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CHAPTER I

INTRODUCTION
1.1 Background of Study
A bank is a financial institution and a financial intermediary that accepts deposits and
channels those deposits into lending activities, either directly by loaning or in directly
through capital markets. A bank is the connection between customers that have capital
deficits and customers with capital surpluses. Due to their influence within a financial
system and the economy, banks are highly regulated in most countries. Most banks operate
under a system known as fractional reserve banking where they hold only a small reserve
of the funds deposited and lend out the rest for profit. They are generally subject to
minimum capital requirements which are based on an international set of capital standards,
known as the Basel Accords.
Banking system occupies an important role in the economic development of a
country. A banking institution is indispensable in a modern society. It plays a pivotal role
in the economic development of a country and focus the core of the money market in an
advance country. 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 etc.
The commercial banks are those banks which collect the saving of the community
and mobilize them for productive use. This supplies the financial need of the modern
business buy various means. It also provides technical and administrative assistance to
industries, trade and business. The first commercial bank of Nepal was started since 1994
B.S. in the name of Nepal Bank Ltd. Again in 2022 B.S. Rastriya Banijay Bank was
established under Rastriya Banijya Bank Act 2021 B.S. Since 2041 B.S. Agricultural
Development Bank has been allowed to serve commercial function. And other commercial
banks established in Nepal are: Arab Bank Ltd., Indosuez Bank, Greenlays Bank,
Himalayan Bank Ltd., Nepal SBI Bank Ltd., Bangladesh Bank, Everest Bank, Bank of
Kathmandu etc.
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1.2 Introduction to Everest Bank Limited (EBL)

Everest Bank Limited (EBL) started its operation in 1994 A.D. with a view and objective
of extending professional and efficient banking service to various segment of the society.
The bank is providing customer-friendly service through its branch network. All the
branches of the bank are connected through anywhere branch banking system (ABBS),
which enable customer for operational transaction from any branches.
With an aim to help Nepalese citizen working abroad, the bank has entered into agreement
with banks and finance companies in different countries, which enable quick remittance of
funds by the Nepalese citizens in countries like UAE, Kuwait, Bahrain, Qatar, Saudi
Arabia, Malaysia, Singapore, and UK. Bank has set up its representative offices at New
Delhi (India) to support Nepalese citizen remitting money and advising banking related
services. Punjab national bank (PNB), our joint venture partner (holding 20% equity in the
bank) is the largest nationalized bank in India. With its presence virtually in all the
important centers at India, Punjab national bank offers a wide varied of banking services
which include corporate and personal banking, industrial finance, agricultural finance,
financing of trade and international banking. Among the clients of the bank are Indian
conglomerates, medium and small industrial unites, exporters, non-resident Indians and
multinational companies. The large presence and vast resource base have helped the bank
to build strong links with trades and industry. The bank has been conferred with “bank of
the year 2006, Nepal” by the banker, a publication of financial times, London.
The bank was bestowed with the “NICCI Excellence award” by Nepal India
chamber of commerce for its spectacular performance under finance sector. Recognizing
the value of offering a complete range of service, it has pioneered in extending various
customers friendly products such as home loan, education loan, EBL flexi loan,EBL
property plus (future lease Rental), home equity loan, vehicle loan, loan against share, loan
against life insurance policy and loan for professionals.
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1.3 Objective of the Study

The main objectives of the study is to evaluate and analysis the financial
performance of this joint venture bank i.e. EBL and to recommend the suitable suggestion
for improvement.
 For the partial fulfillment of BBS 4th year, T.U. has designed a syllabus to
submit the field report in related topic. Hence, for the same it is prepared.

