Comrative study on theProfitability Analysis of Nepal SBI Bank and Nepal EverestBank Limited

Summer Project

Submitted to Pokhara University Office of the Dean Faculty of Management

Submitted by
Bhakti Ram Poudel Kshitiz Int'l College Exam Roll No. 10030291 P.U. Registration No. 2009-2-03-1329

In Partial Fulfillment of the Requirements for the BBA Degree

Butwal, Nepal November, 2011

Recommendation
This is to certify that the summer project report

Entitled

" Comprative analysis on profitability Analysis of Nepal SBI Bank and Nepal Everest Bank Limited"

Submitted By Bhakti Ram Poudel

Has been prepared in accordance with the requirement of BBA programme of Pokhara University. This report has been forwarded for examination.

Supervisor .......................

Principal ...................

Lalit Man Shrestha Date:........................

Surya Rana
Date:..............

Acknowledgement
This summer project report entitled Comparative study on Profitability Analysis of Nepal SBI Bank and Neoal Everest Bank Limited has been prepared to satisfy the partial requirements for the degree of BBA, Pokhara University. This study has not been possible with an overnight sole effort of the author. A long-time efforts and inspiration of many benevolent creditors have made possible to bring this study into its present form. First of all, I am always indebted to my respected supervisor Lalit Man Shrestha, who not only provided valuable guidance but also inspired me to carry out the researches in the days to come. Similarly, I would like to express my gratitude to Principal Surya Rana for his kind support. Last but not least, I would like to express my warm respect to my parents Ganga Ram Poudel and Manrupa Poudel including my friends Sagar Adhikari and Bhupati Pandey for their affection and emotional support to pursue further work. Despite of sincere efforts made, the chance of human error cannot be neglected. Therefore, I would also like to take full responsibility of any kind of deficiency presented in the report.

Bhakti Ram Poudel November, 2011

Table of Contents
Acknowledgement Recommendations Table of Contents List of Tables List of Figures

Chapter 1: Introduction......... (1-7)

1.1 General Background.....1 1.2 Justification of the Study.............3 1.3 Purpose of the Study........4 1.4 Conceptual Framework....4 1.5 Methodology of the Study...6 1.6 Limitation Of the Study.......6 1.7 Organization Of the Study...7

Chapter 2: Presentation and Analysis of Data... (8-26)

2.1 Data Presentation and Analysis..8 2.1.1 Net Interest Margin......8 2.1.2 Net Operating Margin.....10 2.1.3 Earnings per Shares.12 2.1.4 Net Profit Margin.14 2.1.5 Return on Assets..17 2.1.6 Asset Utilization...19 2.1.7 Return on Equity..21 2.2 Major findings of the Study24

Chapter 3: Summary Conclusions and Recommendations..... (26-30)

3.1 Summary.........26 3.2 Conclusions.........27 3.3 Recommendations..........29
Bibliography

List of Tables
Table No. 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Net Interest Margin Net Operating Margin Earnings per Shares Net Profit Margin Return on Assets Asset Utilization Return on Equity Title of the Table Page 9 11 13 15 17 20 22

List of Figures
Figure No. 1.1 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Schematic Diagram Net Interest Margin Net Operating Margin Earnings per Shares Net Profit Margin Return on Assets Asset Utilization Return on Equity 5 9 11 14 16 18 20 23 Title of the Figure Page

CHAPTER-1 INTRODUCTION
1.1 Background of the study
Banks are those financial institutions that offer the wide range of financial services especially credit, saving, and payments services and perform the widest range of financial of any business from in the economy. Comparative study refers to the comparison of two or more firms. This study focuses on the comparison of profitability of two renowned joint venture banks, namely, Everest Bank Ltd. And Nepal SBI Bank Ltd. The banking sector is the backbone of the Nepalese economy and plays an important financial intermediary role therefore, its health is very critical to the health of the general economy at large. In the last ten or more years there has been a rapid increase in the activity of banks in Nepal, and this has fostered rapid competitiveness among banks in Nepal. In this increasing and dynamic world of business and finance, the task of each bank operating to make more profit is becoming a challenge with each passing day. In order for an organization like commercial banks to operate optimally, it has to be able to measure its profitability with regards to it inputs and output. Given the relation between the well-being of the banking sector and the growth of the economy (Rajan & Zingales, 1998; Levine, 1998), knowledge of the underlying factors that influence the financial sector's profitability is therefore essential not only for the managers of the banks, but also for numerous stakeholders such as the central banks, bankers associations, governments, and other financial authorities. Knowledge of these factors would be useful in helping the regulatory authorities and bank managers for formulating future policies aimed at improving the profitability of the banking sector. Profitability of a firm should be accessed by concerned parties in order to reveal the relative strength and weakness of the firm compared to other firms in the same industry or to show whether the firms position has been improving or deteriorating over the years. So analysis of

