A CASE STUDY ON FINANCIAL ANALYSIS OF KUMARI BANK LIMITED
A CASE
STUDY ON
FINANCIAL ANALYSIS OF KUMARI BANK
LIMITED
A Project Work
Submitted By:
Submitted to:
In
Partial Fulfillment of the Requirements for the Degree of
NEPAL COMMERCE CAMPUS
Declaration
I hereby declare that the project work entitled “A Case study on Financial
Analysis of Kumari Bank Limited” submitted to the Faculty of Management, Tribhuvan University, Kathmandu
is an original piece of work under the supervision of Mr. Chudamani Pandey,
faculty member, Nepal Commerce Campus, Minbhawan Kathmandu, and is submitted in
partial fulfillment of the requirements for the award of the degree of Bachelor’s
of Business Studies (BBS). This project work report has not been submitted to
any other university or institution for the award of any Degree or Diploma.
………………………..
Supervisor’s Recommendation
The
project work report entitled “A
Case study on Financial Analysis of Kumari Bank Limited” of Nepal Commerce Campus, Minbhawan Kathmandu, 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’s of Business Studies
(BBS). I, therefore, recommend the project work report for evaluation.
……………………..
Endorsement
We hereby endorse the project work report entitled “A Case study on
Financial Analysis of Kumari Bank Limited” by Gynendra Dulal of Nepal Commerce Campus, Minbhawan, submitted in
partial fulfillment of the requirements for award of the Bachelor of Business
Studies (BBS) for external evaluation.
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ACKNOWLEDGEMENT
In
the partial fulfillment of Bachelor of Business Studies as per the requirement
of faculty of management of the Tribhuvan University have prepare this
fieldwork report on the “A Case Study on
Financial Analysis of Kumari Bank Limited”
Thank You,
TABLE OF CONTENTS
Contents
3.1
Summary........................................................................................................................................................................
Contents
List
of Abbreviations & Acronyms
1.4 Review of
literature…………………………………………………………………………………………………………………….3
1.5 Research
Method……………………………………………………………………………………………………………………..6
1.6 Limitation of
study……………………………………………………………………………………………………………………7
1.7 Data
collection………………………………………………………………………………………………………………………..8
1.8 Data Processing and
analysis…………………………………………………………………………………………………8
Chapter-2
Result and Analysis
2.3 Loan & Advance & Total
deposit……………………………………………………………………………………………….14
2.4 Net profit after tax and total
assets………………………………………………………………………………………….15
2.7 Interst Expenses on Total Deposit and Borrowing
3.1
Summary........................................................................................................................................................................
List of Tables and Figures
4.1 CurrentRatio…………………………………………………………..22
List of Abbreviations &
Acronyms
% Percentage
CHAPTER -1INTRODUCTION
1.1
Background
of the study
A bank is a financial institution licensed to receive deposits
and make loans. Banks may also provide financial services, such as wealth
management, currency exchange and safe deposit boxes. There are two types of
banks: commercial/retail banks and investment banks. In most countries, banks
are regulated by the national government or central bank.
Financial analysis is the
process of evaluating businesses, projects, budgets and other finance-related
entities to determine their performance and suitability. Typically, financial
analysis is used to analyze whether an entity is stable, solvent, liquid or
profitable enough to warrant a monetary investment. When looking at a specific
company, a financial analyst conducts analysis by
focusing on the income statement, balance sheet and cash flow statement. Financial analysis also helps to
evaluate and decision making for business operation. In financial analysis
process ratio analysis is the most dominant and logical structure to help
business related stakeholder. Under the financial ratio analysis process there
are few categories to identical area of financial institution. So business
stakeholders try to concentrate to get overall business overview from
profitability, liquidity, assets management and solvency ratio analysis. These
ratios not only help to decision making process also emphasized on risk
avoiding and profit raising related
factors. To calculate this ratio need to take quantitative data from bank
trading activity and other sources.