 To analyze and compare the financial strengths and weakness of the sample
financial institution.
 To determine the financial performance through the use of appropriate
financial and statistical tools.
 To evaluate the financial position of EBL.
 To provide recommendations for improvement on the basis of findings.
1.4 Statement of the problem
The main objective of the bank is to collect deposits as much as possible from the customer
and to mobilize into the most profitable and preferable sector. The present study basically
focused on the financial performance of EBL. In Nepal, many banks and financial
companies have opened up within a span of few years. Although joint venture banks have
managed to perform better than other local commercial banks within the short period of
time, they have been facing a neck competition against one another. Therefore, it is
necessary to analyze the profitability position of EBL. Thus, the present study seeks to
explore the efficiency and comparative financial performance of EBL.
The profitability rate, operating expenses and dividend distribution rate among the
shareholders has been found different in the financial performance of the EBL in different
period of time. A comparative analysis of financial performance of the banks would be
highly beneficial for pointing out their strength and weakness. Although joint venture
banks are considered efficient, but how far are they efficient? This question does emerge in
banking sector. In spite of rapid growth, some indicators show performance is not much
encouraging towards the service coverage. In such a situation the study tries to analyze the
present performance of banks, which would give the answers of following queries.
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 What are the comparative liquidity, profitability, activity and leverage ratio of
EBL?
 Are the trends of different ratios of the bank satisfactory?
1.5 Significance of the Study
This study has been mentioned already that the research focuses only on the
comparative financial performance of EBL. This comparative financial performance
analysis gives insight into the relative financial condition and performance of thebank.
This will provide guideline for improving its performance to achieve the banks overall
objectives. Similarly, this study helps the banks to identify its hidden weakness regarding
financial administration. Globalization has invited both challenges and opportunities so;
the commercial banks should be more competitive. They should become financially
strength/ healthy and must have growth potentially. And they have to shape their plans and
strategies accordingly. In such a situation, this study tried to analyze and indicate the
overall financial health whether they are capable to compete the challenges and grab to
opportunities or not. This study has following signification: -
 This study explains the shareholders about the financial performance of the bank.
 The study also compels the management of bank for self-assessment of what they
have done in the past and guides them in their future plan and programs.
1.6 Limitations of the study
The following are the limitations of the present study.
 This study is limited to the study of financial performance of EBL.
 This study is based on secondary data.
 This study has analyzed and evaluated the data to the latest five years
period.
 In this study only selected financial and statistical tools and techniques
are used.
 This research has been conducted on the requirement of partial
fulfillment of the Bachelor Degree of Business Studies.
 Large number of sample is not taken because of time and cost
constraints
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.1.7 Organization of the project work

The report is divided in three chapters, each chapter deals with some important factors of
financial performance analysis of EBL to make better understanding of topics and helps to
meet objectives of the study.
Chapter one
The first chapter ‘introduction’ includes general background, introduction of the bank,
objective of the study, significances of the study. It is oriented for readers for reporting
giving them the perspective they need to understand the detailed information about the
study. This chapter describes literature review. This study assures readers that they are
familiar with important research that has been carried out in similar area. Research
methodology refers to the various sequential step to be adopted by a researcher in studying
a problem with certain objectives in review. The research method focuses on research
design, methods and procedure of data collection gathering. The research design will be
descriptive and analytical. Secondary data will be used.
Chapter two
The second chapter includes data analysis, analysis of the result and major findings of
the study. To meet research objectives, analysis, tabulation and presorted of collected data
to draw findings and research conclusion.
Chapter three:
Finally, this topic comprises summary, conclusion of the study and recommendations
arrived at after evaluating and interpreting the finding and results. Thus, this chapter
summarizes the finding of research and provides recommendation and helps to meet
objectives of the project
At the end of the study, Bibliography and Appendices have also been incorporated
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1.8 Review of literature

Review of literature comprises upon the existing literature and research related to the
present study with a view to find out what had already been studied. According to Wolf &
Pant “The purpose of the reviewing the literature is to develop some expertise in One’s
area, to see what new contribution can be made and to review some idea for Developing
research design”. This chapter deals with the evidence and findings from the past related
studies from various researchers. The studies and evidence was relevant for the further
investigation regarding the financial performance of commercials bank in Nepal. This
portion has been divided into two parts: -
A. Conceptual Framework
B. Review of Related Studies

