CHAPTER I

INTRODUCTION

1.1 Background of the Study

Today is the day of information and technology. According to the changes in

information and technology the sector of banking is also changing. Bank is a financial
institution which provides financial services that may be in the form of receiving
deposits, advancing loan, providing necessary technical advices, dealing over foreign
currencies, remitting funds etc. The economic development of any country depends
upon the growth and development of industry as well as agricultural development and
commerce of the country. Thus, to extend the step of business and industrialization
towards development the bank or the financial institution plays an essential and
significant role. Simply, the financial institution is such an institution that collects
deposits from various sprinkled individuals and institutions and these collection deposits
appropriately mobilization by giving loans to different individual, industrialist and
business firm.

Today's world is full of competitive environment where each and everything is dynamic
in nature. Integrated and speedily development of country is possible when competitive
banking services reaches every nook and corner of the country. The extent of
development of any country is demonstrated by development of the financial sectors of
the country. The financial sectors comprises, banks, co-operatives societies, insurance-
companies, finance companies, stocks markets, foreign exchange markets, mutual
funds and provided fund and the like. Among them banks occupy the prominent place
in the framework of every company because it provides capital for the development
of trade and business, therefore, investing the savings collected as deposits. Besides that,
these bank numerous services to their customers with a view of facilitating them with
their economic and social life. In general, banks are defined as firms that provide money

[1]
as loan to people who promise to repay it with interest over a specified period of time.

Loan and advances mean providing of the fund for the investors in the certain sectors
taking risk in the hope of better return for the investor. The earning from such loans and
advances occupy the major space of the income statement of the bank. The face of time
has changed the portfolio of banking business from its primary function to other
function such as merchant banking, credit card business, documentary credit, traveler
cheque etc. However, still the lending function is most important function and
determines the future of bank. The quality of loan, quality of borrowers and quality of
securities determine the health of any banker. The efficiency of bankers lies in how it
multiplies the deposit of depositors. Safety of funds liquidity of funds, purpose, security
of loan, profitability, spread of loan portfolio and compliance with national interests are
some of the principles that a banker should follows while granting a loan.

The bank has taken almost care in analyzing the credit wordiness of the
borrowing customer to ensure that the interest and the principal amount on loans are
timely recovered without much trouble and seeking legal process for the recovery. A
sound lending policy is essential for the good performance of the bank and further to
attain economic objectives directed forward acceleration of the development. Lending
policy should be carefully analyzed and the bank should be careful while performing its
credit creation function effectively and to minimize the risk factor.

Thus, lending is the most fundamental function of banks. It is not only the most
important function it also determines the future of financial institutions. The quality of
loan, quality of borrower and the quality of securities determines the health of any
financial institution. Therefore, when loan investments are made it should analyzed all
the aspects of good lending practices so that it would gain profit on the transaction of the
loan. It is very sensitive subject that what sort of credit policy a bank should have. So, it
should pay more attention to the loans and advances that it provides.
1.2 Introduction of Siddhartha Bank Limited:

Siddhartha Bank Limited (SBL), established in 2002 and promoted by prominent

personalities of Nepal, today stands as one of the consistently growing banks in Nepal.
While the promoters come from a wide range of sectors, they possess immense business
acumen and share their valuable experiences towards the betterment of the Bank.

Within a short span of time, Siddhartha Bank has been able come up with a wide range of
products and services that best suits its business. Siddhartha Bank has been posting
growth in its portfolio size and profitability consistently since the beginning of its
operations. The management of the Bank has been thoroughly professional.

Siddhartha Bank has been able to gain significant trust of the customers and all other
stakeholders to become one of the most promising commercial banks in the country in
less than 10 years of its operation. The Bank is fully committed towards customer
satisfaction. The range and scope of modern banking products and services the Bank has
been providing is an example to its commitment towards customer satisfaction. It is this
commitment that has helped the Bank register quantum growth every year. And the Bank
is confident and hopeful that it will be able to retain this trust and move even further
towards its mission of becoming one of the leading banks of the industry.

The capital structure of SBL is as follows

Particular Amount
Authorize Capital 3,000,000,000
Issued Capital 1,813,553,600
Paid up Capital 1,813,553,600
1.2.1 Vision and Mission of SBL

Vision

Siddhartha Bank runs with a vision to be financially sound, operationally efficient and
keep abreast with technological developments.

Mission

The Bank desires to be one of the leading banks of the industry by fulfilling the interest
of the stakeholders and also aims to provide total customer satisfaction by way of
offering innovative products and by developing and retaining highly motivated and
committed staff. It directs all its efforts to move ahead with increased profits. The
following mission statement is a guide to meet the Vision of the Bank:

Be one of the leading banks of the industry in terms of profitability, productivity

and innovation.
Aim at total customer satisfaction by rendering efficient and diversified financial
services through improved technology.
Build a highly motivated and committed team of staff by nurturing a good work
culture to achieve superior individual performance aiming to enhance
organizational effectiveness.
Be the place of pride to all its stakeholders.