financial statement is most essential to management as well as to other stakeholders of the firm for various purposes. Simply, excess of income over expenses is termed as profit. It is the residual income left after the payment of all expenses. Most of the business enterprises are established with an ultimate goal to achieve profit and so their activities are directed towards the achievement of the profit. Lord Keynes (1995), says, "Profit is the engine that drives the business enterprise. Maximization of profit is the main objective of each and every business concern. Profit is very much necessary for the successful running of the business concern. Profit is the pillar to strengthen and expand business firm. A part of profit is used to pay short term as well as long term financial obligation of the firm. It is also used to expand the business. So measurement of how effectively and efficiently a firm is able to manage its resources is one of the major issues for an organization. Profitability is the key factor that measures how effectively the firm is being managed and operated. Profitability ratios are used to analyze the financial strength and weakness of the firm. Profitability of a business concern may be measured by two ways: 1. In relation to revenue and, 2. In relation to assets and equity. Due to the competitive, challenging, and dynamic environment faced by financial institutions, assessing profitability is a must in sustaining in this environment. This study aims at assessing the profitability of the NSBI bank ltd. and providing suggestions about the financial health of the bank. Nepal SBI Bank Ltd. (NSBL) is the first Indo-Nepal joint venture in the financial sector sponsored by three institutional promoters, namely State Bank of India, Employees Provident Fund and Agricultural Development Bank of Nepal. NSBL was incorporated as a public limited company at the Office of the Company Registrar on April 28, 1993 under Regn. No. 17-049/50 with an Authorized Capital of Rs.12 Corers and was licensed by Nepal Rasta Bank on July 6, 1993 under license No. NRB/l.Pa./7/2049/50. NSBL commenced operation with effect from July

7, 1993 with one full-fledged office at Durbar Marg, Kathmandu. Fifty five percent of the total share capital of the Bank is held by the State Bank of India, fifteen percent is held by the ,m xs Everest Bank Limited (EBL) started its operations in 1994 as a commercial bank with a view and objective of extending professionalized and efficient banking services to various segments of the society. The bank is providing customer-friendly services through its Branch Network. All the branches of the bank are connected through Anywhere Branch Banking System (ABBS), which enables customers for operational transactions from any branches. Punjab National Bank (PNB), the joint venture partner (holding 20% equity in the bank) is the largest nationalized bank in India.

1.2Justification of the study:

Profitability is the measure of how effectively and efficiently a firm can manage its available resources. Profitability is the key factor to determine the progress of the firm. In fact, managers, shareholders, government, customers, creditors, and other stack holders are also interested to know the profitability of the firm. Profitability is one of the major issue for every organization. Good profitability ratio indicates better performance of the firm so, this study tries to find out the comparative operational efficiency as well as resource utilization efficiency of Nepal SBI Bank Ltd and Everest bank Ltd. Profitability is the key factor that measures how effectively the firm is being managed and operated. Profitability ratios are used to analyze the financial strength and weakness of the firm. The finding of this project report can be used by managers to know the efficiency of these firms and to improve their overall efficiency. The investors can evaluate the profitability to invest in one of these firms. This study will concise practically usable and valuable to the major parties interested in the performance of Nepal SBI Bank Ltd and Everest bank Ltd. shareholders, management of bank, brokers, financial institutions, general public depositors, prospective customers, creditors etc. Financial executive as well as those other policy making bodies which are concerned with banking would also find it useful to the advance teachers and students of the subjects particularly those in commerce, charted accountancy and institution of Finance.

The study basically deals with the following specific issues:-1) What is the trend of profitability over the years? 2) How efficiently the firms are able to make profit out of their revenue?

3) How efficiently the firms are able to utilize their assets? 4) How efficiently the firms are able to manage their productive use of equity?

1.3Purpose of the study:

The main objective of this study is to compare the profitability of Nepal SBI Bank Ltd and Everest Bank Ltd. However, the specific objectives of the study are as follows:-1) To compare the trend of profitability over the years. 2) To compare the firm's capability in converting revenue to profit. 3) To compare the firm's capability in utilizing its assets. 4) To compare the firms' productive use of equity.

1.4 Conceptual framework

Banks play an important role in financing and contributing to different economics and social sectors in the country. Various internal as well as external factors affect profitability of a firm. Internal factors may be manageable by firm to some extend but external factors are often out of the reach of the firm. Profitability of firm is affected by the revenue generated by firms, total assets of the firm, and amount of shareholders equity. Revenue of the bank determines its profit earning power. The higher the revenue generated the greater the firms profit because some of the cost are fixed which remains constant to certain level of activity. So revenue generated is converted to profit more after fixed cost has been satisfied. This will certainly improve profitability of the firm. The relation between revenue and profit is measured by net profit margin. Higher net profit margin indicates higher profitability and vice versa. The determinant of profitability is the assets of the firm. There should be effective use of available assets in order to achieve more profitability. If assets are not utilized properly the profitability of the firm declines. There must be proper tradeoff between current assets and fixed

assets for higher profitability. However firms with too few current assets may incur shortages and difficulties in maintaining smooth operations (Horne and Wachowicz, 2000). So, maintaining proper balance between current and fixed assets results in profitability of the firm. ROA is used to measure how effectively the available assets are used by the Bank. Higher ROA indicates better utilization of available assets. Shareholders equity is also one of the determining factors of the profitability. The firm cannot operate without the equity. Use of too much debt will increase the bankruptcy cost and is riskier. However use of equity maintains the solvency position of the firm thereby reducing the risk associated with the use of too much debt. But use of debt to some extend will be profitable. so; bank should maintain proper balance between debt and equity. ROE is used to measure how effectively the shareholders equity is utilized to generate profit. Higher ROE indicates better return on equity and vice versa. The following schematic diagram shows the relation between the dependent and independent variables of this model.

