FUNDS ALLOCATION AND DEPOSIT MOBILIZATION

OF COMMERCIAL BANKS IN NEPAL

Graduate Research Project

Submitted To

MBA (Finance) Program in Management

Office of the Dean, Faculty of Management

Pokhara University

Submitted By

Sabina Shrestha

Exam Roll No. 10220335

P.U. Registration No. 2010-2-22-0205

In Partial Fulfillment of the Requirements for the MBA Degree in

Management

Kathmandu, Nepal

August, 2013
 Acknowledgements
This Graduate Research Project entitled Funds Allocation and Deposit Mobilization of
Commercial Banks in Nepal has been carried out to meet the partial requirement of the
fulfillment for the degree of the Master of Business Administration (Finance) of Pokhara
University. I am highly indebted to my supervisor Dr. Chakra Bahadur Khadka for his
proper supervision and guidance until the accomplishment of this work. The work got its
final version because of his immense inspiration.

There are other people behind the success of this research work. I would like to express
my gratitude toward Prof. Dr. Radhe Shyam Pradhan (Academic Director) and Dr. Niraj
Poudel (Research Director) of Uniglobe College for his valuable suggestions and proper
guidance during the entire project work.

The respondents of the sample banks deserve the sincere thanks for their valuable time
and responses. I must acknowledge the various authors of different studies that I have
referred during this study. Moreover, I would like to express my thanks to all friends of
MBA for direct and indirect support and coordination.

Finally, I should not forget my entire family especially my mother Mrs. Homa Shrestha
and my husband Mr. Bijaya Shrestha for their care and love that inspired me to achieve
the success in this work due time. I have tried my best to make this research as fine as
possible. There are other hidden people like librarians, lab boys, teachers, and friends for
being the part of this success who helped me directly or indirectly in various situations.

Sabina Shrestha

August, 2013

i
 Certificate of Authorship
I hereby declare that this submission of graduate research project entitled Funds
Allocation and Deposit Mobilization of Commercial Banks in Nepal is my own work
and that, to the best of my knowledge and belief, it contains no material previously
published or written by another person nor material which to a substantial extent has been
accepted for the award of any other degree of a university or other institution of higher
learning, expect where due acknowledgement is made in the acknowledgements.

Sabina Shrestha

Table of Contents
Acknowledgements ............................................................................................................ i
ii
Certificate of Authorship .................................................................................................. ii

Table of Contents .............................................................................................................. ii

List of Tables ................................................................................................................... vi

List of Figures ................................................................................................................. vii

Executive Summary ... viii

Abbreviations .................................................................................................................... x

CHAPTER I: INTRODUCTION ................................................................................. 1-

10

1.1 Background of the Study .........................................................................................

1

1.2. Statement of the Problem ....................................................................................... 3

1.3. Research Questions ................................................................................................ 5

1.4. Purpose of the Study .............................................................................................. 5

1.5. Significance of the Study ....................................................................................... 6

1.6. Research Hypothesis .............................................................................................. 7

1.7. Operational Definitions and Assumptions ............................................................. 7

CHAPTER II: LITERATURE SURVEY AND THEORETICAL FRAMEWORK . 11-25

2.1. Review of Literature ............................................................................................ 11

2.2. Conceptual Framework ........................................................................................ 21

iii
 2.3 Concluding Remarks .............................................................................................

24 CHAPTER III: RESEARCH METHODOLOGY .....................................................

26-39

3.1 Research Plan and Design ..................................................................................... 26

3.2. Types of Research ................................................................................................ 26

3.2.1. Quantitative Research ................................................................................... 27

3.2.2. Qualitative Research ..................................................................................... 27

3.2.2.1. Sources of Information ............................................................................... 27

3.2.2.2. Survey Design and Size of Sample ............................................................ 28

3.2.2. 3. Survey Technique and Questionnaire Design ........................................... 28

3.2.2.5. Sampling Design and Sampling Methods .................................................. 28

3.3. Nature and Sources of Data.................................................................................. 29

3.3.1. Secondary Data ............................................................................................. 29

3.3.2. Primary Data ................................................................................................. 30

3.4. Data Collection Procedures and Time Frame ...................................................... 30

3.5. Population and Sample ......................................................................................... 31

3.6. Data Analysis Procedures .................................................................................... 32

3.6.1. Method of Secondary Data Analysis ............................................................ 33

3.6.2. . Method of Primary Data Analysis .............................................................. 37

iv
 3.7. Reliability and Validity ........................................................................................ 38

3.8. Instrumentation .................................................................................................... 39

CHAPTER IV: RESULTS AND DISCUSSION ....................................................... 40-

62

4.1. Trend Analysis of Deposits, Investment, Loans & Advances and Asset Purchased
.....................................................................................................................................
40

4.2. Relationship between Deposits and its Explanatory Variables ............................ 41

4.3. Movement of Deposit with Respect to its Explanatory Variables ....................... 45

4.4. Analysis of Primary: Assessment of Management Views ................................... 52

4.4.1. Composition of Deposit ................................................................................ 52

4.4.2. Trend of Loans & Advances ......................................................................... 53

4.4.3. Trend of Investment ...................................................................................... 54

4.4.4. Incentive to Increase Deposit Collection ...................................................... 54

4.4.5. Determinants of Deposit Volume.................................................................. 55

4.4.6. Deposit Mobilizing Cost ............................................................................... 56

4.4.6. Determinants of Deposit Volume.................................................................. 56

4.4.7. Reason for Growing Deposit ......................................................................... 57

4.4.8. Deposit Volume among Commercial Bank of Nepal ................................... 57

4.4.9. Statement of Level of Agreement and Disagreement ................................... 58

v
 4.2. Concluding Remarks ............................................................................................
60

CHAPTER V: SUMMARY AND CONCLUSIONS ................................................ 63-70

5.1. Summary .............................................................................................................. 63

5.2. Conclusion ........................................................................................................... 68

5.3. Recommendations ................................................................................................ 68

References .......................................................................................................................
71

Appendices..76

List of Tables

Page No.
Table 3.1: Balanced Panel Data Observations of Commercial Banks 31

Table 3.2: Population and Sample Bank 31

Table 3.3: Coefficient of Cronobachs Alpha 38

Table 4.1: Descriptive Statistics 41

Table 4.2.: Correlation Coefficient between Deposit and independent Variables 42

Table 4.3.: Regression Analysis 43

Table 4.4: Properties of Portfolios Sorted on Investment 46

Table 4.5: Properties of Portfolios Sorted on Loans & Advances 48

Table 4.6: Properties of Portfolios Sorted on Asset Purchased 50

Table 4.7: Responses on composition of deposit 52

Table 4.8: Responses Associated with the Trend of Loans & Advances 53

Table 4.9: Responses Associated with the Trend of Investments 54

Table 4.10: Responses Associated with the Incentive 54

Table 4.11: Responses Associated with the Determinants of Deposit Volume 55

vi
Table 4.12: Responses Associated with the Deposit Mobilizing Cost 55

Table 4.13: Responses Associated with the Determinants of Deposit Volume 56

Table 4.14: Responses Associated with the Reason for Growing Deposit 56

Table 4.15: Responses Associated with the Deposit Volume 57

Table 4.16: Statement on Level of Agreement and Disagreement 58

List of Figures

Figure 2.1: Conceptual Framework: Funds Allocation

and Deposit Mobilization 21

Figure 4.1: Trend of Movement in Deposit across the

Portfolio Sorted on Investment 47

Figure 4.2: Trend of Movement in Deposit across the

Portfolio Sorted on Loans & Advances 49

Figure 4.3: Trend of Movement in Deposit across the

Portfolio Sorted on Asset Purchased 51

vii
 Executive Summary
Deposit is one of the important domestic capital formation factors that lead to increase in
the size of national income and employment, solving the problem of inflation and balance
of payment and foreign debts. Domestic capital formation helps in making a country self
sustainable. For the development of any country, the financial sector of that country is
responsible and must be strong. Therefore, commercial banks are the important financial
intermediaries serving the general public by lending and investing in many areas or
sectors of the economy. So the empirical relationship between the deposit and its
explanatory variables are stated as the research questions followed by the development
of the hypothesis. The major objective of this study is to analyze the relationship between
the deposit and its explanatory variables.

the review of literature has shown the relationship between various factors such as interest
rates, GDP, branch expansion, household savings, investment, loans & advances , asset
purchased etc. as and the deposit mobilization in the case of both developed and
developing countries. In addition, investment, loans & advances, asset purchased are
some of the variables that are found to have significant association with deposit in various
contexts. Based on the reviews, this study has proposed the conceptual framework
identifying investment, loans & advances and asset purchased as the most important
factors affecting the deposit mobilization of the commercial bank in Nepal.

For the purpose of study 12 listed commercial banks deposit from systematic random
sampling is taken as sample and required data such as deposit and other independent
variables are collected from various secondary sources for period of 12 years i.e. 2001 to
2012. Systematic random sampling method is used to select the sample commercial
banks. Primary questionnaire survey is also conducted in order to assess the opinions of
banks manager on deposit mobilization processes. Multiple regression analysis and
viii
correlation analysis are used to examine the connection between the deposit and the
independent variables. Likewise, portfolio sorted on one way sorts of three independent
variables is also employed to see if the relationship shown by regression and correlation
analysis really exists.

The result of secondary data analysis shows that the investment, loans & advances and
asset purchased have strong and significant positive impact on deposit. Likewise, in
contradiction to the findings of the secondary data, the primary survey reveals that loans
& advances, investment and asset purchased are the most important sectors of deposit
mobilization.

The major limitations of this study lies in the fact that this study has excluded some firm
specific and other productive sectors where the commercial banks could have mobilized
its resources effectively and efficiently. Despite, the limitations of this study, the findings
and research are still applicable in the case of Nepalese commercial banks. So this study
is highly significant for commercial banks itself, depositors and the regulators too.

ix
 Abbreviations
BOK : Bank of Kathmandu

CEO : Chief Executive Officer

DisAg : Disagree

DPB : Domestic Private Bank

DW : Durbin Watson

EBL : Everest Bank Limited

GDP : Gross Domestic Product

HBL : Himalayan Bank Limited

JVB : Joint Venture Bank

KBL : Kumari Bank Limited

LBL : Lumbini Bank Limited

MBL : Machhapuchre Bank Limited

NABL : Nabil Bank Limited

NBB : Nepal Bangladesh Bank NEPSE : Nepal Stock

Exchange

NIBL : Nepal Investment Bank Limited

NIC : Nepal Industrial and Commercial Bank

NRB : Nepal Rastra Bank

NSBI : Nepal SBI Bank Limited

x
OLS : Ordinary Least Square

SCBNL : Standard Chartered Bank Nepal Limited

SEBON : Securities Board of Nepal

SOB : State Owned Banks

SPSS : Statistical Packages for Social Sciences

Std. Dev. : Standard Deviation

VIF : Variance Inflation Factor

Vol : Volume

xi
 CHAPTER I INTRODUCTION
1.1 Background of the Study

Deposit is one of the important domestic capital formation factors that lead to increase in
the size of national output income and employment, solving the problem of inflation and
balance of payment and foreign debts. Domestic capital formation helps in making a
country self sustainable. According to classical economists, one of the main factors which
helped capital formation was the accumulation of capital. Profit made by the business
community constituted the major part of savings in the community and the saved one has
been assumed to be invested. They thought capital formation indeed plays a deceive role
in determining the level and growth of national income and economic development
(Bendix, 1915). In the view of many economists, capital occupies the central and strategic
position in the process of economic development in an underdeveloped economy that lies
in a rapid expansion of the rate of its capital investment so that it attains a rate of growth
of output which exceeds the rate of growth of population by the significant margin. Only
with such rate of capital investment will the living standard begin to improve in
developing countries. In developing countries, the rate of saving is quite low and existing
institutions are half successful in mobilizing such savings as most people have incomes
so low that vertically all current income must be spent to maintain a subsistent level of
consumption.

Investment is an essence of the national economy. Banking system is the integral part of
investment system in productive sectors (Mikkelson & Ruback, 1985). It involves the
sacrifice of current rupees for future prospect. It is concerned with the allocation of
present fund for later reward, which is uncertain. When people deposit money in a saving
account, for example in a bank; the bank must invest the money in new factories and
equipments to increase their production. In addition borrowing from the banks most
issues stocks and bonds that they sell to investors to raise capital needed for business
expansion (Sharpe et al., 1998). Government also issues bonds to obtain funds to invest
in projects such as the construction of dams, roads and schools. All such investments by
individuals business and government

1
a presto sacrifice of income to get and expect future benefits. As a result, investment
raises a nation's standard of living.

For the development of any country, the financial sector of that country is responsible
and must be strong. The financial sector is the vast field, which comprises of banks,
cooperatives, insurance companies, financial companies, stock exchange, foreign
exchange markets, mutual funds etc (Shanmugam, 1989). These institutions collect idle
and scattered money from the general public and finally invest in different enterprises of
national economy that consequently help in reducing poverty, increase in life style of
people, increase employment opportunities and thereby developing the society and
country as a whole. Thus, in today's concept, the financial institutions and commercial
banks have become one of the bases for measuring level of economic development of
nation.

Commercial banks are the main sources which motivate people to save their earnings.
Banks mobilize, allocate and invest much of societys savings (Berger et al., 2004).
Households and businesses are mainly using banks to save their money to get loan for
their project undertakings. Blanco and Meyer (2001) said that commercial banks are
important financial intermediaries serving the general public in any society. In most cases
commercial banks hold more assets than any other financial institutions. Apart from their
many functions, commercial banks facilitate growth and development. Banks lend in
many areas or sectors of the economy. Bank deals in accepting the saving of people in
the form of deposit collection and invest in the productive area (Fischer, 1989). They
provide loan to the people against real and financial assets. They transfer monetary
sources from savers to users. In other words, they are intermediate between lender and
receiver of fund they mobilize the depositor fund.

Bank deposits represent the most significant components of the money supply used by
the public, and changes in money growth are highly correlated with changes in the prices
of goods and services in the economy (Aredo, 2004). Commercial banks are critical to
the development process. By granting loans in areas such as agriculture, manufacturing,

2
services, construction and energy sectors, banks contribute to the development of the
country.

The commercial bank has been a vital ingredient for economic development. They are
intermediaries, which mobilize funds through the prudential combination of investment
portfolios in advanced countries. Whereas in Nepal the role of joint venture banks are
still to be realized as an essential machine mobilizing internal savings through various
banking schemes in the economy. Hence, to uplift the backward economic condition of
the country, the process of capital accumulation, among other prerequisites should be
expedited. Capital accumulation plays an essential role in acceleration of the economic
growth of nations, which in turn, is basically determined among others by saving and
investment propensities (Brennan, 1970). But, the capacity of saving in the developing
country is quite low with a relatively higher marginal propensity of consumption. As a
result, developing countries are badly trapped into vicious circle of poverty. The basic
problem of these countries is raising the level of saving and thus investments (Khalily et
al., 1987) .In order to collect enough saving, and put them into productive channels,
financial institutions like banks are necessary. It will be utilized within the economy and
will either be diverted abroad or used for unproductive consumption or speculative
activities.

1.2. Statement of the Problem

The role of deposits in the economic growth of any country cannot be over-emphasized.
Deposits represent that part of income which is not spent on current consumption. When
assigned to capital investment, deposits increase output. Institutions in the financial
sector, like the commercial banks, mobilize deposits in various ways including savings
deposits, current deposits and fixed deposits on which they pay certain interests. To
effectively mobilize funds in an economy, the deposit rate must be relatively high and
inflation rate stabilizes to ensure a high positive real interest rate, which motivates
investors to save from their disposable income. People also have to find the institutions
sufficiently safer than other alternatives. Economic and political stability also plays a
preponderant role, as well as for financial regulation. Moreover, the age structure of the

3
population, measured by the ratio of population defined as dependent (under 15 years and
over 64 years) to total population (i.e. dependency ratio) constitutes another important
determinant of domestic savings as seen in the works of (Khan, 1988; Akhter, 1986;
Burney and Khan, 1992 and Chete, 1999). In line with the above reasoning, the larger the
population of the working-age population in a country, the greater the aggregate life time
income and thus, the higher the aggregate savings. But the reverse has been the case in
Nigeria. Causes and effects of this abnormal trend will form among the issues the present
study will address. Although deposit rates have fallen in many developing countries
during the last two decades, Pakistan, unlike Nigeria, presents a unique picture of a
country experiencing high rates of economic growth along with very low savings rate
(Khan et al., 1992).