A.1 Conceptual Framework

A.1.1 Banking: An Introduction
The word “Banking” is a derivative of terminology “Bank”. Bank itself is an
organizational engaged in any or all the various functions of banking viz. receiving,
collecting, transferring, paying, lending, investing, dealing exchanging and servicing(safe
deposit, trusteeship, agency, custodianship) money and claims to money both domestically
and internationally. Banking and Financial Institutions are also the transmission channels
of monetary policy, it is important for the effective monetary policy management to ensure
that their financial health is sound and overall financial sector is stable.
“A bank is an organization whose principal operations are concerned with the
accumulation of the temporarily idle money of the general public for the purpose of
advancing to others for expenditure.”
A.1.2 Concept of Commercial Bank
A commercial bank is a type of financial intermediary and a type of bank. Commercial
banking is also known as business banking. A commercial bank is a financial institution
that is authorized by law to receive money from business and individuals and lend money
to them. It is an institution which accepts deposits, makes business loans, and offers related
services. Commercial banks also allow for a variety of deposit accounts, such as checking,
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savings, and time deposit. These institutions are run to make a profit and owned by a group
of individuals, yet some may be members of the Federal Reserve System. While
commercial banks offer services to individuals, they are primarily concerned with
receiving deposits and lending to businesses.
According to Nepal Commercial Bank Act, 2031 B.S. “A commercial bank refers
to such type of bank that deals with money exchange, accepting deposit, advancing loans
and commercial transaction except specific banking related to cooperative, agriculture and
other objective.”
The role of commercial banks
Normally Commercial banks engaged in the following activities:
 Accepting money on term deposit.
 Lending money by way of overdraft, installment loan or otherwise.
 Inward remittance through online services
 Processing of payments by way of telegraphic transfer, EFTPOS, internet banking
or other means.
 Issuing bank drafts and bank cheques,
 Providing documentary and standby letter of credit, guarantees, performance bonds,
securities underwriting commitments and other forms of off balance sheet
exposures
 Safekeeping of documents and other items in safe deposit boxes (lockers)
 Foreign currency trading
A.1.3 Functions of Commercial bank
Normally, commercial bank’s function can be categorized into two types: -
a. Primary function
b. Secondary function
Primary function
i. Acceptance of deposit: - An important function of commercial bank is to attract
deposit from the Public. Those people who want to keep their money safe
deposit their cash in the bank. Commercial bank accepts deposits from every
class and takes responsibility to repay the deposit in the same currency
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whenever they are demanded by the depositors. Hence one of the primary
functions of commercial bank is acceptance of deposits.
ii. Lending: - Another function of commercial bank is to make loans an advance
of deposit received in various forms. Bank apply the accumulated public
deposits to productive use by way of loans and advance, overdraft and cash
credit against approved security.
iii. Investment: - Now-a-days commercial banks are also involved in the
investment activities. Generally investment means long term and mid-term
investments.
Secondary Function
Secondary functions are two types: -
A. Agency Service: -
1. Collection and payments of Cheques
2. Standing Instruction
3. Acting as correspondence
4. Collecting of bills- electricity, gas, WASA, telephone etc.
5. Purchase & Sales of stocks/share-act as a banker to issue
B. Miscellaneous or General Services: -
1. Safe Custody
2. Lockers-Trustee
3. Remittance facilities –DD, TT, MT and PO
4. Advisory Services
5. Providing Credit Reports
6. Opening L/C
7. Compete service in Foreign Trade
8. Other Services: Debit Card, Credit Card, On-Line banking SMS Banking

Beside these activities, commercial bank may perform further tasks; all its activities are
guided by its authority for the betterment of the company or for society.
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A.1.4 Financial Analysis

Financial analysis is meant to evaluate a firm’s financial performance. It is because the
absolute financial statements are less useful to understand all aspects of firm’s financial
performance. Thus, financial analysis is the process of analyzing various items of financial
statements to examine of a firm’s strengths and weakness. It involves analyzing financial
statements prepared in accordance with generally accepted accounting principles to
ascertain financial condition of the firm.
Financial analysis is essential to make a meaningful conclusion about what a
particular figure in the firm’s financial statement is stating in relation to financial
performance of the firm. Financial statements analysis involves comparing the firm’s
performance with that of other firm’s in the same industry and evaluating trends in the
firm’s financial position over time. The use of financial analysis helps financial manager to
identify deficiencies in financial performance and take actions to improve the performance.
The basic tools of financial analysis are:
1. Financial tools
2. Statistical tools

