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Comparative Liquidity Analysis of Nepal
Comparative Liquidity Analysis of Nepal
OF
A Project Report
By
Sunita Aryal
Submitted To:
Tribhuvan University
Kathmandu, Nepal
June, 2017
DECLARATION
Kathmandu is an original piece of work and has been composed solely by me; and that
it has not been submitted in whole or in part, in any previous application for a degree.
entirely my own. The work was done under the supervision of Mr. Ram Krishna
Tiwari, faculty member Dillibazaar Kanya multiple Campuses, Kathmandu Nepal and
submitted in partial fulfillment of the requirement for the award of the degree of
Signature
Sunita Aryal
Date:
SUPERVISOR’S RECOMMENDATION
fulfillment of the requirements for the award of the degree of Bachelor of Business
Studies (BBS). I, therefore, recommend the project work report for evaluation.
Signature
Date:
ENDORSEMENT
Signature: Signature:
Date: Date:
ABSTRACT
banking institution is indispensable in a modern society. The basic function of the bank
is to collect deposits as much as possible from customers and mobilize it into the most
preferable and profitable sector like industry, commerce, agriculture, entertainment and
so on. There are various tools to measure financial position of banks. Liquidity
analysis is the one of the major tool to analyze liquidity position of the bank. Liquidity
is crucial in the business like banking sector. Banks have to maintain liquidity, if the
bank has high liquidity it cannot gain desired profit and if bank has the shortfall of the
liquidity it cannot satisfy its customers and inadequate liquidity may lead to collapse of
the bank.
This study attempt to know the liquidity position of NIBL and PBL; which banks
performance is best and which bank’s liquidity position is better. This study is related
with comparative liquidity analysis of NIBL and PBL for the period of 2011/12 to
2015/16 A.D. Necessary data are taken from the annual reports of these two banks:
NIBL and PBL such as published balance sheet/ unaudited balance sheet, profit and
loss account and related statement, net, website, and so on. This study is based on
secondary data. For the study, liquidity analysis of NIBL and PBL has been done. In
this study liquidity ratio is calculated to find out the liquidity position of these two
banks. This study is useful to investors, creditors, banks, customers and other parties
ratio of both banks is less than normal ratio (2:1) which are 0.994 and 1.010
respectively. But in comparison, PBL has the better current ratio than the NIBL. From
this study, the researcher concluded that, both bank have to maintain its liquidity
position forwarded. The ratio of loan and advances to total deposit ratio of NIBL and
PBL are (i.e. 0.739 >0.671). From the analysis; it is concluded that PBL has been
successfully utilized their deposits in term of loan and advances for profit generating
purpose compared to NIBL. The Liquidity position of cash and bank balance to total
deposit ratio of PBL is higher than that of NIBL (i.e0.401 < 0.594). So, it is concluded
that PBL has sufficient cash and bank balance to current & saving deposit than that of
NIBL and so on. This analysis shows that both banks have to increase their liquid
The major income sources of both banks are interest income where as expenses are
Campus which are provide the opportunity to conduct a project report which helps to
Mr. Ram Krishna Tiwari, for all his support, insights and valuable comments without
which this project report writing would not have been possible. I would like to thank
my brother Gokarna Aryal for his support; he creates the environment for me to
conduct Project Report. I would like to acknowledge the support I received from staff
of Prabhu Bank LTD and Nepal Investment Bank LTD; they provide the required
I am also thankful to my friends and family; who are always been my additional source
of moral support and has encouraged me to proceed with this Project Report. I am very
grateful to the committee members for their valuable time in the evaluation of my
Project Report and their comments which was greatly benefited me to improve my
project report.
At the time of preparing this study, I have consulted with various personalities. So I
would like to extend my sincere thanks to all whose works and ideas helped me in
conducting the study. Sincerely, I would like to pay my sincere gratitude Sushmita Rai
and Sajib Shrestha who gave me idea about the conduct of report.
Signature
Sunita Aryal
8
TABLE OF CONTENTS
Title page………………………………………………………………………………………i
Declaration……………………………………………………………….……………..……ii
Supervisor’s Recommendation……………….…………………….………………….…iii
Endorsement……………………………………………………….……….…………….…iv
Abstract……………………………………………………………...……….………………v
Acknowledgement…………………………………………………………………………...vii
Table of Contents……………………………………………………………………………viii
List of Tables………………………………………………………………………..………...x
List of Figures………………………………………………………………………………..xi
Abbreviations………………………………………………………………………………….xii
5.1 Discussion……………………………………………………………………… 39
REFERENCES………………………………………………………………………43
10
LIST OF TABLES
Table 4.3 Comparative Cash &Bank Balance to Total Deposit Ratio of NIBL &
PBL...........................................................................................................27
Table 4.4 Comparative Cash & Bank Balance to Current & Saving Deposit
Table 4.7 Comparative Fixed Deposit to Total Deposit Ratio of NIBL and
PBL…………………………………………………………………....34
LIST OF FIGURES
PBL……………………………………………………………...….35
ABBREVIATIONS
& and
CBBCSDR Cash and Bank Balance to Current and Saving Deposit Ratio
CR Current Ratio
i.e. that is
LTD Limited
CHAPTER-I
INTRODUCTION
This chapter includes the background of the study, problem statement, objectives of
the study, rationale of the study and report structure.
