year.

2.2 Net Profit Trend For Five Year

Table-4

Showing change in net profit of bank (Rs in million)

F/Y Net Profit Increase/Decrease amount over previous year %change

2004/05 232 79 51.63
2005/06 350 118 50.36
2006/07 501 151 43.14
2007/08 697 196 39.12
2008/09 901 204 29.26
Source: annual report

Increase/Decrease amount over Previous year=New Year Profit- Old Year Profit

% Change=Increase or Decrease amount over previous year/previous year amount

FIG-1

Bar diagram showing trend profit of INVESTMENT bank

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Table-4 and the bar diagram FIG-1 shows the net profit and net profit trend of investment bank
limited. Here it shows profit is in continuous increment but the trend line shows that the profit
is in declining position. In the fiscal year 2004/05 profit was 51.63%. In the fiscal year 2005/06,
2006/07, 2007/08, 2008/09 has decreased to 50.36%, 43.14% 39.12%, 29.26% respectively.

2.3 TYPES OF INVESTMENT MADE BY THE INVESTMENT BANK

Every organization has to make investment to survive, to earn. Investment Bank ltd s also one
of the financial organization. This bank also does investment in different sectors and securities.
This organization need to invest in the form o loan or other way this is only source of income
for the organization. There is no other productive sector. Some of the data where this
organization has invested and analysis of the investment has been given below.

Table-5

Showing Types of investment made by investment bank

S.N Particulars Year

2004/05 2005/06 2005/06 2006/07 2008/09
1 NG Treasury bills and 1948.5 2522.3 3256.4 3155 2531.3
securities

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2 Foreign banks - 3043.11 3194.38 3664.47 4807.54
3 Shares, debenture and bonds 17.73 17.73 35.25 59.94 64.27
4 Other investments 1967.95 19.71 19.63 - -
5 NRB securities - - - - -
6 Total investments(1+2+3+4+5) 3934.18 5602.85 6505.66 6879.41 7403.11
7 Adjustment - - - 5.4 3.3
8 Net investments(6-7) 3934.18 5602.85 6505.66 6874.01 7399.81

Source: Annual reports

Table -5 shows the types of investment made by the bank during year 2004/05 to 2008/09.
According to data available by the bank we can say from fiscal year 2004/05 to 2008/09 more of
the investment is done in the NG securities, and less on other investments. Later in 2005/06
more of the investment was done in foreign banks and less in NG securities. Investment done
by the bank in shares, debenture and bond are increasing.

FIG-2

Bar diagram showing types of investments made by investment bank

Figure 2 shows the investments of investment bank limited in different places from fiscal year
2004/05 to 2008/09. There is high difference of investment in NG securities and other
securities. Investment in shares, debentures and bonds is in very low ratio so it is difficult to see

20
in the bar diagram till date. Bank has invested in foreign banks from 2005/06 and in very high
ratio. Investment in NRB securities is negligible so its difficult to see in the bar diagram.

2.4 PROPORTION OF INVESTMENT ON RISKY AND RISK FREE AREA

If the excess amounts remain inactive in the bank, then it will be the cause for decrease in the
profit of the bank. Investment in securities is one of the major places for investment and from
this we can generate more revenue but it doesn’t mean that we can invest in random. We must
take some precaution before the investment in different securities. Portfolio of 8 securities are
said to be good optimal portfolio. Bank should understand that they are using the fund of the
public so they should not use the public funds to invest in maximum risk oriented projects. They
must invest in safe and profit generating projects and securities. So, the bank should invest low
amount in risky securities and should invest its excess amount of fund to the secure places
which is like government securities, treasury bills etc.

Here investment in the securities has been divided into parts that is risky and risk free. Here
investment in the government securities is considered as risk free area and investment in
shares, debentures of different companies and other investment have been considered as the
risky area. Other investment consists of mutual funds deposits in foreign banks and banks of
country and certificate of deposits. Share and debenture are considered as the risky are
because the share doesn’t have fixed rate of return and debenture is kind of loan without
mortgage. Interest in deposits in different bank can vary according to their policy and mutual
fund returns are also not fixed. Government securities are considered as risk free because it has
fixed return and public has a great faith on the government. We can see the investment made
by the investment bank in risk free and risky securities in the below table from the fiscal year
2004/05 to the current financial year.