1.5 Methodology of the study 1.5.1 Method of data collection

While preparing this report, the necessary data and documents are collected from secondary sources. The sources of these secondary data in preparing this report are as follows: 1. Internal secondary data:-Trading a/c, profit & loss a/c, balance sheet and Annual report of the firm are used in this report from the internal secondary source. The data are collected via websites of the NSBI Bank and NEBL. (www.nsbi.com) and(www.nebl.com). 2. External secondary data: - various reports and literature on this field are reviewed for sufficient knowledge of the subject matter. Various account and finance books from the library are also reviewed.

1.5.2 Method of data presentation

Collected data from different sources has presented by using various tools. They are presented here by the help of pie chart, tabulation, bar diagram, trend line, etc.

1.5.3 Methods of Data Analysis

After the presentation of collected data they are analyzed by using various analytical tools. While preparing this report the data have been analyzed by the help of various financial ratios like net profit margin, operating ratio, return on assets, return on equity, earning per share, net interest margin, etc.

1.6 Limitation of the study

The validity of this fieldwork report is confined by some limitations. The limitations of this fieldwork report are as follows: 1. The report writing is limited only with NSBI Bank limited and Nepal Everest Bank limited.

2. The scope of the study is limited to profitability only. 3. Data limitation of five years due to lack of old data. 4. Financial ratios are only used to judge the profitability of the firm. 5. Only secondary data are used in the report.

1.7 Organization of the study

This report consists of three chapters. They are introduction, data presentation and analysis and summary and conclusion. The introduction chapter consists of the background of the study, justification of the study, purpose of the study, conceptual framework, and methodology of the study, limitation and organization of the study. Second chapter consists of presentation of data, analysis of data by using various financial ratios. The major findings are also listed at the last of this chapter. Third chapter consists of summary, conclusion and recommendation.

Chapter 2
PRESENTATION AND ANALYSIS OF DATA

In this section the data collected from secondary sources are presented in the tables, graphs and trend lines. These tables are presented to ease analysis and interpretation. The analysis is made by using different statistical and financial tools. The major findings of the study are listed in the last part of this section. 2.1 Data presentation and analysis
2.1.1 Net interest margin This section attempts to analyze NIM of NSBI bank and NEBL for past five years. For this purpose annual data of five years is depicted on the table 2.1 for the period 2063/064 to 067/068. Net interest margin (NIM) is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets. It is usually expressed as a percentage of what the financial institution earns on loans in a time period and other assets minus the interest paid on borrowed funds divided by the average amount of the assets on which it earned income in that time period. The net interest margin helps a company determine whether or not it has made wise investment decisions. This ratio measures how far the management has been able to achieve the objectives by close control over the banks earning assets and the pursuit of the cheapest source of financing. By using Net interest margin one can track the profitability of a bank's investing and lending activities over a course of time. Along with a period-end balance sheet, average balance sheet published by the banks showing the breakdown of bank's loans, investments, deposits, and borrowed funds, and their related interest rates gives more insight to investors looking for more information on the fluctuation of the Net interest margin.

The negativity of the Net interest margin shows that the decisions taken by the firm is not the best possible one as it shows that interest expenses were greater than the amount of the returns generated by investments. Higher NIM indicates better profitability and vice versa. It can be calculated by using the following relation. Net Interest Margin = Net interest income/Total assets Where, Net interest income = interest income interest expenses Table 2.1 Net Interest Margin Year 2063/064 2064/065 2065/066 2066/067 2067/068 NIM (Nepal SBI Bank) 0.0287 0.0301 0.0300 0.0206 0.0022 NIM (NEBL) 0.0315 0.0292 0.0337 0.0318 0.0369

Table 2.1 shows the NIM for the years. In the year 2064/065 NIM is highest i.e. 0.0301 and lowest in the year 2067/068 i.e. 0.0022. The NIM over the year is decreasing except in the year 2064/065 and 2065/066. This indicates that net interest on total assets is decreasing. The profitability of the firm is declining at greater rate after the year 2065/066 for NSBI Bank. But in the case of NEBL, in the year 2067/066 NIM is highest i.e. 0.0369 and lowest in the year 2064/065 i.e. 0.0292. The NIM over the year is increasing except in the year 2064/065. This indicates that net interest on total assets is increasing. The profitability of the firm is inclining at greater rate after the year 2064/065 for NEBL. NIM can be shown by trend line to show the movement in different years. Figure 2.1 Net Interest Margin

0.04 0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 NIM (NSBI Bank) NIM (NEBL)

The figure 2.1 shows net interest margin of various time periods with the help of the trend line. NIM is relatively stable up to the year 2065/066 but in the later years it is decreasing at greater rate. The return on a company's investments relative to its interest expenses is declining in the later years. So, the firm should invest in the portfolio such that to increase NIM. But for NEBL the NIN is starting to incline from the year 2064/065 at lower rate. The return on a company's investments relative to its interest expenses is inclining in the later years. So, the firm should invest in the portfolio such that to increase NIM for higher rate in later years. 2.1.2 Net Operating Margin This section attempts to analyze NOM of NSBI bank and NEBL for past five years. For this purpose annual data of five years is depicted on the table 2.2 for the period 2063/064 to 2067/068. Net operating margin (NOM) is the ratio between difference in operating revenue and operating expenses to total assets. Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. It is used to measure a company's pricing strategy and operating efficiency. Operating margin gives analysts an idea of how much a company makes profit from

its day to day operation. If a company's margin is increasing, it is earning more per dollar of sales. The higher the margin, the better will be the profitability. Operating margin can be computed using the following relation. Operating Margin = Net Operating Income/ Total Assets Table 2.2 Net Operating margin Year NOM (Nepal SBI Bank) 2063/064 2064/065 2065/066 2066/067 2067/068 1.293% 2.164% 2.056% 1.431% 1.499% 2.805% 2.695% 3.013% 2.887% 3.260% NOM (NEBL)