1.3 Statement of the problem:

The researchers researched about the lending performance of the SBL and find the
solution of such problems, which are presented as question towards the company
will be as follow:
1. Does SBL mobilize the investable fund effectively?
2. What step should be taken to improve the lending and recovery
Procedure?
3. How far the bank able to utilize its total deposit to generate revenue?
4. Is there sound liquidity position in the bank?
1.4 Objectives of the study:

The main objectives of the study to analyze the lending performance of SBL. The
other specific objectives of the study are as follows.

1. To analyze the portfolio behavior of lending and measuring the ratio and

Volume of loans and advances made in different sectors.

2. To analyze the correlation and regression between different variables.

3. To provide recommendation and suggestion for the improv em ent o f

Lending performance or financial performance in future.

1.5 Significance of the study:

Lending is one of the most important functions of the bank. The study on lending
performance of SBL provides feedback to the policy maker of the SBL and it is also
become useful to the other finance company and banks for the formulation of
appropriate strategies.

Any credit proposal involves some sort of risk and profitability. If not analyzed well, a
good customer may be misclassified as a poor credit risk or bad customer is misclassified
as a good credit risk. Proper assessment of credit risks in an important element of credit
management as it helps in establishing credit limits very essential for credit manager is
that he most evaluate the customers on the basis five Cs of credit: character, capacity,
capital, collateral and conditions.

This project report is about the lending policy of SBL. It is studied to determine amount
lending on different sectors, efficiency on recovery of loan. Thus this report may help
other people to know and identify risk and effectiveness of company about SBL. It may
also inspire to make the report and study on this topic for coming students for further
information.
 The success or failure of any organization depends on its strategy which is affected by
lending system and repayments. This study will be helpful for management of SBL to
make sound strategy for lending policy and practice in future. The study is significant
to the managers of the other banks and finance companies too. It will help them to
improve better loan management in practice. This is also helpful for shareholders,
general public, public depositors, prospective customers and investors, policy makers
and academicians. This study will explore the possibility of better accounting practice
and will represent the current status of the firm. So, it will be very helpful to policy
makers, managers, potential investors, and lenders. Lastly it will provide literature to
the researchers who want to carry out further research in this field. This study tries to
focus the SBL's disbursement and collection process to make sound lending
policy to improve the lending performance.

1.6 Limitations of the study:

Each and every study has it's own limitations. The study can't be free from obstacle

such as time limit, economic resources, availability of data, concerning with limited area and

so on. In spite of the various limitations the best efforts have been performed to make the

fieldwork report effective. Some of the limitations are mentioned below:

1) The whole study is based on secondary data which are provided by the
bank.
2) The study is based on only one financial institution i.e.
Siddhartha Bank
Limited, Butwal Branch.
3) This study has been limited to SBL's lending aspect mainly with the
Loan advances.
4) This study covers the time period of last five years data starting from
2009/10 to 2013/14
5) This study simply cannot evaluate the overall position of SBL.

1.7 Review of the Literature

Literature review is a desceprative analysis of a specific topic which is related only that
topic which gives more essential information. For preparing this field work report, the
researcher used different books and ideas which help to presenting clear objectives of the
study.

Lending is one of the most important aspects of the bank. The structure by which bank
leads to loan determines the profitability and success of the bank. The structure by which
loan is granted should have some strict rules and regulations.

Cheney and Moses (2001), states that an investment is a commitment of found made in the
exception of some positive rate of return. If the investment is properly under taken the return
will be commensurate with the risk the investor assumes.

Sharpe and Bailey (2001), states that the initial steps, selling investment policy, involve
determining the investors objectives and the amount of his of her invest able wealth.
Because there is a positive relationship between risk and return for sensible investment
strategies, it is not appropriate for an investor to say that his or her objective is to make a lot
of money.

Khanals (2062 B.S.) studies on Lending Policy of PAFICOL with the objectives of
identifying the terms and conditions of lending policy and analyzing the sector wise loan of
PAFICOL. This study includes that PAFICOL has increasing trend on every types of loan
and also has profitable conditions. It also signifies that the correlation between loan flow and
profitability is positive.
Malla, Priti (2062 B.S.) studies A study on Lending Policy of PAFICOL with the
objectives of determining the funds invested in different sectors and measuring the
contributions to the company taking last 4 years from 2066/67 to 2069/70. The study
signifies that the company has increasing trend of loan flow. It has positive correlation
between loan flow and profitability.
According to Kolb Robert "Lending procedure is one of the pallor of the organization on
which most of banking activities are based on". Lending of loan to the client is one of the
important aspects of the bank. The procedure by which bank lends the loan determines the
profitability and success of the bank. The procedure by which the loan is granted should
have some strict rules and regulation.

Deepak Bhandari and Rabindra Ghimire states that, Lending means provide funds to
borrowers for a specific period. Loan is the principal amount borrowed from bank.
Banks income is dominated by the interest income earned from the lending of money.