A number of empirical studies have given credence to the above stance. In fact, the
national savings rates of Pakistan is not only low compared to that in many countries with
per capita income about the same as Pakistans but also it is even lower to that in some
South Asian countries with lower per capita income. However, Nigerian economic
growth has never been favored in the same way as that of Pakistan (Qureshi, 1981; Khan,
1988; Burney and Khan, 1992; Akhter, 1986). Although the low savings rates have
become a major source of concern in recent years, not much attention has devoted to
highlight the key determinants of savings in developing countries. In recent years, few
studies have been conducted on this issue using both the time- series and cross- section
data. For example, Thanoon and Baharumshah (2002) carried out a study on the
determinants of gross saving ratio in Malaysia utilizing a co-integration and error
correction model to deal with the non-stationary properties of time series of the variables
involved. Their results suggest that saving ratio is majorly determined by dependency
ratio (a result in line with life-cycle theory), economic growth, interest rate and foreign
direct investment (FDI) in the long run.

The problem this study seeks to address in Nepal is that mobilizing domestic deposits has
not yet achieved the level sustainable for domestic investments. Most organizations still
depend on foreign sources for investment funds through bilateral loan agreements and or
aid from donations to the Nepalese government. The net effect is that a reduction in the

4
volume of aid and loans reduces domestic output and has the possibility of accumulation
external debt. For the purpose of achieving self sufficiency, there is the need to improve
ways of mobilizing domestic deposits. Records indicate that large chunk of deposits are
lying idle under pillows and in bamboos in the rural areas being left out of the banking
stream (Rutherford, 2000). The onus therefore, lies on the commercial banks to play a
major role or to devise the most effective ways of mobilizing deposits so as to increase
investment funds in Nepal.

The problem of mobilizing funds and deposits has always been the bone of economic
growth and development in Nepal. The present research is therefore designed to explore
how to mobilize adequate savings and investment in order to fill the wide gap which
currently exists between savings and investment in Nepal. Hence, the work will assess
the impact of deposits on investment, loans & advances and Asset purchased.

1.3. Research Questions

Under the prevalence of these situations, the study has tried to deal with following
problems.

i. What is the effectiveness of deposit mobilization of commercial

banks?
ii. What is the relationship between deposit and loans & advances? iii.
What is the relationship between the deposit and investment? iv.
What is the relationship between the deposit and asset purchased?
v. What is the trend of deposit mobilization of commercial banks?

1.4. Purpose of the Study

The general objective of the study is to examine relationship between the amount of total
deposit and amount of total credit and investment granted by the commercial banks.

The specific objectives of the study are as follows:

5
 i. To assess the trends of deposit, investment, loans & advances and asset
purchased.

ii. To assess the relationship between deposits and loans & advances,
investment and asset purchased.
iii. To analyze the movement of deposits with respect to loans & advances,
investment and asset purchased from portfolio analysis.
iv. To analyze the management views and opinions regarding the funds
allocation and deposit mobilization in the context of Nepals commercial
banks.

1.5. Significance of the Study

Banks and other financial institutions play an important role to increase economic
standard for the development of the country. Economic development becomes slow if
there are incomplete and unfair banking facilities. Especially, commercial banks provide
different economic and technical facilities to the people who involve in business
activities. Commercial banks play a major role in collection of scared small savings form
depositors and transfer these funds into productive sectors for the economic development.

As the research done in any field, there are several key factors that cannot be avoided, in
which significance of study also occurs. Mainly this study covers the deposit and credit
position of commercial banks, so it helps to reveal the financial position of banks and
study occupies an important role in the series of the studies on commercial banks.
The significance of the study is:

i. Importance to know how well the bank is utilizing its deposits.

ii. Importance to policy formulator and also be useful for academic professionals,
students particularly those involves in commerce, CA and financial institutions
to formulate policies and plans on the basis of the performance of the bank.
iii. Importance to the management party of selected banks for the evaluation of the
performance of their bank and comparison with other banks.

6
 iv. Importance for the investors, customers (depositors, loan takers) and personnel
of bank to take various decisions regarding deposits and loan advances.

v. This study has been equally important to the others who are interested to know
about the area. It may encourage to researcher to research further.
vi. This study will help commercial banks to manage their deposit by letting them
know what affects it and which variable is the most important so that should be
given due emphasis.
vii. This study adds knowledge on the field of finance. The studies that are conducted
on the factors affecting commercial banks deposit are rare; therefore the study
will be an important material on the field of finance.

1.6. Research Hypothesis

To fulfill the above objectives the research hypothesis set are as follows:

Null Hypothesis 1 H0: There is no difference in trend of deposit, investment, loans &
advances and asset purchased.

Null Hypothesis 2 H0: There is no relationship between deposit, loans and advances,
investment and asset purchased.

Null Hypothesis 3 H0: There are no differences in management views and opinions
regarding the funds allocation and deposit mobilization in the context of Nepalese
commercial banks.

1.7. Operational Definitions and Assumptions

Loans and Advances

Having exercised the powers conferred by section 79 of the Nepal Rastra Bank Act, 2002,
the several directives have been issued with regard to classification of credit/ advances
and provisions to be made for its possible loss by the institutions obtaining licenses from
the bank to carry out financial transactions. Entire loans and advances extended by a

7
licensed institution have to be classified as follows based on expiry of the deadline of
repayment of the principal and interest of such loans/ advances:

i. Pass: Loans/ advances which have not overdue and which are overdue by a period
up to three months.
ii. Sun-standard: Loans/ advances which are overdue by a period from three months
to a maximum period of six months.
iii. Doubtful: Loans/ advances which are overdue by a period from six-months to a
maximum period of one year.
iv. Loss: Loans/ advances which are overdue by a period of more than one year.

The loans which are in pass class and which have been rescheduled/ restructured are
called as the performing loan, and the sub-standard, doubtful and loss categories are
called non-performing loans.

Similarly, the provisions relating to the deposit and loan transaction are that no banks or
financial institution shall be allowed to deposit amount or enter into the loan transaction
with institutions which are engaged in deposit mobilization and loan transaction in
accordance with prevailing laws other than the Banks and Financial Institutions Act, 2006
( NRB, 2012).

The core function of commercial banking is the granting of credit. The function of
commercial bank is not only to collect the deposits from the people but also to invest it.
Although banks offer a wide spread of spectrum of financial services, lending has
traditionally been their main function. Bank prefers experience, expertise withered and
flexibility in lending which gives them a clean competitive advantage all over financial
institutions. Bank credit has been responsible for the development and growth of many
small and moderate size business that otherwise would have withered and died.

After collecting small scattered saving into one bulk it offers loans to commerce,
business, industry, agriculture and so on. Bank lend from the deposit which it receives,
since it has been said that, the bank are not lending their own money but furnish
advances deposits they receive from the customer (Mauri, 1977). Every commercial

8
bank offer loans and invests funds considering its various aspects. Proper or important
attention to any one of these factors may lead to high or low degree of loans achievement
whether such factors may be under their jurisdiction or out their control.

The loans offered by the commercial banks are generally of short period. They offer short
term-term loan for the working capital purpose but they cannot offer loans for long period
to purchase basic things such as machines, tools, lands, buildings and so on. This concept
of the commercial bank is the old one. Now this concept has been changed. The
commercial banks fulfill the credit needs of various sectors of the economy including
investment in the securities, whether it is government or nongovernment. The investment
of the commercial bank in the securities includes the investment in the treasury bills,
development of national saving bonds, shares on government owned companies and non-
government companies and investment on debentures. Investment usually involves
putting money into a bet, which is not necessarily marketable in order to enjoy a series
of return the investment is expected to yield. On the other hand speculation is usually a
shorter run phenomenon. Speculators tend to buy assets with the expecting of a profit that
can be earned from subsequent price charge and sale. Investment is usually made
expecting a certain stream of income, which has existed, will not change in the future.

Investment

According to the NRB directives that have been issued with regard to investment of
financial resources of a licensed institution having exercised the powers conferred by
section 79 of the Nepal Rastra Bank Act, 2002, the licensed institutions shall implement
the policies and procedures regarding the investment in Government of Nepal securities,
Nepal Rastra Bank bonds, and other corporate bodies share and debentures only upon
the approval of investment policy and procedures by the Board of Directors, licensed
institutions shall invest only in the shares and debentures of corporate bodies listed in the
Nepal Stock Exchange after the public issues of shares. There is no restriction on
investment of government securities and the NRB bonds while banks can only invest in
shares and debentures of other corporate bodies listed in NEPSE. Licensed institutions
may invest in shares and securities of any one corporate body up to 10 percent of its core

9
capital maintained at immediately preceding trimester and not exceeding the cumulative
amount of such investment in all the companies by more than 30 percent of its core capital
(NRB, 2010).

Investment in financial sense is placing of money in the other for their use expecting a
return or the participation in expected profits (Thapa, 2008). But for manufacturing and
trading firms the terms investment will be long term expenditures that aim at increasing
return of efficiency or at building up goodwill thereby producing and increasing return
over as period. Investment also seek to manage their wealth effectively obtaining the most
from it, while protecting it from inflation, taxes and other risks.

Investment by individuals, business and government involves a present sacrifice of

income to get on expected on future benefit as a result investment raises an economy of
nations. Investment in its broadest sense means the sacrifice of current dollars for future
dollars. Two different attributes are generally involved time and risk. The sacrifice takes
place in the present and its magnitude generally is certain. Specifically, an investment is
the current commitment of the dollars for a period of time in order to derive future
payments that will compensate the investor for the time the funds are committed, the
expected rate of inflation during the time period and the uncertainty of the future
payments (Reilly & Brown, 2009).

Assets Purchased

Banks purchase the assets such as fixed assets for the establishment of bank. Banks funds
are used in buying of furniture, vehicle, computer, and other concerned instruments,
which are related to banking activities. Bank cannot take direct gain from these assets,
but bank should buy it. A bank has a need of fund to purchase fixed assets for the new
branches of the bank.

10
 CHAPTER II LITERATURE SURVEY AND THEORETICAL
FRAMEWORK
This chapter is basically concerned with review of literature relevant to the topic Fund
accumulation and Mobilization capacity of Nabil Bank, Nepal Investment Bank,
Standard Chartered Bank Nepal, Himalayan Bank, Nepal SBI Bank, Nepal Bangladesh
Bank, Everest Bank, Bank of Kathmandu, Kumari Bank, Nepal Industrial & Commercial
Bank, Lumbini Bank and Machhapuchhre Bank. Every study is very much based on past
knowledge. The previous studies cannot be ignored because they provide the foundation
to the present study. In other words, there has to be continuity in research. This continuity
in research is ensured by linking the present study with the past studies.

2.1. Review of Literature

Using the multiple regression method, Agu (1984) conducted a study on the role of
commercial banks in mobilization and allocation of resources for development in the
context of Nigeria. This study had used the variables such as saving rate, income, interest
rate and wealth. The study was based on secondary data and the annual data from the
period 1960 to 1980 have been used. The data employed was extracted from the
Population Bureau Office Lagos, annual report and statement of accounts of CBN,
Monthly Report, PNC Okigbo Nigerias Financial System.

The major findings of the study was that the Nigerian banks have potential scope and
prospects for mobilizing financial resources and allocating them to productive
investments which have to be exploited quickly by enlarging the number of bank offices
and also by the banks branching into the rural areas where a lot of saving lie idle or
dissipated and where productive investment projects do not take off because of lack of
financial institution to mobilize and channel the funds so mobilized into productive
activities. The strength of the research was that the role and scope of the commercial
banks as financial intermediaries in mobilizing domestic financial resources for

11
development and the constraints in the efficient performance of this role was explored in
the light of past trends.

Mrak (1989) carried out a study on role of the informal financial sector in the mobilization
and allocation of household savings in the context of Zambia. Statistical data were used
to analyze the importance of the informal financial sector in the mobilization and
allocation of household savings in Zambia and to discuss various types of informal
financial institutions, their historic origin, current patterns and perspectives. The study
was made on the basis of the study visit to Zambia in the first half of 1987.The analysis
of this research was carried out with the help of secondary data for the period 1970-1983.

The major findings of this study were that financial sector in Zambia, although
institutionally fairly well develop, has not fulfilled its role to mobilize and allocate
household savings effectively in the past. Household savings have been largely
disregarded due to availability of external resources and general belief that households,
particularly in rural areas, are too poor to save.

Vogel and Burkett (1986) conceded a study on deposit mobilization in developing

countries: the importance of reciprocity in lending in the context of Thailand, Taiwan,
Mauritius, Tanzania, Sudan, Kenya, Gambia, Singapore, Korea, South Africa, India and
Malawi. Statistical data were used to analyze the situation of deposit mobilization in the
developing countries. The analysis of this study was carried out with the help of both
primary as well as secondary data from the period 1970 to 1983.

The major findings of this study indicate that access to credit may be an important
determinant in the selection of deposit institutions by savers, and especially by no wealthy
households, in developing countries. This is important not only because of the potential
through reciprocity for increasing the amount of savings mobilized and improving the
allocation of these savings by FIs, but also because of the efficiency gains resulting from
economies of scope and group effects involved in lending to depositors.

Bajracharya (1990) performed a study on monetary policy & deposit mobilization in

Nepal. Multiple regression method was used for the research study. Primary and

12
secondary data were used for the collection of data. The study has concluded that the
mobilization of domestic savings is one of the monetary policies in Nepal. For this
purposes commercial banks stood as the vital and active financial intermediary for
generating resources in the form of deposit of the private sector so for proving credit to
the investor in different aspects of economy.

Thapa (1991) conducted a thesis study on a comparative study on investment policy of

Nepal Bangladesh Bank Ltd and other joint venture banks of Nepal had compared the
investment activities NBBL with only two of the joint venture banks. The data were
collected for the five years period and the multiple regression methodology was used.
The recommendation was presented in two ways, first statement recommendation and
second theoretical recommendation. In statement recommendation, the researcher has
suggested about investment in government securities, OBS operation loans recover act,
sound credit collection policy, and project oriented approach, effective portfolio
management, and innovative approach to bank marketing and banking facilities. In
theoretical recommendation researcher has suggested about liberal lending policy and
cost management strategy.

The study was conducted with the main objectives to find out whether commercial banks
have been able to collect deposit from different sector, to find out whether banks are to
satisfy financial need of economy, to find out the relationship between deposits and loans.

The major findings of the study was that deposits are collected much from individuals
and deposits from organization is very low, similarly more loans are granted to the
commercial sector and a little amount to the agriculture and industrial by commercial
banks. They cannot utilize the deposit properly. The writer further found, there is positive
relation between deposits and loan. The researcher recommended that commercial banks
should not limit their lending activities in only business sectors. Commercial banks also
offer long term loans not only short term period. At last, it was suggested that the fully
interest rates should be changed by making it more suitable to expand the services of
commercial banks in all sectors.

13
with an objective of analyze the effect of interest rate restriction on the cost of deposit
mobilization of commercial banks in the context of Nigeria, Oyewole (1994) revealed
that implicit interest rates contributed to the observed high cost of banking operations in
the country during the period. The data for this study was obtained from the Annual
Report and Statement of Accounts of 25 commercial banks in Nigeria for the 1980-86
periods. The number of banks and the period of analysis were determined solely by the
availability of comparable data across the banks. For each of the banks, information on
total deposits, loans and advances, gross income, operating expenses and interest paid
were collected for the period.

Pradhan (1996 B.S.) conducted a study on deposit mobilization, its problem and prospects
in the context of Nepalese financial institutions. The study has presented that deposit is
the life-blood of every financial institutions, like commercial bank, finance company, and
co-operative or non-government organization. Primary and secondary data were used for
the collection of data.

Primary and secondary data were used for the collection of data. The study further adds
in consideration of most of banks and finance companies, the latest figure dopes produce
a strong feeling that serious review must be made of problems and prospects of deposit
sector. Leaving few joint venture banks, other organizations rely heavily, on the business
deposit and credit disbursement.

The research had recommended for the prosperity of deposit mobilization by providing
sufficient institutional services in the rural areas, cultivating the habit of using rural
banking unit, adding services hour system to bank, organizing training programs to
develop skilled manpower by NRB, spreading co-operative to the rural areas for
development of mini-branch services to these backward areas.

Kafle (1996) conceded a study on NRB and its Policies for Monetary Control opines that
liberalization, the effect on deposit seems to be positive in the later period as it increased
from 17.74 to 21062%of nominal GDP. And, this, there was a positive effect on saving
mobilization, however in the case of loan and advances, commercial banks were found

14
to be underlet because the percentage of loans and advances to nominal GDP was only
100.6 & 11.9 in the two period respectively . Primary as well as secondary data were used
for the collection of data.