Introduction of Kumari Bank Limited
Kumari Bank Limited, came into
existence as the fifteenth commercial bank of Nepal by starting its banking
operations from Chaitra 21, 2057 B.S (April 03, 2001) with an objective of
providing competitive and modern banking services in the Nepalese financial
market. The bank has paid
up capital of Rs. 2,699,166,532 of which 51percent is contributed.
Kumari Bank Limited has been providing wide - range of modern banking services
through 38 points of representations located in various urban and semi urban
part of the country, 36 branches outside and inside the valley; and 2 extension
counters. The bank is pioneer in providing some of the latest / lucrative
banking services like E-Banking and SMS Banking services in Nepal. The bank
always focus on building sound technology driven internal system to cater the
changing needs of the customers that enhance high comfort and value. The
adoption of modern Globus Software, developed by Temenos NV, Switzerland and
arrangement of centralized data base system enables customer to make highly secured
transactions in any branch regardless of having account with particular branch.
Similarly the bank has been providing 365 days banking facilities, extended
banking hours till 7 PM in the evening.
Visa Electron Debit Card, which is accessible in entire VISA linked ATMs (including 46 own ATMs) and POS (Point of Sale) terminals both in Nepal and India, has also added convenience to the customers. The bank has been able to get recognition as an innovative and fast growing institution striving to enhance customer value and satisfaction by backing transparent business practice, professional management and corporate governance.
The key focus of the bank is always center on serving unfulfilled needs of all classes customers located in various parts of the country by offering modern and competitive banking products and services in their door step. The bank always prioritizes the priorities of the valued customers.
Visa Electron Debit Card, which is accessible in entire VISA linked ATMs (including 46 own ATMs) and POS (Point of Sale) terminals both in Nepal and India, has also added convenience to the customers. The bank has been able to get recognition as an innovative and fast growing institution striving to enhance customer value and satisfaction by backing transparent business practice, professional management and corporate governance.
The key focus of the bank is always center on serving unfulfilled needs of all classes customers located in various parts of the country by offering modern and competitive banking products and services in their door step. The bank always prioritizes the priorities of the valued customers.
Vision
To
establish ourselves as a leader in banking by providing a range of financial
services suitable to the needs of the market with high priority on customer
care while simultaneously embracing the interests of all stakeholders and value
of a good corporate citizen.
Mission
·
Leveraging and integrating the existing
strengths of the institution.
·
Reaching out and serving wide range of
customers within and outside the country.
·
Developing a culture of “Giving Extra
Care to the Customers”.
·
Being innovative in designing and
delivering services.
·
Adopting prudent investment practices
for building up a sound assets base.
1.2 Objectives of Study
The main objective of this report is to measure the
financial strength of Kumari Bank Limited other specific objectives are as
under.
·
To determine
liquidity positions of Kumari Bank Limited.
·
To identify the
efficiency of the bank.
·
To measure the
profitability of the bank.
1.3
Rational of the Study
In this changing pace of
the time, most of the commercial banks are gaining a wide popularity through
their efficient management and professional services and playing a great role
in the economy. The main purpose of the commercial bank is to have effective
financial management so that stakeholders get satisfactory. This study adds new
idea and findings about the concerned bank.
This study is helpful
for all the concerned parties which add new idea and findings about Kumari
Bank Limited. The studies that will have importance to
various groups but in particular is directed to a certain groups of
people/organizations are:
1.
To the investors
2.
To the creditors
3.
To management of the bank
4.
To the customers
5.
To the other parties
6.
And this study will be equally useful to the other readers,
students of related subjects and other people who are concern with banking
field.
1.4 Review of Literature
Bhattarai
(2009), in his article “something is rotten with the state
of commercial banking in Nepal” starts
with words like NPA, conflict of interest, mercy offshore ownership, well
connected defaulter loan swapping and political obstruction to describe the
commercial banks in Nepal. Bhattarai quoted the words of the Governor to
describe the state of banking sector as ‘terrible’. Also, he quotes one of the
donor representatives involved in financial reform as “Nepal has weakest
central bank in developing world”. He
quotes Mr. Investment SJBRana, the first governor of NRB,”only 3 out of 12
Governors actually completed their five years terms in its entire history
because they were sacked for undefined exigencies”. He also quotes Mr. Shovan Dev
Pant, the then Executive Director of Nabil, “The financial sector is in appalling
state”.