Borrowers have to promise to refund the principal as pay the interest within the promise
period. Bank is also regarded as financial intermediaries who collects the unused funds
from different users and paid interest to the borrower and utilize such amount in a
different sector of provide as loan to the needy people and charged some interest to them.
It is also the amount given by the lender to borrowed pledging some security of greater
value for a certain period charging fixed interest on it. Loan lending is the selling of use
of money charging fixed interest on it.

Lending is a complex task and associated certain degree of risk. Before lending to the
customers, bank requires to perform a set of activities. The lending process starts from
receiving application for loan and it ends after recovery off all the principle and interest.
Between these two activities, one activity such as screening the loan application,
appraisal the project for financing, appraisal the collateral, evaluation borrower, sanction
the loan; decide the number and date of loan release monitor the borrower. Sometimes
loan recovery process goes up to court. There is also an equal possibility of being
borrowers a bankrupt. Bank provides wide varieties of loan to wide varieties of customers
in different conditions. It can be classified different basis such as maturity period,
customers, use of loan, basic collateral are some loan classification.

In Ezirims (2005) view, Bank lending decision generally is fraught with a great deal of
risks, which calls for great deal of caution and fact in the aspect of banking operations.
The success of lending activity to a great extent therefore, lies on the part of a credit
analyst to carry out good credit analysis, presentations, structuring and reporting. The
mandatory interest rate according to William (2009) will result to a near shut down in
lending ratio volume to any bank with major credit concern because new policy ensures
that only the highest quality borrowers have access to a new bank credit within the year.
1.8 Research Methodology

Data collection is an essential part of fieldwork report. Collection of data is very

important for making the report clear and appropriate. Data should not be wrong because
it makes the report less reliable. Two types of data are used to prepare this report.

1.8.1 Research D e s i g
n
Field work design helps to collect right quantum data. Here researcher will be applied
descriptive & analytical research design as it deals with descriptive of situation &
interpretation of data.

1.8.2 Data Collection Procedure

All the data required in the report will be collected mainly from secondary sources.
Generally in this case the secondary data concerning the actual financial
positions of the bank will collected from network the records. The researcher will
collected relevant data from the report of the banks, office records, magazine
and web site. The data will have been presented in the report by analyzing them.

1.8.3 Data Presentation and Analysis Tools

The following tools will be use

Table
Bar diagram
Trend line
Percentage
Correlation
 CHAPTER II

DATA PRESENTAION AND ANALYSIS

2.1 Introduction:

The main purpose of this study is to examine the leading performance of Siddhartha
Bank Limited to fulfill the vision of this bank to become a leading development bank in
Nepal. It has to provide quality services to its customer as they required. Being a bank in
liquidity position, customer will have faith on bank and will deposit much more in the
bank, which will increases the profit of this bank. The bank also should invest deposit on
productive sector.

Introductions, Review of Literature, Research methodology are presented in the previous

chapter to provide the basic input to analyze and interpret the data. In this chapter,
collection data are analyzed and interpreted as the stated methodology in the previous
chapter. This chapter can be considered as a core of the whole report. This chapter of
the study presents the data and facts, which is related to different aspects of SBL.

The included data are collected from various sources i.e. Primary and secondary
sources. The main finding and the conclusions can be drawn through the analysis done
in the section. The following various financial as well as statistical calculation are done
in this section to meet the given objectives.

2.2 Financial Analysis:

a) Loan and Advance to Current assets ratio:
The short term loans and advances overdraft are included in current assets. It is the main
source of income for the bank. Loan and advance pay interest at a certain rate. So, it
should grant loans to the customers as much as they can. But they have to maintain the
liquidity position as well. The following table shows the ratio of loans advance to
current assets of SBL for different five years period.
 Table No. 1
Loan and Advances to Current Assets Ratios (Rs in Million)

Year Loan n Advances Current Assets Ratios

2009/10 16,653.85 22211.97 0.75
2010/11 18,384.03 23710.4 0.78
2011/12 20217.58 28588.83 0.71
2012/13 23086.56 32436.83 0.71
2013/14 27186.9 38941.46 0.7
Average 0.73

Figure No. 1

Loan and Advances to Current

0.8 Assets Ratios
0.78
0.76
Ratios

0.74
Ratios
0.7
0.68
0.66

2009/10 2010/11 2011/12 2012/13

2013/14
Fiscal
Year

The above table and figure depicts that the loan and advances to current assets
ratio calculated for different five years. The ratio has been fluctuating during the study
period. The highest ratio for the period is 0.78 in fiscal year 2010/11 and the lowest is
0.7 in fiscal year 2013/14. The loan and advances earn returns at a certain rate and
to invest more amounts of resources in the portfolio yielding return at a fixed rate is
always a positive aspect from if there is no risk of recovering principle and interest form
them.
b) Loan and advances to total assets ratio:
Loan and advances of the bank play active role indicates the better mobilization in
leading and low degree of liquidity and low ratio indicates low productivity and high
degree of liquidity. The following table shows the loan and advance to total assets ratio
of SBL for 5 year period.