Table 2.1 shows the NOM for the years. In the year 2064/065 NOM is highest i.e. 2.164% and lowest in the year 2063/064 i.e. 1.293%. The NOM over the year is increasing except in the year 2065/066 and 2067/068 for Nepal SBI Bank. Similarly, in the case of NEB, in the year 2067/068 NOM is highest i.e. 3.260% and lowest in the year 2064/065 i.e. 2.695 %. The NOM over the year is increasing except in the year 2064/065 and 2066/067. The NOM can be shown by trend line to show the movement in different years

Figure 2.2 Net Operating margin

3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00%

NOM (Nepal SBI Bank) NOM (NEBL)

Figure 2.2 shows NOM 0f Nepal SBI Bank for various years. In the year 2064/065 NOM is highest i.e. 2.164% and lowest in the year 2063/064 i.e. 1.293%. In the early sample years NOM is increasing but after 2064/065 it declines for two years and again it increases in the last year. This shows that the firm is able to increase its operating revenue in the year 2067/068. But in the case of NEBL, NOM is highest in the year2067/068 i.e. 3.260% and lowest in the year 2064/065 i.e. 2.695%. The NOM is increasing at greater rate but it declined at the year 2064/065 and 2066/067. This shows that the firm is able to increase its operating revenue from the year 2064/065. 2.1.3 Earning per shares This section attempts to analyze the EPS of NSBI bank and NEBL for past five years. For this purpose annual data of five years is depicted on the table 2.3 for the period 2063/064 to 067/068. An earning per share (EPS) is the profit attributable to shareholders (after interest, tax, minority interests and everything else) divided by the number of shares in issue. It is the amount of a company's profits that belong to a single ordinary share. Trends in EPS are also an important measure of growth. It is also used to screen for growth companies. EPS growth is a key measure of management performance as shows how much money the company is making for shareholders, not only because of changes in profits, but also after all the effects of new share

issues. Higher EPS is desirable to the shareholders. It is computed by using the following relation. EPS = Net Income after Tax/ No of common shares outstanding Table 2.3 Earning Per Share Year 2063/064 2064/065 2065/066 2066/067 2067/068 EPS (Nepal SBI Bank) 18.27 39.35 28.33 36.18 23.69 EPS (NEBL) 62.47 78.04 91.82 99.70 97.85

Table 2.3 shows EPS for five years calculated using the above stated relation. The highest EPS for NSBI Bank over sample years is Rs. 39.35 and lowest is Rs. 18.27 in the year 2063/064. The EPS of NSBI Bank is fluctuating over the years. The EPS is seen to be decreasing in the year 2065/066 and 2067/068. This indicates that EPS is not sufficiently increasing in the later years. The EPS is fluctuating in the sample period. In the year 2064/065 the EPS is RS 39.35 but it decreases to RS 28.33, RS 36.18 and RS 23.69 in the years 2065/066, 2066/067 and 2067/068 respectively. The highest EPS for NEBL is Rs.99.70 in the year 2066/067 and lowest is Rs.62.47 in the year 2063/064. The EPS for NEBL is seen to be increasing in the years at higher rate. This indicatesthat EPS is sufficiently increasing in the later years. In the year 2063/064 the EPS is RS 62.47but it increases to RS 78.04, RS 91.82 and RS 99.70 in the years 2064/065, 2065/066, 2066/067 but in the year2067/068 the EPS declined slightly then in the year 2066/067.

Figure2.3 Earning Per Shares

120 100 80 60 40 20 0 EPS (Nepal SBI Bank) EPS (NEBL)

Figure 2.3 shows EPS for various years. In the year 2064/065 EPS is highest i.e. 39.35 and lowest in the year 2063/064 i.e. 18.27. In the early sample years EPS is increasing but after 2064/065 it declines and again it increases in the year 2066/067 and again declines at the last year. This shows EPS is fluctuating over the years for Nepal SBI Bank. But in the case of NEBL, EPS is highest in the year2066/067 i.e. 99.70 and lowest in the year 2063/064 i.e. 62.47. The EPS is increasing at greater rate but it declined at the year 2067/068. This shows that the firm is able to increase its earnings per share for the years.

