CHAPTER 1

INTRODUCTION
1.1 Background of the Bank
The commercial bank is the oldest form of bank. There is considerable change in the
original form of commercial bank. In general, bank means the commercial bank. Hence, the
definitions of bank are also equally applicable to commercial banks. The profit
maximization is the

main objective of this bank. In the present context, the term

commercial bank itself is a misnomer. It does not separate bank from other financial
institutions. This name was an A bank is an institution, which deals with money and credit.
It accepts deposit from the public, creates credit, exchanges loan transmits fund from one
place to another. When a ban performs multiple tasks, the efficiency and effectiveness of
work becomes weak. Hence, different banks are established for different purposes.
Appropriate at the time when the banks used to grant the commercial loans to the
traders for production, transport and storage of commodities.
Certainly, no comparison can be made between ancient and modern banks. In the
ancient time, merchants, moneylender and gold smiths used to perform the work of banking
in every country. The merchants used to exchange the gold, silver and gems. The
moneylenders were found lending and borrowing money even in quite primitive
communities whereas, goldsmiths become the precursor of the modern bank note and the
forerunners of the modern banking institutions. Hence, the banks started to carry out the
works of creating credit, issuing the notes, depositing, lending, transacting the bills of
exchange and promissory note etc.
In conclusion, we can say that banking is not static but dynamic concept. It is a
product of centuries and the development which has taken place is the product of a method
of trial and error and experiences which were made and the results that followed relating to
the acceptance of money and valuables as deposits, keeping them as such, lending them,
whether to private individuals, to states of other bodies and for controlling the multifarious
and multi-dimensional activities which, in the beginning were only trivial and could be
ignored but with the growth of time, become international in character and multidimensional in nature calling for actions on the part of the states as the actions on the part of
the individuals failed and state control become eminent.

1.2 Profile of NIC Bank

Nepal Industrial & Commercial Bank Limited (NIC Bank) is the first bank of its
kind established under the Commercial Bank Act, 2031. The bank has been registered on
Jestha 17, 2054 in the Company Register Office as Limited Company. The bank was
licensed by Nepal Rastra Bank to handle all commercial bank transactions and commenced
operation on 21st July, 1998 from its Head Office and main branch situated at Biratnagar, the
Commercial Capital of Nepal. NIC Bank was the first commercial bank in Nepal to have
received ISO 9001:2000 certification for its Quality Management System in the year 2006.
The Bank has recently been certified under the upgraded ISO 9001:2008 standards for the
Banks Quality System on Commercial Banking Activities for the first time in Nepal.
Furthermore, NIC Bank became the first Bank in Nepal to be provided with a line of credit
by International Finance Corporation (IFC), an arm of World Bank Group under its Global
Trade Finance Program, enabling the Banks Letters of Credit and Guarantees to be
accepted/ confirmed by banks worldwide.
NIC Bank has been promoted by a group of prominent Nepali Entrepreneurs and
leading industrial houses- Vishal Group, Golchha Organization, Shah Udyog (Golyan)
Group, Triveni (Sanghai) Group and Rastrya Banijya Bank, the largest commercial bank of
the kingdom.
The current shareholding pattern of the bank constitutes of promoters holding 65%
and general public holding 35%. NIC Bank is one of the most widely held banking
companies in Nepal with close to 35,000 shareholders. The shares of the bank are actively
traded in Nepal Stock Exchange with current market capitalization of about NPR 2,976
Million.
Within 8 years of commencing business the bank has grown rapidly with 8 branches
throughout the country with 2 more being opened this year. All branches are inter-connected
through V-Sat and capable of providing on line, real time transactions.
NIC Banks organizational structure is designed to support its business goals, and is
flexible while at the same time seeking to ensure effective control and supervision and
consistency in standards across all businesses. The organization structure is divided into five
major areas viz. Consumer Banking, Business Banking, Special Asset Management,
Treasury and Corporate Centre. The Bank is committed to provide financial services to its

patrons through efficient and cost effective service delivery through its consumer, business
banking and treasury divisions.