TableNo.2
Loan and advances to total assets ratio (Rs. In Million)

Year Loan n Advances Total assets Ratios

2009/10 16653.85 22802.42 0.730354497
2010/11 18384.03 24405.87 0.753262637
2011/12 20217.58 29638.73 0.682133816
2012/13 23086.56 33691.22 0.685239656
2013/14 27186.9 40328.85 0.674130306
Average 0.705024183

Figure No. 2
Loan and Advances to Total Assets Ratio
0.8
0.7
0.6
Ratios

0.5
0.4
Ratios
0.3
0.2
0.1
0
2009/10 2010/11 2011/12 2012/13
2013/14
Fiscal
Year
The above table and figure depicts that the loan and advances to current assets
ratio calculated for different five years. The ratio has been fluctuating during the study
period. The highest ratio for the period is 0.75 in fiscal year 2010/11 and the lowest is
0.67 in fiscal year 2013/14. The loan and advances earn returns at a certain rate
and to invest more amounts of resources in the portfolio yielding return at a fixed
rate is always a positive aspect from if there is no risk of recovering principle and
interest form them.

c) Loan and advances to total Deposit ratio:

This ratio measure the extent to which the bank is successful in mobilizing deposit
through loan and advances. The following table shows the loan and advances to total
deposit ratio of PDBL for 5 years period.

Table No. 3
Loan and advances to total deposit ratio (Rs. In Million)

Year Loan n Advances Total Deposit Ratio

2009/10 16,653.85 20,197 0.8245697
2010/11 18,384.03 21,576 0.8520731
2011/12 20217.58 25948.5 0.7791425
2012/13 23086.56 28392.82 0.8131126
2013/14 27186.9 35414 0.7676879
Average 0.161463
 Figure No. 3

Loan and Advances to Total Deposit Ratio

40,000.
00
35,000.
00
30,000.
00 Loan n Advances
25,000. Total Deposit
Total deposit

00
20,000.
00
15,000.
00 2009/10 2010/11 2011/12 2012/13
2013/14
10,000.
Fiscal Year
00
5,000.0
0
0.00

The above table and figure reveals that the loans and advances to total deposit ratios for
5 year period of SBL. There is a bit fluctuation in ratio. The ratio has been ranged
between 0.85 in fiscal year 2010/11 and 0.8469 in fiscal year 2010/11. The average ratio
is 0.8972 which shows that the bank has been able to invest over 89% of its total deposit
into loan and advances.

2.3 Lending Efficiency Ratio:

The following activity ratios measure the lending efficiency and its contributions in
total profitability.
a) Interest income to total in income Ratio:
This ratio is calculated to find out the volume of interest income in total income. This
ratio helps to measure the contribution made by loan and advances in profit
generation. The high ratio indicates the high contribution made by loan in generating
profit and low ratio shows the low contribution in generating profit. The following
table shows the interest income to total income ratio for the 5 year period.
 Table no.4
Interest Income to total income ratio (Rs In thousand)

Years Interest Income Total Income Ratio

2009/10 2010 717 0.356716418
2010/11 2018 934 0.46283449
2011/12 2690 1180 0.43866171
2012/13 2906 1600 0.550584997
2013/14 3050 2941 0.964262295
Average 0.554611982

Figure No.4

Interest Income to total income ratio (Rs Million)

1.1
1
0.9
0.8
0.7
Ratios

0.6
0.5 Ratio
0.4
0.3
0.2
0.1
0
2009/10 2010/11 2011/12 2012/13
2013/14
Fiscal Year

Above table and figure shows the interest income ratio of SBL for 5 year study
period. The ratio has ranged between 0.3567 in 2009/10 and 0.9642 in
2013/14. The ratio has been increasing during the study period. The increasing trend of
ratio indicates the high contribution in generating profit by loan and advances and
invests rest by SBL during the study period.
b) Interest Income to Interest Expenses Ratio:

The ratio measure the gap between the interest rate offered on deposit and interest rates
charged on shows the interest income to interest expanses ratio of SBL for 5 year
period.

Table No. 5
Interest Income to Interest Expenses Ratio ( Rs in Thousand)

Years Interest Income Interest Expenses Ratio

2009/10 2010 2906 1.445771144

2010/11 2018 1406 0.696729435

2011/12 2690 1925 0.715613383

2012/13 2906 2048 0.704748796

2013/14 3050 1741 0.570819672

Average 0.826736486

Figure No.5

1.7

1.5

1.3
Ratios

1.1
0.9
Ratio
0.7

0.5

0.3
0.1 2009/10 2010/11 2011/12 2012/13
2013/14
Fiscal
Year
The table and figure reveals the interest income to interest expenses ratio of SBL
for 5 years study period. The ratio has been fluctuating during the review period. The
ratio is ranged between 1.445 to 0.5708. The average ratio of the bank is 0.82 which
means that one rupee of interest expenses has been able to earn Rs.0.82.

2.4 Statistical Analysis:

The researcher uses some statistical tools to achieve the objectives of the study.
Some statistical tools, trend analysis of deposit, loan and advances, net profit,
coefficient of correlation analysis between different variables are used to achieve the
objectives of the study.