Harsh, (2014) stated that the banking sector was always deemed to be one of the most
vital sectors for the economy to be able to function. Its importance as the “lifeblood”
of economic activity, in collecting deposits and providing credits to states and people,
households and businesses is undisputable. The researcher chooses this topic because
numerous researchers have conducted the research in related field and also for the
partial fulfilment of requirement for degree of BBS.
There are different methods to evaluate the performance of the bank. Some of them
are: capital adequacy, assets quality management, ratio analysis, liquidity analysis and
so on. Liquidity is one of the financial indicators of the business enterprise. However,
this study uses comparative liquidity analysis of NIBL and PBL.
Sayers ( 1967), in his book Modern Banking stated that ordinary banking business
consists of changing cash for bank deposits and bank deposits from one person to
corporation (one depositor to another) giving bank deposits in exchange for bill of
exchange, government banks, recurred and unsecured promises businessmen to repay.
15
Pandey (1997), in his book, Financial Management stated that a firm should ensure
that it does not suffer from lack of liquid. And also that it is not too much high liquid.
The failure of a company to meet its obligations, due to lack of sufficient liquidity
will result in bad credit image. Loss of creditor’s confidence, or even in low suits
resulting in the closure of the company. A very high degree of liquidity is also bad;
idle assets earn nothing. The firm’s funds will be unnecessarily tied up in current
assets. Therefore, it is necessary to strike a proper balance between liquidity and lack
of liquid.
Many researchers have been conducted research on related topic in past. Kumbirai &
South Africa; Shakya (2010) conducted on financial performance of Nepal SBI Bank
Limited and Everest Bank Limited; Mishra (2012) conducted on A CAMEL model
analysis of NIBL and PBL is rarely finding that’s why researcher chooses this topic.
Previous researchers have used the various models to test the hypothesis like CAMEL
model, ANOVA Test and so on. Researchers conducted research by taking sample of
EBL, HBL, NSBIBL among the population of commercial banks in past. Previous
studies reveals that banks have somehow maintain the moderate liquidity.
16
Researcher is conducted the research by taking sample of NIBL and PBL among
population of Nepalese commercial banks. This study uses the data of 2011/12-
2015/16. The study is conduct on year of 2017 and it uses the balance sheet, profit and
loss account, profit and loss appropriate account, cash flow of NIBL and PBL to
calculate the ratio for the purpose of analysis of liquidity position of these two banks.
This study uses the simply table, trend line to analyse the liquidity position of these
two banks through the different ratios because of time and cost constraints. Liquidity
plays the significant role in banking sector. Banks have to maintain adequate liquidity.
Inadequate liquidity may lead to collapse of the bank. The research gap is arising
from the time variation; previous study did not cover the comparative analysis of
liquidity position of these two banks: NIBL and PBL. Thus, this research is conduct to
fulfil the research gaps. So, this study addressed the investigation the following
issues;
b. Which banks do have the better liquidity position of NIBL and PBL?
The general objective of this study is to make comparative liquidity analysis between
Bank Limited.
17
banks NIBL and PBL. The findings of this study will contribute to existing literature
on banks liquidity analysis. This study will also useful to investors for getting
information about the liquidity position of these banks before investment; creditors to
know the payable trend of the banks; banks to know actual liquidity position of bank
comparative to others; customers to know the credit worthiness; and other parties who
are related to these two banks to acquire required information related to liquidity
position of banks. Findings of this study facilitate to management team to amend the
rules and policies of the banks. NRB can use this report for different purposes.
This report can be classified into two parts i.e. preliminary part and main body part.
The main body part of this study includes 5 section i.e. chapter-I, chapter-II, chapter-
Chapter-I deals with background of the study, problem statement, objective of the
Chapter-II deals with conceptual review, review of literature and research gap and so
on.
Chapter-III deals with methods which includes types research, population and sample,
Chapter –IV deals with presentation of data and major findings. Researcher uses the
liquidity ratio to analyse liquidity position of these two banks. Findings are present in
Chapter –V deals with discussion of findings and conclusion & implications of this
study.
19
CHAPTER-II
LITERATURE REVIEW
Literature review comprises upon the existing literature and research related to the
present study with a view to find out what had already been studied. Literature review
new with appropriate variables, and methodology. It is both summary and explanation
Banks play an important role in an economy of the country. Banks’ performance has
greatly affected by the liquidity position of the banks. . Liquidity is crucial in the
business like banking sector. Banks have to maintain liquidity, if the bank has high
liquidity it cannot gain desired profit and if bank has the shortfall of the liquidity it
cannot satisfy its customers. Inadequate liquidity may lead to collapse of the bank
demerit’s associated with maintaining inadequate and excess liquidity, bank should
maintained and optimum level of liquidity. Banks have to maintain adequate liquidity
Theoretical framework is the structure that can hold or support a theory of a research
dissertation. A good theoretical framework gives a strong research base and provides
support for the rest of the research. Theoretical framework of this study as follows:
CR
LDR
CBBTDR
CBBCSD
Comparative Liquidity Analysis of R
NIBL and PBL NRBCSD
R
NRBFDR
FDTDR
CRR
This study conducted to analyse comparative liquidity position of NIBL and PBL.