Shrestha and Gautam (1998) conducted a Ph.D. thesis entitled Investment planning of
Commercial Banks in Nepal. Multiple regression method and OLS method were used for
the analysis of the data. The researchers had concluded that bank portfolio (loan and
investment) of commercial banks has been influenced by the variable securities rates.
Investment is planning and operation of commercial banks in Nepal has not been found
satisfactory in terms of profitability, safety, liquidity, productivity, and social
responsibility. To overcome this problem the researcher had suggested commercial;
bank should take their investment function with proper business attitude and should
perform landing and investment operation efficiently with proper analysis of the project.

Choudhury (1999) conducted a study on resource mobilization and development goals in

the context of Islamic Banks. Simple regression method was used for the analysis of the
data. Secondary data were used for the accomplishment of the research study. The major
findings of the study was that it has pointed out such directions to be premised on the
epistemology if Divine Unity. Such an Islamic worldview needs to be intellectualized
and fed in to the interrelationships among money, finance, and real economic
transactions. The strength of the study was that it has critically assess whether the type of
resource mobilization that Islamic banks throughout the world presently undertake can
eventually lead to the formation of a viable Islamic capital market and the Islamic
socioeconomic transformation.

Sahu and Rajasekhar (2005) performed a study on urban bias in the flow of funds and
deposit mobilization in the context of Karnataka, India. Regression method was used.

The analysis in this paper had been carried out with the help of secondary data for the
period 1986 to 2002-03. This period was divided into two sub-periods. The period 1986
to 1991-2 was considered as the pre-reform period, while 1992-3 to 2002-03 as reform
period. Such a sub-period wise analysis became important in terms of contrasting

15
policies, which governed bank branch expansion, the deposit mobilization and flow of
credit.

The major findings of the study were that one unit increase in deposits leads to less credit
flow in rural areas as compared to urban areas. This implies that unless the critical
infrastructure for the growth is provided in rural areas, the mere existence of financial
institutions does not guarantee that rural people will benefit from them.

The strength of the research is that it examines the progress in the number of bank
branches, quantum of deposits and credit flow in rural and urban areas in Karnataka.

Agrawal (2007) conceded a research thesis entitled a study on deposit and investment
position of Yeti Finance Company Ltd. The research study had tried to examine the trend
of deposit position and investment position of the Yeti finance company. The study was
conducted on the basis of secondary data and used various financial tools to analyze the
data. Study just covered only period of five years i.e. 2002 to 2007 (Agrawal, 2007).

The major findings of the study were that the deposit policy is not stale but has highly
fluctuating trend and investment is gradually in increasing trend. The researcher found
there is highly positively correlation between total deposit and total investment the
researcher concluded that Finance Company has been found profit oriented, ignoring the
social responsibility which is not a fair strategy to sustain in long run. Therefore, it is
suggested the company should involve in social program which helps the deprive people
who are depended helps in agriculture. Agriculture is the paramount of Nepalese
economy so that any finance company should not forget to invest in this sector. In order
to do so, they must open their branches in remote area with an objective of providing
cheaper financing services.

Tennant (2007) carried out a study on a comparison of the mobilization and use of
savings across types of financial intermediaries in the context of Jamaican economy. The
study seeks to compare the performance of different types of financial institutions in their
basic role as intermediaries. The financial intermediation involves: (1) mobilization of
savings; (2) transferral of those savings to the real sector typically through loans and

16
financial investments; (3) allocation of funds amongst competing borrowers and
investors; and (4) monitoring of borrowers and investors to ensure that funds are being
used prudently. Relevant indicators in the form of easily interpreted ratios have been
calculated for each of these facets of intermediation, to focus on the liberalization and
post-liberalization eras in the financial sectors development. All data were sourced from
the Bank of Jamaicas Statistical Digest and website and from the Jamaica Cooperative
Credit Union League.

The major findings of the study revealed that in a developing country context, regardless
of the increased sophistication of a countrys financial sector, if its financial institutions
are not effectively and efficiently performing the fundamental role of intermediation
between savers and borrowers, market failure will exist, which may have adverse impacts
on the productivity of and economy. Financial sector reform programs have to therefore
assess the relative performance of different types of financial institutions in their most
basic of functions, so as to identify where these failures exist, and to implement measures
to address them.

The strength of this study argued that the deposit mobilization and the use of societys
savings remains the paramount role of the financial sector even in an era of technological
innovation and financial sophistication. Financial intermediaries need to be effective and
efficient in the mobilization of savings, transferal of those savings to the real sector
through loans and financial investments, allocation of funds amongst competing
borrowers and investors, and monitoring of borrowers and investors to ensure that funds
are being used prudently. This study has also compared the performance of Jamaican
financial institutions in fulfilling these basic facets of intermediation, and identified the
areas in which particular types of financial institutions have exhibited higher standards
of performance relative to the rest of the sector.

Uremadu (2009) conducted a study on the impact of macroeconomic and demographic

factors on savings mobilization in the context of Nigeria. Two analytical tools were used
in this study. The tools are descriptive statistics and multiple regression analytical
models. Multiple regression analytical models was used to estimate the relationship

17
between the level of gross national savings and the identified macroeconomic factors of
influence such as the real interest rate, spread, inflation rate, dependency rate, broad
money supply etc. The descriptive statistics was employed mainly to carry out economy
analysis in relation to macroeconomic variables of interest.

Secondary data was used in order to estimate the model. The data employed was extracted
from different sources include Central Bank of Nigeria Statistical Bulletin Vol.15
(Dec.2004), and Annual Reports and Statement of Accounts (various); International
Financial Statistics of IMF (2004), World Tables (2006) as well as the Nigeria Annual
Abstract of Statistics (2004), published by the Federal Office of Statistics (FOS), Abuja.

The major findings of the study were summarized as follows: (1) demographic factors
seem to have played a positive and insignificant role in explaining the savings ratio in
over two decades studies, (2) interest rates spread leads savings ratio, (3) domestic
inflation rate has a negative and significant impact on savings ratio, and (4) foreign capital
inflows, as measured by FPI positively and significantly affect savings ratio in Nigeria.

The strength of the research was that the findings of this research would guide policy
makers on economic growth and poverty reduction in countries of sub-Saharan Africa.

Tandukar (2010) conceded a research study on the thesis entitled Role of NRB in deposit
mobilization of commercial banks. The study has tried to examine role of NRB in deposit
collection by the commercial banks and to analyze the trend, of deposits mobilization
towards total investment and loan and advances. Projection is for five years. The data
used in those studies is both secondary and primary nature. The researcher used different
financial tools such as liquidity ratio, profitability ratio, risk ratio and coefficient of
correlation, trend analysis as statistical tools. The researcher took 17 commercial banks
as population and two banks i.e. NBBL and EBL as sample banks. The researcher has
found that it can be said that all new directives of NRB of commercial banks are effective
and it is good for both nation and the future of the banks but the loan classification and
provisioning seems to be little bit uncomfortable to the commercial banks. Deposit and
loan and advances of NBBL are higher than EBL but in case of the investment EBL is

18
able to mobilize more funds than NBBL in this sector. The researcher has recommended
to NBBL that diversification of loan and investment is highly suggested to the bank. As
NBBL has given priority in investment in treasury bills which is risk free but it yields
very low return to the bank. Similarly, EBL has given priority to collect the deposit by
initiating various new programs that attract the customers (Tandukar, 2010).

The forgoing review of literature suggests that the deposits mobilization plays vital role
in economic development of country. Deposit mobilization can be best examined using
the factors, such as interest rate, loan and advances, investment, branch expansion etc.

Ramakrishna (2012) performed a study on the long run relationship between savings and
investment in Ethiopia: a co integration and ECM approach. Granger casualty method
was used and the variables are gross domestic investment as a percentage of gross
domestic products, gross domestic saving as a percentage of gross domestic products and
the white nose error term and time.

The major findings of this study suggested that there is no long run relation between these
variables implying no long run co-movement or a tendency of convergence between
savings and investment in Ethiopia. The data analysis also reveals that investment is
dependent largely on foreign aid and finance. Ethiopia could not raise its domestic
savings to meet the investment requirements and therefore confront the problem of
dependence and risk to external shocks. The non existence of Co integration between
domestic savings and investment in Ethiopia is due the deficit in its current account of
balance of payments. The continuous and unsustainable current account deficits which
are closely related to the decline in domestic savings particularly in the recent period is
the major reason for the absence of long run co-movement between savings and
investment. The gap between domestic savings and the investment in Ethiopia will further
widen its current account deficits leading to an increase in the foreign debt and debt
financing.

The data for the study was collected from the World Bank Database, 2010, International
Financial Statistics and National Bank of Ethiopia. The data on savings, investment and

19
other variables are collected for the period, 1974-2009. In order to verify the causality
between savings and investment, two-step procedures as followed. The first step in
causality investigation is to verify for the existence of a unit root in the variables. Since
many macroeconomic series are non-stationary, unit root tests are useful to determine the
order of the variables and, therefore, to provide the time-series properties of data. In order
to verify the presence of a unit root in variables, the popular ADF test has been employed.

Venkatesan (2012) carried out a study on an empirical approach to deposit mobilization

of commercial banks in the context of Tamilnadu. The data are first subjected to
descriptive statistics, namely mean, standard deviation and coefficient of variation in
order to know the central tendency, dispersion and volatility in the data. Next simple
linear regression technique was used and the variables were current deposit, fixed deposit
and term deposit.

The study is based on secondary data for the span of ten years from 1990-00 to 200809.
The data were obtained from statistical handbooks and broachers published by Reserve
Bank of India (RBI).

The major findings of the study were that there was a significant trend and growth in
current deposits in terms of value despite there was a significant decline in number current
deposits accounts in scheduled commercial banks in Tamil Nadu during the period from
1990-00 to 2008-09. Regarding saving deposits, there was a significant trend and growth
in it both in terms of number of accounts and in value (amount). But the scenario was
different in the case of term deposits in scheduled commercial banks. The number of term
deposits exhibited a significant growth and trend but there was neither decrease nor
increase in it when evaluated by value. Hence, it was concluded that the scheduled
commercial banks in Tamil Nadu performed well in deposit mobilization in ten years
from 1999-00 to 2008-09.

Deposit mobilization is an integral part of banking activity. Acceptance of deposits is the

primary function of commercial banks. As deposit, mobilization is one of the basic
innovations in current banking activity. Hence, the strength of the research is that it has

20
attempted to empirically evaluate the trend and growth in deposit mobilization of
scheduled commercial banks in Tamil Nadu during the period from 1999-2000 to
20082009.

2.2. Conceptual Framework

Bank is an institution which deals in money and credit. Banks are the institution which
acts as an intermediary between different kinds of people and institutions who are in need
of money and who can supply money at certain rate of interest. A bank simply carries out
the work of exchanging money, providing loan, accepting deposits and transferring the
money. several studies had been carried out regarding the funds allocation and deposit
mobilization which depicts that the commercial banks mobilizes its deposit on various
sectors by making investment, providing loans advances and purchase of assets
(Paudel,2010). Based on the same this study has depicted the following conceptual
framework.

Figure 2.1: Conceptual Framework: Funds Allocation and Deposit Mobilization

Dependent Variable Independent Variable

Investment

Deposit Loans & Advances

Asset Purchased

Banks are majorly determined by the conceptual framework namely investment, loans &
advances and the asset purchased. This variable has the significant impact on the deposit
mobilization mechanism and practices of the banks which in turn influences the

21
performance. This study is based upon above mentioned deposit variable in order to
explain the relationship between the variables and the performance of the banks under
study.

Investment

Commercial banks are those which collect the immobilized capital from public,
organizations etc as deposits and invest these capitals in different sectors like business,
industries, and services etc, which fulfill the demands of capital in these sectors. Banks
invests its fund in different banking activities and different fields. Many types of fields
are shown in market for investment (Smith, 1993). But banks invest its funds in profitable
and safety activities. Bank invests its funds in the various possible sectors such as share
and debenture, government securities and joint venture.

Share a unit of ownership interest in a corporation or financial asset. While owning shares
in a business does not mean that the shareholder has direct control over the businesss
day-to-day operations, being a shareholder does entitle the possessor to an equal
distribution in any profits, if any are declared in the form of dividends (Brennan et al.,
2011). The two main types of shares are common shares and preferred shares.

Likewise, a debenture is an unsecured loan one offer to a company. The company does
not give any collateral for the debenture, but pays a higher rate of interest to its creditors.
In case of bankruptcy or financial difficulties, the debenture holders are paid later than
bondholders. Debentures are different from stocks and bonds, although all three are types
of investment.

Government securities are the securities issued by the government to raise the funds
necessary to pay for its expenses. Treasury bills, debt restructuring bills, government
bonds, and government saving bonds are an example of government securities.

Commercial banks in developing countries like Nepal have the greatest responsibility
towards the economic development of the economy. In the present day world in the
developed and developing money economies, the vital process of production and

22
consumption and significantly affected by the aggregate money supply consisting of the
currency, demand and time deposit with banks (Sergeant, 2001). The main goal of the
banks as a commercial organization is to maximize the surplus by the efficient use of its
funds and resources. In spite of being a commercial institution, it too has responsibility
to provide social service oriented contribution for the socio-economic enlistment to the
by providing specially considered loan and advancement towards less privileged sectors.

Loans & Advances

While at any given moment some depositors need their money, most do not. That enables
banks to use shorter-term deposits to make longer-term loans. The process involves
maturity transformation- converting short-term liabilities (deposits) to longterm assets
(loans). Banks pay depositors less than they receive from borrowers, and that difference
accounts for the bulk of banks income in most countries.

Banks can complement traditional deposits as a source of funding by directly borrowing

in the money and capital markets. They can issues securities such as commercial paper
or bonds; or they can temporarily lend securities they already own to other institutions
for cash- a transaction often called a repurchase agreement (repo). Banks can also
package the loans they have on their books into a security and sell this to the market (a
process called liquidity transformation and securitization) to obtain funds they can relend
(Abraham and Harrington, 2011).

A banks most important role may be matching up creditors and borrowers, but banks are
also essential to the domestic and international payments system and they create money.
Not only do Individuals, businesses, and governments need somewhere to deposit and
borrow money; they need to move funds around- for example, from buyers to sellers or
employers to employees or taxpayers to governments. Here too a bank plays a central
role. They process payments, from the tiniest of personal checks to large-value electronic
payments between banks. The payment system is a complex network of local, national
and international banks and often involves government central banks and private clearing
facilities that match up what banks owe each other. In many cases payments are processed
nearly instantaneously. The payments system also includes credit and debit cards. A well-

23
operating payments system is a prerequisite for an efficiently performing economy, and
breakdowns in the payments system are likely to disrupt trade- and therefore, economic
growth- significantly (Bhandari, 2010)

Asset Purchased

A long-term tangible piece of property that a firm owns and uses in the production of its
income and is not expected to be consumed or converted in to cash any sooner than at
least one years time. Banks purchases fixed assets such a land & building, furniture and
fixtures, computer software etc for the commencement of the business. Likewise, banks
keep on increasing its assets volume or bases during for the branch expansions.

2.3 Concluding Remarks

Various empirical contradictions were presented by several researchers on funds

allocation and deposit mobilization. The comparison of the mobilization and use of
savings across types of financial intermediaries study found that in a developing country
context, if financial institutions could not effectively and efficiently perform the
fundamental role intermediation between savers and borrowers, market failure would
exist, which may have adverse impact on the productivity of the economy. Likewise,
access to credit may be an important determinant in the selection of deposit institutions
by savers, and especially by no wealthy households, in developing countries. It was found
that there is highly positively correlation between total deposit and total investment the
researcher concluded that finance Company has been found profit oriented, ignoring the
social responsibility which is not a fair strategy to sustain in long run. Though these are
the findings in the context of developed countries, their application is yet to be seen in
the developing and the least developed countries like
Nepal. Since many years the study has been done on the topic 'Fund Accumulation and
Mobilization capacity of commercial banks'. In this research, the researcher has taken 12
commercial banks as the sample on which the research was not conducted before. Most
of the studies are related with secondary data. They mainly focus on the data available.
However, such special study related to awareness regarding fund accumulation and
mobilization capacity has been limited. In this study, the researcher has attempted to

24
evaluate the Secondary data by conducting field survey, in order to know somehow about
the practical experience of fund accumulation and mobilization capacity. So this study
will be fruitful to those interested persons, students, scholars, stakeholder, civil Society,
teachers, businessmen and government for academically as well as policy perspective.

