ACKNOWLEDGEMENT

This entitled project work “Loan Portfolio of SANIMA Bank Ltd. and SIDDHARTHA Bank
Ltd.” has been prepared to fulfill partial requirement of Master in Business Studies (MBS)
program. For this, I am greatly thankful to the Management Faculty of Tribhuvan University for
preparing this writing a compulsory in our course.

I wish to extend my sincere thanks to my Project supervisor ……………………… of

………………. Who provided me valuable guidelines, insightful comments, encouragement and
generous treatment to complete this Project. Similarly, I am also extremely indebted to all the
lecturers of …………………….., who encourages me in my entire academic attempt.

I am equally thankful to many friends, with whom I have spent time discussing their experience,
I wish to thank all of them for their time and effort in helping me in research writing. Without
their cordial co-operation this work could have been very difficult for me. Lastly, I would like to
express my heartiest thank to my parents for their moral as well as economic support during the
study period. It is hoped that it will stimulate a wide circle to engage in discussion on the
relevant issued. Any errors of Judgment and fact are my responsibility although every effort has
been made to eliminate the latter following the comments received from various personnel.

Thank you.

Prajwal Maharjan
Mega National College
Kumaripati, Laitpur
Campus Roll No.
 TABLE OF CONTENTS

Recommendation
Acknowledgement
Table of Content
List of Tables
List of Figures
Abbreviation
Executive Summary

Page No.

CHAPTER I INTRODUCTION

1.1 Background of the Study

1.2 Objectives of the Study

1.3 Limitations of the Study

1.4 Project Work Methodology

1.5 Population and Sample

1.6 Nature and Sources of Data

1.7 Tools and Techniques Used

1.8 Statistical Tools

CHAPTER II REVIEW OF LITERATURE

2.1 Conceptual Review

2.2 Review of Previous Research Works

CHAPTER III DATE ANALYSIS AND PRESENTATION

3.1 Financial Analysis

3.2 Statistical Analysis
3.3 Loan Portfolio Analysis
3.4 Major Finding of the Study
3.5 Conclusion
3.6 Recommendation

Bibliography
Appendix
 List of Tables

Page No.

3.1 Loan & Advances to Total Assets Ratio

3.2 Loan & Advances to Total Deposit Ratio

3.3 Net Profit to Total Loan & Advances Ratio

3.4 Interest Income to Loan & Advance Ratio

3.5 Non Performing Loan to Total Loan & Advances Ratio

3.6 Loan Loss Provision to Total Non-Performing Loan Ratio

3.7 Coefficient of Correlation between Deposits and Loan & Advances

3.8 Coefficient of Correlation between Net Profit and Loan & Advances

3.9 Coefficient of Correlation between Non-Performing Loan and Loan & Advances.

3.10 Trend Analysis of Deposit

3.11 Trend Analysis of Loan & Advances

3.12 Trend Analysis of Non-Performing Loan

3.13 Proportion of Product Wise Loan & Advances of SBL

3.14 Proportion of product Wise Loan & Advances of SANIMA

3.15 Investment Pattern of SBL

3.16 Investment Pattern of SANIMA

 List of Figures

Page No.

3.1 Loan & Advances to Total Assets Ratio

3.2 Loan & Advances to Total Deposit Ratio

3.3 Net Profit to Total Loan & Advances Ratio

3.4 Interest Income to Loan & Advances Ratio

3.5 Non Performing Loan to Total Loan & Advances Ratio

3.6 Loan Loss Provision to Total Non-Performing Loan Ratio

3.7 Trend Analysis of Deposit

3.8 Trend Analysis Of Loan & Advances

3.9 Trend Analysis of Non-Performing Loan

 ABBREVIATIONS

Bs Bikram Sambat
C Column
CDM Central Department of Management
SBL Siddhartha Bank Ltd.
NPL Non Performing Loan
LLP Loan Loss Provision
NP Net Profit
CA Current Assets
CL Current Liabilities
NRB Nepal Rastra Bank
i.e. That is
FRN Floating Rate Note
FY Fiscal Year
NEPSE Nepal Stock Exchange
TU Tribhuwan University
LTD Limited
SD Standard Deviation
AGM Annual General Meeting
ATM Automated Teller Machine
CV Coefficient of Variation
R Coefficient of Correlation
 Executive Summary