prepared theoretical framework which includes different ratios which helps to analyse
Liquidity Ratio reflects the short-term obligation of the firm. This ratio shows that if
firm need cash amount in short period without any notice, can firm fulfil its need or
how it manage the need. Commercial banks need liquidity to meet loan demand and
deposit withdrawals. Liquidity is also needed for the purpose of meeting Cash
21
Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements prescribed by
the central Bank. The following ratios are calculated under the liquidity ratios.
a. Current ratio
Many researchers have conducted various research on related topic in past. There are
some previous works are as follows which are related to present study:
Kumbirai & Webb (2010) investigated the performance of South Africa’s commercial
banking sector for the period 2005- 2009. Financial ratios are employed to measure
the profitability, liquidity and credit quality performance of five large South African
based commercial banks. The study found that overall bank performance increased
considerably in the first two years of the analysis. A significant change in trend is
noticed at the onset of the global financial crisis in 2007, reaching its peak during
2008-2009. This resulted in falling profitability, low liquidity and deteriorating credit
Shakya (2010) analysed different ratio of NSBIBL and EBL for the period five years
till fiscal year 2008. In his study, some cases the liquidity position of EBL is slightly
stronger than the NSBIBL where NSBIBL‘s ratio is higher. It concludes that liquidity
position of these banks is sound. NSBIBL has better utilization of available resource
in income generating process than EBL. In the overall, this study concluded that EBL
is better than the NSBIBL and both banks are highly leveraged.
Xuezhi Qin and Dickson (2012) employed the liquidity measures of the commercial
banks; avid on that basis the performance in terms of the liquidity position was
established. The paper used the causal research design as the methodology of the
study since the causal design is best suited to determine cause and effects of the
phenomena. This paper utilizes the secondary data from National Bank of Commerce
(NBM) CRDB and National Microfinance Bank (NMB). The criteria used in total
deposit to core funding, liquid asset to demand liabilities and Gross loans to total
Nepal Investment Bank (2012), revealed the following key points: The saving deposit
account is nearly constant trend. The highest ratio is 0.55 times in fiscal year 2007/08
and the lowest ratio is 0.41 times in fiscal year 2009/10. But the ratio is not
satisfactory due to the last year ratio was decline. Fixed deposit is fluctuated. The
lowest ratio is 0.32 times and highest ratio is 0.48 times. It is decrease up to fiscal
year 2007/08 and grows up then. And it is 0.48 times on 2009/10. It is satisfactory.
Bank made good ratio after 2007/08. From the cash and bank balance to current
23
deposit liability is fluctuating. The ratio is moving around between 0.48 times to 0.95
times. It is satisfactory. Cash and bank balance to total deposit ratio is fluctuating. But
the ratio is somehow satisfactory even though the ratio is higher than the central banks
prescription. The ratio is moving around the between 0.05 times to 0.11 times. Cash
and bank balance to total deposit (excluding fixed deposit) ratio is fluctuating in
increasing state. The ratio is satisfactory. It is moving around between 0.08 times to
0.19 times. The ratio of balance with the NRB to current and saving deposit has been
fluctuating. The ratio is declined in year 2006/07 and constant in 2007/08 and then it
The overall results are satisfactory. But in some case the Nepal investment Bank
should take certain steps to improve the bank current financial condition. Therefore
some recommendations are being put forward for its improvement along with its
development of the country. The proportion of the saving deposit account is high in
total deposit liability. So, it is recommended that the bank should utilize the amount
collected from the saving deposit account carefully. It should be invested in the higher
yielding areas. The cash and bank balance in the Nepal investment bank is
satisfactory. It is higher a bit though. Bank should analyze the opportunities for short
term investment. Balance with NRB to current plus saving deposit should be
maintained at the below than 0.11 times. Investment to deposit ratio is fluctuating
adversely. It may harm the operation of the bank. So, the investment from the deposit
source should always be aware of liquidity need and keep in mind to maintain the
optimum liquidity. Bank should not spend too much in the fixed assets because it
Mishra & Aspal (2012) stated that the economic importance of banks to the
study an attempt was made to evaluate the performance & financial soundness of
State Bank Group using CAMEL approach. It is found that in terms of Capital
Adequacy parameter SBBJ and SBP were at the top position, while SBI got lowest
rank. In terms of Asset Quality parameter, SBBJ held the top rank while SBI held the
lowest rank. Under Management efficiency parameter it was observed that top rank
taken by SBT and lowest rank taken by SBBJ. In terms of Earning Quality parameter
the capability of SBM got the top rank while SBP was at the lowest position. Under
the Liquidity parameter SBI stood on the top position and SBM was on the lowest
position. SBI needs to improve its position with regard to asset quality and capital
adequacy, SBB should improve its management efficiency and SBP should improve
address the objective, the article has taken NABIL and SCBN for the period between
2003/04 and 2010/11. Considering the liquidity management can increase the
profitability, the study has examined their liquidity management of NABIL and
SCBN as well as profitability positions, using various financial tools and indicators. It
was found that trend of average liquidity ratios and profitability of both banks are not
25
of SCBN is lower than that of NABIL. The study concluded that the LFTDR and