The review articles were all based on quantitative analysis, this study focuses on
qualitative analysis too, this approach will open frontier for other study to mobilize their
deposit in the productive sectors more effectively and efficiently by quantitative as well
as qualitative methods. The review of literature has revealed that the financial institutions
mobilizes their deposit in several sectors such as investment, loans & advances and asset
purchased. The related literatures with funds allocation and deposit mobilization taking
the investment, loans & advances and asset purchased s independent variables and deposit
as dependent variables are rarely found in context of Nepal. It is assumed that this study
is probably the new one to do research and compare and critically analyzed findings and
conclusions with previous study which were undertaken in developed countries. It is very
much required to study in the context of Nepal; whether investment, loans & advances,
asset purchased made by the several banking and financial institutions really uplift the
economy of the country.

The importance of this study may be viewed from its contribution to fill an important gap
in literature and also findings of this study can add value to the existing body of the
literature. Some issues have been raised: (a) what is the present condition of resources
mobilization in commercial banks? (b) Are the investment, loans & advances made by
the banks are really effective and has helped in increasing the productivity and economic
condition of the country? Thus, to find the answer of these questions a new and detailed
research is significant.

CHAPTER III RESEARCH METHODOLOGY

Research methodology refers to the various sequential steps to be adopted by a research
in studying a problem with certain objectives in view". (Kothari, 1985) Research
methodology is the research method used to test the hypothesis. It sequentially refers to
the various steps to be adopted by a researcher in studying a problem with certain

25
objectives in view. In other words, research methodology describes the methods and
process applied in the entire subject of the study.

3.1 Research Plan and Design

Research design indicates a plan of action to be carried out in connection with proposed
research work. The research design is descriptive and core prescriptive in this study
because the historical secondary data have been mainly deployed for analysis. A
research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in
procedure (Kothari, 1985).

Basically, the proposed study is mainly based on two types of research design namely
descriptive and analytical. Descriptive research design describes the general attitude of
the Nepalese depositors, business environment, problems regarding the deposits
mobilization aspects etc. Similarly, the analytical research design makes a thorough
analysis of gathered facts and information and critically evaluates it as well.

3.2. Types of Research

The research tracks both types of the quantitative and qualitative are combined to an
analysis of the ways that they are collective in preparation. An examination of the
research methods and research designs employed suggests that on the quantitative side
organized research within a pooled design tends to explicit; on the other way qualitative
side the semi-structured interview within a questionnaires design tends to predominate.
Examinations of the rationales are employing mixed-methods of quantitative and
qualitative research. The distinct set of the types of research design is discussed in
separate section below.

3.2.1. Quantitative Research

Quantitative research uses the confirmatory of the theory with scientific method; it is used
primarily for description, explanation, and prediction. It is based on quantitative data, in
particular on the analysis of variables. The results are statistical and a goal is to generalize

26
the results. Quantitative research in this study includes the generation of models, theories
and hypothesis, development of instruments and methods for measurement, experimental
control and manipulation of variables, collection of empirical data, modeling and analysis
of data and finally evaluation of results.

3.2.2. Qualitative Research

In qualitative research is used primarily for the purposes of description and exploration
and to gain an understanding of how people think and experience their particular
segments. It is based on qualitative data which during analysis are examined for patterns,
themes, and holistic features. A narrative report is presented and generalization is usually
not a goal because the focus is on the local, the personal, and the subjective.

Qualitative researchers stress the socially constructed nature of reality, the intimate
relationship between the researcher and what is studied, and the situational constraints
that shape inquiry. In contrast, quantitative studies emphasize the measurement and
analysis of causal relationships between variables, not processes. Inquiry is purported to
be within a value-free framework,

3.2.2.1. Sources of Information

Primary data has been used to assess the opinions and views of the banks personnel regarding
the funds allocation and deposit mobilization of commercial banks. The questionnaire survey
has been conducted to record the opinions and views of the banks personnel regarding the
deposit mobilization situation in Nepalese commercial banks.

3.2.2.2. Survey Design and Size of Sample

The primary sources of data include the personal interview and questionnaire
administered to the sample bank which is done by personal visit to the respective banks
and distributing the questionnaire to the managers and executives of the respective
sampled commercial banks. The total population for this research is the CEO, managers,
executives and officers of the commercial bank. These targeted populations are the
managers and officers of commercial bank within Kathmandu Valley. The respondents

27
have been categorized according to the consideration of their primary bank where they
have been working as a Managers or executives in respective Banks. Total of 60
respondents are taken for the research purpose.

3.2.2. 3. Survey Technique and Questionnaire Design

The study is based on both primary and secondary sources of data. The secondary sources
of data collections are those that have been used from published on used by someone
previously. The secondary sources of data are Balance Sheet, Profit &r Loss account,
quarterly report and literature publication of the concerned banks. Some supplementary
data and information have been collected from the authoritative sources like Nepal Rastra
Bank, Nepal Stock Exchange Limited, Security Exchange Board, Economic Survey,
National Planning Commission, different journals, magazines and other published and
unpublished reports documented by the authorities.

In order to fulfill the objectives of this research work, all the secondary data are compiled,
processed and tabulated in time series. And to judge the reliability of data provided by
the banks and other sources, they were compiled with the annual reports of auditors.
Formal and informal talks to the concerned head of the department of the bank were also
helpful to obtain the additional information of the related problem.

3.2.2.5. Sampling Design and Sampling Methods

Even though the population for this study is finite, it is difficult to include whole
population in the study because of various constraints. Thus, sample for the study is very
essential. Probability stratified sampling technique has been employed to categorize
sample banks in two strata namely domestic private banks (DPB) and the foreign joint
venture banks (JVB) out of total population of 32 commercial banks in Nepal. After
dividing into two strata, 100 percent of joint venture banks are included in the study while
29 percent of domestic private banks are included in the sample that makes the number
of sample domestic private banks 6. To select the sample of 6 domestic banks from cluster
of 21 banks, systematic random sampling method have been used. Likewise, for primary

28
survey the selection of sample respondents have been conducted using systematic random
sampling of the bank branches.

3.3. Nature and Sources of Data

Both primary and secondary data have been used for this study. Primary data has been
used in order to assess the opinions of bank managers on funds allocation and deposit
mobilization of Nepalese commercial banks. In addition, the primary data attempts to
reveal other facets regarding funds allocation and deposit mobilization situation in
Nepalese banking sector. At the same time, secondary data has been employed in order
to analyze the relationship between deposit and its explanatory variables.

3.3.1. Secondary Data

Secondary data were used to test the ability of the commercial banks on the utilization
and mobilization of the deposits available and the effect of various elements such as
Loans and advances, Investments and the Assts purchased on the profitability of the bank.
The secondary data were obtained mainly from the office of Security Board of Nepal
(SEBON). The period of the study has been taken from 2001 A.D. to 2012 A.D. Data on
yearly deposits, investments, loans and advances and assets purchased are obtained from
the financial report of the commercial banks. Data on required accounting figures have
been collected from office of the NEPSE, office of the respective companies and SEBON.
All firms have their fiscal year end in Ashad; therefore, test did not have to deal with
matching the accounting data for all fiscal year ends in every calendar year. Thus, this
study has used panel data to analyze the relationship between deposits and its explanatory
variables. The number of observations varies among different banks mainly due to the
unavailability of continuous years data for several sample banks in different year.

3.3.2. Primary Data

The basic purpose of primary sources of information is to survey the opinion of chief
executives, financial managers and financial analysts regarding the finds allocation and
deposit mobilization of commercial bank. The primary data are generated from field
study based on questionnaire survey. The survey has been basically designed to

29
understand the opinions of respondents as how they perceive the fundamental variables
affecting deposits in Nepalese Banking industry. The primary data have been collected
through the questionnaire distributed to the chief executive, manager, finance officer and
operation managers of 12 sample banks. The set of questionnaire were distributed to all
respondents. Altogether 100 questionnaires were distributed. Out of which, 60 usable
questionnaires were collected. All 60 respondents were chosen from the selected banks.
Among the 60 respondents, majority (50%) represent managers, (30%) finance officer,
(15%) operation officer and remaining (5%) represents executives officer of concerned
banks.

3.4. Data Collection Procedures and Time Frame

Correlational research attempts to determine the extent of a relationship between two or

more variables using statistical data. In this type of design, relationships between and
among a number of facts are sought and interpreted. This type of research is recognizing
trends and patterns in data, but it does not go so far in its analysis to prove causes for
these observed patterns. Cause and effect is not the basis of this type of observational
research. The data, relationships, and distributions of variables are studied only. Variables
are not manipulated; they are only identified and are studied as they occur in a natural
setting. The research is based on balanced pooled/panel data. Table
3.2 is the framing of balanced pooled of 2001 to 2012, of twelve years time periods of
twelve different types of commercial banks from Nepal.

For the study purpose panel data have been chosen, (a study over time of a variable or
group of subjects), the techniques of panel data estimation can take such heterogeneity
explicitly into account by allowing for individual-specific variables. By combining time
series of cross-section observations, panel data give more informative data, more
variability, less co linearity among variables, more degrees of freedom and more
efficiency. By making data available for several units, panel data can minimize the bias
that might result if the aggregate individuals into broad aggregates. Panel data can enrich
empirical analysis in ways that may not be possible if it use only cross-section or time
series data.

30
 Table 3.1: Balanced Panel data Observations of Commercial Banks
Banks Study Period No. of Observation
NABIL 2001-2012 12
SCBL 2001-2012 12
HBL 2001-2012 12
NSBI 2001-2012 12
EBL 2001-2012 12
NIBL 2001-2012 12
BOK 2001-2012 12
NIC 2001-2012 12
NCC 2001-2012 12
KBL 2001-2012 12
LBL 2001-2012 12
SBL 2001-2012 12
Total Observation 144

Source: Banking and Financial Statistics (2012), NRB

3.5. Population and Sample

The number of commercial banks has been increasing over the years. Prior to 1995 there
were less than 10 banks. However, after 1995 the rate of increase in commercial banks
has increased tremendously. Since, the sample period of this study 2001 to 2012, out of
32 commercial banks, 12 commercial banks have been chosen for the analysis. For this
study 12 years data of sample commercial banks are used. In this study lottery method of
random sampling model is used to select the sample commercial banks. The following is
the list of sample banks. The proportion of sample form and the number of observations
are presented in the following table 3.1

Table 3.2: Population and Sample Bank

S.N. Sector Population Sample Number of observations
(N) (ns)
(n) %

31
 1 Banks 32 12 38 144
Total 32 12 38 144
Source: NRB: Banking and Financial Statistics (2012)

The population of this study includes all the Nepalese commercial banks to the end of
fiscal year 2011/12. A total of 32 banks are operated in the country with more than 1500
branches. For the study purpose 12 banks are chosen. Table 3.2 summarizes the
population, sample banks, and the number of observations. The overall sample represents
38 percent of the total population and cover almost 70 % of total assets hold by the bank.
This study is based on 12 commercial banks and 144 observations.

3.6. Data Analysis Procedures

The main purpose of data analysis in this study is to analyze the relationship of deposit
with the independent variables employed in this study like investment, loans & advances
and asset purchased. Similarly, the secondary data analysis tends to explore the situation
of deposit mobilization in the context of Nepal.

The methods of data analysis used in the study have been divided into three subsections.
First section deals with the methods of secondary data analysis. This includes descriptive
statistics, correlation analysis, regression analysis and analysis by forming portfolios on
one way sorts. Second section will describe different statistical tests of significance for
validation of model such as t-test, F-test, detection of autocorrelation and multi-co
linearity. Third section will presents the methods used for primary data analysis.

3.6.1. Method of Secondary Data Analysis

The method of secondary data analysis used in this study consists of regression models
including several statistical test of significance. The study has also used the descriptive
statistics, correlation analysis, portfolio analysis, reliability analysis frequency
distribution along with statistical test of significance such as F-test, t-test and Adjusted
R2, test of autocorrelation and multicolinearity. Details of models and statistical test of
significance are also dealt in this section. Likewise, the reliability and validity

32
(Cronobachs Alpha) of the data are also tested to find out the strength of each scale. a.
Descriptive Statistics
This study has used the summary of descriptive statistics associated with dependent and
independent variables of sample firms to explain the deposit characteristics of these
variables during the sample period. The descriptive statistics such as mean, standard
deviations, minimum and maximum values of the variables such as investment, loans &
advances and asset purchased have been used to describe the characteristics of sample
during the period 2001 through 2012.

b. Model Specification
The present research uses regression method to estimate confining the formulated
hypothesis in banking sector of Nepal. For this purpose the following exponential model
is specified:

= 12 , (3.1)

= 1,2,3,. t
= 1, 2,3,.

Where, is the dependent variable and Xt is the independent variable. is the

normal error term. Estimation of (3.1) depends on the assumptions is about the intercept,
the slope coefficients, and the error term, . There are several possibilities: (i) Assume
that the intercept and slope coefficients are constant across time and space and the error
term captures differences over time and individuals, (ii) the slope coefficients are constant
but the intercept varies over individuals, (iii) the slope coefficients are constant but the
intercept varies over individuals and time, (iv) all coefficients (the intercept as well as
slope coefficients) vary over individuals, and (v) the intercept as well as slope coefficients
vary over individuals and time.

Slope Coefficients Constant but the Intercept Varies across Individuals: The Fixed Effects
or Least-Squares Dummy Variable (LSDV) Regression Model is one way to take into
account the individuality of each bank or each cross-sectional unit is to let the intercept

33
vary for each bank but still assume that the slope coefficients are constant across firms.
To see this, we write model (3.2) as:

Yit = + 1X1it + 2X2it + 3X3it + it (3.2)

= 1,2,3,.
= 1,2,3,.

Where, is the normal independently and identically distributed error term. In this
equation that have put the subscript i on the intercept term to suggest that the intercepts
of the twelve banks may be different; the differences may be due to special features of
each bank, such as CEO style or CEO personal management, geographical location,
branches, HRM, organizational culture.

In model (3.2) is known as the fixed effects (regression) model (FEM). The term fixed
effects is due to the fact that, although the intercept may differ across individuals (here
the twelve banks), each individuals intercept does not vary over time; that is, it is time
invariant. The intercept as it, suggested that the intercept of each bank or individual is
time variant. It may be noted that the FEM given in (3.2) assumes that the (slope)
coefficients of the regressors do not vary across individuals or over time.

This study, among others, attempts to estimate various econometric models to confirm
the relationship between deposits and explanatory variables. The theoretical statement of
the models is that the deposit is mobilized through loans and advances, investments and
the assets purchased. The theoretical statement may be framed as under:

Transferring the model in to variable definition following equation has been formulated
for pooled equation.

D it = + 1LA it +2 I it + 3AP it + it (3.3) i=

1,2,3,
t = 1,2,3,

34
where, denotes the deposit made by the commercial banks, denotes the loans &
advances made by the commercial banks, denotes the investment made by the
commercial banks, denotes the asset purchased by the commercial banks Similarly,
denotes the normal independently and identically distributed error term and is the
intercept term and 1 , 2 , 3 are the respective parameters (beta coefficient or regression
coefficients) of the explanatory variables to be estimated.

In equation (3.3) i stand for the ith cross-sectional unit and t for the tth time period. As a
matter of convention, let i denote the cross-section identifier and t the time identifier. It
is assumed that there are a maximum of N cross-sectional units or observations and a
maximum of T time periods. Each cross-sectional unit has the same number of time series
observations, then data is balanced panel. In the present research there have a balanced
panel, as each banks in the sample has ten observations.

In this research time effect dummy variables are not using, for time effect in the sense that
the capital adequacy ratio shifts over time because of change in monetary policy time to
time, changes in government regulatory and/or tax policies, and external effects such or
other factors. Such time effects are the limitations of this research. In all the cases it has
been considered that the X variables had a strong impact on Y.

c. Correlation Analysis

This statistical tool has been used to analyze, identify and interpret the relationship
between two or more variables. It interprets whether two or more variables are correlated
positively or negatively. Statistical tool analyses the relationship between those variables
and helps the selected banks to make appropriate investment policy regarding to profit
maximization and deposit collection; fund mobilization through providing loan and
advances, making investment and purchase of assets. The relationship has been explained
by using Pearson correlation coefficient. The value of correlation coefficient ranges from
-1 to +1. If correlation coefficient is exactly -1, two variables are said to have perfect
negative correlation as such that they move together exactly into opposite direction. On

35
the other hand, if correlation coefficient is +1, the variables are said to be perfectly
positively related. The correlation coefficient can be computed as:

n
Correlation() =

where, denotes deposit, denotes loans & advances, investment and asset
purchased and is the total number of observations for the variables mentioned above.

d. Analysis of Portfolios Formed on One- Way Sorts

Secondary data has also been analyzed using univariate sort of portfolios formed on
investment, loans & advances and asset purchased. For the purpose of univariate sort of
portfolios, total 144 observations of all sample firms over the period from 2001 through
2012 has been grouped into 4 groups of portfolios which indicates small, medium, high
and highest characteristics of the variables. A total of the 3 univariate sorts of the
portfolios have been used to study the pattern of movement in deposit with respect to
explanatory variables. The portfolios have been formed on the basis of univariate sort on
investment, loans & advances, investment. At each sort, the properties of investment,
loans & advances and asset purchased has been observed and analyzed with respect to
the movement in explanatory variables on the basis of mean value and standard deviation.

e. Test of Significance

There are various assumptions of classical linear regression model. Some of the important
assumptions are regarding the significance of the regression coefficients, overall
significance, the problem of multi co-linearity and autocorrelation etc. This study has
employed t-statistic to perform significance test of regression coefficients. In the
language of significance test, a regression coefficient is said to be statistically significant
if the critical p-value of test statistic is less than the level of significance specified. In
other words, the statistical significance of the coefficients validates the explanatory

36
power of the associated independent variables. The levels of significance specified in this
study are at 1 percent level.