1.3 Literature Survey

This fieldwork project is aimed at making survey on liquidity and profitability
analysis with reference to Nepal Industrial and Commercial Bank Limited. The purpose of
the study is to discuss that liquidity and profitability analysis, contained in the Balance
Sheet and P&L a/c, for a more meaningful understanding of the financial position and
performance of a firm. Financial statements may be defined as the reports prepared for the
purpose of presenting a periodical review of the performance and the financial position of a
business enterprise. Analysis of financial statements helps to know the strength and
weakness of a business undertaking. The analysis of financial statements requires a
comprehensive and intelligent understanding of their nature and limitations as well as
determination of the monetary valuation of the items.
Financial statement analysis means a process of studying relationship among the
various financial factors in a business as disclosed by financial statements, so as to interpret
the financial statements correctly. Two basic financial statements prepared for the purpose of
external reporting to owners, investors and creditors are Balance Sheet and P&L a/c. These
statements are contained in a companys annual report.
1.3.1

Liquidity Ratio
Bank is an institution, which deals on money. Cash is the most liquid fund and it is

considered as the defense of banks. The bank should maintain certain amount of cash in
order to meet its cash requirements of the depositors. The structure of the cash will be in the
form of cash in its vault, cash kept in central bank of the country. NPB has directed all the
commercial banks to maintain certain percentage of cash and bank balance for the purpose
of maintenance of liquidity.
1.3.2

Profitability Ratio
Profitability ratio indicates the degree of success in achieving desired profit. A bank

should earn profit to survive and grow over a long period of time and contribute to the social
overheads for the welfare of the society. Profit is the major aspect, which influences entire
decision-making process. The profitability ratio furnishes answers to how efficiently the

bank is being managed. Although profitability ratio mainly studies the earning power of the
firm (bank), it depicts almost entire performance of the bank.

1.4 Objectives of the Study

Every report is prepared with certain objectives in mind. In the absence of specific
objective, the study loses its value. Thus, this study has been conducted for the following
objectives:
(a) To examine the relationship between liquidity and profitability.
(b) To determine the operational efficiency of the management.
(c) To know how efficiently the management has used the total assets.
(d) To identify the specific problem faced by the bank.
(e) To provide constructive suggestion to overcome the problem.

1.5 Limitations of the study

In the context of Nepal problem of reliable data is the major problem for research
study. There is considerable place for arguing about its accuracy and reliability. Every study
has limitations due to different factors of institutions, time-period taken, reliability of
statistical data, tools and variances.
The following limitations are pointed out this study of liquidity and profitability position of
NIC Bank:

The study will be done according to the information provided by the banks

and not

with the help of experience gained on actual working environment.

Secondary data will occupy its significant position in the study: research based on
secondary data is not far from limitations.

This study covers the analysis of only five years data from FY 2006/07 to FY
2010/11; hence, the conclusion drawn confirms to the above periods only.

This study is limited to the study of NIC Bank only.

The only major financial statements like Balance Sheet, Income Statement, Profit &
Loss a/c, Cash Flow Statement has been taken for the analysis.

The study focuses only on the liquidity and profitability analysis and does not cover
other aspect of activities.

The ratio and tools that is used in the study may vary due to different definition of
terms given by different authors.

1.6 Research Methodology

Research methodology is a sequential procedure and method to be adopted in a
systematic study. The main purpose of this study is to analyses the liquidity and profitability
of NIC Bank. So, it outlines the entire research methodology used and followed in the study.
It describes research design, data gathering and processing procedures, nature and sources of
data collection, and financial tools and techniques used. Research design refers to the
conceptual structure within which the research is conducted. It is the plan, structure and
strategy of investigation conceived so as to obtain a number of research questions and to
control variance. It is essential for the whole study and helps in finding out deficiency in
expectation of the starting of work. Basically, the research design has research hypothesis.
The second purpose of research design is to control variance.
Thus, a research design is a plan for the collection and analysis of data. Research
design is the main part of any research work. It presents a series of guideposts to enable the
researcher to progress in the right direction in order to achieve the goal. This study tries to
evaluate the liquidity and profitability position if the NIC Bank. To accomplish the
objectives, it has adopted the descriptive analytical type of research design. It tries to
describe and analyze all these facts that have been collected for the purpose of the study.
Some financial tools have also been applied to examine the facts and descriptive techniques
have been adopted to evaluate the structure of selected nature of operations.
1.6.1

Methods of Data Collection

In regard to data collection, basically secondary data is conducted for the study. It is

collection from NIC Bank. The published financial data are mostly used in this study to
analyze the liquidity and profitability analysis for NIC Bank, visibly Balance Sheet and
P&L a/c are the only base of this study which are secondary in nature. The basic secondary
data in the form of published annual report of different years are collected. Thus, study
basically uses the secondary data, which were firstly collected and tabulated into separate
form systematically. Simple statistical analysis, such as percentage is calculated where
necessary and these are presented and analyzed in descriptive way.