According
to his findings the directives if not properly addressed have potential to
wreck the financial system of the country. The directives in themselves are not
that important unless properly implemented. The implementation part depends
upon the commercial banks. In case commercial banks are making such huge profit
with full compliance of NRB directives, then the commercial banks would deserve
votes of praise because they would then be instrumental in the economic
development of the country. All the change in NRB directives made impacts on
the bank and the result are the followings:
1.
Increase in operational procedures of the bank,
which increase the operational cost of the bank.
2.
A short term decreases in profitability, which result
to fewer dividends to shareholders and less bonus to the employees
3.
Reduction in the loan exposure of the bank, which
decreases the interest income but increase the protection of the depositor’s
money.
4.
Increase protection to the money of the depositors
through increased capital adequacy ratios and more stringent loan related
documents.
5.
Increase demand from shareholder’s contribution in
the bank by foregoing dividends for loan loss provisions and various reserves
to increase core capital.
All the
aforesaid result lead to one direction the bank will be financially healthy and
stronger in the future. Kumari bank limited will be able to withstand tougher
economic situation in the future with adequate capital and provision for
losses. The quality of the asset of the banks will become better as banks will
be careful before creation credit. Ultimately, the changes in the directives
will bring prosperity not only to the shareholders but also to the depositors
and the employees and the economy of the country as a whole.
A study done by Mahendra (2012), entitle on “Comparative
Financial Performance of MBL, KBL, LBL & SBL”with
the main purpose of analyzing financial performance trough Camel analysis of
four same generation commercial banks namely Kumari bank limited, and Sidhhartha bank limited.
To evaluate liquidity, activity
& profitability ratio of Kumari bank limited in comparison with different
banks & industry average.
To examine the loan loss provision
of different banks & Kumari bank limited.
To provide suggestion and
recommendation on the basis of findings.
The
findings of the researcher are as follows:
1.
Different banks have good deposit collection, enough
loan and advances and small investment in government securities.
2.
The assets management ratio of different banks is
not better than that of Kumari bank limited.
3.
The profitability position of different banks is
worse in comparison with Kumari bank limited due to low return on working fund,
loans and advances and outside assets.
4.
To fund collection and mobilization position of
different banks is satisfactory in comparison to Kumari bank limited while
considering growing rate.
5.
In relation to fund flow analysis, the different
banks have poor loans and advances issued.
6.
Different banks has better positive relationship
between net profit, return on loans and advances and return on investment but
different banks has worse performance in income as commission and discount and
exchange income.
7.
There is significant relationship between deposit
and loan and advances but there is no significant relation between deposit and
investment of both banks different banks and Kumari bank limited. There is no
relationship between outside assets and net profit.
The
findings of the study are as follows:
1. The
liquidity position of Kumari bank limited is good than of other bank. Highly
fluctuating liquidity position shows that the bank has not formulated any
stable policy.
2. It can be
concluded that Kumari bank limited have good profitability position.
3. Total loans and advances to total saving
deposits ration of Kumari bank limited is much better than other bank.
1.5 Research Methods
Research methods help to find out
accuracy, validity and suitability. The justification on the present study
cannot be obtained without help of proper research methodology. For the purpose
of achieving the objectives of the study, the descriptive methodology are be
used.
Types of Research
Research
method section describes the rational for the application of specific
procedures or techniques used to identify, select and analyze information
applied to understanding the research problem. It allows the reader to
critically evaluate a study’s overall validity and reliability. Financial
ratios are important tools of financial analysis. It’s based on Quantitative
data and tools.
There
are two types of research methods:
Quantitative research
Quantitative
research is inquiry into an identified problem, based on testing a theory,
measured with numbers, and analyzed using statistical techniques. The goal of
quantitative methods is to determine whether the predictive generalizations of
a theory hold true. We will explore some of the issues and challenges
associated with quantitative research in this section. Seek the advice of
faculty members who have conducted quantitative studies for advice, support and
encouragement.