NRBTDR have a negative significant effect on ROA of SCBN whereas CHTDR has a
positive significant effect. But liquidity ratios have not significant effects on
NABIL and finally the hypothesis was tested to know whether there is a significant
difference in terms of liquidity position by using ANOVA test. The findings revealed
that the commercial banks under study have strongest liquidity level although it varied
over years and National Microfinance Bank maintained strongest liquid level
Tanzania for the period of 7 years from 2006 to 2012. Financial ratios were employed
(ANOVA) was used to test the significance differences of profitability means among
peer banks groups. The study found that overall bank financial performance increased
considerably in the first two years of the analysis. A significant change in trend is
noticed at the onset of the global financial crisis from 2008 to 2009. However,
Tanzania banking sector remained stable; banks are adequately capitalized and
profitable and remained in a sound position. The study found that, there is no a
evaluation was done for 13 commercial banks for financial data from year 2008/09 to
2011/12. The paper emphasizes financial decision problems to have strong multi
banks among financial indicators identified and ranks banks according to those
indicators. This study has added one more literature to demonstrate the utility of AHP
based bank evaluation to Nepalese banking community in particular, which not only
evaluates the performance of banks but also gives insights to focus in the area of
Limited which one of the largest and prominent private commercial banks in
Bangladesh for the period 2008-2013 and to identify whether any difference exists
between a banks’ years of operation and its performance classifying two period
(2008-10 & 2011-13). To complete my task I have to use various materials and take
help form online source. Analyze the ratio here used financial ratio analysis (FRA)
method which helps to draw a overview about financial performance of the National
bank limited in terms of profitability, liquidity and credit performance. To test the
27
hypothesis the study has been worked on Student t-test by using SPSS. These
analyses helps to see the current performance condition of this bank compare past
most banks. The performances of banks are dependent more on the management’s
ability in formulating strategic plans and the efficient implementation of its strategies.
The study findings can be helpful for management of National bank ltd. always for
formulate policies that will improve their performance. The study also identified
specific areas for bank to work on which can ensure sustainable growth for these
banks.
Olarewaju & Adenyemi (2015) examined the existence and direction of causality
between liquidity and profitability of deposit money banks in Nigeria. Fifteen quoted
banks out of the existing nineteen banks were selected for the study. They are;
Guarantee Trust bank, Zenith bank, Skye bank, Wema bank, Sterling bank, First City
Monument bank, United Bank for Africa, Eco bank, First bank, Access bank,
Diamond bank, Unity bank, Fidelity bank, Union bank and IBTC bank. Pair wise
Grange Causality test was carried out to determine the presence and direction of
causality between banks’ liquidity and profitability. From the finding of this study, at
5% and 10% level of significance, it was revealed that the F-statistics corresponding
between LODEP (a proxy for liquidity) and ROE (profitability measure) for banks
like Guaranty trust bank, Zenith bank, Sterling bank, Diamond bank, IBTC, Unity
28
bank, UBA, Fidelity bank, Wema bank, Union bank, and Eco bank, are too low and as
such there is no enough evidence for the rejection of the corresponding null
hypotheses. Thus, the result revealed that there is no causal relationship (be it
bank, Zenith bank, Sterling bank, Diamond bank, IBTC, Unity bank, UBA, Fidelity
bank, Wema bank, Union bank, and Eco bank. The result also shows that there is a
banks like Skye bank, First bank, Access bank and FCMB. Based on the findings and
conclusions, the study recommend that the apex bank (Central Bank of Nigeria)
should ensure close supervision and monitoring of deposit money banks’ strength and
level of liquidity in an attempt to stabilize and strengthen the financial sector of the
economy.
In this study, the major area is to disclose the liquidity analysis relates to Nepalese
commercial banks. This study shows that the unique feature of findings. Previous
banks in Nepal. But this research is about comparative liquidity analysis of Nepalese
commercial with sample of Nepal Investment Bank Limited and Prabhu Bank
Limited. In the previous research, there is not taken NIBL and PBL for sample. The
research can help the people who wanted to know about the liquidity position of these
two banks.
29
Chapter-III
Methods
The method which is using in the research to plan the how the data is collected and
which source the study use for getting data is under the research methodology. It
includes the Type of Research, Population and Sample, Types and sources of Data,
To fulfil the objectives of the study, certain research type is essential; so the research
type of this study is based on the nature and tools for analysis. To put the objectives
Descriptive analytical means discuss the problem and objectives of the study and
For this research all commercial banks are regarded as population and out of these
two banks NIBL and PBL are taken as sample. All commercial are as follows:
Researcher uses the secondary and quantitative data for this study. To gather data
which is used in the present study, financial information were collected from audited
different authors and journals. Furthermore, other necessary data are collected from
This study is conducted to comparative liquidity analysis of NIBL and PBL. So, it
needs various data to analyse liquidity position of such banks. For the purpose of data
collection researcher visit at head office of both banks and collect the data. Researcher
also collects the data by using website of banks, annual report of both banks and so
on.