To test the overall significance of the model, adjusted coefficient of determination (adj.
R2) and F- statistics has been done. The adjusted coefficient of determination has been
used to identify the percentage of total variation in dependent variable that has been
explained jointly by all explanatory variables. The statistical significance test of this joint
explanatory power has been conducted by using F-statistic. The p-value of F-test has
been examined to confirm whether the regression model is significant at 1 percent level.
The t-test is calculated by using the formula as below:

where, is the t- test, is the correlation coefficient and is the number of

observation of the study.

3.6.2. Method of Primary Data Analysis

The primary data analysis has been carried out on the basis of responses derived from
questionnaire survey. For analysis of data SPSS and excel had been used. The methods
used for primary data analysis includes percentage frequency distribution, mean scores
and standard deviation of responses to Likert scale items. As stated earlier in this chapter,
questionnaire has been used to obtain the response regarding loan lossprovision practices
in Nepal. Questionnaire contained responses based on multiple choices, Likert scale
items. Likert scale items present as strongly agree = 1, agree = 2, dont know = 3, disagree
= 4 and strongly disagree = 5.Similarly, some of the open questions were provided to
obtain a view of the respondents.

The primary data have been analyzed in two different ways. First analysis has been done
at aggregate level on a particular response which includes all the respondents in a
particular respondent group. For this purpose, percentage frequency distribution of
responses has been used to obtain a meaningful conclusion of the responses.

37
Accordingly, 5-point Likert scale items used weighted mean and standard deviation has
been used to identify the most and least preferred factors to analyze the degree of
agreement or disagreement with respect to given statements. The weighted mean is set of
observations in the sum of all the observation multiplying with weight of responses
divided by the number of observation. It is the best value, which represent to the whole
group means is the weighted average of a variable. It is calculated in equation 14 as
follows:

Weighed Mean

That means the weighted mean may be defined as the sum of the variables 'x' multiplying
with weight of responses for the deposit mobilization.

3.7. Reliability and Validity

The reliability of study is measured and conformed by testing both consistency and
stability of the respondents' response. After the collection of data through questionnaire,
the reliability was tested and validity of all the data and the result was found reliable and
valid. Table 3.3 present coefficient of cronobachs alpha:

Table 3.3: Coefficient of Cronobachs Alpha

Cronbach's Alpha Cronobachs Alpha Based on Standardized Items Number of
Items
0.757 .796 19
Source: Results of the questionnaire included in Appendix

In the table 3.2 showed that the instrument was both reliable and valid with Cronbachs
Alpha i.e. 0.796 which indicates that 79.6 percent data are reliable and 20.4percent error.

3.8. Instrumentation

As discussed earlier, this study relies on both the primary and the secondary data. Primary
data were gathered by surveying the bank managers. The set of selfadministered survey
questionnaire along with multiple choice question, Yes/no questions, ranking questions
and open-ended questions has been used as the main datagathering instrument to trace
the opinions and the deposit mobilization scope prevailing in the context of Nepalese

38
banking sector. For the purpose of primary data collection, a set of pre-specified questions
have been mainly utilized as the instrument. The questions are identified from previous
studies and modified as per the tailor or the best suit in the context of Nepal. The questions
are designed to get the behavioral, perceptional views and feelings related information.

After collecting the questionnaires, the responses derived were coded in a way that all
responses can be assesses in simple way. A code file for the primary survey was prepared
and various analyses were conducted with that primary data code file. User friendly SPSS
package was used in order to obtain meaningful results from the primary data. Among
others, percentage, frequency, mean value, standard deviation and chisquare analysis
were conducted. Secondary data for the study were collected via various sources as
mentioned in earlier section of this chapter. The data regarding the dependent and
independent variables of the sample banks were collected and coded with unique code
for each sample banks so that the data could be easily identified and assessed. Secondary
data were also analyzed using the SPSS package. Descriptive statistics including
correlation and the linear regression tools were used in SPSS package in order to derive
the meaningful relationship among the dependent and independent variables.

CHAPTER IV RESULTS AND DISCUSSION

Presentation and analysis of data is an important stage of the research study. The main
purpose of analyzing the data is to change it from an unprocessed form into an
understandable presentation. The analysis of data consists of organizing data by
tabulating and then placing that data in presentable form by using figures and tables.

The main objective of the study is to analyze the deposit collection and its mobilization
of commercial banks, analyze the cost of deposits, find the position of deposit
mobilization, and to compare the total deposit with total loan and investments of the
commercial banks.

39
This chapter contains the analysis and interpretation of the available and relevant data of
fourteen commercial banks selected as the sample banks. Twelve years data period
covering from the F/Y 2000/2001 A.D to 2011/12 A.D have been analyzed and
interpreted as per the research methodology defined in chapter three. In the following
section, the relevant and generated data (i.e. both primary and secondary) relating to the
study is presented in tabular form and analyzed it in systematic way. To analyze the data,
various financial as well as statistical tools are employed.

4.1. Trend Analysis of Deposits, Investment, Loans & Advances and Asset
Purchased

This section attempts to fulfill the first objectives of the study. This section attempts to
analyze the secondary data associated with the firms specific variables that determines
the funds allocation and deposit mobilization factors of Nepalese commercial banks. As
this study has employed descriptive research design, among others, descriptive statistics
has been used to describe the characteristics of deposit and firm specific variables during
the study period. The descriptive statistics used in this study consists of mean, median,
standard deviation associated with variables under consideration. Table 4.1 summarizes
the descriptive statistics of firm specific variables used in this study during the period
2000/01 through 2011/12 associated with 12 sample banks listed in NEPSE.

Table 4.1 indicates that banks differ significantly in terms of the investment. The
investment has minimum value of -727.807 to maximum 1561.997 with a mean of
1561.997 and standard deviation 1213.5272. The loans & advances of the sample banks
during the period have been recorded at 12130.92 with a minimum of -1.188 to maximum
1.714. The asset purchased ranges from with minimum of -8.27 to maximum of 1.775
with an average of 345.5440 and standard deviation of 218.34413 respectively.

Table 4.1: Descriptive Statistics

This study shows the descriptive statistics- mean, standard deviation, minimum and maximum
values of key variables associated with 12 sample banks with 144 observations for the period
2001/2002 through 2011/2012.

Variables N Minimum Maximum Mean Std. Deviation

Deposit 144 6245.4297 33696.35 17480.97 9461.28614

40
 Investment 144 -727.807 1561.997 2937.7438 1213.5272

Loans &Advances 144 -1.188 1.714 12130.92 6846.26896

Asset Purchased 144 -8.27 1.775 345.5440 218.34413

Source: Panel Data in Appendix B

4.2. Relationship between Deposits and its Explanatory Variables

This section attempts to fulfill the second objectives of the study. This section attempts
to analyze the secondary data associated with the firms specific variables that determines
the funds allocation and deposit mobilization factors of Nepalese commercial banks.
Correlation analysis and regression analysis was used to find the relationship between the
deposit and its explanatory variables.

a. Correlation Analysis

To understand the empirical validity of the models, the study has considered first the
correlations between deposits and each of the explanatory variables. Table 4.2 reports
the correlations between the variables under study in the form they are used in regression
analysis. The values in parenthesis are the significant value for the correlation
coefficients. Deposit data covers a period from FY 2000/2001 to 2011/2012 while the
accounting figures are derived from annual report data for the same period. Table 4.2
reveals that the deposit is positively correlated with firm investment, loans & advances
and asset purchased and is statistically significant at 1 % level of significant.

On deposit side, the highest correlation is observed for asset purchased with 0.997 while
the lowest correlation is observed for investment with 0.946. Investment has the positive
correlation with loans & advances and asset purchase and their coefficients are 0.941 and
0.949 respectively. Loans & Advances has the positive correlation with investment and
asset purchased and their coefficients are 0.941 and 0.985 respectively. Similarly, Asset
Purchased also has the positive correlation with investment and loans & advances and
their coefficients are 0.949 and 0.985 respectively.

Table 4.2.: Correlation Coefficient between Deposit and Independent Variables

This result are based on panel data of 12 sample banks with 144 observations for the period by
using the Pearson correlation coefficients between different firm specific variables. The

41
correlation coefficients are based on the data on Investment, Loans & Advances and Asset
Purchased for the period 2001 through 2012. t-test is used to test the significance level. * sign
indicates that correlation is significant at 1 percent level of significance.
lnDeposit lnInvestment lnLoans Advances lnAsset Purc.
lnDeposit 1
lnInvestment 0.946* 1

[.000]
lnLoans & Adv 0.985* 0.941* 1

[.000] [.000]
lnAsset Purc 0.997* 0.949* 0.985* 1

[.000] [.000] [.000]

Source: Panel Data on firm specific variables in Appendix in B and C

Notes: 1. Figures in parenthesis are p-value

2. The Sign * (Asterisk) denote that the results are significant at 1 percent level of
significant.

Table 4.2 also indicates that the correlations among different pairs of explanatory
variables are statistically significant at 1 % level of significant. Among firm related
fundamental variables, the highest positive correlation coefficient is recorded at 0.985
between loans & advances and asset purchased and there is no any negative correlation
coefficient relationship among the explanatory variables. Likewise, other correlations are
relatively lower although they are statistically significant at 1% level of significant. b.
Regression Analysis

To better understand the empirical validity of the model described in the previous section
and the effect of investment and other factors, the coefficient of regressions are described
via multiple regressions. The analysis helps to gauge the explanatory power of the various
factors. For this purpose, this study utilizes multiple regression analysis. The regression
results of firm deposit, investment, loans & advances and asset purchased are presented
in Table 4.6.

Table 4.3.: Regression Analysis

42
The results are based on panel data of 12 sample banks with 144 observations for the period by
using linear regression model. The model is D= + 1LA +2 I + 3AP+ it.where, LA, I, AP
are the Loans & Advances, Investment Asset Purchased made by the commercial banks
respectively. t- test is used to test the level of significance. Results for various subsets of
independent variables are presented as below
Model Unstandardized t P- Value VIF
Coefficients
B Standard Error

(Constant) -184.97 584.502 -0.337 0.736

Investment 1.957 0.166 11.774 0.000 1.625
Loans &Advances 0.633 0.066 9.547 0.000 3.835
Asset Purchased 12.282 2.003 6.133 0.000 3.588
Adjusted R Square 0.919
F Change 540.066
Significant F 0.000
Change
Darwin Watson 2.1
Source: Panel Data on firm specific variables in Appendix B and C

The table 4.3 reveals the co-linearity statistics related with deposit. The coefficient of
investment is (1.957) which depicts that the relationship is strong. It means a (.358)
increase in beta will result in increase of 1 point of deposit. The Table 4.3 shows the
relationship of the loans & advances is found positive and significant with deposit. The
coefficient is 0.633 which depicts that the relationship might be very strong. Similarly,
the relationship of asset purchased ratio is found to be positive and highly significant with
deposit. The coefficient is 12.283 which depicts that the relationship might be very strong.

Table 4.3 depicts shows that all the explanatory variables are in positive sign which
indicates that all the explanatory variables are positively related with each other. It means
the increase in deposit will lead to increase in investment, loans & advances and asset
purchased. Among all the explanatory variables loans & advances remains the dominant
variable to explain the deposits for funds allocation and deposit mobilization. Likewise,
investment stood at the second priority and the asset purchased at the least priority among
all. The coefficient of VIF of all the explanatory variables such as investment, loans &
advances and asset purchased lies below the range of 10. The coefficient of VIF of
investment, loans & advances and asset purchased are 1.625, 3.825 and 3.588

43
respectively. As the coefficient of all the explanatory variables lies below the range of 10
which depicts that there exist no multi-co linearity problem.

Table 4.3 also reveals that multiple regression results of deposits on independent
variables. The result indicates that 91 percent variations in deposit are captured by
independent variables. Overall the model is significant below 1% level of significant. The
overall test significance, F-test i.e.540.066 is accepted at below 1% level of significance
in the equation which indicates that the explanatory variables are highly significant.

As argued by Durbin and Watson (1951), the Durbin- Watson statistics lies in the range
0-4. A value of 2 or nearly 2 indicates that there is no first-order autocorrelation. An
acceptable range is 1.50 - 2.50. Where successive error differences are small,
DurbinWatson is low (less than 1.50); this indicates the presence of positive
autocorrelation. Positive autocorrelation is very common. Where successive error
differences are large, Durbin-Watson is high (more than 2.50); this indicates the presence
of negative autocorrelation. The Durbin Watson value is 2.1 which lie within the range.
So, there is no evidence of presence of autocorrelation.

Overall loans & advances have been observed as strong predictor of deposits because
they are highly significant. Loans & advances have a large coefficient and t-statistics is
significant at below 1% level of significant in the above estimates and it continues to
remain a dominant variable to explain deposits.

4.3. Movement of Deposit with Respect to its Explanatory Variables

This section attempts to fulfill the second objective of the study. This section attempts to
analyze the secondary data associated with the firms specific variables that determine
the trend of deposit and its explanatory variables of Nepalese commercial banks. Portfolio
analysis has been conducted in order to obtain the desired objective.

a. Analysis of Portfolio Formed on One-Way Sorts

Effect of deposits with respect to firm specific variables have been analyzed in this
subsection by forming three equal percentiles portfolio based on one-way sorts of

44
investment, loans & advances and asset purchased. The characteristics of average returns
and standard deviations associated with each of these univariate sorts of portfolios are
described below.

i. Properties of Portfolios Sorted on Investment

Investment has been used as proxy for allocation of firms resources. For the purpose of
analyzing and examining the relationship of investment with deposits and other firm
specific variables, four percentile group portfolios were sorted by investment. The
descriptive statistics (mean and standard deviation) associated with each of these fore
portfolio groups corresponding to each of the firm specific variables are reported in Table
4.4.

Table 4.4 presents the portfolios sorted by investment. Banks having high investment
have high deposits. The deposits increase with the increase in investment when it moves
from lowest percentile group portfolio 1 to the highest percentile group portfolio 4. The
deposits on lowest investment portfolio are 1308.82 million and it shows a clear pattern
of increment with investment that reaches to maximum 28051.61 million in highest
investment portfolio. The results indicate that the firm with higher investment has higher
deposit. Similarly, the investment is also in increasing trend and the relationship between
investment and other independent variables are also positive. The variability of deposits
as measured by standard deviation is also larger for high investment portfolios as the
standard deviation on low investment is 970.317 m whish increase to 12727.03 m on the
highest investment portfolio.

Table 4.4: Properties of Portfolios Sorted on Investment

(Rs. In millions)
Portfolios 1 2 100- 3 4
Bases of (Low or Smallest) 1500 1500-2500 (High or Largest)
Portfolio <100 >2500
Investment 53.46 727.4152 1969.104 5034.484
(23.297) (400.3407) (285.6687) (2097.367)
Deposit 1308.82 7150.985 11548.88 28051.61
(970.317) (4174.66) (3981.979) (12727.03)

45
 Loans & 195.86 5923.702 9288.075 18336.99
Advances (1862.834) (3542.613) (3165.768) (10409.57)
Asset 65.42 159.0289 252.5167 532.724
Purchased (12.334) (184.953) (187.1705) (313.625)
N 7 46 24 67

Source: Panel Data on firm specific variables in Appendix B

(Note: The reported figures are mean value of the portfolio sorted on investment and
figure in parenthesis are standard deviation of the portfolio.)

