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COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE ON

NIBL (Nepal Investment Bank Limited) and HBL (Himalayan Bank Limited)

Submitted By: Bikramaditya Dahal KFA Business School Roll No.:304 MBA

Submitted To: Preeti Raj Adhikari Faculty of Financial Management KFA Business School

KFA Business School


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TABLE OF CONTENTS

Introduction General introduction of Banks Objectives Methodology

Analysis of the study Nepal Investment Bank Limited

Summary Conclusion Recommendation Bibliography Appendices

CHAPTER 1

BANK OVERVIEW

Introduction of Nepal Investment Bank Nepal Investment bank Ltd (NIBL) was established in 1986. Previously, it was known as Nepal Indosuez Bank Ltd. It was established as a joint venture between Nepalese and French Partners. The French partner (holding 50% of the capital of NIBL) was credit Agricole Indosuez, a subsidiary one of the largest banking group in the world. With the decision of Agricole Indosuez to divest, a group of companies comprising of bankers, professionals, industrialists and businessman has acquired on April 2002 the 50% shareholding of credit Agricole Indosuez in Nepal Indosuez Bank Ltd. The name of the bank has been changed to Nepal Investment Bank Ltd, upon approval of banks Annual General Meeting, Nepal Rastra Bank and company Registers Office with the following shareholding structures:

A group of companies holding 50% of the capital Rastriya Banijya Bank 15% of the capital. Rastiya Beema Sansthan 15% of the capital. The remaining 20% being held by the general public.

Using Financial Ratios and Other Analytical Tools to Track Bank Performance

They are the bank, in which people trust to deposit their wealth to safeguard them from risks. In another side, banks provide loans to trade and industries. In this way bank are assumed to be as the backbone of the national economy. Therefore effective performance of the bank is the interest of all including the government and creditors. During the 1980s banks analysts received important new tools to aid them in analyzing a banks financial condition. This new tool was developed by the cooperative efforts of the three federal banking agencies of America. This tool is called Uniform bank Performance Report.
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These new tools have supplementary items including breakdowns of loans and lease commitments. They analyze the problem regarding loans and loan losses. They also analyze the profile of each banks exposure to risk and source of capital. To track down the performance, bank can also obtain peer group reports, which allow them compare their bank with other banks of comparable size.

Introduction of Himalayan Bank Limited


Himalayan Bank was established in 1993 in joint venture with Habib Bank Limited of Pakistan. Despite the cut-throat competition in the Nepalese Banking sector, Himalayan Bank has been able to maintain a lead in the primary banking activities- Loans and Deposits. HBL stand for the innovation that helps to bring about in this country to help our Customers besides modernizing the banking sector. With the highest deposit base and loan portfolio amongst private sector banks and extending guarantees to correspondent banks covering exposure of other local banks under our credit standing with foreign correspondent banks, we believe we obviously lead the banking sector of Nepal. The most recent rating of HBL by Bankers Almanac as countrys number 1 Bank easily confirms theirs claim.

Objectives:
The main objectives of this report is to present financial analysis is that explain various facts related to the past performance of business and predict the aptitudes for realizing desired results. o To compare the liquidity position. o To examine the efficiency. o To analyze the solvency. o To trace out the financial strength and weakness.

Methodology
In this study, two commercial banks have been selected for the analysis. Analysis is being done between Nepal Investment Bank Limited and Himalayan Bank Limited. Compare and contrast have been used for the analysis. Though, the nature and characteristics of both bank may not be similar, but, however being Nepals top rank bank it could be analyzed.
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CHAPTER TWO

ANALYSIS OF STUDY

Ratio analysis The discussion and analysis section is the heart of the report. This is the section in which data are presented and analyzed. The discussion of finding will normally be the longest section of the report to get desired objectives of the study several analytical tools had been employed and used research methodology and research design. This chapter is basically concerned with the presentation, comparison, and analysis of data. In this chapter the effort had been made to evaluate the performance of Nepal Investment Bank and to evaluate Himalayan Bank Limited. Every presentation of the data follows its analysis so that can be drawn out and future prediction can be initiated. For the purposed of the analysis simple method of financial tools, ratio analysis is used. Ratio analysis is widely used as a tool of financial analysis. It is defined as a systematic use of ratios to interpret the financial statement so that the strength and weakness of firms well as its historical performance and current financial condition can be defined. The main kinds of tools to measure the performance are

Earning Per Share (EPS) It simply shows the profitability of the firm of a per share basis. It is calculated from the point of view of the ordinary shareholder. It is calculated by dividing the profit after tax by the total number of ordinary share outstanding.