To analyse the liquidity position of these two banks through the financial tools.
Financial tools are those, which are used for the analysis and interpretation of
financial data. These tools can be used to get the precise knowledge of a business,
winch in turn, are fruitful in exploring the strengths and weaknesses of the financial
32
policies and strategies. For the sake of comparative liquidity analysis of NIBL and
PBL ratio analysis have been used in order to meet the purpose of the study.
Ratio analysis is very much powerful & widely used tool of financial analysis. It is
define as the systematic use of ratio to interpret the financial statements so that the
strength and weakness of a firm as well as its historical performance and current
judgment in about the financial position and performance of the firm. Therefore, it is
helps to establish relationship among various ratios and interpret there on specially,
based on comparison between two or more firms or inters firm comparison and
comparison between present and past ratios for the same firm give enormous and
Ratio analysis is very much powerful & widely used tool of liquidity analysis. It is
define as the systematic use of ratio to interpret the financial statements so that the
strength and weakness of a firm as well as its historical performance and current
judgment in about the financial position, performance and liquidity position of the
firm. Therefore, it is helps to establish relationship among various ratios and interpret
there on specially, based on comparison between two or more firms or inters firm
comparison and comparison between present and past ratios for the same firm give
enormous and fruitful results to examine the comparative liquidity position of the
33
banks. Liquidity ratio includes current ratio, loan to deposit ratio, Current ratio, loan to
deposit ratio, cash and bank balance to total deposit ratio, cash and bank balance to
current & saving deposit ratio, NRB balance to current and saving deposit ratio, NRB
balance to fixed deposit ratio, fixed deposit to total deposit ratio, NRB balance to total
This report is held within the following limitations and constraints, they are:
i. The study is limited only in the liquidity analysis of the two banks.
ii. Due to the shortage of the time volume and budget, new method may not
be developed.
iv. Certain period’s data (5years.) has been taken for the analysis; result is
Due to availability of Limited information this study will not cover every
CHAPTER-IV
RESULTS AND FINDINGS
This chapter includes presentation of data in tables & figures and analysis of data;
major findings of the study.
Subject matter and objective of this study have been introduced in the first chapter. In
order to achieve those objectives necessary analytical tools and techniques have been
discussed in unit research methods. In this unit relevant data have been it banks. Data
are analysed by using ratio analysis and present in the table. Ratio analysis is one of
the most commonly used techniques in the analysis of liquidity position of the banks.
Ratio analysis points out the problem in any operational areas and provides a basis to
Liquidity analysis is the one of the major tool to analyse liquidity position of the
banks through liquidity ratio. Liquidity ratio reflects the short term obligation of the
firm. This ratio shows that if firm need cash amount in short period without any
notice, can firm fulfil its need or how it manage the need. Commercial banks need
35
liquidity to meet loan demand and deposit withdrawals. Liquidity is also needed for
the purposes of meeting cash reserve ratio (CRR) and statutory liquidity ratio (SLR)
requirements prescribed by the central banks. The following ratios are calculated
under the liquidity ratios which show the liquidity position of the bank.
It measures the degree to which current assets cover current liabilities. A high ratio
indicates greater assurance of ability to pay current liabilities. A current ratio of 2:1 is
standard. A low ratio indicates that the corporation may not be able to meet short -
Table 4.1
Table 4.1 shows that comparative current ratio of NIBL and PBL. NIBL has the
minimum 0.461 over a five years where as PBL has 0.970. From the results of this
36
table study concluded that both banks have week liquidity position but in comparison,
1.4
1.2
1.122 1.121 1.157
1.11
1.032 1.009 1.047
1 0.97 0.994
0.8
NIBL
0.6 PBL
0.461
0.4
0.2
0
2011/12 2012/13 2013/14 2014/15 2015/16
Fig 4.1 shows that comparative current ratio of NIBL and PBL. NIBL has the
increasing trend of liquidity where as PBL has same liquidity position over five years.
NIBL has improvement in liquidity position of bank where as PBL has not noticeable
improvement. However, PBL has weaker liquidity position rather than NIBL. Ratio of
Loan to deposit ratio, also known as the LTD ratio or LDR, is a ratio between the
banks total loan and advances and total deposit. NRB prescribed 0.8 LDR for every
37
commercial bank. If the ratio is lower than one, the bank relied on its own deposit to
make loan to its customer, without any outside borrowing. If on the other hand, the
Ratio is greater than one the bank borrowed money which is re-loaned at higher rates,
rather than relying entirely on its own deposits. Banks may not be earning an optimal
return if the ratio is too low. If the ratio too high, the banks might not have enough
Table 4.2
Comparative Loan to Deposit Ratio of NIBL and PBL
Table 4.2 shows that comparative loan to deposit ratio of NIBL and PBL. NIBL has
the minimum 0.705 loan to deposit ratio over the five years where as PBL has 0.549.
From the result of this table study concluded that both banks has moderate liquidity
position but in comparison, NIBL has better liquidity than PBL which is 0.739.