Qualitative research
A study based upon
a qualitative process of inquiry has the goal of understanding a social or
human problem from multiple perspectives. Qualitative research is conducted in
a natural setting and involves a process of building a complex and holistic
picture of the phenomenon of interest. We will explore some of the issues
and challenges associated with qualitative research in this section. Look for
colleagues who engage in qualitative research to serve as a sounding board for
procedures and processes you may use as a new faculty member.
This research is based on
Quantitative research methods.
Population and Sampling
A population is a complete enumeration
of each and every unit of the universe as a whole. It is related to the total
study of material in detail. There are 28 A class licensed banks in Nepal but
this study considers only Kumari Bank Limited as a sample.
Sample is a small separated part
showing the quality of the whole. In sample, only a part of the universe is
considered and conclusions about the entire universe are drawn on that basis.
Here, for the proposed study, I have taken Kumari Bank Limited as a sample.
Types of Data
The data
used in this report are of secondary data.This research has been
conducted in secondary data basis, so the last five years data is collected
from:
·
Website of Kumari Bank Limited.
·
Annual Report of Kumari Bank Limited
1.6 Limitations of
the Study
Almost data are taken from the audited balance sheet
from the head office of Kumari Bank Limited, in order to draw a clear, true and
suggestive financial analysis. However, limitations of the study are as
follows;
·
The study is
mainly based on secondary data.
·
The study covers
only five years period from F/Y 2069/70 to 2073/74.
·
The data used on
calculation will be rounded up.
·
The data will be
analyzed by comparing with the five years average data because of the
unavailability of the standard company average.
·
This study will be
carried out based on the published financial statements namely balance sheets,
profit and loss accounts, related schedules and published annual report. These
published documents have their own limitations.
1.7Data Collection Procedure
Data is a collection of related raw materials on
which decision is based. There are mainly two sources of data-primary data and
secondary data. This study will be conducted mainly based on secondary data.
The major sources of secondary data for this study are as follows:
·
Annual report of the bank
·
Previous studies and reports.
·
Unpublished official records.
·
Published and unpublished bulletins and reports of
the bank.
·
Reports published by Nepal Stock Exchange.
·
Reports of Nepal Rastra Bank Samachar and Banking
and Financial statistics published by Nepal Rastra Bank.
·
Other materials published in daily, weekly, monthly
newspapers and magazines.
1.8
Data
Processing and Analysis
Presentation
and analysis of collection data is the core part of the research work. The
collected raw data are first presented in systematic manner in tabular from and
are then analyzed by applying different financial and statistical tools to
achieve the research objectives. To make the study more specific and reliable,
following tools are used for analysis:
·
Financial
Tools
·
Statistical
Tools
Financial Tools
For
the sake of analysis, various financial tools are used. The basic tools used
are ratio analysis. Ratio analysis is used to compare firm’s financial
performance and status to that of other firm’s overtime. The financial tools
used are listed below:
Ratio Analysis
Ratio Analysis is the calculation and interpretation
of financial ration to assess the firm's performance and status. It is the
relationship between two accounting figures expressed mathematically.
1.9
Report
Structure
The
whole study is divided into three different chapters.
Chapter-I: Introduction
This
chapter describes the background of the study. It has served orientation for
readers to know about the basic information of the research area, various
problems of the study, objectives of study, scope of the study, and limitation
of the study and chapter plan of the study..
Chapter – II: Results and Analysis
This
chapter analyzes the data related with study and presents the findings of the
study and also commend briefly on them. Data processing, data analysis and
interpretation are given in this chapter and there is use of techniques
relating to analysis such as ratio, descriptive expression, diagrams and so
forth.
Chapter:III: Summary and Conclusion
On
the basis of the result from data analysis, the researcher concludes about the
performance of the concerned organization in terms of liquidity management.
This chapter is devoted to the summary of the research, conclusion derived on
the basis of data analyzed and the recommendations for improvement to the
concerned organization.