2.1.4 Net profit margin This section attempts to analyze the Net profit margin of NSBI bank and NEBL for past five years. For this purpose annual data of five years is depicted on the table 2.4 for the period 2063/064 to 2067/068. Net profit margin measures the overall profitability of the firm by establishing relationship between net income and operating income. It is the ratio between net income and operating revenue. Higher NPM enables the firm to run at better economic condition, so higher NPM is

regarded better. Higher the NPM higher the firm firms profitability and vice versa. NPM is calculated using the following relation. NPM = Net income/ Total operating income

Net Profit Margin Table 2.4

year 2063/064 2064/065 2065/066 2066/067 2067/068

NPM (Nepal SBI Bank) 0.2517 0.4369 0.3883 0.3818 0.3539

NPM (NEBL) 0.6385 0.7207 0.6595 0.7095 0.7063

Table 2.4 shows NPM for five years calculated using the above stated relation. The highest NPM for NSBI Bank over sample years is 0.4369 in the year 2064/065 and lowest is 0.2517 in the year 2063/064. The NPM of NSBI Bank is fluctuating over the years. The NPM is seen to be decreasing in the year 2065/066 and 2067/068. This indicates that NPM is not sufficiently increasing in the later years. The NPM is fluctuating in the sample period. In the year 2064/065 the EPS is 0.4369 but it decreases rapidly after the year 2064/065. The highest NPM for NEBL is 0.7207 in the year 2064/065 and lowest is0.6385 in the year 2063/064. The NPM for NEBL is seen to be increasing in the years at lower rate. This indicates that EPS is satisfactorily increasing in the later years. In the year 2063/064 the NPM is 0.638 but it increases to 0.7095 and 0.7063in the years 2066/067 but in the year2067/068 the EPS declined slightly then in the year 2066/067 and 2067/068.

The NPM can be shown by trend line to show the movement in different years

Figure 2.4 Net profit margin

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 NPM (Nepal SBI Bank) NPM (NEBL)

In the figure 2.4 net profit margins is plotted with their consecutive time periods. The NPM is increasing for Nepal SBI Bank from the year 2063/064 to year 2064/065 and then it starts declining. This indicates that profitability of the firm in later year is decreasing. But for NEBL NPM is increasing from the year 2063/064 to year 2064/065 and then it starts declining and again stats inclining from the year 2065/066. This indicates that profitability of the firm is fluctuating during the years.

2.1.5 Return on assets (ROA): This section attempts to analyze the Return on assets of NSBI bank and NEBL for past five years. For this purpose annual data of five years is depicted on the table 2.5 for the period 2063/064 to 067/068. Return on Asset (ROA) is the ratio of net profit to the total asset. It is the relationship between net profit (after interest and tax) and organizations total asset. This ratio establishes the profitability from the organizations asset point of view. This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. Return on assets shows the overall effectiveness of management in generating profit with its available assets. ROA represents a better measure of the ability of a firm to generate returns on its portfolio of assets also as an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's net income by its total assets, ROA is displayed as a percentage. The higher the Return on assets the better it is doing in operation and vice versa. ROA is calculated in following ways: ROA = Net income/ Total assets Table 2.6

year 2063/064 2064/065 2065/066 2066/067 2067/068

ROA(Nepal SBI Bank) 0.898% 1.834% 1.442% 1.023% 1.029%

ROA (NEBL) 1.487% 1.383% 1.660% 1.730% 2.009%

The table 2.5 shows ROA for five years. Return on assets, ratio between net income and total assets shows how well the firm is able to manage its productive use of assets used in the firm. The highest ROA of Nepal SBI Bank is 1.834% in the fiscal year 2064/065. The lowest ROA is 0.898% in the fiscal year 2063/064. The ROA over the years is fluctuating which can be seen from the figure 2.5. ROA is increasing up to the year 2064/065 and then it decreased in year 2066/067 and again it starts increasing. However, ROA for later year is greater than that in the earlier year. This shows that the firm is improving its productive use of assets in the later year but it is not increasing at higher rate. So the firm should make a better portfolio of assets in order to increase its profitability. In the case of NEBL highest ROA is 2.09% in the fiscal year 2067/068. The lowest ROA is 1.383% in the fiscal year 2064/065. The ROA over the years is increasing which can be seen from the figure 2.5. ROA is increasing after the fiscal year 2065/066. However, ROA for later year is greater than that in the earlier year. This shows that the firm is improving its productive use of assets in the later years. So the firm should make a better portfolio of assets in order to increase its profitability. The ROA can be shown by trend line to show the movement in different years

Figure 2.5 Return on assets

2.50%

2.00%

1.50% ROA(Nepal SBI Bank) ROA (NEBL) 1.00%

0.50%

0.00%

Figure 2.5 shows ROA for several years and its trend over the years. ROA is lowest for Nepal SBI Bank in year 2063/064 i.e., 0.898% and highest in the year 2064/065 i.e., 1.834%. ROA over the years is increasing except in the year 2066/067 but for the earlier years ROA is increasing at an increasing rate. ROA is greater for later years which indicate better profitability. Similarly in the case of NEBL highest ROA is 2.09% in the fiscal year 2067/068. The lowest ROA is 1.383% in the fiscal year 2064/065. The ROA over the years is increasing which can be seen from the figure 2.5. ROA is increasing after the fiscal year 2065/066. However, ROA for later year is greater than that in the earlier year. This shows that the firm is improving its productive use of assets in the later years. So the firm is making a better portfolio of assets in order to increase its profitability.

2.1.6 Asset Utilization This section attempts to analyze the asset utilization ratio of NSBI bank and NEBL for past five years. For this purpose annual data of five years is depicted on the table 2.6 for the period 2063/064 to 2067/068.