1.6.2

Population and Sample

The term population used in statistics denotes the aggregate from which the

sample is to be taken and the term sample is that part of the population, which we select
for the purpose of investigation. Population refers not only to people but totality of all
observations that have been selected for the study. Population is also known as universe.
Sample refers to a part chosen from the population. Thus, in statistics, population means
whole and the sample means the part of the whole.
Since, this study is focused on the banks, thus, here the population encompasses all
the commercial banks functioning its operations within the country. Since, study of whole
population may not be effective due to several factors, thus, sampling becomes essential to
inference for the population. So, among all the commercial banks, NIC Bank has been
selected randomly as sample.
1.6.3

Sources of Data
Analysis of data means to study the tabulation material in order to determine

inherent facts or meanings. It involves breaking down the existing complex factors into
simpler part and putting them together in new arrangements for interpretation. A plan of
analysis should be prepared in advance before the actual collection of the material. A
preliminary analysis plan for investigation process requires detailed information about
similarities, differences, trends, outstanding factors etc.
Data can be classified into 2 groups namely, primary and secondary data. Data
collected by researcher or through agent for the first time from related field and possessing
original character are known as primary data. Primary data are also called first source. On
the other hand, data collected by someone else, used already and are made available to
others in the form of published statistics are known as secondary data. Once primary data
have been used, it loses its primary characteristics and become secondary. The difference
between primary and secondary data is a matter of relativity. Primary data are generally used
in those cases where the secondary data do not provide an adequate basis for analysis. In
certain cases, both data may be employed.

CHAPTER- 2
DATA PRESENTATION AND ANALYSIS
2.1 Introduction
This chapter entitled Presentation and Analysis of Data is a crucial chapter and has
been organized to present the result and analyze them accordingly. The basic objective of
this study is to observe and analyze the liquidity and profitability position if NIC Bank. The
presentation and analysis of data in this study have been done through the help of financial
statements of the year from FY 2006/07 to FY 2010/11.
Data collected for the analysis of liquidity and profitability position of NIC Bank are
presented in the form of tabular form and are analyzed with the help of widely accepted
tools of ratio analysis i.e. liquidity and profitability ratios.

2.2 Liquidity Ratio

The liquidity ratio shows the relationship of a firms cash and current assets to its
current liabilities. This ratio measures the liquidity position of the enterprise, i.e. the ability
of the firm to meet its short-term obligation out of its short-term resources. Liquidity ratios
are calculated to assess the capital of the company to meet immediately maturing liabilities.
The most common ratios under this group comprise:
2.2.1

Current Ratio
Current ratio establishes the relationship between current assets and current

liabilities. It includes all those assets, which are in the form of cash or can be converted into
cash in the normal course of usual business not exceeding a period of one year. Likewise
current liabilities include all the obligations maturing within a year. Current ratio is
computed by:
Current Ratio = Current Assets
Current Liabilities
Where,
Current Assets = Cash in Hand + Bank Balance + Money at Call & Short Notice + Other
Assets
And, Current Liabilities = Bills Payable + Other Liabilities

Table No. 1
Current Ratio
Year
2006/07
2007/08
2008/09
2009/10
2010/11

Current Assets
414,520,619
574,226,283
1,095,430,386
1,207,861,310
983,618,099

Current Liabilities
Current Ratio
66,347,600
6.25%
103,168,867
5.57%
132,124,754
8.29%
193,483,531
6.24%
128,699,247
7.64%
Source: Annual Report of NIC Bank,2011

Figure No. 1
Current Ratio
9.00%
8.00%
7.00%
6.00%
5.00%

Current Ratio

4.00%
3.00%
2.00%
1.00%
0.00%
2006/07

2007/08

2008/09

2009/10

2010/11

The current ratio of the NIC Bank in the FY 2006/07, 2007/08, 2008/09, 2009/10
and 2010/11 are 6.25%, 5.57%, 8.29%, 6.24% and 7.64% respectively. It shows that the
current ratio has been fluctuating in the fiscal years.