Investment amount in risky area = shares of different companies+ debenture of different

companies+ other investments

Investment amount in risk free area = government bonds+ treasury bills

Proportion in risky area = investment amount in risky area/total

Proportion in risk free area = investment amount in risk free area/total

21
 Table 6

Showing investment in risky and risk free are (Rs in millions)

Fiscal year Risky area (A) Risk free area Total (A+B)
(B)
2004/05 Investment amount 1985.68 1948.5 3934.18
Proportion 0.5047 0.4953 1.0
2005/06 Investment amount 3080.56 2522.3 5602.86
Proportion 0.5498 0.4502 1.0
2006/07 Investment amount 3249.27 3256.4 6505.67
Proportion 0.4995 0.5005 1.0
2007/08 Investment amount 3724.42 3155 6879.42
Proportion 0.5414 0.4586 1.0
2008/09 Investment amount 4871.81 2531.3 7403.11
Proportion 0.6581 0.3419 1.0
Source: Annual reports

N table -6, we can see different proportion of investment made by the bank on risk and risk free
area. According to table, in the F/Y2004/05 the highest portion of fund invested on risky area
respectively. Investment in risk area is greater then in risky area on 2006/07. While looking at
the all the proportion in the table, we can conclude that in all case except in F/Y 2006/07 high
portion of the investment in the risk free area. By this we can conclude that the bank is in risky
investment policy.

2.5 COMPARITIVE STUDY BETWEEN DEPOSIT AND INVESTMENT

Deposit is one of major source of fund for the bank. These funds should be properly invested.
Bank should not invest in such place where there is greater risk and liquidity cannot be
maintained. Bank should invest in such place where liquidity and profit can be made
proportionally otherwise public might lose their faith from the bank in the both the conditions
that is in lack of liquidity in time of withdrawal and at the time low profit. So if the bank invests
its fund to the secure that is considered to be good.

Investment to the total deposits is a indication of the velocity with which the funds moves
through the loan and advances out of the total deposit amount. Investment is medium through
which bank generally generates the revenue. Here the comparison is done between the
investment in securities and the total deposits done by the public. Here investment in the form
of loan and investment in fixed assets has been ignored. Below in the table and diagram the
investment to the total deposit of Nepal Investment Bank Ltd is shown.

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 Table 7

Showing ratio of investment to total deposit of the bank (Rs in millions)

Fiscal year Total deposits Total investment Ratio

2004/05 14255 3934.18 0.2760
2005/06 18927 5602.86 0.2960
2006/07 24489 6505.67 0.2656
2007/08 34452 6879.42 0.1996
2008/09 46698 7403.11 0.1585
Source: annual reports

Ratio = total investment/total deposit

FIG-3

Bar diagram representing total deposit and investment (Rs in millions)

23
Table-7 and bar diagram present the total investment made by bank, total deposit and its ratio
from the fiscal year 2004/05 to 2008/09. In the fiscal year 2004/05 the investment was 3934.18
million which 27 .60% of the total deposit. In the fiscal year 2005/06, 2006/07, 2007/08 the
amount of investment was Rs 5602.86 million, Rs 6505.67 million, Rs 6879.42 million
respectively and its ratio to total deposit was 29.60%, 26.56% and 19.96% respectively. Similarly
in the F/Y the investment was Rs 7403.11 million which was 15.85% of the total deposit.

2.6 RATIO OF INVESTMENT TO TOTAL CAPITAL AND LIABILITY (SOURCES OF

FUND)
Capital is another major source of fund. To start any kind of company or the organization
capital is first essential part. Capital to be raised by issuing share and also by retaining profit.
Liability is another source of fund. Some liability might not generate cash directly but it gives
the same value like assets bought in credit.

To find out the ratio of investment and total capital and liability in the below table following
formula is used:

Table -8

Showing ratio of investment to total sources of funds. (Rs in millions)

F/Y Total source of fund Uses of funds on Ratio

investment
2004/05 16063.52 3934.18 0.2449
2005/06 21330.14 5602.86 0.2627
2006/07 27590.84 6505.67 0.2357
2007/08 38873.31 6879.42 0.1769
2008/09 53010.80 7403.11 0.1396
Source: Annual reports

Table-8 shows the ratio of uses of funds on investment to total sources of funds from fiscal year
2004/05 to 2008/09. The ratio of investment to total sources of funds from fiscal year 2004/05
to 2005/06 is increasing then it is in decreasing trend. The ratios of investment of fund from
fiscal year 2004/05 to 2008/09 are 0.2449, 0.2627, 0.2357, 0.1769 and 0.1396 respectively.