Table 4.4 indicates the pattern of movement of other firm specific variables with respect
to investment. As the results show, firm loans & advances increases with investment from
portfolio 1 to 4. The firms loans & advances in low investment is equal to 195.86 m,
which has been increased to 5923.702 m, 9288.075 m, and 18336.99 in portfolio 2,3 and
4 respectively. The results imply that the there is a positive relationship between
investment and loans & advances. Likewise, the firms asset purchased for low
investment portfolio has been recorded at 65.42 m which has been increased to 532.724
m in high investment portfolio.
Figure 4.1 shows the graphic pattern of movement in investment with respect to deposit
in four investments sorted portfolios. The investment line shows a trend of upward
movement to the right with increase in deposit from portfolio 1 to 4. This implies that
investment increases with the increase in deposit. The positive slope of the line implies
that there is a positive relationship between deposit and investment.

Figure 4.1: Trend of Movement in Deposit across the Portfolio Sorted on

Investment
This figure shows the plot of deposits associated with each of the four investments sorted
portfolios. The vertical axis measures the deposits and horizontal axis measures the investment
sorted four portfolios from lowest investment portfolio 1 to highest investment portfolio 4. Each
dot on the upward moving line in the figure shows the plot of the deposits corresponding to the
investment.

46
 30000

25000

20000

15000

10000

5000

0
1 2 3 4
Investment sorted portfolio (Lowest 1 to Highest 4)

ii. Properties of Portfolios Sorted on Loans & Advances

In order to examine the properties of movement in deposit and other firm specific
variables with respect to loans & advances, four equal percentile group portfolios were
formed on the basis of univariate sorts by loans & advances. The descriptive statistics
(mean and standard deviation) associated with these portfolios for firm specific variables
are shown in Table 4.5.

Table 4.5 presents the portfolios sorted on loans & advances. It shows that as deposit
increases the loans & advances also increases. The deposits show a general pattern of
movement into same direction with loans & advances. In other words, the deposits
increase with loans & advances. The deposits for the lowest loans & advances portfolio

i.e. portfolio 1 is 5400.15 and it has been increased to 11086.7 in portfolio 2 and it has
been increased to 18251.7 million and 34953.2 in portfolio 3 and 4 respectively. The
standard deviation shows a general pattern of increment from 8619.6 in portfolio 1 to
4265.51 in portfolio 2 and this has been increased to 5612.05 and 11115.2 in portfolio 3
and portfolio 4 respectively.

In addition to the pattern of movement in deposit, Table 4.5 also indicates the patterns of
movement in other firm specific variables with firm loans & advances. The results

47
indicate that investment increases with the increase in loans & advances. The investment
in lowest loans & advances portfolio has the average value of 682.047, which has been
increase to 2394.8 m in portfolio 2, and then increased to 18180.9 m in portfolio 3, and
then increased to 34953.2 m in the highest firm portfolio. Similarly, the asset purchased
is increased in portfolio 1 by 87.781 m and then increased to 193.856 m in portfolio 2
and it then again decreased to 181.9 m in portfolio 3 and then increased to 724.229 in
portfolio 4.

Table 4.5: Properties of Portfolios Sorted on Loans & Advances

(Rs. In millions)
Portfolios 1 2. 3 4
Bases of (Low or Smallest) 500010000 10000- (High or Largest)
Portfolio <5000 15000 >15000
Loans and 3030.66 7455.548 12823.14 24993.5
Advances (1393.62) (1465.33) (1572.32) (9038.36)
Deposit 5400.15 11086.7 18251.7 34953.2
(8619.6) (4265.61) (5612.05) (11115.2)
Investment 682.047 2394.8 18180.9 34953.2
(1095.62) (1948.33) (5612.05) (11115.2)
Asset 87.781 193.856 181.9 724.229
Purchased (95.2511) (106.218) (5612.05) (294.878)
N 30 50 26 38

Source: Panel Data on firm specific variables in Appendix B

(Note: The reported figures are mean value of the portfolio sorted on loans & advances
and figure in parenthesis are standard deviation of the portfolio.)

Figure 4.2: Trend of Movement in Deposit across the Portfolio Sorted on Loans &
Advances
This figure shows the plot of deposits associated with each of the four loans & advances sorted
portfolios. The vertical axis measures the deposits and horizontal axis measures the loans &
advances sorted four portfolios from lowest loans & advances portfolio 1 to highest loans &
advances portfolio 4. Each dot on the upward moving line in the figure shows the plot of the
deposits corresponding to the loans & advances.

48
 40000

35000

30000

25000

20000

15000

10000

5000

0
1 2 3 4
Loans and advances sorted portfolio (lowest 1 to highest 4)

Figure 4.2 shows the graphic pattern of movement in loans & advances with respect to
deposit in four loans & advances sorted portfolios. The loans & advances line shows a
trend of upward movement to the right with increase in deposit from portfolio 1 to 4. This
implies that loans & advances increase with the increase in deposit. The positive slope of
the line implies that there is a positive relationship between deposit and loans & advances.

iii. Properties of Portfolios Sorted on Asset Purchased

Four equal percentile groups of portfolios were formed in order to examine the pattern of
movement in deposits and other firm specific variables with respect to the movement in
asset purchased. Table 4.6 reports that there is an increase in deposits with respect to the
asset purchased by the firm. The deposits in portfolio 1 and 2 have been increased from
4408.676 m to 21916.88 m. Table 4.5 also reports the average value of other firm specific
variables along with their corresponding standard deviation in four portfolios.

Table 4.6 presents the portfolios sorted by asset purchased. It shows as deposit increases
the asset purchased also increases. The deposit shows the general pattern of movement
into same direction with asset purchased. In other words, the deposit increases with asset
purchased. The deposit for the lowest asset purchased portfolio i.e. portfolio 1 is 4408.68
m and it has been increased to 16069.2 m in portfolio 2 and then it gradually increased to
29709.4m and 49418.6m in portfolio 3 and portfolio 4 respectively. The standard

49
deviation shows the general pattern of increment from 2215.049 in portfolio 1 to
8592.97m, 12031.9m and 5106.11m in portfolio 2,3 and 4 respectively.

Table 4.6: Properties of Portfolios Sorted on Asset Purchased

(Rs. In millions)
Portfolios 1 2 100- 3 4
Bases of (Low or Smallest) 500 500-1000 (High or Largest)
Portfolio <100 >1000
Asset Purchased 65.707 261.133 735.373 1157.41
(23.332) (120.29) (151.07) (73.90)
Deposit 4408.676 16069.2 29709.4 49418.6
(2215.049) (8592.97) (12031.9) (5106.11)

Loans & 3656.79 10889.1 20129.6 36208.4

Advances (1845.17) (5873.81) (8798.86) (5917.95)

Investment 564.809 3313.86 4175 5337.9

(464.126) (2366.9) (2372.08) (2145.17)
N 33 78 26 7

Source: Panel Data on firm specific variables in Appendix B

(Note: The reported figures are mean value of the portfolio sorted on asset purchased
and figure in parenthesis are standard deviation of the portfolio.)

In addition to the pattern of movement in deposit, Table 4.6 also indicates the pattern of
movement on other firm specific variables with asset purchased. The results indicate that
the asset purchased increases with the increase in investment. The investment in the
lowest asset purchased portfolio has the average value of 65.707m in portfolio 1 which
has been increased to 261.133 m in portfolio 2 and then 735.373m and 1157.41m in
portfolio 3 and portfolio 4 respectively. Similarly, the asset purchased is also increased
with the increase in loans & advances. The loans & advances in the lowest asset
purchased portfolio have the value of 3656.79 m in portfolio 1 which is then increased to
10889.1 m, 20129.6 m and 36208.4 m in portfolio 2, 3 and 4 respectively.

50
Figure 4.3 shows the graphic pattern of movement in asset purchased with respect to
deposit in four assets purchased sorted portfolios. The asset purchased line shows a trend
of upward movement to the right with increase in deposit from portfolio 1 to 4. This
implies that asset purchased increase with the increase in deposit. The positive slope of
the line implies that there is a positive relationship between deposit and asset purchased.

Figure 4.3: Trend of Movement in Deposit across the Portfolio Sorted on Asset
Purchased
This figure shows the plot of deposits associated with each of the four assets purchased
sorted portfolios. The vertical axis measures the deposits and horizontal axis measures
the asset purchased sorted four portfolios from lowest assets purchased portfolio 1 to
highest assets purchased portfolio 4. Each dot on the upward moving line in the figure
shows the plot of the deposits corresponding to the assets purchased.
60000

50000

40000

30000

20000

10000

0
1 2 3 4
Asset Purchased Sorted Portfolio (lowest 1 to highest 4)

4.4. Analysis of Primary: Assessment of Management Views

This section is based on the primary data analysis, which mainly deals with qualitative
aspects of the funds allocation and deposit mobilization of Nepalese commercial banks.
This section also reports the results of questionnaire survey conducted among chief
executive officer, branch managers, finance officer, and operation officer of 12 sampled
Nepalese commercial banks. Questionnaire survey was designed to understand the views
of the respondents in relation to funs allocation and deposit mobilization in Nepal. A set

51
of questionnaire including yes/ no types, multiple choices, rankings, and Likert scale type
of questions are provided. The respondents profile along with their personal
characteristics and results of the survey are presented in Table 4.20.

The major aspects of the funds allocation and deposit mobilization include composition
of deposits, trends of loans & advances and investment, incentives to increase deposit
collection, determinants of deposit volume, deposit mobilization cost, reason for growing
deposits, and situation of deposit volume in the context of Nepalese commercial banks.

4.4.1. Composition of Deposit

The respondents were asked their banks composition of deposits. The responses of the
respondents associated with composition of deposit are shown in Table 4.7.

Table 4.7: Responses on composition of deposit

Priority Number of Respondents Percentage
Saving Deposit 29 48.3
Fixed Deposit 6 10.0
Current Deposit 17 28.3
Call Deposit 5 6.8
Others 3 6.6
Total 60 100
Source: Responses in Survey Questionnaire in Appendix A

As is evident from Table 4.7, saving deposit stands the highest among all other deposits
such as fixed deposit, current deposit, call deposit and others. The Table 4.7 shows that
the deposit composition of commercial banks shows that the saving deposit is highest
among other deposit with 48.3%, current deposit with 17%, fixed deposit with 6%, and
call deposit with 5% and others with 3%. The result indicates that the majority of
Nepalese banks mobilize the deposit through savings deposits.

52
4.4.2. Trend of Loans & Advances

The respondents were asked about whether the loans & advances offered by the banks to
its valuable customers are in increasing trend or not. The responses of the respondents
associated with the trend of loans & advances are presented in Table 4.8. Based on the
responses of respondents on Table 4.8, a majority of respondents gave the first priority
that loans & advances offered by the banks to its valuable customers are in increasing
trend. The result is similar to secondary data analysis findings of the study that the loans
& advances offered by the commercial banks of Nepal to its customers are in increasing
trend.

Table 4.8: Responses Associated with the Trend of Loans & Advances
Priority Number of Respondents Percentage
Yes 34 56.7
No 6 10
Cannot Say 9 15
Dont Know 11 18.3
Total 60 100
Source: Responses in Survey Questionnaire in Appendix A

As evident from Table 4.8, majority 56.7 percent of the respondent revealed that the loans
& advances are increasing trend whereas about 10 percent respondents feel that they do
not have an idea about increasing loans & advances. The other 15 percent respondents
reply that they cannot say about the trend of loans & advances and the rest
18.3 percent reply that they dont know about it.

4.4.3. Trend of Investment

The respondents were asked whether the interests of all the banks towards mobilizing
deposits through investments are in growing trend or not. The responses of the
respondents associated with the trend of the investment are presented in the Table 4.9.
Based on the responses of respondents on Table 4.9, a majority of respondents gave the
first priority that the interests of all the banks towards mobilizing deposits through
investments are in growing trend. The result is similar to secondary data analysis findings

53
of the study that the investments made by the commercial banks of Nepal to its customers
are in increasing trend.

As evident from Table 4.9, majority 51.7 percent of the respondent revealed that the
investments are in increasing trend whereas about 6.7 percent respondents feel that they
do not have an idea about increasing loans & advances. The other 20 percent respondents
reply that they cannot say about the trend of investments and the rest 21.7 percent reply
that they dont know about it.

Table 4.9: Responses Associated with the Trend of Investments

Priority Number of Respondents Percentage
Yes 31 51.7
No 4 6.7
Cannot Say 12 20
Dont Know 13 21.7
Total 60 100
Source: Responses in Survey Questionnaire in Appendix A

4.4.4. Incentive to Increase Deposit Collection

The respondents were asked about the incentives to increase their deposit collection
effort. The responses of the respondents associated with the best options for the incentives
to increase deposit collection are shown in Table 4.10. With respect to the best option to
increase their deposit collection effort in the banks, 25 percent respondents were in favor
of branch expansion, 15 percent were in favor of deposit rate control, 8.3 percent were in
favor of mergers & acquisitions, 10 percent were in favor of investment in financial
markets and 41.7 percent were in favor of creation of credit.

Table 4.10: Responses Associated with the Incentive to Increase Deposit Collection
Priority Number of Respondents Percentage
Branch Expansion 15 25
Deposit Rate Control 9 15
Mergers & Acquisitions 5 8.3

54
 Investment in Financial 6 10
Markets
Creation of Credits 25 41.7
Total 60 100
Source: Responses in Survey Questionnaire in Appendix A

4.4.5. Determinants of Deposit Volume

The respondents were asked about the determinants of deposit volume in commercial
bank of Nepal. The responses of the respondents associated with the best options for the
determinants of deposit volume are shown in Table 4.11. With respect to the best option
for which of the transaction or intermediation cost affect the volume of deposit in
commercial bank of Nepal, 43.3 percent respondents were in favor of the cost of time
spent by the bank to mobilize deposit, 23.3 percent were in favor of the cost of time spent
by the credit analyst to examine loans, 21.7 percent were in favor of the cost of acquiring
deposit, 11.7 percent were in favor of the cost of operating expenses.

Table 4.11: Responses Associated with the Determinants of Deposit Volume

Priority Number of Percentage
Respondents
The cost of time spent by the bank to mobilize deposit 26 43.3
The cost of time spent by the credit analyst to examine 124 23.3
loans
The cost of acquiring deposit 13 21.7
The cost of operating expenses 7 11.7
Total 60 100
Source: Responses in Survey Questionnaire in Appendix A

4.4.6. Deposit Mobilizing Cost

The respondents were also asked whether commercial bank of Nepal is mobilizing
deposits at lower possible costs or not. The responses of the respondents associated with
the deposit mobilization cost are presented in the Table 4.12. As evident from Table 4.26,
majority 51.7 percent of the respondent revealed that they cannot say about the deposit
mobilizing cost whereas about 28.3 percent respondents feel that they do not have an idea

55
about deposit mobilizing cost. The other 11.7 percent respondents reply that commercial
bank of Nepal is mobilizing deposits at lower possible cost and the rest
8.3 percent reply that they dont know about it.

Table 4.12: Responses Associated with the Deposit Mobilizing Cost

Priority Number of Respondents Percentage
Yes 7 11.7
No 5 8.3
Cannot Say 31 51.7
Dont Know 17 28.3
Total 60 100
Source: Responses in Survey Questionnaire in Appendix A

4.4.6. Determinants of Deposit Volume

The respondents were asked about the determinants of deposit volume. The responses of
the respondents associated with the best options for the determinant of deposit volume
are shown in Table 4.13.

Table 4.13: Responses Associated with the Determinants of Deposit Volume

Priority Number of Percentage
Respondents
Economic environment of the country 9 15
The volume of business transaction of the country 6 10
The confidence of the people on commercial bank of Nepal 10 16.7
The banking habit of people 35 58.3
Total 60 100
Source: Responses in Survey Questionnaire in Appendix A

With respect to the best option that affects the volume of deposits in commercial banks,
15 percent respondents were in favor of economic environment of the country, 10 percent
were in favor of the volume of business transaction of the country, 16.7 percent were in
favor of the confidence of the people on commercial bank of Nepal and 58.3 percent were
in favor of the banking habit of people.

56
4.4.7. Reason for Growing Deposit

The respondents were asked about the reason for growing deposit. The responses of the
respondents associated with the best option for the reason for growing deposit are
presented in the Table 4.14. with respect to the best option with the reason for growing
deposit, 53.3 percent were in favor of Societies preference for commercial bank deposit
than other investment, 11.7 percent respondents were in favor of commercial bank of
Nepal have larger market share, 25 percent were in favor of the service given by the bank
and the rest 10 percent were in favor of the other reasons.