2.4.1 Measuring correlation between different variables:

Correlation analysis is a statistical tool which can be used to study the relationship
between two or more than two variables. For the purpose of analysis of lending
performance of SBL, the correlation analysis can be applied in correlation between
deposit and loan and advances, net profit and loan and advances and other some related
topics.

2.4.1.1 Coefficient of correlation between total deposit and loan and advances:

The correlation between total deposit and loan and advances describes the degree of
relationship between these independent variable (x) and loan and advances in
dependent variable (y). The changed in dependent variable will be linked with
change in dependent variable. The main objective of computing 'r' between these
two variables is to justify whether deposit are significantly used on loan and
advances in a proper way or not.

As from the Appendix C the correlation between total deposit and loan and advances is
0.9821 (i.e. 98.21%).
Test of significance of correlation coefficient

Null Hypothesis (Ho) : =0 i.e. there is no correlation between total deposit and loan and

advances.

Alternative Hypothesis (H1): 0 i.e. there is a correlation between total deposit and

loan and advances.

Test Statistics: Under Ho the test statistics is

r n 2
t= 2
1 r

0.9821 5 2 = 9.03
2
1 (0.9821)

Where r = correlation coefficient

n = no of observation

Level of significance () = 0.05

Degree of freedom (d.f) = n-2 = 5-2 = 3

Tabulated value: t, n-2 = t 0.05,3 = 3.128 (two tailed)

Decision: Since tcal > tcal so we have to reject null hypothesis H0.

Conclusion: Hence there is a significant relationship between total deposit loan and

advances (i.e correlation is significant).

2.4.1.2 Coefficient of correlation between Net Profit and Loan and Advances :

Correlation between net profit and loan and advances shows the degree of relationship
between these two variables where net profit is independent variable (x) and loan and
advances is dependent variable(y).

As from the Appendix D the correlation between total deposit and loan and advances is
0.9763 (i.e. 97.63%).

Test of significance of correlation coefficient

Null Hypothesis (Ho) : =0 i.e. there is no correlation between total deposit and loan and

advances.

Alternative Hypothesis (H1): 0 i.e. there is a correlation between total deposit and

loan and advances.

Test Statistics: Under Ho the test statistics is

r n 2
t
= 2
1 r

0.9763 5 2 = 7.81
2
1 (0.9763)

Where r = correlation coefficient

n = no of observation
Level of significance () = 0.05

Degree of freedom (d.f) = n-2 = 5-2 = 3

Tabulated value: t, n-2 = t 0.05,3 = 3.128 (two tailed)

Decision: Since tcal > tcal so we have to reject null hypothesis H0.
Conclusion: Hence there is a significant relationship between Net Profit and Loan and

Advances (i.e. correlation is significant).

2.4.2 Trend analysis:

Each financial institution collect deposit and utilizes it by granting loans and advances
and investing in government securities and shares and debenture to get profit. Trend
analysis is carried out here to analyze and forecast the trend of deposit, trends of loans
and advances and net profit for the given 10 years period. The following assumptions
are taken for the projections for 5 years period.

Other things being will remain constant.

The bank will run in the present position.
The economy will remain the same.
NRB will not change its guidelines to commercial banks.

2.4.2.1 Trend analysis of Total deposit:

This is a trend values of total deposit of SBL is carried out from 2009\10 to 2013/14 and
forecast for the 5 years from 2014/15 to 2018/19. The following table shows the trend
value of ten years period.
 Table No. 6
Trend Analysis for Total Deposit ( Rs. In million)

Years Actual Value Trend value

2009/10 20,197 18855.38
2010/11 21,576 22580.49
2011/12 25948.5 26305.6
2012/13 28392.82 30030.71
2013/14 35414 33755.82
2014/15 - 37480.93
2015/16 - 41206.04
2016/17 - 44931.15
2017/18 - 48656.26
2018/19 - 52381.37

Figure No. 6

Trend Analysis for Total Deposit

Actual and Trend value

80,00
0
70,00
0
60,00
0 Trend value
50,00 Actual Value
0
40,00
0
30,00 2009/10 2010/11 2011/12 2012/13
0 2013/14
20,00 Fiscal Year
0
10,00
0
0

The above table and figure reveals that the actual value and trend value of SBL
which shows increasing trend. In regression analysis of total deposit and FY shows the
regression coefficient b=3725.11, indicates positive trend.
2.4.2.2 Trend analysis of loan and advances:

This is a the trend values of total loan and advances of SBL is carried out from FY
2009/10 to FY 2013/14 and forecast for the 5 years from FY 2013/14 to 2018/19. The
following value for 10 years period.