EPS =

Net profit after Tax ____________________ No. of common share

The EPS trend is fluctuating, but it is clear that the EPS of Nepal Investment Bank is substantially high than other competitors. The average EPS of Nepal Investment Bank is 44.74. The highest and lowest EPS of Nepal Investment Bank are 59.35 and 33.59 respectively in the fiscal year 2062/2063 and 2058/2059. Therefore from above analysis we can say that the earning power of Nepal Investment Bank is in good condition.

Return on Asset (ROA) It measures the firms return on investment of financial resources. It also helps us to provide the information of proper utilization of the resources. It is the relation between profit and total assets. Lower ROA means lower profit and higher ROA means higher profit. In the present study, this ratio is examined to measure the profitability of all financial resources in the bank assets.

Net profit after tax (NPAT) ROA= __________________________________ Total Assets

The trend of ROA is also fluctuation; it rises in the year 2059/2060. The highest ROA was 1.61% in the fiscal year 2062/2063 and lowest ROA was 1.13% in the fiscal year 2060/2061. The above table shows that the ROA is satisfactory. However the management of Nepal Investment Bank must keep their eyes toward the situation and mobilize their working assts more efficiently to earn more profit. The Average ROA is 1.312

Price Earnings Ratio (PE ratio) In the fiscal year 2059/2060, the PE ratio was 20.10. And decreases up to 18.18 in the year 2060/2061 but it continuously increases in the year 2061/2062 and2062/2063. The PE ratio is 21.23 Ratio of Net Profit to Gross Income In the fiscal year 2060/2061 the ratio of Net Profit to Gross Income is 16.71% but it increases up to 20.26 in the year 2061/2062. In current year 2062/2063 its ratio is 23.99. Findings: In the fiscal year 2061/2062 the ratio of Net Profit to Gross Income is 20.26 which are greater than last year and this year ratio was 23.99 which is more than last year.

Exchange Gain to Total Income Ratio In the fiscal year 2059/2060 the ratio of Exchange Gain to Total Income is 8.80 but it increases up to 9.63 in the year 2060/2061, after 2060/2061 it was decreasing continuously. Findings: In the year 2060/2061 the ratio was 9.63 which were higher than previous year and this year 2062/2063 (i.e. 8.60)

Net profit to Loan and Advances Ratio In the fiscal year 2058/2059 the ratio of net profit to loan and advances is 2.10% but it decreases by 0.13% and became 1.97% in the fiscal year and after that it continuously increases up to 2062/2063(i.e. 2.66%)

Cash and Bank balance to current deposit ratio

In the fiscal year 2061/2062 the ratio was 84.68% which is less than previous year and in fiscal year 2058/2059 the ratio was 43.14% which was the lowest ratio during 5 year. Thus the bank has less liquidity in 2058/2059. Cash and bank balance include cash in hand and total bank balance.

Findings: In the fiscal year 2061/2062 the ratio was 84.68% which is less than previous year (i.e. 84.78%) and in fiscal year 2062/2063 it is 136.92 which is higher than last year. The average ratio is 88.83%.

Cash and Bank balance to Total deposit Ratio (CRR) Cash Reserve Ratio In the fiscal year 2058/2059 the cash reserve ratio is 8.12 and later become 11.70 in 2059/2060. The trend line is fluctuating it goes up and down. However cash reserve ratio should be minimum. In current year cash reserve ratio is 12.33% Findings: In the fiscal year 2059/2060 the cash reserve ratio is 11.70% that were higher than previous year i.e. 8.12% and this year it is higher than previous year i.e. 12.33%. The average cash reserve ratio is 10.63%

Saving Deposit to Total Deposit Ratio The ratio of Saving Deposit to Total Deposit are 30.83%, 30.72%, 42.40%, 47.03% and 42.70% in fiscal year 2058/2059, 2059/2060, 2060/2061, 2061/2062 and 2062/2063 respectively. Saving Deposit is sorts of short term liquidity, which can be withdrawn by the depositors. Lower the ratio of saving deposit to total deposit, higher the liquidity ratio. Findings: In the fiscal year 2060/2061 ratio is 42.40% which is greater than the fiscal year 2059/2060. And this year ratio is 42.70% which is lesser than previous year which indicate liquidity has increased this year.