38
0.9
0.8 0.787
0.73
0.726 0.743 0.731 0.721
0.7 0.701 0.705
0.658
0.6
0.549
0.5
NIBL
0.4 PBL
0.3
0.2
0.1
0
2011/12 2012/13 2013/14 2014/15 2015/16
Fig 4.2 shows that comparative loan to deposit ratio of NIBL and PBL. PBL has the
increasing trend of loan to deposit ratio where as PBL has same ratio over a five
years. NIBL has mentioned same liquidity position of bank where as PBL has more
fluctuating loan to deposit ratio. In comparison, NIBL has better liquidity position
The ratio shows the ability of banks immediate fund to cover their deposit. Higher the
ratio shows higher liquidity position and ability to cover the deposit and vice-versa.
The ratio computes by dividing cash and bank balance by total deposit. Cash and bank
balance comprises cash in hand, foreign cash in hand, cheques and other cash items,
balance with domestic bank and balance held in foreign banks. Current and saving
39
deposit consists of all type of deposit excluding fixed deposit. The ratio measures the
Table 4.3
Comparative Cash and Bank Balance to Total Deposit Ratio of NIBL and PBL
Year
,,
CBBTDR of NIBL CBBTDR of PBL
Table 4.3 shows that comparative cash and bank balance to total deposit ratio of
NIBL and PBL. NIBL has lower rate in year 2014/15 which is 0.123 over a five
period of where as PBL has lower rate in 2013/14 which is 0.104over a five years.
Both banks have low liquidity position but in comparison PBL has higher rate rather
0.3
0.25 0.245
0.23
0.211 0.217 0.213
0.2
0.17
0.15 0.152 NIBL
0.132 PBL
0.121
0.1 0.104
0.05
0
2011/12 2012/13 2013/14 2014/15 2015/16
Fig 4.3.Comparative Cash and Bank Balance to Total Deposit ratio of NIBL and PBL
Fig 4.3 shows that comparative cash and bank balance to total deposit of NIBL and
PBL. NIBL and PBL both have increasing trend of cash and bank balance to total
deposit ratio but NIBL has more increase in year 2015/16 rather than PBL. This study
The ratio shows the ability of banks immediate funds to cover their (current, margin
call and saving deposit). Higher the ratio shows higher liquidity position and ability to
cover the deposits and vice-versa. The ratio is compute cash and bank balance by
Table 4.4
Comparative Cash and Bank Balance to Current and Saving Ratio of NIBL and PBL
Table 4.4 shows that comparative cash and bank balance to current and saving deposit
ratio of NIBL and PBL which find out the 0.247 ratio of NIBL in year 2015/16which
is lowest rate over a five year’s period. PBL has the 0.146minimum rate in
year2013/14. NIBL somehow manage liquidity position where as PBL has weaker
liquidity position. The average rates of two banks (NIBL & PBL) are 0.365 & 0.265
0.6
0.529
0.5
0.48
0.4 0.404
0.329
0.3 0.296 NIBL
0.276
0.247 PBL
0.238
0.2 0.208
0.146
0.1
0
2011/12 2012/13 20113/14 2014/15 2015/16
Fig 4.4.Comparative Cash and Bank Balance to Current and Saving Deposit of NIBL
and PBL
Fig 4.4 shows that comparative cash and bank balance to current and saving ratio of
NIBL and PBL. NIBL has the fluctuating rate rather than PBL over five year’s period
where as PBL has approximately same rate over four years and at last year it has
increase rate of cash and bank balance to current and saving ratio.
Commercial banks are required to hold certain portion of current and saving deposits
in NRB’s account. It is to ensure the smooth fluctuating and sound liquidity position
of the bank. As per the direction of NRB, the required ratio is 10% therefore the ratio
measures whether the bank is following the direction of NRB or not. Symbolically,
43
Table 4.5
Comparative NRB Balance to Current and Saving Deposit Ratio of NIBL and PBL
Table 4.5 shows that comparative NRB balance to current and saving deposit ratio of
NIBL and PBL. The data shows the NIBL and PBL minimum ratio 0.207 in year
2014/15 where as PBL has 0.119 over a five years period. NIBL has the highly liquid
than PBL.
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0.7
0.637
0.6
0.5
0.457
0.4
0.356 0.358 NIBL
0.343
0.3 PBL
0.235
0.2 0.199 0.207
0.186
0.1 0.119
0
2011/12 2012/13 2013/14 2014/15 2015/06
Fig 4.5.ComparativeNRB Balance to Current and Saving Deposit Ratio of NIBL and
PBL
Fig 4.5 shows that comparative NRB balance to current and saving deposit ratio of
NIBL and PBL.NIBL has the approximately same ratio up to 2014/15 and then in
year 2014/15 ratio is increased and same case in PBL. But, in comparison, NIBL has
It shows the percentage of amount deposited by the bank in NRB as compared to the
fixed deposits. According to the direction of NRB, this ratio should be maintained
6%. Hence, the ratio finds whether the bank has obeyed the direction of NRB or not.
Symbolically,
45
Table 4.6
Table 4.6 shows that comparative NRB balance to fixed deposit ratio of NIBL and
PBL. This study concluded that NIBL has minimum rate 0.239 in year 2015/16where
as PBL has 0.250 in year 2013/14 and NIBL has maximum rate 0.702. However, PBL
has 0.777. In comparison, PBL has higher ratio than the NIBL which is 0.777.