Table 4.14: Responses Associated with the Reason for Growing Deposit
Priority Number of Percentage
Respondents
Societies preference for commercial bank deposit than 32 53.3
other investment
Commercial bank of Nepal have larger market share 7 11.7
The service given by the bank 15 25
Other reasons 6 10
Total 60 100
Source: Responses in Survey Questionnaire in Appendix

4.4.8. Deposit Volume among Commercial Bank of Nepal

The respondents were asked about the differences in deposit volume among the
commercial bank of Nepal. The responses of the respondents associated with the
differences in deposit volume among commercial banks are presented in the Table 4.15.
As evident from Table 4.15, majority 31.7 percent of the respondent revealed that they
cannot say about the deposit volume among the commercial banks, whereas about 31.7
percent respondents feel that they do not have an idea about deposit mobilizing cost.

Table 4.15: Responses Associated with the Deposit Volume among Commercial
Bank of Nepal
Priority Number of Respondents Percentage
Yes 13 21.7
No 9 15
Cannot Say 19 31.7
Dont Know 19 31.7

57
Total 60 100
Source: Responses in Survey Questionnaire in Appendix A

The other 21.7 percent respondents reply that there is a difference in deposit volume
among the commercial bank of Nepal and the rest 15 percent reply that they do not have
any answer regarding such question.

4.4.9. Statement of Level of Agreement and Disagreement

Preferences of the respondents on the statements regarding deposit mobilization are

presented in Table 4.16. The Table 4.16 reveals the mean values of observation
statements vary from 1.4 to 1.62. Among them, majority (72%) of respondents agreed
that effective financial intermediation is dependent on strong performance in mobilizing
savings and transferring these funds to the real sectors whereas (28%) of respondents
showed their disagreement. Similarly, majority (71%) of respondents agreed that
effective financial intermediation is critically dependent in the efficiency with which
commercial banks allocate resources to their most productive uses whereas (29%) of
respondents showed their disagreement. Table 4.30 shows that the majority (70.4%) of
respondents strongly agree that the investment over deposit is positively related to the
performance of the banking system whereas (29.6%) of respondents showed their
disagreement. Likewise, majority (72.4%) of respondents strongly agree that the saving
deposits have more contribution into total deposits whereas (27.6%) of respondent
showed their disagreement.

Table 4.16 also indicates that the majority (73.8%) of the respondents from various
commercial bank of Nepal strongly agree that the loans & advances is positively related
to the total deposits of the banks whereas (26.2%) showed their disagreement.
Similarly, (28.8%) of respondents strongly disagree that asset purchased is positively
Table 4.16: Statement on Level of Agreement and Disagreement
Strongly Strongly Agree Mean Disag
Statements representing observation on Disagree Mean
funds allocation and deposit 1 2 3 4 5 %
mobilization

58
Effective financial intermediation is 37 22 1 0 0 1.4 28%
dependent on strong performance in
mobilizing savings and transferring these
funds to the real sectors.
Effective financial intermediation is 35 24 0 1 0 1.45 29%
critically dependent on the efficiency
with which commercial banks allocate
resources to their most productive uses.
Investment over deposit is positively 33 25 2 0 0 1.48 29.6%
related to the performance of the banking
system.
The saving deposits have more 37 23 0 0 0 1.38 27.6%
contribution into total deposits.

Loans & Advances is positively related to 41 19 0 0 0 1.31 26.2%

the total deposits of the banks.

Asset purchased is positively related to 37 21 0 2 0 1.44 28.8%

the total deposit of the banks.

Saving and Investment are considered to 34 20 5 1 0 1.55 31%

be important variables in achieving price
stability & promoting employment
opportunities & thereby contributing to
economic growth.
Various types of business loans can 35 24 1 0 0 1.43 28.6%
provide customer with the spending
power & flexibility that one need for the
short, medium & long run.
An increase in deposits will lead to a 30 24 5 1 0 1.61 32.2%
reduction in the interest rates prompting
investors demand more from the
available funds and therefore to an
increase in investments.
There is a significant relationship 31 25 2 0 2 1.62 32.4%
between deposits and investment ,loans
& advances & asset purchased
Source: Responses in Survey Questionnaire in Appendix A
related to the total deposit of the banks. The table also indicate that (31%) of respondents
strongly disagree on the statement that savings and investment are considered to be
important variables in achieving price stability & promoting employment opportunities
& thereby contributing to economic growth.

59
Likewise, (28.6%) of respondents strongly disagree that various types of business loans
can provide customer with the spending power & flexibility that one need for the short,
medium & long run whereas (71.4%) of respondent strongly agree that an increase in
deposits will lead to a reduction in the interest rates prompting investors demand more
from the available funds and therefore to an increase in investments. Hence, (32.4%) of
respondents strongly disagree that there is a significant relationship between investment,
loans & advances and asset purchased.

Table 4.16 also indicates that there is a significant relationship between deposits and
investment, loans & advances and asset purchased has among the highest mean of 1.62
and standard deviation of 0.845 and loans & advances is positively related to the total
deposits of the banks has among the lowest mean value of 1.31 and standard deviation of
1.469. The mean scoring of investment over deposit, the saving deposit contribution into
total deposits, relation between assets purchased to total deposit are 1.48, 1.38, 1.31 and
1.44 with the standard deviation of 0.567, 0.490, 0.469 and 0.674 respectively.

4.2. Concluding Remarks

The results documented in this study support the findings and theories of the previous
study. With respect to the role of deposit, the results demonstrated consistently strong
explanatory power of loans & advances, investment and asset purchased in funds
allocation and deposit mobilization of Nepalese commercial banks.

With regard to the hypothesis stated for this study, the first null hypothesis is that there is
no difference in the trend of deposit, investment, loans & advances and asset purchased
is rejected. The study had conducted the descriptive analysis to analyze the trend of the
deposit, investment, loans & advances and asset purchased. The descriptive statistics i.e.
mean value, maximum, and minimum value of deposit and its explanatory variables vary
significantly. So, the first hypothesis (H1) that there is no difference in the trend of
deposit, investment, loans & advances and asset purchased is rejected.

The study had conducted the correlation and regression and portfolio analysis to find the
relationship between deposit and its explanatory variables. Investment showed positive

60
relation with deposits when portfolios were formed on one way sorts. In multiple
regressions, the coefficient of investment is significant and explains the relation with
deposit. Thus, the result of testing second hypothesis of the study (H2) of there is no
relationship between deposit and loans & advances is not accepted. Therefore, the
alternative hypothesis is accepted because the deposit has a positive relationship and the
correlations among different pairs of explanatory variables are significant at 1 percent
level of significant. The study documents a strong effect of deposit on investment.

The loans & advances also showed persistently a positive relation with deposits when
portfolios were formed on one way sorts. Loans & Advances showed positive and
statistically significant correlations with deposits. The result of this study do not supports
the second hypothesis (H2), namely there is no relationship between deposits and loans
& advances. Thus the result of this study does not support the second hypothesis (H2).

Assets purchased also showed persistently a positive relations with deposits when
portfolios were formed on one-way sorts. Asset purchased showed positive and
statistically significant correlations with deposits. The result of this study do not supports
the second hypothesis (H2), namely there is no relationship between deposits and asset
purchased. Hence, the result of this study does not support the third hypothesis (H2).

Finally the third null hypothesis (H3) that there is no difference in management views and
opinions regarding the funds and deposit mobilization in the context of Nepalese
commercial banks are rejected since the primary survey revealed significant differences
in such practices and issues in context of deposit mobilization.

All the issues raised in statement of problems are addressed by this study. Among the
reviewed literatures' findings and conclusions; some results of this study is also supported
the previous findings and conclusions and some are contradicted. To sum up, most of the
findings in this study are not consistent with many of the studies conducted in big and
developed market context around the globe. Therefore, it is worthwhile to note that nature
of data and the specification of the models may themselves be responsible for the

61
differences in results. Hence, conclusions drawn should be interpreted within these
limitations.

CHAPTER V SUMMARY AND CONCLUSIONS

5.1. Summary

Mobilization as well as canalization of saving in the productive sector is important for

the economic development of the country without inflationary pressure in the economy.
No doubt commercial banks play a crucial role for the economic development by
formulation of capital, which is key variable in the economic development of the country.
Scattered recourses hold no meaning unless and until they mobilized and utilized
efficiently in some productive sectors. Commercial banks contribute to the process of
capital formation by converting dispersed saving into meaningful capital investment in
order to aid industry, trade, commerce and agriculture for the economic development of

62
a nation. It should not be forgotten that a country could hardly achieve its growth of
economic development without a strong capital base. Commercial banks play a vital role
in performing such base for financial and economic development by way of deposit
mobilization. It is quite true that a strong financial institution is of great need in the
developing country like Nepal. Because all the economic conditions are based on the
financial institution and the development of a country depend upon the active
participation of the banks in the different activities in the economy.

Deposits are the obligation of the commercial banks. So, commercial banks must allocate
the funds in different loans and advances and investments and purchase of assets. Deposit
mobilization plays a vital role for the economic development of an underdeveloped and
developing country rather than developed one. It is because a developed country does not
feel the need of deposit mobilization for capital formation due to developed capital
markets in every sector. But in an under developed country and developing country,
deposit mobilization plays a great role in such countries. Low national income, low per
capita income, lack of technical knowledge, vicious cycle of poverty, lack of irrigation
and fertilizer, pressure of over population, geographical conditions etc, are the main
problems of economic development of an under developed country like Nepal. So far the
developments of these sectors concerned, there is needs of more capital. Again, instead
of the developments of a particular sector, the development of every sector should go side
by side. So, the development process of these sectors on one side and to accumulate the
scattered and unproductive sectors deposit on the other is the felt need of an under
developed country. We can take this in our countrys present context. Commercial banks
are playing a vital role for national development. Deposit mobilization is necessary to
increase their activities. Commercial banks are granting loans not only in productive
sectors but also in other sectors like food, grains, gold and silver etc. It is much more
important to analyze the collected deposit in one priority sectors of a country. In
developing countrys we have to promote of business and other sectors by investing the
accumulated capital towards productive sectors.

The major objective of this study is to examine the relationship between the amount of
total deposit and amount of total credit and investment granted by the commercial banks.

63
The specific objectives of the study are: (a) to analyze the trend of source and uses of
fund in commercial banks, (b) to analyze the relationship between deposits and loans &
advances, investment and asset purchased, (c) to access the effectiveness of deposit
mobilization of commercial banks, (d) to examine how far the interest rates of deposit
have the relationship with the deposit collection of commercial banks, (e) to analyze the
impact of an interest rates of loan on the credit extended by commercial banks.

Empirical work on funds allocation and deposit mobilization has identified a number of
variables that helps explain the current status of firms in the market. Researchers have
identified the importance of deposit mobilization in the developing countries and the
several factors that could affect the deposit mobilization such as investments, loans &
advances and asset purchased (Venkatesan, 2012; Ramkrishna, 2012; Tandukar, 2010).
The study result showed that the trend of investment, loans & advances and asset
purchased is in increasing trend with the increase in deposits. Further, it also showed that
the diversification of loans and investment is highly important for the banks effective and
efficient operation. Similarly, ( Bajracharya, 1990) deposits (Thapa, 1991; Agrawal,
2007) investment are among those that are found to have a significant and positive
relationship with each other.

The study is based on pooled data of 12 sample banks, which are listed in the Nepal Stock
Exchange (NEPSE). The study sample period is from 2000 to 2012. This study employed
regression analysis, correlation analysis, and portfolio analysis to explain variation in
deposit mobilization. For the purpose of the study, the necessary data were collected from
NEPSE, NRB and SEBON database. Besides the study also used descriptive statistics to
analyze the views of the financial executives, which mainly focus on the qualitative part
of the trends of deposit, investment, loans & advances and asset purchased in the
Nepalese commercial banks. The primary data have been collected through the
questionnaire distributed to the chief executives, managers, finance officer, and operation
officer of 12 sample banks. This study examines managements views on various funds
allocation and deposit mobilization factors in Nepalese commercial banks.

64
Major Findings

The major findings of this study are summarized as under:

i. The analysis of the one-way sort of portfolios on investment, loans & advances
and asset purchased shows that the banks having higher investment have higher
deposits. Likewise, the banks having higher deposits have higher loans &
advances. The banks having higher deposits also posses higher asset purchased.
The results indicate that the variability associated with deposits is larger for the
banks investment, loans & advances and asset purchased.
ii. The analysis of the one-way sort of portfolios on investment, loans & advances
and asset purchased shows that the banks having higher investment have higher
saving deposits. Likewise, the banks having higher saving deposits have higher
loans & advances and asset purchased. The results indicate that the variability
associated with saving deposits is larger for the banks investment, loans &
advances and asset purchased.

iii. The analysis of the one-way sort of portfolios on investment, loans & advances
and asset purchased shows that the banks having higher investments have higher
current deposits. Likewise, the banks having higher current deposits have higher
loans & advances and asset purchased. The result indicates that the variability
associated with current deposits is larger for the banks investment, loans &
advances and asset purchased.
iv. The analysis of the one- way sort of portfolios on investment, loans & advances
and asset purchased shows that the banks having higher investments have higher
fixed deposits. Likewise, the banks having higher fixed deposits have higher
loans & advances and asset purchased. The result indicates that the variability
associated with fixed deposits is larger for the banks investment, loans &
advances and asset purchased.
v. The investment have a strong correlation and statistically significant with
deposits. The result of regressions shows that the coefficient of investment is
highly significant.

65
 vi. The loans & advances display positive and statistically correlations with deposits.
Study shows that the loans & advances remain at the high priority for
mobilization of deposits. The study results reveal that loans & advances has a
significant impact on deposits and increases with the increase in deposits. vii.
The asset purchased has a strong positive and significant impact on deposits. The
study reveals that the asset purchased increase with the increase in deposits. viii.
The relationship of investment, loans & advances and asset purchased with
deposit has been found positive and highly significant at below 1 % level of
significance.
ix. In multiple regression investment, loans & advances and asset purchased reveals
the significant positive relation with deposits. The regression coefficient of
investment, loans & advances and asset purchased are significant at below 1%
level.
x. The regression estimates as well as portfolio analysis reveal that the investment
and loans & advances are the two major variables, which explain the deposits,
and out of two variables, loans & advances is the major explaining variable in the
Nepalese banking industries during the period of study. xi. Regarding the composition
of deposit in Nepal the survey result shows that many respondents gave the first priority
to saving deposit.
xii. Majority of the respondents felt that the loans & advances is in increasing trend.
xiii. Majority 51.7 percent of the respondents responded that the investments are in
increasing trend.
xiv. With respect to incentive to increase deposit collection majority 41.7 percent were
in favor of creation of credits.
xv. With respect to the best option for the determinant of deposit volume majority
43.3 percent responded were in favor of the cost of time spent by the bank to
mobilize deposit. xvi. Majority of the respondent 51.7 percent were unable to
provide their views on deposit mobilizing cost.
xvii. With respect to the determinants of deposit volume in commercial bank of Nepal,
majority 58.3 percent responded were in favor of the banking habit of people.

66
xviii. With respect to the reason for growing deposit in Nepal, majority of the
respondents gave priority to the societys preference for commercial bank deposit
than other investment. xix. Majority of the respondents 31.7 percent responded
that the deposit volume of commercial banks is different.
xx. Similarly, regarding the respondents agree and disagree statements on funds
allocation deposit mobilization, most of the respondents strongly agreed that
there is strong and positive relationship between deposit and investment, deposit
and loans & advances and deposit and asset purchased.
xxi. The hypothesis test result rejects the null hypothesis at 1 % significant level, that
shows all the independent variables (investment, loans & advances and asset
purchased) has an effect on total deposit of commercial banks.

5.2. Conclusion

The major conclusion of this study is that the investment, loans & advances and asset
purchased shows the positive correlations with deposits. Among the explanatory
variables under the study loans & advances is the most dominant variable which shows
the deposit has the high impact on the loans & advances sector in the context of Nepal.
The result shows that the investment comes on the second most priority for the deposit
mobilization and it further has a strong positive correlation with deposits. On the other
hand, asset purchased has positive significant correlations with the deposits.

The study also concluded that the investment, loans & advances and asset purchased are
in increasing trend in the context of Nepal. By examining the behavior of deposits for
smallest to largest portfolios, it is observed that the deposits increases with the increase
in investment, loans & advances and asset purchased. The model estimates that the
commercial banks mobilizes its resources on two variable such as investment and loans
& advances and out of these two variables, higher priority is given on loans & advances
sector during the period of the study. These findings derived from the secondary data are
also consistent with the primary data from questionnaire survey.