Table No. 7

Trend Value and Actual Value of Loan and Advances

Years Actual Value Trend value

2009/10 16,653.85 16012.058
2010/11 18,384.03 18558.921
2011/12 20217.58 21105.784
2012/13 23086.56 23652.647
2013/14 27186.9 26199.51
2014/15 - 28746.37
2015/16 - 3
31293.23
2016/17 - 6
33840.09
2017/18 - 9
36386.96
2018/19 - 2
38933.82
5
 Figure No. 7

Trend and Actual Value

Trend Analysis for Loan and Advances
60,000.
00

50,000.00

40,000.00
30,000. Trend value
00
Actual Value
20,000.
00

10,000.
00

0.00 2009/10 2010/11 2011/12 2012/13

2013/14
Fiscal
Year

The above table and figure reveals that the actual value and trend value of SBL
which shows increasing trend. In regression analysis of loan and advances and FY shows
the regression coefficient b=2576.863, indicates positive trend.
 CHAPTER III

SUMMARY, CONCLUSION AND RECOMMENDATION

3.1 Summary:

Lending is one of the most important functions of the bank and financial institutions
that directly affects the performance and profitability of the bank. There is intense
competition in banking business with limited market and less investment opportunities
available. Every bank and financial institutions is facing the problems of default loan
and there is always possibility of certain portion of the loans and advances turning in
non-performing loan. The liquidity position, loan and advances, profitability, and
deposit position, leading strength, lending efficiency and its contribution in total
profitability has been measured to find out the lending performance of SBL in the study.

In this study, the financial tools such as various ratios i.e. liquidity ratio, assets
management ratio, profitability ratio, lending efficiency ratio, growth ratio, and
statistical tools i.e. mean, correlation of coefficient, trend analysis is conducted and
analysis and interpretation of the data.

The success of SBL in such a short period of time is because of all above mentioned
factors that are visible in management of the company. The professional approach,
customer friendly environment, in-depth knowledge about financial sector of the
management team is the strength of the company to provide the board range of financial
services to the customer in a most convenient way. The company operates in a highly
automated environment in terms of information technology and communication
systems, which enable it to offer speedy fund transfer facilities to customers. The
company made substantial effort to make deposit and its investment and acquiring the
best technology is the strength of the company.
The open and liberal economy policy toward the banking sector of Nepal government
has initiated many joint venture banks are finance companies, rural banks and co-
operative societies in Nepal. The rapid growth of financial institutions has led a sharp
competition to each other. SBL faces this kind of problems, even though the ration of
profit is increasing every year.

In this study the liquidity position, loan and advances, profitability, and deposit
position, lending strength, lending efficiency, and its contributions in total profitability
has been measured to find out the lending performance of Siddhartha Bank Limited.

3.2 Conclusion:

Siddhartha Bank Limited was registered with company registered office and received
approval from NRB for conducting financial transaction on 2002 and starts its services
from the establishment year as well.

The main purpose of this study is to examine the lending performance of SBL. To
fulfill the vision of the company, to become lending development bank in Nepal, it has
to provide quality services to its customer as they required. Being a bank in liquidity
position, customer will have faith on bank and will deposit much more in the bank, which
will increases the profit of the company. After the analysis of data the researches
conclude that the liquidity position of the company is moderate in SBL. From the above
calculations and the testing of correlance it show that it shows that the liquidity position
of the bank is well satisfactory. The increasing ratio of the liquidity in recent year shows
that the bank has increasing its liquidity assets to pay the short term obligation.

The activity ratio is calculated to find out the lending strength of the bank. Activity
ratios are satisfactory during the study period.

The fluctuating trend of interest expenses to total deposit ratio and increasing trend of
interest income to total income ratio shows the lending strength of the bank during the
study. The bank is able to utilize its funds in profitable sector which is good for the
bank, it can be known from risk ratio.
The SBL has good lending procedure, preliminary screening is done of all the loan
application, credit approval and financial position of the business and cash flow of
the proposal is given high important which is essential for loan approval. There is a
proper control mechanism such as follow up visit and books of accounts inspection of the
client which result good performance of the company. The bank is following NRB guide
of loan and classifications and provisioning which makes its financial position strong
instead of holding high volume of non-performing assets in addition to all the guidelines
followed by the NBR and banks internal policy.

3.3 Recommendation:

The main objective of the study was to suggest the management for appropriate
and necessary corrective action to improving the lending performance of SBL. Based on
the finding of the analysis and the issues and constraints mentioned above, some
practicable recommendations have been made are as follows:

1) In this study the liquidity position of SBL is less than the stander ratio. It is
recommended that the bank should increase its liquid assets to pay short term
obligation of the bank.

2) SBL has invest huge amount of money in real estate loan and other risk loans,
thus, the bank is always threatened by the fear of default. It will be better if the
bank diverts some amount of its available funds in risk less investment.

3) SBL should give special discount to the borrowers who repay the loan before
Stipulated times. This may help to increase the number of early payers that
Will reduce the default risk.

4) The SBL has been able to gain the confidence of the people. To sustain this
confidence bank has to reach in all level of people in rural and urban areas.
5) The bank should emphasize in non-interest bearing deposit and should diversity
sector of deposit mobilization.

6) SBL does not provide loan without collateral. It is recommended that

Proper assessment and viability of the project should also be considered a
part from the traditional concept of collateral based lending.