CHAPTER II
RESULT AND ANALYSIS
2.1 Introduction
This chapter deals with the presentation,
analysis and implementation of relevant data of
Kumari
Bank Limited. I order to fulfill
the objectives of this stud. Purpose of this chapter is to introduce the mechanics
of data analysis and interpretation .Calculated financial ratios are analyzed
and evaluated after their interpretation is made. The calculated secondary data
have analyzed and presented in table form. For this purpose, analysis and
interpretation are categories into two headings. They are analyzing financial
and statistical tools.
2.2 Analysis of
Financial Tools
Under
this topic various financial ratios are calculated to evaluate and analyze the
performance ofKumari Bank Limited. Study of all type of ratios is not done. Only those ratios that are
important from the point of view of the fund mobilization and investment are
calculated. The important ratios that are studied for this purpose are given
below.
2.2.1 Ratio Analysis
Ratio
analysis is defined as the systematic use of ratio to interpret the financial
statement so that strength and weakness of a firm as well as its historical and
current financial condition can be determined. From an investor’s stand-point,
predicting the future is what financial statement analysis is useful both as a
way to anticipate future conditions and more important as a starting point for
planning actions will influence the future course of events. Ratios are very
useful and powerful tools to interpret the financial performance of the firm.
A .Liquidity Ratios
This
ratio indicated the case of turning assets into cash. Liquidity refers to the
ability of a firm to meet its short term or current obligation. So liquidity
ratios are used to measure the ability of a firm to meet its short term
obligation. In the worst case, inadequate liquidity can lead to the liquidity
insolvency of the institution. To find out the ability of the bank, to meet
their short term obligations which are likely to mature in the short period, the
following ratios are developed under the liquidity ratios to identify the
liquidity position.
2.1 Current ratio
Table 2.1
Current Assets and Current Liabilities
|
Fiscal Year
|
Current
Assets
|
Current
Liabilities
|
Ratio
|
|
2069/70
|
859703810
|
251458357
|
3.42
|
|
2070/71
|
868922458
|
235477249
|
3.69
|
|
2071/72
|
1066335927
|
241912804
|
4.41
|
|
2072/73
|
1641973571
|
263205548
|
6.24
|
|
2073/74
|
1406711099
|
402601384
|
3.49
|
Sources: Annual Report of Kumari
Bank Limited
Figure 2.1
Current Assets and Current Liabilities
The main question current ratio
addresses is "Does your business have enough current assets to meet the
payment schedule of current debts with a margin of safety for possible losses
in current assets, such as inventory shrinkage or collectable accounts?"
Table and figure 4.1 shows that the
exhibit the current ratio of Kumari Bank Limited for the study period of
2068/69 to 2072/73. The ratio were 3.42, 3.69, 4.41, 6.24, and 3.49
respectively.The standard value for the current ratio is 2 to 1 but in case of Kumari
Bank, all ratios are more than the standard.
2.2 Cash and Bank Balance
and Total Deposit
Table 2.2
Cash & Bank Balance and Total Deposit
Sources: Annual report of Kumari Bank Limited
Table
and Figure 2.2 shows that the cash and bank balance to total deposit ratio of Kumari
Bank Limited for the study period 2069/70 to 2073/74. Cash & Bank Balance
to Total Deposit Ratio of this bank has been observed as 0.039, 0.34, 0.039,
0.049 and 0.037 respectively throughout the study period. The average ratio for
the study period is 0.04. That means the bank has 0.04 off cash and bank
balance of the total deposit. Adequate cash and bank balance is necessary to
maintain the liquidity position. Too much of it can make the excess money
useless and too less will reduce the capacity of a bank to pay its customers
principal and interest. In each year of the study period, the ratio of cash and
bank balance is will above the standard i.e. 5 to 10 percentage of liquidity.
From this, it is obvious that the bank has enough cash and bank balance to
cover its deposit demand.