67
5.3. Recommendations

Based on the research findings and conclusions the followings are recommended for
commercial banks on Nepal as a way to mobilize more deposits than before.

i. Since the main source of funds for commercial bank is deposit the bank should
give due emphasis to its deposit and strive to increase it.
ii. Although the deposit trend of all the sample banks is in increasing trend, it is
commendable to fortify the growth further more. It is important for the banks to
further strengthen their potential by more deposit collection.
iii. Though the loans & advances are in increasing trend, the bank should not be
satisfied with its current trend. For more growth in economy it is imperative for the
banks to reach each rural corner of the country to extend loans & advances. Rural
micro credit facilities should be made available and accessible to everyone. There
should be availability of medium as well as short and long term. Hence, it

is recommended that the project with the high prospect should be given special
preference while providing loans & advances.
iv. Commercial banks should review their loans and investment strategy and policy to
increase the amount of deposit mobilization. Similarly commercial banks should
come up with newer products to compete in the cut throat competition and to stand
the challenged rising from new upcoming bank.
v. Commercial banks should conduct a market research on a periodic basis to identify
and attract the potential borrowers by using various promotional tools. vi. Nepal
Rastra Bank being the central bank should increase the supervisory and regulatory
role towards commercial banks and financial banks so that mismanagement can be
identified and rectified in time which in turn makes the general public secured
about their money.
vii. Commercial banks should not provide excess credit facility to a single borrower
and the banking norms and practices should not be neglected in the pressure of
competition.

68
viii. Further Studies can be conducted by increasing sample size, number of
observations, other tools & techniques and other aspects.

Scope for future research

In this study in title: funds allocation and deposit mobilization of Nepalese commercial
banks had been studied and some recommendations are made on the findings and
conclusions. However, commercial banks should not only mobilize more deposit but they
should invest those deposits on profitable investments. Therefore, investment
opportunities of commercial banks through their deposit can be studied in the future.

Similarly, the sample banks represent more than 35 percent of the total population with
12 sample banks out of 32 commercial banks. This study used observations from
commercial banks along with 60 respondents. The result represents only commercial
banks. Hence, the further studies can select other financial institutions like development
banks and finance companies to grasp the wider view of deposit mobilization factors
among financial institutions. In addition, the research is conducted for the period from
2000 to 2012 i.e. for 12 years. Therefore, the future study can lengthen the study period
and also use some advanced statistical tools to obtain the clear trend and more valid
findings. Moreover, some variables like branch expansion, interest rates, monetary
policy and some macro economic variables can be incorporated in the study a the
explanatory variables.

69
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74
 Appendices

Appendix A

Survey Questionnaire

Dear Sir/Madam

I would like to inform you that I am undertaking a Graduate Research Project on Funds
Allocation and Deposit Mobilization of Nepalese Commercial Banks to meet the
partial fulfillment of the requirements for the Masters Degree in Business Administration
(MBA) from Uniglobe College, Pokhara University. I would also like to assure you that
all information contained in this questionnaire will be kept confidential and used only at
the aggregate level. Your kind cooperation will be highly appreciated.

Thanking You.

75
 Respondents Information

Demographic Characteristics

1. Name (optional):

2. Gender Female [ ] Male [ ]

3. Age of Years Completed: Below 25 [ ] 25-35 [ ] 35-45 [ ] Above 45 [ ]

4. Academic Qualification: PhD [ ] MS/M. Phil [ ] Masters [ ] Bachelors [ ]

6. Department worked: .

7. Years of Experience: Less than 1 [ ] 1-5 [ ] 6-10 [ ] 11-15 [ ] 15-above [ ]

B. Information on Deposit Mobilization Decision

1) Which type of deposits stand the highest among all?

a) Saving Deposit
b) Fixed Deposit
c) Current Deposit
d) Call Deposit
e) Others

2) The Loans & Advances offered by the banks to its valuable customers are in
increasing trend. (Please make a tick)
a) Yes b) No c) Cant Say d) Dont know

3) Do the interests of all the banks towards mobilizing deposits through investments
are in growing trend?
a) Yes b) No c) Cant Say d) Dont know

4) Under what circumstances banks have incentives to increase their deposit collection
efforts?
a) Branch Expansion
b) Deposit Rate Control
c) Mergers & Acquisitions
d) Investment in Financial Markets
e) Creation of Credits

76
5) Which of the following transaction or intermediation cost affect the volume of
deposit in commercial bank of Nepal?
a) The cost of time spent by the bank to mobilize deposit.
b) The cost of time spent by the credit analyst to examine loans.
c) The cost of postage & telecommunication with deposits.
d) The cost of stationary & office supplies.
e) The advertising and publicity cost.
f) Motor vehicle running costs.

6) Does Commercial Bank of Nepal mobilizing deposits at lower possible costs?

a) Yes b) No d) Can't Say e) Don' t Know

7) Which of the following affects the volume of deposits in commercial bank of

Nepal?
a) Economic environment of the country.
b) The volume of business transaction of the country.
c) The confidence of the people on commercial bank of Nepal.
d) The banking habit of people.

8) From the record we knew that the total deposit of commercial bank of Nepal is
growing, what is the reason?
a) Societies' preference for commercial bank deposit than other investment.
b) Commercial bank of Nepal have larger market share.
c) The service given by the bank.
d) Other reasons.

9) Is the volume of deposit different among commercial bank of Nepal?

a) Yes b) No c) May be d) Can't Say d) Don't Know

10) Please specify your level of agreement or disagreement associated with following
statements. (Please make a tick mark in appropriate box as per the following
Scheme. [Strongly agree= 1, Agree = 2, don't know = 3, Disagree = 4, strongly
disagree = 5 ]
Q.N. Statement 1 2 3 4 5
1 Effective financial intermediation is dependent
on strong performance in mobilizing savings
and transferring these funds to the real sectors.

77
2 Effective financial intermediation is critically
dependent on the efficiency with which
commercial banks allocate resources to their
most productive uses.

3 Investment over deposit is positively related to

the performance of the banking system.

4 The saving deposits have more contribution

into total deposits.

5 Loans & Advances is positively related to the

total deposits of the banks.

6 Asset purchased is positively related to the total

deposit of the banks.

7 Saving and Investment are considered to be

important variables in achieving price stability
& promoting employment opportunities &
thereby contributing to economic growth.

8 Various types of business loans can provide

customer with the spending power & flexibility
that one need for the short, medium & long run.

9 An increase in deposits will lead to a reduction

in the interest rates prompting investors
demand more from the available funds and
therefore to an increase in investments.

10 There is a significant relationship between

deposits and loans & advance

11) Do you have any comments regarding funds allocation and deposit mobilization
practices in Nepalese commercial banks?

78


THANK YOU FOR YOUR RESPONSE

Appendix B

Panel Data for Sample Commercial Bank from 2000 to 2012

BANKS YEAR DEPOSIT INVESTMENT LOANS & ADVANCES ASSET PURCHASED
2001 15838.9 2732.9 8173.1 119.8
2002 15370.6 4120.3 7072 185.2
2003 13437.7 3663.5 7996.9 215
2004 14098 3672.6 8635.1 305
2005 14586.8 2826.8 11078 361.2

NABL 2006 19348.4 2372.3 13021.3 319.1

2007 23342.4 5359.2 15657.1 289
2008 31915 4889.6 21514.6 511.6
2009 37348.3 3978.7 27816.6 636.1
2010 46334.8 8128.3 32902.8 781.2
2011 49691.4 8920.3 38765.6 935.2
2012 55023.7 8211.5 42731.7 890

79
 2001 4256.2 300 2385.5 109
2002 4174.8 224.4 2693 221
2003 7922.8 400 5872.6 300
2004 11706.3 2001.1 7174.4 315.6
2005 14254.8 1948.5 10295.4 335.9

NIBL 2006 18927.3 2522.3 13007.2 372.5

2007 24488.9 3256.4 17482 759.5
2008 34451.8 3155 27145.5 970.1
2009 46697.9 2531.3 36250.4 1126.5
2010 50094.7 4201.9 40689.6 1191.1
2011 50138.1 4294.6 41665.2 1147.3
2012 57010.6 6169.5 42510.4 1087.4
2001 15430.1 4811 5838.7 165
2002 15835.7 5784.8 5675.6 198.8
2003 18755.5 6722.8 6028.5 278.3
2004 21161.4 7948.2 6662 354.2
2005 19344 7204.6 8213.5 394.4

SCBNL 2006 23050.5 8644.9 8905.1 390.7

2007 24640.3 7115.7 10538.1 427.4
2008 29743.9 8146.1 13355 440.5
2009 35871.8 10007.3 13118.6 471.5
2010 35182.7 8540 15932.2 480.4
2011 37999.2 9965.8 17698.2 493.1
2012 35965.6 7871.2 18376 484.8

2001 17613.6 2224.3 8836.6 123

2002 18595.2 2588.6 9673.5 269
2003 21002.8 3980 10894.2 347.3
2004 22760.9 2781.7 13081.7 473
2005 24831.1 5469.7 13245 481

HBL 2006 26456.2 5144.4 15515.7 540.8

2007 29905.8 6454.8 17672 575
2008 31805.3 7471.7 19985.2 705.2
2009 34681 4212.3 25292.1 863.6
2010 37609.4 4465.4 28976.6 969.7

80
 2011 40920.6 6407.4 31656.6 1096.8
2012 47731 9199.9 34282.6 1305.4
2001 6618.4 364.7 4091 86.9
2002 5572.2 503.2 4528.6 98.63
2003 6522.8 1189.4 4761.1 105.2
2004 7232.1 1871.5 5490.9 120.9
2005 8645.8 2588.2 6619.1 132.6

NSBI 2006 10852.7 3680.4 8059.6 147.2

2007 11445.2 2345.6 9846.7 194.3
2008 13715.4 3093.6 12574.9 249
2009 27957.2 3306.6 15465.2 405.9
2010 34896.3 4313.3 17887.2 630.3
2011 42415.4 5574.8 21657.1 753.5
2012 53337.1 4560.7 26403.8 1147.4
2001 8578.8 262.5 7022.3 98.6
2002 9514 891 7969.1 110
2003 10548 2040.4 8362.9 149
2004 12747.3 2578.9 9995.6 162.6
2005 12125.5 2212.5 8739.8 199.4

NBB 2006 13014.8 2525.3 9010.7 172.1

2007 9464 826.8 8302.8 141.2
2008 10883.7 1221.8 8420 147.7
2009 9995.6 1715.8 8507.9 139.2
2010 10052.5 1879.2 8860.1 155.3
2011 11511.7 2113.8 9943.7 307.5
2012 16997.9 3724.9 10673.4 228
2001 4574.5 823 3969.6 90.6
2002 5461.1 1538.9 5030.9 99.9
2003 6694.9 1599.4 6116.6 104.5
2004 8064 2466.4 7914.4 122
2005 10097.8 2100.3 10124.2 133.7

2006 13802.5 3548.6 14059.2 152

EBL 2007 19097.7 4704.6 18814.3 170.3
2008 23976.3 4906.5 24366.2 314.9

81
 2009 33322.9 5146 28129.7 427.2
2010 36932.3 4354.4 31534.7 463.1
2011 41127.9 7145 36376 460.3
2012 50006.1 6068.9 2963.7 547.9
2001 5724.1 300.8 4275.3 78.6
2002 5735.9 542.7 4840.1 91.6
2003 6169.6 1510.8 4913.3 140.3
2004 7741.6 2371.8 6049.7 200
2005 8942.8 2216.5 6166.9 225.8

BOK 2006 10429.3 2654.8 7525.2 269

2007 12358.6 2332 9663.6 489.3
2008 15832.7 2113.2 12692.9 553
2009 18083.9 1745 14894.7 697.4
2010 20315.8 2954.9 16847.1 820.8
2011 21018.4 4002.1 17247.8 876.6
2012 24991.4 5037.6 18064.1 971.4
2001 316 19.8 263.5 54
2002 1180 116.7 1120.2 69
2003 2513.1 236 2144.4 73.4
2004 4816.5 601.9 3709 77
2005 6270.1 1220.7 5519.2 81.5

KBL 2006 7800.4 1114.3 6918.3 89.7

2007 10560 1297.9 9011 189.3
2008 12781 1469.1 11449 221.9
2009 15860.6 1080.1 14681.8 247.9
2010 17408.5 1729.9 14875.1 285.2
2011 16986.3 2804.8 14898.4 305.8
2012 21985.2 2562.6 17808.6 595.8
2001 3575.8 511.4 2572.5 22
2002 3165.3 680 2328.8 47
2003 3143.9 1075.2 2527.6 35
2004 5146.4 1235.3 3729.1 49.3
2005 6243.3 1194.3 4895.4 50.9

NIC 2006 8765.8 1756.6 6882.8 33.9

2007 10068.3 1004.4 9107.6 139.9

82
 2008 13078.5 1545.4 11446.5 172.1
2009 15579.9 2195.6 13889.3 221.8
2010 15968.9 4270.1 12906.1 292.4
2011 18394.4 3997.1 15149.3 354.2
2012 22111.8 3785.7 17460.2 405.6
2001 2097.4 208.8 1793 28.8
2002 2646.1 100 2295.4 30
2003 2959.8 274.9 2626.7 36.2
2004 3777.6 433.1 3207 45.1
2005 4029.5 376 3816.9 47.2

LBL 2006 4786.5 527 4315 50.1

2007 6024.6 795.6 4938.2 75.6
2008 5703.7 731.5 5365.7 76.5
2009 6444.9 719 5680.3 92
2010 5758 924.7 5479.7 143.3
2011 6773 1251.7 6211.3 167.3
2012 7668.6 455.4 6978.8 197.1
2001 700 47.5 499.2 54
2002 994.8 49.4 680.8 62.3
2003 1778.7 79.3 1494.1 77.7
2004 2754.6 71.3 2541.7 79.1
2005 5586.5 127.3 5051.4 86.2

MBL 2006 7893.3 904.5 6033.4 104.9

2007 9475 951.3 7281.3 259.5
2008 11101.1 827.4 8880.5 529.6
2009 15596.1 477.8 12956.9 664
2010 18533.5 1896.5 14934.3 732.3
2011 16411.4 1238.6 14710.6 725.5
2012 21545.3 1448.9 16023.4 883.6

83
 Appendix C

A SPSS Output on Descriptive, Correlation and Regression Statistics for Sample

Commercial Banks
Change Statistics
Model Adj.
Std. Error R
R
R of the DW
Square R Square F Sig. F
Estimate df1 df2
Square Change Change
Change
1 0.959 0.920 0.919 3875.75781 0.920 540.066 3 140 0.000 1.274

Coefficients
Unstandardized
Coefficients Standardized Co linearity Statistics
Std. Coefficients
Model B Error Beta t Sig. Tolerance VIF
1 548.50
-184.978 -.337 0.736
(Constant) 2
Inv 1.957 .166 .358 11.74 .000 .615 1.625
L & Adv .633 .066 .446 9.547 .000 .261 3.835

12.282 2.003 .277 6.133 .000 .279 3.588

AsP
a Dependent Variable: Deposit

84
 Appendix D

Respondents Profile

The table presented below reveals the personal characteristics of respondents combined
on the basis of gender, age group, and years of professional experience, academic
qualification and the position of respondents.

Respondents' Profile Number (N) Percentage (%)

Gender of Respondents:
Male 39 65
Female 21 35
Total 60 100.0
Age Group (in years) :
Below 30 years 20 33
30 to 39 years 36 60
40 years and above 4 7
Total 60 100.0
Last Academic Qualification:
Intermediate 4 7
Bachelors 9 15
Masters and above 47 78
Total 60 100.0
Years of experiences:
Below 3 years 5 8
3 to 5 years 10 30
More than 5 years 45 60
Total 60 100.0
Position of the respondent:
CEO 7 11
Branch Manager 20 33
Finance Officer 18 30
Operation Officer 15 2
Total 60 100.0

85
Among the respondents 65 percent are male and 35 percent are female. Similarly,
majority of respondents i.e. 60 percent belong to the age group of between 30 to 39 years.
33 percent were below 30 years while 7 percent of the respondents are above 40 years of
age. This study categorized the last academic qualification into 3 different level namely
intermediate, bachelors and masters and above. Significant number of the respondents
(78 percent) reported that they have completed their masters and above while 80 percent
completed master degree, and 50 percent have more than 5 years professional experience.
The majority of the respondents 40 percent hold the position of branch manger but there
are also a good number holding the position of finance officer. The employees who are
completed intermediate are 4 percent which inform the banking industry needs high
degree professional executives. With respect to the respondents, majority 60 percent of
the respondents have experiences more than 5 years, whereas respondents having
experiences 3 to 5 years and less than 3 years cover 30 percent and 10 percent
respectively. More than 60 percent of respondents have more than 5 years of experiences
which reveal the bank must have long experiences in the field of banking industry.

86