2.7 LOAN AND ADVANCE TO TOTAL INVESTMENT

We know that bank do not only invest in the securities but it also invest through loan. Loan and
advance is one of the major investments done by the bank from which they can earn and this
are where maximum of the bank fund can be used by the bank but never the less this is one of
the riskiest investment area for the investment. There is always problem in getting back the
loan so a bank has to make etcetera provision of loss in this sector. However, this is one of the

24
 major funds utilizing area where bank should invest. Proportional comparison between the
total investment and loan and advance is done below

Table-9

Loan and advance to total investment (Rs in millions)

Fiscal year Loan and Total investment (B) Total (A+B)

advances (A)
2004/05 Investment amount 10453 3934.18 14387.18
Proportion 0.7265 0.2735 1.0
2005/06 Investment amount 13178 5602.86 18780.86
Proportion 0.7017 0.2983 1.0
2006/07 Investment amount 17769 6505.67 24274.67
Proportion 0.7320 0.2680 1.0
2007/08 Investment amount 27529 6879.42 34408.42
Proportion 0.8000 0.2000 1.0
2008/09 Investment amount 36827 7403.11 44230.11
Proportion 0.8326 0.1674 1.0

25
 FIG-5

Source: annual reports

Total investment = Risk free area + Risky area

Ratio of loan and advance to Total investment = Loan and Advances/Total investment

From the above table and graph we can clearly see that the loan and advances is gradually
increasing. Investments of investment bank are also increasing throughout the years.

2.8 COMPARISON OF INVESTMENT MADE BY THE INVESTMENT BANK TO

OTHER COMMERCIAL BANKS
Commercial banks are increasing day by day and there is fierce competition among them to
attract the customers. They need to invest the money collected from public in safe and high
return area so that they can increase their profit as well as wealth. Every bank has its own
policy to invest. Comparison on investment of investment bank and other commercial bank is
shown below.

Table 10

Fiscal year Investment of total Investment of percentage

commercial banks investment bank
2006(mid july) 88959.57 3934.18 4.42%

26
2007(mid july) 101888.12 5602.86 5.49%
2008(mid july) 120335.6 6505.67 5.41%
2009(mid july) 141347.3 6879.42 4.86%
2010(mid july) Not available 7403.11
Source: annual report

Percentage = investment of investment bank/investment of other commercial bank

Table-10 above shows the comparison of the investment bank with total of other commercial
banks. Investment bank has share percentage of 4.42 of the total investment of the commercial
banks in mid july 2006. Investment percentage increased to 5.49 in mid july 2007 but has
decreased to 5.41 % in mid july 2008 and has further decreased to 4.86% in id july 2009.
Investments of the other commercial banks are in increasing order while that of investment
bank is decreasing from the year 2008.

FIG-6

160000

140000

120000

100000

80000 Investment of total commercial

banks
60000 Investment of investment bank
40000

20000

0
2006(mid 2007(mid 2008(mid 2009(mid 2010(mid
july) july) july) july) july)

27
In FIG-5 percentage of INVESTMENT bank’s investment in comparison to other commercial
bank is shown. In the fiscal year 2010 there is no comparison due to unavailable data of
investment done by total commercial banks. From mid July 2006 till mid July 2009 to total
commercial bank is in mid July 2007.

CHAPTER- THREE

SUMMARY, CONCLUSION AND RECCOMENDATION

3.1 Summary
Evolution of the banking sectors in the world has been centuries. In the context of Nepal also it
has been many years. Banks play vital role in the boost up of the economy of the country,
especially country like Nepal. There should be equal participation of public and the government
sector in the banking sector to develop the economy of the country. In other words, the
government banks and commercial banks both play important role to develop economic
condition of the country.

This field report is study of investment policy of the INVESTMENT bank limited which was
established in 1986. The bank was announced the “Bank of the year 2008”.

Every commercial bank needs to earn profit to survive and for it they have to invest. Main
objective of this study is to find out investment policy of INVESTMENT bank limited. This study
is concentrated towards the observation of Investment bank sources and use of the funds,
types of investment made by the bank, comparison of investment made by investment bank ltd
to other commercial banks in the country, ratio of the total deposit, investment in risk free and
risky area and ratio of net profit by the investment. This report has concentrated on the real
investment like NG securities, bonds and shares but not loan and advance which can be
considered as one of the risky investment done by the bank on the total faith.