2.2.2

Quick Ratio
Quick ratio expresses the relationship between quick assets and current liabilities. In

the quick ratio, the assets, which have the nature of immediate conversion into cash as per
the companys need, are used and are said to be the quick assets. Stock or inventories and
prepaid expenses (if any) are usually excluded from the list of current assets to determine
the quick assets. It is so because they take time to convert themselves into cash. Quick ratio
is computed by:
Quick Ratio = Quick Assets
Current Liabilities
Where,
Quick Assets = Current Assets Prepaid Expenses
Table No. 2
Quick Ratio
Year
2006/07
2007/08
2008/09
2009/10
2010/11

Current Assets
414,520,619
574,226,283
1,095,430,386
1,207,861,310
983,618,099

Current Liabilities
Quick Ratio
66,347,600
6.25%
103,168,867
5.57%
132,124,754
8.29%
193,483,531
6.24%
128,699,247
7.64%
Source: Annual Report of NIC Bank,2011
Figure No. 2
Quick Ratio

9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

Quick Ratio

2006/07

2007/08

2008/09

2009/10

2010/11

The quick ratio of the NIC Bank in the F/Y 2006/07, 2007/08, 2008/09, 2009/10 and
2010/11 are 6.21%, 5.54%, 8.27%,6.23% and7.64% respectively. It shows that the quick
ratio has been fluctuating in the fiscal years.

2.3 Profitability Ratio

Every person starts the business with the prime motive to earn. The efficiency or
capability of a business and businessman is measured by the way of profitability. If firm is
continuously facing loss, its financial condition will definitely be bent down. Moreover, it
will lose its favor in the market. Profit enables a concern to improve its financial position.
That is way, the firms makes the use of profitability ratios so that the clear picture of the
firms earning may be displayed. Profitability ratio can be classified as:
2.3.1

Net Profit Ratio

Net profit ratio shows the relationship between net profit and operating income. The

purpose of net profit is to show the overall profitability i.e. efficiency of the bank. Higher
the net profit ratio, the better it is considered. This ratio is also useful in making inter-firm
comparison of the profitability. Net profit ratio is computed as under:
Net Profit Ratio = Net Profit
Operating Income
Where, Operating Income = Interest Income + Commission and Discount + Exchange Gain
Table No. 3
Net Profit Ratio
In NRs.
Year
2006/07
2007/08
2008/09
2009/10
2010/11

Net Profit
2,59,42,128
6,82,60,867
11,37,55,734
9,65,87,674
15,84,75,051

Operating Income
Net Profit Ratio
32,52,91,813
7.98%
41,11,05,829
16.60%
50,93,17,691
22.33%
63,48,14,630
15.22%
38.57%
41,09,12,624
Source: Annual Report of NIC Bank,2011
Figure No. 3

Net Profit Ratio

45.00%
40.00%
35.00%
30.00%
25.00%

Net Profit Ratio

20.00%
15.00%
10.00%
5.00%
0.00%
2006/07

2007/08

2008/09

2009/10

2010/11

The net profit ratio of NIC Bank in the F/Y 2006/07, 2007/08, 2008/09, 2009/10 and
2010/11 are 7.98%, 16.60%, 22.33%, 15.22% and 38.57% respectively. It shows that net
profit ratio has increased from FY 2006/07 to FY 2008/09 whereas, in the FY 2009/10, it has
declined as compared to the previous year. But in the FY 2010/11, the net profit ratio has
tremendously increased to 38.57%.
2.3.2

Return on Equity (ROE)

Equity shareholders are the real owner of a company and are the risk-bearers and are

entitled to total profits earned by the company after preference dividend. Return on equity
relates the profitability of a company to equity shareholders equity. ROE measures the
companys profitability in terms of return to equity shareholders. It is calculated as under:

ROE = Net Profit after Tax

Shareholders Equity
Where,
Shareholders Equity = Share Capital + Reserve & Surplus
Table No. 4

Return on Equity
In NRs.
Year
2006/07
2007/08
2008/09
2009/10
2010/11

Net Profit after Tax

2,59,42,128
6,82,60,867
11,37,55,734
9,65,87,674
15,84,75,051

Shareholders Equity
ROE
552,100,944
4.70%
620,397,724
11.00%
684,193,958
16.63%
766,462,479
12.60%
918,459,972
17.26%
Source: Annual Report of NIC Bank,2011
Figure No. 4

Return on Equity
20.00%
18.00%
16.00%
14.00%
12.00%
ROE

10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2006/07

2007/08

2008/09

2009/10

2010/11

The return on equity of the NIC Bank in the F/Y 2006/07, 2007/08, 2008/09,
2009/10 and 2010/11 are 4.70%, 11.00%, 16.63%, 12.60% and 17.60% respectively. It
shows that ROE has increased from 4.70% to 16.63% in the successive fiscal years,
whereas, in the FY 2009/10, it has declined to 12.60% and then again increased to 17.26%.
2.3.3

Return on Total Assets (ROA)

Return on total assets or simply return on assets, measures the productivity of the

assets. It is measured in terms of relationship between net profit and assets. These ratios

judge the effectiveness in using the total fund supplied by the owners and creditors. Higher
ratio shows the higher return on the assets used in the business thereby, indicating effective
use of the resources available and vice-versa. ROA is calculated as under;
ROA = Net Profit after Tax
Total Assets
Table No. 5
Return on Total Assets
In NRs.
Year
2006/07
2007/08
2008/09
2009/10
2010/11

Net Profit after Tax

2,59,42,128
6,82,60,867
11,37,55,734
9,65,87,674
15,84,75,051

Total Assets
ROA
4,03,75,19,427
0.64%
5,93,93,74,215
1.15%
7,51,03,96,565
1.51%
10,38,36,01,708
0.93%
11,679,339,865
1.36%
Source: Annual Report of NIC Bank,2011

Figure No. 5
Return on Total Assets
1.60%
1.40%
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%

ROE

2006/07

The

return

on

2007/08

assets

of

2008/09

the

Nic

bank

2009/10

in

the

2010/11

F/Y

2062/63,

2063/64,

2064/65,2065/66,2066/67 and 2067/68 are 0.64%, 1.15%, 1.51% , 0.93%,1.36% and 1.56%
respectively. It shows that ROA has increased from 0.64% to 1.51% in the successive fiscal
years, whereas in the FY 2065/66, it has declined to 0.93%.
2.3.4

Return on Capital Employed (ROCE)

Return on capital employed is an overall profitability ratio. This ratio establishes

relationship between profit earned and capital employed. ROCE indicates the overall return
on the capital employed in the business. It points out whether the capital employed is being

profitably and efficiently used in the business or not. Higher the ratio, better is the profit
earning capacity of the enterprise. ROCE is calculated as under:
ROCE = Net Profit after Tax
Capital Employed
Where,
Capital Employed = Shareholders Equity + Debenture & Bonds + Loan & Borrowings
Table No. 6
Return on Capital Employed
Year
2006/0
7
2007/0
8
2008/0
9
2009/1
0
2010/11

Net Profit after Tax

Capital Employed

ROCE

2,59,42,128

826,850,944

3.14%

6,82,60,867

689,722,298

9.90%

11,37,55,734

1,134,565,004

10.03%

9,65,87,674

1,424,167,539

6.78%

15,84,75,051

1,212,128,714
13.08%
Source: Annual Report of NIC Bank,2011
Figure No. 6

Return on Capital Employed

14.00%
12.00%
10.00%
8.00%

ROCE

6.00%
4.00%
2.00%
0.00%
2006/07

2007/08

2008/09

2009/10

2010/11

The return on Capital Employed of the NIC Bank in the F/Y 2006/07, 2007/08,
2008/09,2009/10 and 2010/11 are 3.14%, 9.90%, 10.03%, 6.78% and 13.08% respectively.
It shows that ROCE has increased from 3.14% to 10.03% in the successive fiscal years
whereas, in the FY 2009/10, it has decreased to 6.78%.