The asset utilization ratio calculates the total revenue earned for every dollar of assets a company owns. This ratio indicates a company's efficiency in using its assets. Asset utilization ratio indicates rupee a company earned for each rupee of assets held by the company. This ratio indicates how well the firm is using its assets to generate income. It can be calculated as follows. Assets Utilization = total operating income/total assets Figure 2.6 Assets utilization ratio Year 2063/064 2064/065 2065/066 2066/067 2067/068 AU ( Nepal SBI Bank) 0.0357 0.0420 0.0371 0.0268 0.0291 AU ( NEBL) 0.0438 0.0387 0.0566 0.0609 0.0663

Table 2.6 presents asset utilization ratio for five years. The highest asset utilization ratio of Nepal SBI Bank is 0.0420 in the year 2064/065. The lowest asset utilization ratio for the firm is 0.0268 in the year 2066/067. Asset utilization ratio is fluctuating over the years but the general pattern of asset utilization is declining over the year. Asset utilization for later year is less than in the earlier period. The highest asset utilization ratio of NEBL is 0.0663 in the year 2067/068. The lowest asset utilization ratio for the firm is 0.0387 in the year 2064/065. Asset utilization ratio is increasing over the years in an increasing rate. So the asset utilization of NEBL is better because utilization ratio is increasing over the years in the general pattern. Asset utilization ratio for different year can be presented in trend line as in table 2.6 Figure 2.6 Asset utilization

0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 AU ( Nepal SBI Bank)

AU ( NEBL)

Figure 2.6 shows the trend of asset utilization of NSBI Bank and NEBL for five years. In the case of Nepal SBI Bank the line is fluctuating but we can clearly see the line downward sloping which indicates that asset utilization in later year is not as effective as it was in previous period. The firm should manage the assets so as to generate higher revenue from their use. But in the case of NEBL the AU is lowest in the year 2064/065 i.e. 0.0387 and after then it starts inclining in later years. This indicates that asset utilization in later year is effective as it was in previous period. The firm should manage the assets in same pattern so as to generate higher revenue from their use for coming years.

2.1.7 Return on equity (ROE) This section attempts to analyze the Return on equity of NSBI bank and NEBL for past five years. For this purpose annual data of five years is depicted on the table 2.7 for the period 2063/064 to 2067/068. Return on equity measures the return on owners investment in the firm. ROE indicates the profit out of a rupee of shareholders equity. ROE is a measure of how well a company used reinvested

earnings to generate additional earnings, equal to a fiscal year's after-tax income (after preferred stock dividends but before common stock dividends)divided by book value, expressed as a percentage. It is used as a general indication of the company's efficiency; in other words, how much profit it is able to generate given the resources provided by its stockholders. Investors usually look for companies with returns on equity that are high and growing. Higher ROE is better for the owner and management as well.ROE reflects how effectively a bank management is in utilizing its shareholders funds. Since ROA tend to be lower because most banks heavily utilize financial leverage to increase their ROE to competitive levels (Hassan & Bashir, 2003). ROE is calculated as follows: ROE = Net income/total equity Where, Total Equity = share capital + reserves and Funds Table 2.7 Return on equity Year 2063/064 2064/065 2065/066 2066/067 2067/068 ROA ( Nepal SBI Bank) 11.91% 21.91% 17.51% 18.47% 15.99% ROA ( NEBL) 24.65% 24.67% 23.48% 28.98% 30.15%

The table 2.7 shows the computation of total equity and ROE as per the above formulas for the five years. Highest ROE of Nepal SBI Bank is in the year 2064/065 i.e. 21.91% and lowest ROE is in the year 2063/2064 i.e. 11.91%. ROE is increasing up to the year 2064/065 and then it declines at higher rate.

In the case of NEBL the ROE is higher in the year 2067/068 i.e. 30.15% and lowest ROE is in the year 2065/2066 i.e. 23.48%. ROE is decreasing up to the year 2065/066 and then it starts to increase from the year 2065/2066 at higher rate and becomes maximum in the final year.

The pattern of movement of ROE is shown in following diagram.

Figure 2.7 Return on equity

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% ROA ( Nepal SBI Bank)

ROA ( NEBL)

The figure 2.8 shows the ROE in percentage in horizontal axis and years in vertical axis. The ROE is highest for Nepal SBI Bank in year 2064/065 and lowest in 2063/064. The ROE of NSBI bank is increasing in the earlier year up to the year 2064/065 after then is starts decline. But in the case of NEBL the ROE is higher in the year 2067/068 i.e. 30.15% and lowest ROE is in the

year 2065/2066 i.e. 23.48%. ROE is decreasing up to the year 2065/066 and then it starts to increase from the year 2065/2066 at higher rate and becomes maximum in the final year.