Economic growth and economic sector development is essential for developing the nation. Nepal
is underdeveloped not because of lack of the resources, but, due to lack of the capital and proper
utilization of available resources. Financial institution is the bank bone of the economic
development of a country because they help in capital formation and its proper utilization
through mobilizing the savings towards productive sector. Commercial Bank is one of the most
dominant financial institutions in the economic Development of Nepal. They have made
significant contribution to the economy as they provide capital for the development of trade,
industries, and business by investing the savings collected as deposit from public. Commercial
Banks perform a number of functions. However, Lending is the principle business activity for
most of the Commercial Banks. The loan is typically the largest asset and the predominate source
of revenue of Commercial Banks. As such, it is one of the greatest sources of risk to a bank’s
safety and soundness. Loan problem has historically been the major cause of banks losses and
failure. A commercial bank can minimize such risk by making portfolio on their lending.
Commercial Banks should follow the adage- “Don’t put all of your eggs on one basket” while
advancing the loan.

The major objective of the study concentrated on the analysis of Loan Portfolio Composition of
Nepalese Commercial Banks, to examine the level of NPL in total lending to measure the
contribution of loans on banking profitability and to explore the relationship of loans and
advances with Deposit, Net Profit and Non-Performing Loan.

During the study period, all the needed data are collected from secondary sources and due to
time constraint, only two banks (SBL and SANIMA) have been taken as samples. Similarly, past
five fiscal years’ (i.e. 2069/70 to 2073/74) data have been analyzed in this study. To fulfill the
objective of the study, various financial tools such as Asset management ration, Profitability
Ratio, Credit risk have been measured. Likewise, the statistical tools like Standard deviation,
Coefficient of Variation, Correlation Coefficient and Probable Error have been used in analyzing
the data.
 CHAPTER – I

INTRODUCTION

1.1 Background of the Study

A portfolio is usually defined as a combination of assets. It is a collection of many securities.

The basic assumption of portfolio theory is that an investor always wants to maximize the returns
from his/her investments for a given level of risk. It also assumes that investors are basically risk
averse, meaning that, given a choice between two assets equal rates of return they will select the
asset with the lower level of risk. Risk is the deviation of actual returns from an expected return.
The more the deviation, the more will be the risk. To minimize the deviation, we need to
diversify our fund into different securities or assets. The objective of portfolio analysis is to
develop a portfolio that has the maximum return at whatever level of risk the investor deems
appropriate. Diversification of portfolio helps to minimize risk. Commercial banks should follow
portfolio concept while advancing their fund as a loan. There is an age-old Adage – “Don’t put
all of your eggs in one basket”. This saying is very important to the bank while investing their
fund or while advancing loan. Banks should not grant loan in only one sector. To minimize loan
risk, a bank must diversify its lending on different sectors. Diversification is essential to the
creation of an efficient investment as it can reduce the variability of returns around the expected
return Diversification means dividing available assets across a number of different securities.
Diversification of loan portfolio help to sustain loan facilities of a bank because if one sector
loan is default, there may be high income from other sector loans. In this way, the loss occurred
from default loans can be compensated by the returns of good loans.