7) SBL should provide quick services to its client in depositing, with draw,
loan providing procedures and other services. The bank should provide broad
and reliable services at cheapest cost.
 BIBLIOGRAPHY

Agrawal, G.R. (2003), Project Management in Nepal; Butwal MK Publisher &

Distributors.

Annual Report (2009/2010 to 2013/14), Siddhartha Bank Limited.

Bajracharya B.C. (2060).Business Statistics & Business Mathematics, Kathmandu:

M.K.Publisher and Distributors.

Dangol R.M. & Prajapati K. (2003), Financial Analysis & Planning Accounting; Taleju
Publication. Kathmandu.

Munankarmi, S.P. (2004), Text Book of Accountancy & Auditing; Educational Enterprises
(P) Ltd. Kathmandu.

Pant, P. R. (2003), Fieldwork Assignment & Report Writing; Buddha Academic

Enterprises Pvt. Ltd. Kathmandu.

Rana S. (2005), Financial Management; Butwal, Ratna Pustak Bhandar.

Thapa, S.J. & Singh H.R. (2060), Banking, Principles & Legislation Practice; Nabin
Prakashan.Kathmandu.

[27
]
 Appendix-A

Computation of trend value for total deposit of SBL

Let, total deposit is denoted by' y and the deviation of the year from the fiscal
year

2
Fiscal Year Total Deposit (y) x x xy
2009/10 20,197 -2 4 -40394
2010/11 21,576 -1 1 -21576
2011/12 25948.5 0 0 0
2012/13 28392.82 1 1 28392.8
2013/14 35414 2 4 70828

Total y=131,528 x=0 x2=10 xy=37251.1

Solution:
Let the trend line can be expressed
as: Y= a+bx ----- (i)
Where,

a= y = 131,528 = 26305.6
N 5

b = xy = 37251.1 = 3725.11
x2 10

Putting the value of a and b in (i) equation, we get the fitted trend line
Y=26305.6+3725.11x
 Calculation of trend value for various fiscal year:

Years Y= a+bx Trend Value

2009/10 26305.6+3725.11*(-2) 18855.38
2010/11 26305.6+3725.11*(-1) 22580.49
2011/12 26305.6+3725.11*(0) 26305.6
2012/13 26305.6+3725.11*(1) 30030.71
2013/14 26305.6+3725.11*(2) 33755.82
2014/15 26305.6+3725.11*(3) 37480.93
2015/16 26305.6+3725.11*(4) 41206.04
2016/17 26305.6+3725.11*(5) 44931.15
2017/18 26305.6+3725.11*(6) 48656.26

[29
]
 Appendix-B

Computation of trend value for loan and advances of SBL

Let, loan and advances is denoted by y and the deviation of the year from the
F.Y. 2009/10 to 2013/14 is denoted by x.

Fiscal Year Loan and Advances(y) x x

2 xy
2009/10 16,653.85 -2 4 -33307.7
2010/11 18,384.03 -1 1 -18384.03
2011/12 20217.58 0 0 0
2012/13 23086.56 1 1 23086.56
2013/14 27186.9 2 4 54373.8
Total y=105,528.92 x=0 x2=10 xy=25768.63

Solution:
Let the trend line can be expressed
as: Y= a+bx ----- (i)
Where,

a= y = 105528.92 = 21105.784
N 5

b = xy = 25768.63 = 2576.863
x2 10

Putting the value of a and b in (i) equation, we get the fitted trend line
Y=21105.784+2546.863x

[30
]
Calculation of Trend Analysis of Loan and Advances

Years Actual Value Trend value

2009/10 16,653.85 16012.058
2010/11 18,384.03 18558.921
2011/12 20217.58 21105.784
2012/13 23086.56 23652.647
2013/14 27186.9 26199.51
2014/15 - 28746.373
2015/16 - 31293.236
2016/17 - 33840.099
2017/18 - 36386.962

[31
]
 Appendix-C

Correlation between Total Deposit and Loan and Advances ( Rs in Million)

Total Loan n
Deposit (x) Advances (y) x
2
y
2 xy
20,197 16,653.85 407919616.9 277350719.8 371302621.6
21,576 18,384.03 465508672.9 337972559 436207429.9
25948.5 20217.58 673324652.3 408750541.1 599061602.2
28392.82 23086.56 806152227.6 532989252.6 771912758.1
35414 27186.9 1254151396 739127531.6 962796876.6
2 2
x= y= x = y = xy =
131,528 105,528.92 3607056566 2296190604 3141281288

n xy x y
Correlation coefficient r =
2 2
n x x2 n y y2

5 * 3141281288 131528 * 105528 .92

2
5 * 3607056566 131528 2 * 5 * 2296190604 105528 .92

0.982
1

[32
]
 Appendix-D

Correlation between Net Profit and Loan and Advances (Rs in Million)