2.3.5

Earning Per Share (EPS)

Earnings per share are the ratio, which is calculated to assess the availability of total

profits per share. It is a very important ratio for equity shareholders to assess the return on
equity share. More the EPS better is the performance of the company. The increasing
tendency of EPS enhances the possibility of more dividend and bonus shares. EPS also
affects the market price of an equity share. It is calculated as under;
EPS = Net Profit after Tax
Number of Equity Shares
Table No. 7
Earnings per Share
In NRs.
Year
2006/07
2007/08
2008/09
2009/10
2010/11

Net Profit after Tax

Number of Equity Share

EPS

2,59,42,128
6,82,60,867
11,37,55,734
9,65,87,674
15,84,75,051

49,99,545
5.19
49,99,595
13.65
50,00,000
22.75
60,00,000
16.10
6,600,000
24.01
Source: Annual Report of NIC Bank,2011

Figure No. 7
E
ar n
n
i
g

p
e r S
h
ar e

The earnings per share of the NIC Bank in the F/Y 2006/07, 2007/08, 2008/09,
2009/10 and 2010/11 are 5.19, 13.65, 22.75, 16.10, 24.01 and 25.75 respectively. It shows
that EPS has increased from Rs 5.19 to Rs 22.75 in the successive fiscal years, whereas, in
the FY 2065/66, it has declined to Rs 16.10.

2.3.6

Dividend Per Share (DPS)

Dividend per share measures the dividend distributed among the equity shareholders on a
per share basis. The objective of computing this ratio is to know what an equity shareholder
byway of dividend receives. There are two components of this ratio; Amount of earning
distributed as dividend as dividend and, number of equity shares. DPS is calculated as
under:
DPS = Dividend paid to Shareholders
Number of Equity Shares
Table No. 8
DPS
Dividend
Year
2063/64
2064/65
2065/66
2066/67
2067/68

paid

In Rs

to Number

of

Equity EPS

Shareholder`s

Shares

.
..
500,00,000
31,80,000
69,30,000

..
49,99,545
..
49,99,595
Rs 10
50,00,000
Rs 0.53
60,00,000
Rs 1.05
6,600,000
Source: Annual Report of NIC Bank,2011
Figure No. 8
DPS

D
P
S

NIC Bank has declared dividend to its shareholders in the F/Y 2065/66. But in the
FY 2065/66, 2066/67 and 2067/68 the dividend per share of the NIC Bank are Rs 10, Rs
0.53, Rs 1.05 and 1.05 respectively.
2.3.7

Dividend Pay-out Ratio

Dividend pay-out ratio measures the profit distributed between dividends per share

and earning per share. The main purpose to calculate this ratio is to find out the amount of
Dividend paid out of EPS. It is calculated as under:
Dividend Pay-out Ratio = DPS
EPS
Table No. 9
Dividend Pay-out Ratio
Year
2006/07
2007/08
2008/09
2009/10
2010/11

DPS

EPS

..
Rs 10
Rs 0.53
Rs 1.05
Rs 1.05

In Rs
Dividend

Pay-out

Ratio
..
43.96%
3.29%
4.37%

Rs 13.65
Rs 22.75
Rs 16.10
Rs 24.01
Rs 25.75

4.08%

Figure No. 9
Dividend Pay-out Ratio

D
iv id

en
d

P
ay ou
t

at
io

NIC Bank has declared dividend to its shareholders in the F/Y 2064/65, thus,
dividend pay-out ratio is Nil in such period but in the F/Y 2065/66, 2066/67, 2067/68 and
2068/69 the dividend has been declared by the bank. So, dividend pay-out ratio in such
periods are 43.96% , 3.29%, 4.37% and 4.08% respectively.
2.3.8

Dividend Yield Ratio

Dividend yield ratio shows the relationship between Dividend Per Share (DPS) and
Market value Per Share (MPS). It is calculated as under:
Dividend Yield Ratio = DPS
MPS
Table No. 10
Dividend Yield Ratio
2006/07
2007/08
2008/09
2009/10
2010/11

..
Rs 10
Rs 0.53
Rs 1.05
Rs 1.05

218
366
496
950
1284

In Rs
..
2.73%
0.11%
0.11%
0.08%

Figure No. 10
Dividend Yield Ratio

Dividend Yield Ratio

Dividend Yield Ratio

Percentage

Fiscal Year

In the FY 2006/07, the dividend yield ratio of NIC Bank is Nil because the bank did
not distribute any dividend in these years. But in the FY 2007/08, 2008/09, 2009/10 and
2010/11, the dividend yield ratio is 2.73%, 0.11%, 0.11%and 0.08% respectively.