Fixed Deposit to Total Deposit Ratio The ratio of Fixed Deposit to Total Deposit are 22.65%, 21.11%, 19.92%, 22.53% and 28.60% in fiscal year 2058/2059, 2059/2060, 2060/2061, 2061/2062 and 2062/2063 respectively. The highest ratio for the five year is 28.60% in the fiscal year 2062/2063 and the lowest ratio is 19.92% in 2060/2061.

Findings: In the fiscal year 2061/2062 the ratio is 22.53% which is greater than previous year. This year ratio is 28.60% which is higher than previous year, which means liquidity is higher than previous year.

APPENDICES Appendix I Share holding pattern of NIBL S.no 1 1.1 1.2 1.3 1.4 1.5 1.6 2 Name Local Ownership His Majestys Government Commercial Banks Financial Institution Organized Institution General Public Others Foreign Ownership Total Percentage 100 15 15 50 20 100 Share Capital 59,50,86,000 8,85,88,000 8,85,88,000 29,52,93,000 11,81,17,000 59,05,86,000

Source: Annual Report (2062/2063) Fig 1: Shareholding pattern of NIBL

Capital Structure of NIBL Authorized Share Capital 10000000 numbers of ordinary shares of Rs 100 Issued Share Capital 5905860 numbers of ordinary shares of Rs.100 (Of which 3519545 right and1786315 bonus share) Paid-up Share Capital 5905860 numbers of ordinary shares of Rs.100 (Of which 3519545 right and1786315 bonus share) 1,000,000,000 590,868,000

590,868,000

Appendix II Earning Per share Year

Net Profit Tax

After No. of common EPS share (In no.)


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2058/2059 2059/2060 2060/2061 2061/2062 2062/2063

57.10 116.80 152.60 232.10 350.53

169.98 295.30 295.30 557.74 590.59 Average

33.59 39.56 51.70 39.50 59.35 44.74

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063)

Appendix III Return On Assets Year 2058/2059 2059/2060 2060/2061 2061/2062 2062/2063

Net Profit Tax 57.10 116.80 152.60 232.10 350.53

After Total Assets 4947 9014 13255 16274 21330 Average

Ratio 1.15 1.27 1.13 1.40 1.61 1.312

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063)

Appendix IV Price earning ratio Year 2058/2059 2059/2060 2060/2061 2061/2062 2062/2063 Market Value Per Earning Per Share Share 760 33.59 795 39.56 940 51.70 800 39.50 1260 59.35 PE Ratio 22.62 20.10 18.18 20.25 21.23

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063)

Appendix V Ratio of Net Profit to Gross Loan


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Year 2058/2059 2059/2060 2060/2061 2061/2062 2062/2063

Ratio (%) 14.54 20.12 16.71 20.26 23.99

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063) Appendix VI Exchange Gain to total income ratio Year 2058/2059 2059/2060 2060/2061 2061/2062 2062/2063 Ratio (%) 10.91 8.80 9.63 8.95 8.60

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063)

Appendix VII Net Profit to Loan and Advances Ratio Year 2058/2059 2059/2060 2060/2061 2061/2062 2062/2063 Ratio (%) 2.10 1.97 2.08 2.22 2.66

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063)

Appendix VIII Cash and bank balance to current deposit rate

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Year 2058/2059 2059/2060 2060/2061 2061/2062 2062/2063

Cash and balance 338.90 926.60 1226.90 1340.50 2335.53

bank Current deposit 785.4 979 1500.10 1583.03 1705.70 Average

Ratio 43.14 94.65 84.78 84.68 136.92 88.83

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063)

Appendix IX Saving deposit to total deposit ratio Year 2058/2059 2059/2060 2060/2061 2061/2062 2062/2063 Saving deposit 1278.8 2434.1 4886.1 6703.5 8082 Total Deposit 4174.8 7922.8 11524.7 14254.57 18927 Average Ratio 30.83 30.72 42.40 47.03 42.70 38.73

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063)

Appendix X Fixed deposit to total deposit

Year 2058/2059 2059/2060 2060/2061 2061/2062 2062/2063

Fixed deposit 945.9 1672.80 2294.68 3212.27 5413

Total Deposit 4174.8 7922.8 11524.7 14254.57 18927 Average

Ratio 22.65 21.11 19.92 22.53 28.60 22.96

Source: Annual report of Nepal Investment Bank (2058/2059-2062/2063)

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Bibliography

Acharya, Pramod 2010. Institution Analysis, Fieldwork assignment, Nepal Commerce Campus Dahal, Rewan Kumar, 2011, Management Accounting, KFA Business school http://www.himalayanbank.com/contents/contents.php?PageID=annual_reports www.nibl.com.np

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