2.2Major finding listed 1. In the year 2064/065 NIM is highest i.e. 0.0301 and lowest in the year 2067/068 i.e. 0.0022. The NIM over the year is decreasing except in the year 2064/065 and 2065/066. This indicates that net interest on total assets is decreasing. The profitability of the firm is declining at greater rate after the year 2065/066 for NSBI Bank. But in the case of NEBL, in the year 2067/068 NIM is highest i.e. 0.0369 and lowest in the year 2064/065 i.e. 0.0292. The NIM over the year is increasing except in the year 2064/065. This indicates that net interest on total assets is increasing. The profitability of the firm is inclining at greater rate after the year 2064/065 for NEBL. In the year 2064/065 NOM is highest i.e. 2.164% and lowest in the year 2063/064 i.e. 1.293%. In the early sample years NOM is increasing but after 2064/065 it declines for two years and again it increases in the last year. This shows that the firm is able to increase its operating revenue in the year 2067/068. But in the case of NEBL, NOM is highest in the year2067/068 i.e. 3.260% and lowest in the year 2064/065 i.e. 2.695%. The NOM is increasing at greater rate but it declined at the year 2064/065 and 2066/067. This shows that the firm is able to increase its operating revenue from the year 2064/065. 2. In the year 2064/065 EPS is highest i.e. 39.35 and lowest in the year 2063/064 i.e. 18.27. In the early sample years EPS is increasing but after 2064/065 it declines and again it increases in the year 2066/067 and again declines at the last year. This shows EPS is fluctuating over the years for Nepal SBI Bank. But in the case of NEBL, EPS is highest in the year2066/067 i.e. 99.70 and lowest in the year 2063/064 i.e. 62.47. The

EPS is increasing at greater rate but it declined at the year 2067/068. This shows that the firm is able to increase its earnings per share for the years. 3. The NPM is increasing for Nepal SBI Bank from the year 2063/064 to year 2064/065 and then it starts declining. This indicates that profitability of the firm in later year is decreasing. But for NEBL NPM is increasing from the year 2063/064 to year 2064/065 and then it starts declining and again stats inclining from the year 2065/066. This indicates that profitability of the firm is fluctuating during the years. 4. ROA is lowest for Nepal SBI Bank in year 2063/064 i.e., 0.898% and highest in the year 2064/065 i.e., 1.834%. ROA over the years is increasing except in the year 2066/067 but for the earlier years ROA is increasing at an increasing rate. ROA is greater for later years which indicate better profitability. Similarly in the case of NEBL highest ROA is 2.09% in the fiscal year 2067/068. The lowest ROA is 1.383% in the fiscal year 2064/065. The ROA over the years is increasing which can be seen from the figure 2.5. ROA is increasing after the fiscal year 2065/066. However, ROA for later year is greater than that in the earlier year. This shows that the firm is improving its productive use of assets in the later years. So the firm is making a better portfolio of assets in order to increase its profitability. 5. The highest asset utilization ratio of Nepal SBI Bank is 0.0420 in the year 2064/065. The lowest asset utilization ratio for the firm is 0.0268 in the year 2066/067. Asset utilization ratio is fluctuating over the years but the general pattern of asset utilization is declining over the year. Asset utilization for later year is less than in the earlier period. Whereas, the highest asset utilization ratio of NEBL is 0.0663 in the year 2067/068. The lowest asset utilization ratio for the firm is 0.0387 in the year 2064/065. Asset utilization ratio is increasing over the years in an increasing rate. So the asset utilization of NEBL is better because utilization ratio is increasing over the years in the general pattern. 6. The ROE is highest for Nepal SBI Bank in year 2064/065 and lowest in 2063/064. The ROE of NSBI bank is increasing in the earlier year up to the year 2064/065 after then is starts decline. But in the case of NEBL the ROE is higher in the year 2067/068 i.e. 30.15% and lowest ROE is in the year 2065/2066 i.e. 23.48%. ROE is decreasing up to the year 2065/066 and then it starts to increase from the year 2065/2066 at higher rate and becomes maximum in the final year.

CHAPTER 3 SUMMARY, CONCLUSION AND RECOMMENDATION 3.1 Summary Banking sector is the backbone of every economy and plays a vital financial intermediary role in an economy. In this dynamic and competitive business world firms cannot perform if they are not able to measure their performance and took corrective actions to be in right track. To be successful in this competitive environment banks and other financial institutions must know their profitability. Information about profitability helps managers to make plans and to determine actions to increase performance. Profitability of the firm should be accessed by concerned parties to know the strength and weakness of firm. So, financial statement analysis is important. The main goal of business enterprise is to earn profit. Profit is residual income after the payment to expenses. Profit is the pillar to strengthen and expand business firm. Profitability is the key factor that measures how effectively a firm is being managed and operated. The report basically deals with finding out the profitability of NSBI Bank and NEBL. It aims at evaluating the trend of profitability over the years, firms capability in converting revenue to profit, firms ability to utilize assets and firms productive use of equity. Since firms profitability is mainly dependent on the revenue generated by the firm, assets used by the firm and amount of equity of the firm. It treats these factors as independent variables in this study. For the purpose of analyzing the profitability of NSBI Bank and NEBLdata are collected from secondary sources via internet and collected data were analyzed using various statistical and financial tools. Various financial ratios are used to determine the profitability of the firm like NIM, NOM, EPS, NPM, OER, ROA, ROE, etc. The data are presented in table and graphs to ease the analysis. While analysis it is found that the profitability of NSBI Bank is decreasing in the later years as shown by NMP, NIM, NOM, EPS, ROA and ROE. The bank is not as efficient in utilizing its available assets, in generating more revenue and in maximizing return on investment of shareholders. The trend of profitability of NSBI Bank is declining as shown by

various profitability ratios. But the trend of profitability of NEBL is increasing the later years as shown by NMP, NIM, NOM, EPS, ROA and ROE. The bank is efficient in utilizing its available assets, in generating more revenue and in maximizing return on investment of shareholders. The trend of profitability of NEBL is inclining as shown by various profitability ratios.