0.9
0.8
0.777
0.7 0.702
0.639
0.6
0.548
0.5
NIBL
0.4 0.424 0.424
PBL0
0.353 0.357
0.3
0.25 0.239
0.2
0.1
0
2011/12 2012/13 2013/14 2014/15 2015/16
Fig 4.6.Comparative NRB Balance to Fixed Deposit Ratio of NIBL and PBL
46
Fig 4.6 shows that comparative NRB balance to fixed deposit ratio of NIBL and PBL.
High ratio indicates better opportunity available to the bank to invest in the fund of
The ratio shows that percentage of fixed to total deposit has been collected in form of
deposit. High ratio indicates better opportunity available to the bank to invest in
sufficient profit generating long-term loans. Low ratio means bank should invest the
Table 4.7
Table 4.7 shows that comparative fixed to total deposit ratio of NIBL and PBL. This
study concluded that NIBL has minimum rate 0.234 in year 2014/15 here as PBL
47
has 0.181 in years 2013/14 and NIBL has maximum rate 0.352 however, PBL has
0.320. In average, NIBL has higher ratio than the PBL which are0.266 and 0.233.
0.4
0.35 0.352
0.32
0.3
0.291
0.25 0.256
0.244 0.244
0.234
0.2 NIBL
0.193
0.181 0.183
PBL
0.15
0.1
0.05
0
2011/12 2012/13 2013/14 2014/15 2015/16
Fig 4.7 shows that comparative fixed to total deposit ratio of NIBL and PBL has more
fluctuating liquidity where as NIBL as decreasing trend to 2013/14 and then increase
slowly.
4.1.1.8 Cash Reserve Ratio (CRR) /NRB Balance to Total Deposit Ratio.
The reserve requirement (or CRR) is a bank, regulation that sets the minimum reserve
so that each bank must hold to customer deposits and notes. These reserve are
designed to satisfy withdrawal demand, and would normally be in the form of fiat
currency stored in a bank vault (cash vault), or with potential of the banking to create
deposits. CRR is the percentage of banks reserves to deposits and notes. Every
48
commercial banks need to deposit 10% fund in NRB as the form of CRR.
Symbolically,
Table 4.8
Table 4.8 shows that comparative CRR of NIBL and PBL over five year’s period
from 2011/12 to 2015/16. In table, NIBL and PBL both have the fluctuating rate
from 0.0715 & 0.0453 to 0.171 & 0.142. in comparison, NIBL has the higher cash
reserve ratio rather than PBL which shows NIBL is liquid than PBL.
49
0.18
0.171
0.16
0.149
0.14 0.14 0.142
0.12 0.123
0.114
0.1 0.103 0.0992
NIBL
0.08 PBL
0.0715
0.06
0.04 0.0453
0.02
0
2011/12 2012/13 2013/14 2014/15 2015/16
Fig 4.8 shows that comparative cash reserve ratio of NIBL and PBL. In the figure,
NIBL and PBL both have fluctuating CRR. But, in comparison, NIBL has high
balance reserve in NRB which shows the better liquidity position of NIBL than PBL.
4.2Major Findings
This study reveals the some major points which are as follows:
1. The liquidity position of the banks in term of current ratios show that the ratios of
both banks NIBL and PBL are always below the normal standard (i.e. 2:1) where as
NIBL average ratio is lower than PBL. It shows that the liquidity position in term of
current assets to current liabilities of PBL is better than NIBL. So, it is concluded that
2. Loan and advances to total deposit ratio of NIBL and PBL are (i.e. 0.739 >0.671).
From the analysis; it is concluded that PBL has been successfully utilized their
deposits in term of loan and advances for profit generating purpose compared to NIBL.
3. Cash and bank balance to total deposit ratio of NIBL and PBL are 0.182 and 0.177
respectively which shows the NIBL has higher liquid than PBL.
4. Cash & bank balance to current & saving deposit ratio of NIBL and PBL are 0.365
& 0.265 respectively which shows the NIBL is more liquid than PBL.