2.3.9

Earning Yield Ratio

Earning yield ratio shows the relationship between earning per share and market

value of share. It is calculated as under:

Earning Yield Ratio = EPS
MPS
Table No. 11
Earning Yield Ratio
Year
2062/6

EPS
Rs 5.19

MPS
220

Earning Yield Ratio

2.36%

3
2063/6

Rs 13.65

218

6.26%

4
2064/6

Rs 22.75

366

6.22%

5
2065/6

Rs 16.10

496

3.25%

950

2.53%

6
2066/6
7
2067/6
8

Rs 24.01
Rs 25.75

1284

2.01%

Figure No. 11
Earning Yield Ratio

In Rs

Earning yield Ratio

2062/63 2063/64 2064/65 2065/66 2066/67 2067/68

Fiscal Year

The

earning

yield

ratio

of

NIC

Bank

in

the

F/2062/63,

2063/64,

2064/65,2065/66,2066/67 and 2067/68 are 2.36%, 6.26%, 6.225, 3.25%,2.53% and 2.01%
respectively. It shows that earning yield ratio has been fluctuating in these periods.

2.4 Study Result

The data from the published financial statements of NIC Bank have been adapted to
analyses its financial soundness. To accomplish the basic objective of this study, tools of
financial management have been used to analyze and present the data. Data require to
prepare financial ratios are shown in Appendix.
Table No. 12
Ratios of NIC Bank
Ratio
Current

2061/62

6.25%
Ratio
Quick Ratio 6.21%
Net Profit
7.98%
Ratio
ROE
4.70%
ROA
0.64%
ROCE
3.14%
EPS
Rs 5.19
DPS
Nil
Dividend
Nil
Pay-Out

2062/63

2063/64

2064/65

2065/66

2066/67

5.57%

8.29%

6.24%

7.64%

4.68%

5.54%

8.27%

6.23%

7.64%

4.68%

16.60%

22.33%

15.22%

38.57%

44.49%

11%
10.15%
9.90%
Rs 13.65
Nil
Nil

16.63%
1.51%
10.03%
Rs 22.75
Rs 10
43.96%

12.60%
0.93%
6.78%
Rs 16.10
Rs 0.53
3.29%

17.26%
1.36%
13.08%
24.01
Rs 1.05

18.65%
1.56%
16.44%
25.75
Rs 1.05

4.37%

4.08%

Ratio
Dividend
Yield Ratio
Earning
Yield Ratio

Nil

Nil

2.73%

0.11%

0.11%

0.08%

2.36%

6.26%

6.22%

3.25%

2.53%

2.01%

The table shows that the Current Ratio and Quick Ratio are quite fluctuating in the
fiscal years. Similarly, Net Profit Ratio, ROE, ROA, ROCE, EPS and Earning Yield Ratio of
the NIC Bank are in the increasing trend in the successive fiscal years. But in the FY
2065/66, the ratios have declined as compared to the previous year. Te bank did not
distribute any dividend up to the FY 2063/64 whereas; a dividend of Rs 10, Rs 0.53, Rs 1.05
and Rs1.05 was distributed in the FY 2064/65, FY 2065/66,FY 2066/67 and 2067/68
respectively. Thus, Dividend pays out ratio and Dividend yield ratio is Nil in the Fiscal Year
2062/63 and 2063/64.