3.2 Conclusion This fieldwork report is prepared to analyze the profitability of the NSBI Bank Limited and NEBL. For this pertinent information are referred and analyzed. After the analysis of profitability of NSBI bank and NEBL following conclusions have been made about the profitability of the firms. The NIM over the year is decreasing except in the year 2064/065 and 2065/066. This indicates that net interest on total assets is decreasing. The profitability of the firm is declining at greater rate after the year 2065/066 for NSBI Bank. But in the case of NEBL, The NIM over the year is increasing except in the year 2064/065. This indicates that net interest on total assets is increasing. The profitability of the firm is inclining at greater rate after the year 2064/065 for NEBL. In the early sample years NOM is increasing but after 2064/065 it declines for two years and again it increases in the last year. This shows that the firm is able to increase its operating revenue in the year 2067/068. But in the case of NEBL, NOM is highest in the year 2067/068 i.e. 3.260% and lowest in the year 2064/065 i.e. 2.695%. The NOM is increasing at greater rate but it declined at the year 2064/065 and 2066/067. This shows that the firm is able to increase its operating revenue from the year 2064/065. In the year 2064/065 EPS is highest i.e. 39.35 and lowest in the year 2063/064 i.e. 18.27. In the early sample years EPS is increasing but after 2064/065 it declines and again it increases in the year 2066/067 and again declines at the last year. This shows EPS is fluctuating over the years for Nepal SBI Bank. But in the case of NEBL, EPS is highest in the year2066/067 i.e. 99.70 and lowest in the year 2063/064 i.e. 62.47. The EPS is increasing at greater rate

but it declined at the year 2067/068. This shows that the firm is able to increase its earnings per share for the years. The NPM is increasing for Nepal SBI Bank from the year 2063/064 to year 2064/065 and then it starts declining. This indicates that profitability of the firm in later year is decreasing. But for NEBL NPM is increasing from the year 2063/064 to year 2064/065 and then it starts declining and again stats inclining from the year 2065/066. This indicates that profitability of the firm is fluctuating during the years. ROA for Nepal SBI Bank over the years is increasing except in the year 2066/067 but for the earlier years ROA is increasing at an increasing rate. ROA is greater for later years which indicate better profitability. Similarly in the case of NEBL, ROA is increasing after the fiscal year 2065/066. However, ROA for later year is greater than that in the earlier year. This shows that the firm is improving its productive use of assets in the later years. So the firm is making a better portfolio of assets in order to increase its profitability. Asset utilization ratio of Nepal SBI Bank is fluctuating over the years but the general pattern of asset utilization is declining over the year. Asset utilization for later year is less than in the earlier period. Whereas, asset utilization ratio of NEBL is increasing over the years in an increasing rate. So the asset utilization of NEBL is better because utilization ratio is increasing over the years in the general pattern. The ROE is highest for Nepal SBI Bank in year 2064/065 and lowest in 2063/064. The ROE of NSBI bank is increasing in the earlier year up to the year 2064/065 after then is starts decline. But in the case of NEBL the ROE is higher in the year 2067/068 i.e. 30.15% and lowest ROE is in the year 2065/2066 i.e. 23.48%. ROE is decreasing up to the year 2065/066 and then it starts to increase from the year 2065/2066 at higher rate and becomes maximum in the final year.

3.3 Recommendation After the analysis of profitability of the NSBI Bank Limited and Nepal Everest Bank Limited, some lacking and weakness have been found. So to improve them, recommendation is furnished here as follows. 1. The firms profitability trend is declining in the year after 2064/065 as shown by NIM and NOM. The firm should plan about interest rates, amount of interest earning assets, non-interest earning, assets and other assets to improve the profitability in the later year. Since the firms operating ratio is increasing in recent years the firms have to make effective policies to reduce operating expenses of Nepal SBI bank. But the profitability of NEBL inclining in the year after 2064/065 as shown by NIM and NOM. The firm should plan about interest rates, amount of interest earning assets, non-interest earning, assets and other assets to enlarge the profitability in the later years. 2. Nepal SBI Bank is poor in utilizing its assets because it has very small ROA and Asset Utilization (AU) ratio. The ROA and AU both are decreasing in the recent years. So the firms have to invest in such portfolio of assets so as to increase ROA and AU ratio of firm. For NEBL the ROA and AU both are increasing in the recent years, but in the later years ROA and AU are not increasing in appropriate rates. So the firms have to invest more in such portfolio of assets so as to increase ROA and AU ratio for following years. 3. ROE of Nepal SBI bank is decreasing over the recent years which indicate that return to shareholders is decreasing. The wealth of shareholders is declining. The EPS is also declining in the year 2067/068. This all show that firm is not able to provide sufficient return to shareholders. So the firm should make plans and policies to maximize shareholders wealth. Similarly. ROE is decreasing up to the year 2065/066 and then it starts to increase from the year 2065/2066 at higher rate and becomes maximum in the final year. This shows that the ROE of NEBL is satisfactory but the firm should make plans and policies to maximize shareholders wealth in coming years. 4. The firms NMP are also not satisfactory. The firms should increase its revenue by extending services and also has to reduce costs for more profit.

5. The EPS of the firm are decreased in the recent years which indicate only small amount is earned per share in recent years. So firms should make attempt to increase EPS and this will ultimately results in to higher profitability.

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