This study is done on the base of secondary data provided by the Investment bank limited and
Nepal Rastra Bank from fiscal year 2004/05 to 2008/09. The results of the study are fully
dependable on these available data so that results might not be accurate as expected.

3.2 Conclusion
After analyzing the data that are available and interpreting the results, I came to following
conclusion:

 There is continuous increment of shareholder’s equity from last fiscal five years i.e. from
2004/05 to 2008/09 which is considered as the positive aspects (Table-3).

28
  Net profit is in decreasing trend percentage change in profit were reduced in
comparison to fiscal year 2004/05 the trend line shows the declining trend, which is
unfavorable may be due to the situation of the country last year (Table-4, Fig-1).
 in five fiscal years except in fiscal year 2005/06, more of the investment were done in
foreign banks and less in shares, debenture and bonds and other investments (Table-
5,Fig-2)
 while dividing the whole investment on two parts that is risk free and risky area except
in F/Y 2006/07 here also it shows the investment is done in risky area, we can conclude
that bank is not taking safe investment policy regarding in securities.( Table-6)
 Total deposit is one of the sources of fund. Here ratio to T.D total investment is
increasing in F/Y 2005/06 and then decreasing. So among different source the portion of
deposit must have been utilized in some other places then in investment in securities.
(Table-7)
 The ratio of investment to total source of funds shows increase in F/Y 2005/06 and then
in decreasing orders. This shows that the fund must have been utilized in some other
places like to purchase fixed assets, to create credit or for working capital. (Table- 8)
 Proportionate comparison between total investment and loan and advance concludes
that Investment bank has great faith on their customer and they follow their motto very
well. The loan and advance has greater portion then of total investment. (Table-9)
 The comparison of investment made by the investment bank to total commercial bank
cannot bank cannot give exact conclusion due to unavailable data. It seems like that
investment bank has high contribution on investment then other commercial bank
(Table-10, Fig-6)

3.3 Recommendation
From all above data analysis and conclusion that overall performance of the bank is
satisfactory, however this year the net profit growing rate has declined. Here are some
suggestions, which hopefully will help to improve the position of Investment bank.

 Its growth percentage of net profit is reduced so to increase its net profit it has to
expand the investment sector. It can support to new industry and business of the
country and help in more social economic development of the well recognition of the
institution.
 serving people with the credit facilities is the duty of the financial institution yet to
invest more in loan may be problematic in the near future so the bank should gather
more information as possible of the parties before granting loan.
 Bank should open more branches in the rural area to improve banking habit of the
people.

29
 The bank should study the market to make their transaction more capable as well as to
fulfill growing demand facilities.
 To attract customer and to collect funds high interest rate is key points. The cash
deposited by the customers mainly in fixed deposits can be used in long term
investment.
 investment bank should publish and distribute their booklets regarding its progress
reports and future plans to the interested people to gain the confidence of the people
and update the website with much more information as possible and as timely as
possible.
 There is stiff competition in the market. So investment bank should develop IT, provide
more training to the staff members and should keep a close eye on unhealthy
competition.
 The bank has highest profit on f/y 2004/05. I would recommend the bank to take same
strategy of investment.

30
BIBLOGRAPHY
#Birsingh Hriday (2005), “Banking and Insurance”, Asia publication (P) ltd. Kathmandu.

#Bhandari, Dilli Raj (2003),”Principle and Practise of Banking and Insurance”, Aayush
publications, Kathmandu.

#Dewett, K.K; Varma, J.D (1980),”Elementary Economic Theory”,S.Chand and Company,New

Delhi

#Koirala, Aatmaram; Gautam, Durgaprasad (2061),”Economic Principles”, Goodwill

publications Kathmandu.

#Moses, Edward A (1992),”Fundamentals of Investments”,Westgroup company, Minnesota

#Nepal Rastra Bank (2008/09) ,Banking and financial statistics

# Retrived from www.nibl.com.np (website of Nepal Investment Bank ltd)

#Sharpe, William, F.alexander, Gordon J;Bailey, Jeffery V;(1998)”Fundamentals of

Investments”,Pearson Education Inc, Singapore

#Shrestha, Manohar K.Poudel,Rajan B.(2005),”Fundamentals of Investments”, Buddha

Academic Publisher and distributors Pvt, Kathmandu

#Whiting, D.P. (1994)”Mastering Banking”, Palgrave Macmillan, London.

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