Figure 2.2
Cash & Bank Balance and Total Deposit
2.3Loan & Advances and Total Deposit
Table 2.3
Loan & Advances and Total Deposit
|
Fiscal Year
|
Ratios (%)
|
|
2069/70
|
80
|
|
2070/71
|
77
|
|
2071/72
|
79
|
|
2072/73
|
79
|
|
2073/74
|
78
|
Sources: Annual Report of Kumari
Bank Limited
Figure 2.3
Loan & Advances and Total Deposit
Table
and Figure 2.3 shows loan and advances to total deposit starting from 2069/70
to 2073/74, the ratio goes from 80 %, 77%, 79%, 79% and 78% respectively. Total
deposit is the main sources of bank to provide loan and advances. Only small
portion of deposit goes as loan and advances.
2.4 Net Profit after
Tax and Total Assets
Table 2.4
Net Profit after Tax
and Total Assets
Source: Annual report of Kumari Bank Limited
Kumari Bank has good performance in
term of profitability viewing the return on total assets ratios for the study
period 2069/70 to 2073/74. During the study period, the bank is able to earn
profit through and so that the ratio is positive trend. The average ratio of
return on total assets for the study period is 1.19% on average. This indicates
that the bank is being able to manage the assets in efficient way.
Figure 2.4
Net Profit after Tax
and Total Assets
2.5 Net Profit after
Tax and Number Of Share
Table
2.5
Net Profit after Tax
and Number Of Share
Sources: Annual report of Kumari Bank Limited
Figure 2.5
Earning per share
Table and Figure 2.5 shows that the
earning per share of Kumari Bank Limited for the study period is Rs 19.362. EPS
in the last year of period is Rs 26.53. The ratio is higher than the average in
fiscal year 2069/70, 2070/71, 2071/72, 2072/73 and 2073/74. This indicates that
the bank has increases its earnings per share in recent years. This indicates
that bank is improving its performance.
2.6 Net Profit after
Tax and Net Worth
Table: 2.6
Net Profit after Tax and Net Worth
|
Fiscal year
|
Net profit
|
Net worth
|
Ratio
|
|
2069/70
|
275500000
|
1603800000
|
0.17
|
|
2070/71
|
291450000
|
1828332000
|
0.16
|
|
2071/72
|
341650000
|
2,431,681,560
|
0.14
|
|
2072/73
|
394790000
|
2699166532
|
0.15
|
|
2073/74
|
716060000
|
3265991503
|
0.22
|
|
Average
|
0.17
|
Sources:
Annual report of Kumari Bank Limited
Figure: 2.6
Net Profit after Tax
and Net worth (ROE)
Table and Figure 2.6 shows that the
ratio of net profit after tax and net worth as return on equity of Kumar Bank
Limited, for the financial year 2069/70 to 2073/74 shows that the situation of
return on equity is well.
2.7Interest Expenses on
Total Deposit and Borrowing
Table 2.7
Interest Expenses On Total Deposit and Borrowing
|
Fiscal Year
|
Ratio
|
|
2069/70
|
7.38%
|
|
2070/71
|
5.38%
|
|
2071/72
|
5.67%
|
|
2072/73
|
4.47%
|
|
2073/74
|
4%
|
|
Average
|
5.48%
|
Sources:Annual report of Kumari Bank
Limited
Figure 2.7
Interest Exp. On Total Deposit and Borrowing
The average ratio of interest
expenses on deposite and borrowing is 5.48%. Period. The year wise interest
expenses on deposit and borrowing for the study period of 2069/70 to 2073/74 is
7.38%, 5.87%, 5.67%, 4.47% and 4% respectively. Viewing above ratios, the
interest expenses on deposite and borrowing ratios is in fluctuating process in
recent year of study.
2.8Major Findings of the Study
1. At
the time of financial reengineering process of Kumari Bank Limited, Loan
investment policy has been brought. New policy of lending focuses on cash flow
lending by passing out collateral based lending.
2. Liquidity
position of Kumari Bank Limited seems weak. It is obvious that in the present
situation of the country, investment potential favorable, so the liquidity is
insufficient in the bank.
3. Profitability
Position of Kumari Bank Limited in term of
Return On Equity(ROE) is well as it is in increasing trend from 2069/70
to 2073/74.
4. Efficiency
Ratio of Kumari Bank Limited is good as it is well concerned on providing loan
with new rules and regulation ,so
it may be the reason behind decreasing the loan loss provision.