Loan n Advances
Net Profit (x) (y) x
2
y
2 xy
240.85 16,653.85 58008.7225 277350719.8 4011079.773
311.41 18,384.03 96976.1881 337972559 5724970.782
330.46 20217.58 109203.8116 408750541.1 6681101.487
482.55 23086.56 232854.5025 532989252.6 11140419.53
706.16 27186.9 498661.9456 739127531.6 19198301.3
x= y= 2
x = y =
2 xy =
2071.43 105,528.92 995705.1703 2296190604 46755872.87

n xy x y
Correlation coefficient r xy =
2 2
n x x2 n y y2

5 * 46755872 .87 2071.43 * 105528 .92

5 * 995705 .17 2071.43 2 * 5 * 2296190604 105528 .92
2

0.9763
 Appendix E

A PROPOSAL ON

A STUDY ON LENDING PERFORMANCE OF

SIDDHARTHA BANK LIMITED

1.1 Statement of the problem

The researchers researched about the lending performance of the Siddhartha Bank
and find the solution of such problems,which are presented as question towards
the company will be as follow:
1. What is the process of receiving loan from Siddhartha Bank and returning it
in Time?
2. Does Siddhartha Bank mobilize the investable fund effectively?
3. What step should be taken to improve the lending and recovery procedure?
4. How far the bank able to utilize its total deposit to generate revenue?
5. Is there sound liquidity position in the bank?

1.2 Objectives of the Study

A proper objectives help to creates new plans, missions, goals efforts and
implementation power and make excitement to complete state goals and objectives to
the researchers. The following will be the main objective of the study:-

1. To analyze the portfolio behavior of lending and measuring the ratio

and volume of loans and advances made in different sectors.
2. To analyze the correlation and regression between different variables.
3. To analyze the lending efficiency and its contribution in total profitability.
4. To provide recommendation and suggestion for the improvement of lending
performance or financial performance in future.
1.3 Literature Review

Literature review is a desceprative analysis of a specific topic which is related only that
topic which gives more essential information. For preparing this field work report, the
researcher used different books and ideas which help to presenting clear objectives of the
study.

Lending is one of the most important aspects of the bank. The structure by which bank
leads to loan determines the profitability and success of the bank. The structure by which
loan is granted should have some strict rules and regulations.

According to Kolb Robert, Lending structure is one of the pillars of the organization on
which most of the banking activities are based on.

Deepak Bhandari and Rabindra Ghimire states that, Lending means provide funds to
borrowers for a specific period. Loan is the principal amount borrowed from bank.
Banks income is dominated by the interest income earned from the lending of money.
Borrowers have to promise to refund the principal as pay the interest within the promise
period. Bank is also regarded as financial intermediaries who collects the unused funds
from different users and paid interest to the borrower and utilize such amount in a
different sector of provide as loan to the needy people and charged some interest to them.
It is also the amount given by the lender to borrowed pledging some security of greater
value for a certain period charging fixed interest on it. Loan lending is the selling of use
of money charging fixed interest on it.

Lending is a complex task and associated certain degree of risk. Before lending to the
customers, bank requires to perform a set of activities. The lending process starts from
receiving application for loan and it ends after recovery off all the principle and interest.
Between these two activities, one activity such as screening the loan application,
appraisal the project for financing, appraisal the collateral, evaluation borrower, sanction
the loan; decide the number and date of loan release monitor the borrower. Sometimes
loan recovery process goes up to court. There is also an equal possibility of being
borrowers a bankrupt. Bank provides wide varieties of loan to wide varieties of customers
in different conditions. It can be classified different basis such as maturity period,
customers, use of loan, basic collateral are some loan classification.

1.4 Research Methodology

1 . 4 . 1 Research D e s i
gn

Field work design helps to collect right quantum data. Here researcher will be applied
descriptive & analytical research design as it deal with descriptive of situation &
interpretation of data.

1.4.2 Data Collection Procedure

All the data required in the report will be collected mainly from secondary sources.
Generally in this case the secondary data concerning the actual financial positions
of the bank will collected from network the records. The researcher will collected
relevant data from the report of the banks, office records, magazine and web site.
The data will have been presented in the report by analyzing them.

1.4.3 Data Presentation and Analysis Tools

The following tools will be use

Table
Bar diagram
Trend line
Percentage
Correlation

1.5 Limitation of the Study

[36
]
Every research has its own limitations. Because of the lack of man, money and
time element it has to develop the limitations of the study. The limitations of the
study have been presented below.

[37
]
 1. The whole study is based on secondary data which are provided by the
bank and other resources.
2. This study is simply presented to fulfill the partial requirement of BBA-BI
Program.

3. This study has been limited to Siddhartha Bank bank's lending aspect
mainly with the loan and advances.
4. This study covers the time period of last five years data.

1.6 Organization of the Study

The whole study is divided into three chapters. First chapter is introduction which
includes background of the study, objective of the study, literature review, research
methodology and limitation of the study. Second chapter is the data presentation and
analysis and major findings of the study. Third chapter includes summary, conclusion
and recommendation.

1.7 Time Allotment

Selection of topic 8 days

Proposal writing 4 days

Field visit and data collection 7 days

Presentation and analysis of data 8 days

Proof reading 5 days

Setting and printing 8 days

Total 40 days