5. NRB balance to current and saving deposit ratio of NIBL and PBL are 0.344 and
0.275 respectively which indicates NIBL has higher NRB balance over current &
6. NIBL and PBL have 0.467 and 0.452 on NRB balance to fixed deposit ratio
7. Fixed to total deposit ratio of NIBL and PPL are (0.266> 0.233) which indicates that
8. Cash reserve ratio of NIBL and PBL are 0.126 & 0.101 which shows NIBL has
CHAPTER –V
This chapter presents a discussion of findings & presented in the previous chapter and
of two banks named NIBL and PBL. It also tries to provide some implications to the
5.1 Discussion
This research is conducted comparative liquidity analysis of NIBL and PBL. Liquidity
analysis is one of the major tools to analyse financial performance of the banks that’s
why this study chooses this topic. This study is taking as sample of NIBL and PBL
among population of Nepalese commercial banks over 5 year’s period i.e. 2011/12 to
2015/16. The liquidity ratio measures the ability of a firm to meet its short-term
On the basis of data analysis and presentation, the researcher extracted some major
findings. The liquidity position of the banks in term of current ratios shows that the
ratios of both banks NIBL and PBL are always below the normal standard (i.e. 2:1)
where as NIBL average ratio is lower than PBL. It shows that the liquidity position in
52
term of current assets to current liabilities of PBL is better than NIBL. So, it is
concluded that PBL is better liquidity position as compared with NIBL. The minimum
ratio of NIBL is 0.705 where as the maximum ratio of NIBL is only 0.787. Loan and
advances to total deposit ratio of NIBL and PBL are (i.e. 0.739 >0.671). From this
analysis; it is concluded that PBL has been successfully utilized their deposits in term
of loan and advances for profit generating purpose compared to NIBL. The Liquidity
position of cash and bank balance to total deposit ratio of PBL is higher than that of
NIBL (i.e0.401 < 0.594). So, it is concluded that PBL has sufficient cash and bank
balance to current & saving deposit than that of NIBL. Likewise, the liquidity position
of NIBL in terms of CRR / NRB balance to total deposit ratio is found higher than
PBL (i.e. o.126 > 0.101). In fixed to total deposit ratio NIBL and PBL have 0.266
and 0.233 respectively which is the moderate liquidity. This analysis shows that both
banks have to increase their liquid position but in comparison PBL is liquid than the
NIBL. In the same way, fixed deposit to total deposit ratio of NIBL is better than that
of PBL.
So, on the basis of major findings the researcher reached in the conclusions keeping
in the previously set objectives in mind. Ultimately, the researcher will recommend on
the research problem to its stakeholders. To know the actual liquidity position of the
banks, the researcher observed and analysed the comparative liquidity analysis of two
commercial banks will give a rational result and represent the overall banking
liberalization policies of the government. Nowadays, under the new monetary policy
banks have to increase their paid up capital so that many banks are going to merger
and acquisition. So, now in Nepal there are twenty eight (research period) commercial
banks competing with each other in their business. These commercial banks are
banking services for customer satisfaction, financing foreign in different project and
areas. This study has been mentioned already that the research concentrates. The
researcher has evaluated data for the least 5 years period i.e. 2011/12 to 2015/16. The
researcher has analysed the data by using financial tools like ratio analysis.
The liquidity ratio measures the ability of a firm to meet its short-term obligations and
select the short-term financial solvency of a firm. The liquidity position of the banks
in term of current ratios shows that the ratios of both banks NIBL and PBL are always
below the normal standard (i.e. 2:1) where as NIBL average ratio is lower than PBL.
It shows that the liquidity position in term of current assets to current liabilities of
PBL is better than NIBL. So, it is concluded that PBL is better liquidity position as
compared with NIBL. The minimum ratio of NIBL is 0.705 where as the maximum
ratio of NIBL is only 0.787. And the 0.739 average ratios of loan and advances to
total deposit ratio of NIBL and PBL are (i.e. 0.739 >0.671). From the analysis; it is
concluded that PBL has been successfully utilized their deposits in term of loan and
advances for profit generating purpose compared to NIBL. The Liquidity position of
cash and bank balance to total deposit ratio of PBL is higher than that of NIBL
54
(i.e0.401 < 0.594 on an average). So, it is concluded that PBL has sufficient cash and
bank balance to current & saving deposit than that of NIBL. Likewise, the liquidity
position of NIBL in terms of CRR / NRB balance to total deposit ratio is found higher
than PBL (i.e. o.126 > 0.101 in an average). In fixed to total deposit ratio NIBL and
PBL have 0.266 and 0.233 respectively which is the moderate liquidity. This analysis
shows that both banks have to increase their liquid position but in comparison PBL is
liquid than the NIBL. In the same way, fixed deposit to total deposit ratio of NIBL is
The analysed data proved that the major source of income of both banks i.e., NIBL
and PBL is interest receipt and the major expenses, for the banks NIBL and PBL, are
interest expenses, staff expenses, office expenses and provision for bonus.
banks NIBL and PBL Based on the conclusion, the following suggestions and
1. The findings of this study will contribute to existing literature on banks liquidity
analysis.
2. This study will also useful to investors for getting information about the liquidity
position of these banks before investment; creditors to know the payable trend of the
banks;
3. This is also useful to relate banks to know actual liquidity position of bank
comparative to others;
55
4. This study facilitates to customers to know the credit worthiness; and other parties
who are related to these two banks to acquire required information related to liquidity
position of banks.
5. Findings of this study facilitate to mgmt team to amend the rules and policies of the
banks.
7. This study will also useful to the future researcher for conduct new project work on
related topics because this study will provide guidelines to new researchers.
56
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Kumbirai, M., & Webb, R. (2010). A Financial Ratio Analysis of Commercial Bank
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PunjabTecnical University, Department of finance and acconnts. Jalandhar:
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Nepal Investment Bank, l. (2012). Liquidity Analysis of Nepal Investment Bank LTD.
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Nepal Investment Bank, l. (2012). Liquidity Analysis of Nepal Investment Bank LTD.
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Shakya, S. (2010). Financial Performance of Nepal SBI Bank Limited and Everest
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