5. Kumari
Bank Limited Earning per share despite drawbacks, the positive earnings per
share can be regarded as an indication of good performance.
SUMMARY AND CONCLUSION
3.1SUMMARY
A Commercial
Bank means the bank which deals with exchanging currency, accepting deposit,
giving, loans doing others various commercial transaction. Therefore, the major
function of Commercial Bank is to accept deposits and provide loans.
There is not so
long history of commercial bank in Nepal. Kumari bank limited, came into
existence as the fifteenth commercial bank of Nepal by starting its banking
operations from Chaitra 21, 2057 B.S (April 03, 2001).
But now there are twenty eight Commercial Banks all over the country and they
have been expanding their services by establishing branches in every corner of
the country.
The assets of
Commercial Bank indicate the manner in which the funds entrusted to the bank
are employed. The successful working of the bank depends on ability of the
management to distribute the fund among the various kinds of investment known
as assets outstanding loan advance of the bank. These assets constitute primary
source of income to the bank. As being a business unit a bank aims at making
huge profit since loan and advances are more profitable than any other assets
of the bank, it is willing to lend as much as its fund as possible. But the
bank has to be careful about the repayment of loan and interest giving loan. If
the bank is too timid, it may fail to obtain the adequate return on the fund,
which is confined to it for use. Similarly, if the bank is too liberal, it may
easily impair its profits by bad debts. Therefore, bank should not forget the
reality that most of the bank failures in the world are due to shrinkage in the
loan and advance.
Despite of being
loan and advance, more profitable than other assets, it creates risk of non
repayment for the bank. Such risk is known as credit risk or default risk.
Therefore, like other assets, the loan and advances are classified into
performing and non performing assets are on the basis of overdue aging
schedule. If the dues in the firm of principal and the interest are not paid,
by borrower within a maturity period, that amount of principal and interest is
called non performing loan or assets. Performing assets have multiple benefits
to the company as well as to the society while non performing assets erode even
existing capital of the bank. So, the proper management of credit in commercial
bank has been keys for the success.
Credit
administration involves the creation and management of credit and advances.
Portfolio management helps to minimize or manage the credit risks by spreading
over the risk to various portfolios. Bank earns interest on credits and
advances, which is one of the major sources of income for bank.
3.2CONCLUSION
Kumari
Bank Limited has sufficient liquidity. It shows that bank has not got
investment sector to utilize their liquid money. Now, in Nepal, many banks and
financial institution are functioning to collect deposits and invest money
somewhere in invest able sectors. Therefore, monetization have been increased
since liberalization policy taken by government. Heavy remittance has also help
to increase the amount of deposits in bank. On the other hand, due to political
crisis, economic sectors have been fully damaged. Most of the projects have
been withdrawn due to security problem. Therefore, bank has maximum liquidity
due to lack of safety investment sectors.
Due
to economic crisis in the country, credit takers are not getting good return
from their investment sectors. On that situation, credit customers do not
return money of the bank in the stipulated time period, therefore, the
non-performing credit of the bank increase its provision for credit loss.
Credit
related financial indicators demonstrate the quite poor situation in Kumari
Bank Limited.
Therefore
Financial sector reform program is below the level and still much needs to be
done. It can also be concluded that there has been almost similar procedures
and policies while granting the loan, not much change from its conventional
methods.
Lack
of proper financial analysis of the borrower by the banks, is one of the
borrower by the banks, is one of the major cause behind increasing NPA of
Nepalese commercial banks. Therefore, proper financial analysis should be
performed before giving loan to the borrower.
Nepal
Rastra Bank should regulate all the deposit accepting financial institution
under the supervision and regulatory activity so that general people can feel
the security of their deposits.
Bank
should regularly follow the credit customer to confirm that whether the
customers have utilized their credit for same purpose or not, committed at the
time of taking credit from the bank.
APPENDIX
Balance sheet
As on ashard 2074
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Practice”, Ayush Publication, Katmandu.
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Annual report of Nepal Investment Bank Ltd 2015/016
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