CHAPTER - 3
SUMMARY, CONCLUSION AND RECOMMENDATION
3.1 Summary
Field work is being considered as the heart of Management Studies. It has to go
through for the completion of successful BBS Program. It aims to knowledge and skills
through observation and interactions. It acquaints with practical knowledge of the real
business world and with the ways of handling prominent issue as well.
This report has been prepared to know about the Liquidity and Profitability position
of NIC Bank. As such pertinent information is collected with the help of secondary sources
such as annual report of NIC Bank.
The first part of the report contains the introduction of the NIC Bank. This part
encompasses the subject matter of the study, objectives, methodology of the study and the
tools used for the study as well. The second part contains the presentation and analysis of
the data. The data presented and analyzed in terms of Liquidity and Profitability ratios.
From the information available through the banking source and its analysis, we
ensure that NIC Bank is one of the leading commercial bank in the banking scenario of
Nepal. Even in the present condition of economic depression and maximum competition, the
NIC Bank have been able to successfully overcome all the economic and competitive
barriers to establish themselves as a financially viable unit in the history of commercial
banks in Nepal.
3.2

Conclusions
From the presentation and analysis of the data relating to liquidity and profitability
of NIC, a clear picture emerges. The trend of general public to open saving account with
NIC has been increasing every year. The economy is going through recession these few year
and interest rates provided by all banks including NIC to its depositors are drastically
decreasing. Even then, the saving trends of NIC do not seem to be affected by this. It
indicates that the customers have faith that their deposits will be handled carefully by NIC.
The deposits are not completely governed by returns on it, in average, 50.774% of total
deposits are contributed by saving deposits. So, it clearly shows that saving deposits is one
of the major sources of fund for NIC.66.748% of liquidity and profitability are invested by
NIC in various sectors. Though it is nearly half of the saving deposits, it seems that NIC

could get it is known that more profit by investing some more from liquidity and
profitability funds because it is known that investment give returns.
The analysis of data in previous chapter shows that the relationship between net
profits and saving deposits are direct and positive. The profit from the investment of the
saving deposit contributes to total net profit as well. Therefore liquidity and profitability
indirectly NIC to achieve profit. Though there is a positive relation between deposits and
profit of the bank, the profit has not increased as compared to the deposits. Either NIC, is
not investing in profitable sectors or NIC is not providing loans and investments by fully
utilizing its funds. Therefore, NIC should try harder to utilize its deposits on best possible
way.
From the Data interpretation of the saving deposit facility of NIC, the conclusion can
be drawn that NIC, is doing a reasonably good job regarding it. NICs liquidity and
profitability trends are very good and the return regarding it, is also reasonable. The bank
likely to increase its profit by increasing the investments and loan facilities from funds of
saving deposits and by decreasing its cash and bank balance to minimum requirement. From
the deposit trends of NIC, it shows that the customers are loyal to bank. So, NIC is doing
good job regarding liquidity and profitability and it can go a long way if a few changes
mentioned below are applied.
3.3

Recommendations
There should be sound co-ordination between NRB and NIC Bank and other Commercial
banks.
The bank should attract more customers by providing different services and facilities to
collect more negotiations.
The bank should focus on the development of modern technology and study the problems
and obstacles of customers; it should care to solve the problems by the management and
personals.
The bank should also open its branches in rural areas, to promote and mobilize small
investors.
The bank has been maintaining high liquidity so, it is suggested that the bank should
decrease the liquidity amount and invests such amount in the productive and profitable
sectors.

BIBLOGRAPHY
Annual Report of NIC Bank
Bhandari, Dilli Raj (2009), Banking and Insurance, Kathmandu: Aayush Publication.
Dangol, R.M (2067), Accounting for Financial Analysis and Planning Teleju Publication
Joshi, Dr. Shyam (2010), Banking and Insurance, Kathmandu: Taleju Prakashan.
Joshi, Dr. Shyam (2011), An Introduction To Economic Theory, Kathmandu: Prakashan
Bhotahity.
Khadka, Serjung (2011), Banking and Insurance, Kathmandu: Asia Prakashasn.
Munankarmi, Shiva Parsad (2010), Financial Analysis and Planning, Mahankal, Kathmandu,
Education Enterprises Pvt. Ltd.
Pandey, I.M (2005). Financial Management, New Delhi: Vikash Publishing House Pvt.
Sharma, Narendra (2009) A Textbook of Accounting and Auditing Kathmandu: Ekata
Book Distributors Pvt. Ltd.
Sing, Hridya Bir (2011), Banking and Insurance, Kathmandu: Asia Prakashan.