Loans advancement portfolio means different types of loans granted by commercial banks. It
basically represents the allocation of funds to different types of consumption and investment
loans having different degree of risk and varying rates of return. In such a way, that balances the
conflicting goal of maximizing return and minimizing risk.
Commercial banks loan portfolio covers corporate loan, industrial loan, construction loan.
Project loan, hire purchase loan, production loan, consumer loan, deprived sector loan, priority
sector loan, margin lending loan, auto loan, overdraft loan, working capital loan, demand loan
etc. The process of managing bank’s loan advancement portfolio considers a number of relevant
and influencing factors such as the availability of funds, liquidity required, central bank’s rules
and regulations that abides banks, risk associated with the respective industries and the expected
rate of return on respective loan sanctioned sectors. O the other hand, banks should carefully
examine the macro economic indicators such as interest rate, inflations, aggregate expected
money multiplier, national income, savings ratio etc. Effective management of bank’s loan
portfolio can lead the banks into the success on loan constitute.

Profile of sample banks

As there has been number of commercial banks established, the research has been taken into
consideration of Sanima Bank Ltd. and Siddhartha Bank Ltd. Therefore, short glimpse of these
commercial banks are given as:

A. Sanima Bank Limited

Sanima, promoted by prominent and dynamic Non-Resident Nepalese (NRNs) Businessmen,

commenced its operation in 2004 as a national level development bank. Since February 2012,
Sanima has been functioning as an “A” class commercial bank with registered office at
“Alkapuri” Naxal Kathmandu, Sanima Bank is committed to provide one window financial
solution to the different customer segments and to achieve healthy growth in profitability
consistent with the bank’s risk appetite. The bank has been dedicated to maintain the highest
level of ethical standards, professional integrity, corporate governance and regulatory
compliance. As a result, Sanima is perceived as a strong and reliable player in the banking
industry. Sanima has been committed to meet customer expectation in all areas of its business
through continuous improvement for overall benefit of the economy.
Sanima Bank offers a wide range of banking products and financial services to corporate and
retail customers through 78 full fledged branches and one extension counter from all 7 provinces.

Vision

To be a leading bank of Nepal.

Mission

They will continuously be innovative and embrace the changes to delight investors, staff,
customers, regulators and the community they serve.

Capital Structure

Authorized Capital: 9,00,00,00,000

Issued Capital: 6,89,76,34,000

Paid-up Capital: 6,89,76,34,000

B. Siddhartha Bank Limited

Siddhartha Bank Limited (SBL) has successfully positioned itself as a customer oriented,
innovative, continuously growing and healthy commercial bank of Nepal. The bank was
established on December 2002 as the 17th commercial bank of the country and since then it
has been fulfilling a myriad of banking requirements of its ever growing and diversified
customer base. The bank’s utmost focus on delivering excellent banking services to its
customers wherever they are has been exemplified by its continuously expanding network of
70 branches, 83 ATMs and 70 branchless banking locations scattered all over the country.
The bank envisions of becoming the preferred financial partner for its customers,
shareholders, staff members and all other stakeholders from different realms of the economy.
To achieve this vision, SBL has clearly demarcated its priority towards customer oriented
products and services, technological enhancement and operational efficiency, transparency in
operations and a higher degree of corporate governance and corporate social responsibility.
Vision
Siddhartha Bank runs with a vision to be financially sound, operationally efficient and to keep
abreast with technological developments.

Mission

 Be one of the leading banks of the industry in terms of profitability, productivity and
innovation.
 Aim a total customer satisfaction by rendering efficient and diversified financial services
through improved technology.
 Build a highly motivated and committed team of staff by nurturing a good work culture
to achieve superior individual performance aiming to enhance organizational
effectiveness.
 Be the place of pride to all its stakeholder.

Capital Structure
Authorized Capital: 10,50,00,00,000
Issued Capital: 5,25,08,59,342
Paid up Capital: 5,25,08,59,343

1.2 Objectives of the study

Every study has some objectives. The study without any objective cannot be imagined. This
study also has some objective. The main objectives of the study are:

 To examine the level of total lending in total deposit of SBL and SANIMA Banks.
 To analyze the composition and diversification of loan portfolio of SBL and SANIMA
banks.
 To examine the level of non-performing loans in total lending of SBL and SANIMA
Banks.