1. Financial tools
 Financial Ratio Analysis
 Common Size Statements Analysis
 Trend Analysis
 Percentage Change Analysis
A. Financial Ratio Analysis
Financial ratio analysis is used as a technique to quantity the relationship between two or
more sets of financial data taken from income statement and balance sheet. It provides the
information about the strength and weakness of a financial data in relation to other.
There are various types of financial ratio to make a comparative analysis of
financial statement. Financial ratios can be grouped into following types:
 Liquidity Ratios
 Assets Management or Efficiency Ratios
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 Debt Management or Leverage Ratios

 Profitability Ratios
Liquidity Ratios
Liquidity ratios measure a firm’s ability to satisfy its short term commitments out of
current or liquid assets. These ratios focus on current assets and liabilities and are used to
ascertain the short term solvency position of a firm.
Assets Management Ratios
Assets management ratios are also known as turnover ratios or activities ratios or
efficiency ratios. These ratios look at the amount of various types of assets and attempt to
determine if they are too high or too low with regard to current operating level. They
provide the measure for how effectively the firm’s assets are being managed.
Debt Management Ratios
Debt management ratios, also known as leverage ratios indicate the extent to which
debt financing is being used by a firm. It is a measure of long-term solvency of a firm. It is
important to analyze leverage position from two aspects, first, how firm is using the
borrowed funds to finance its assets; second, how far the firm is able to serve its debts in
terms of satisfying regular fixed charges.
Profitability Ratios
Profitability ratios measures how effectively the firm is being operated and managed.
Owners and managers calculated profitability ratios because expectations of both owners
and managers are evaluated in terms of profit earned by the firm.
B. Common Size Statements Analysis
Common size statement is a standardized financial statement presenting all items in
percentage terms common size statements provide one alternative to express all items in a
firm’s financial statements in percentage terms over some common items. We may prepare
two common statements –common size balance sheet and common size income statement.
In case of common size balance sheet, all items are expressed as a percentage of total
assets. For income statement, all items are expressed as a percentage of total sales revenue.
Expressing the items in balance sheet and income statements in percentage terms eliminate
the problem of size differences.
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C. Trend Analysis
Trend analysis is a tool of financial analysis that indicates whether the analysis we look
into pattern of financial ratios whether they are increasing or decreasing over the year.
Under this method, a financial ratio of the firm is plotted against that of industry average to
identify whether the movement is confirmed or contradicted to industry average.
D. Percentage Change Analysis
The common size balance sheet and income statement can be supplemented by expressing
each item in balance sheet and income statement as a percentage change against a base
year. This system of analyzing financial statement is called percentage change analysis.

A. Statistical Tools
The first work of research is data collection and second work is to arrange and present the
data in a logical order. After managing the data in workable design, data are analyzed
using statistical tools to draw the conclusions which are known as statistical analysis.
Analysis of data through statistical tools is classified into following two groups:
 Descriptive Statistics
 Inferential Statistics
A. Descriptive Statistics
Those statistical tools which are used to explain the activities or fundamental
characteristics or behaviors of a group or data are known as descriptive statistics.
Frequency, mean, median, and mode are taken as descriptive statistics. It helps to get the
summarized information of sample units. By the use of descriptive statistics, a
businessman can assess the average of profit, ratio of profit and change in profit from the
sale of goods at a point of time. But researcher cannot draw important conclusions
applying descriptive statistics. Descriptive statistical tools are given below:
 Frequency
 Mean mode, range, variation, standard deviation, inter-quartile range,
percentile, median etc.
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B. Inferential Statistics
Research should estimate the population from the analysis of data collected from sample.
Thus, the statistical method that helps to estimate the population from the analysis of
sample data is known as inferential statistics. Census study is not possible in social science
research. So, research should estimate population from the analysis of sample. It helps to
see the relationship between independent and dependent variables and helps to decide the
same relationship in the population also. Inferential statistic is divided into two groups:
 Estimation statistics
 Hypothesis testing
1.9. Research methodology
The rationale behind the study is to evaluate and assess the financial position or
performance of the two newly operated joint venture bank viz. Everest Bank Limited.
Thus, this chapter includes those methods and techniques use for finding out a fore said
purpose. Research methodology refers to the various sequential steps (a long with the
rationale of each step) to be adopted by a researcher in studying a problem with certain
objective in view. It is a way to systematic solve of the research problem. It may be
understood as a science of studying how search is done scientifically. It includes the
various steps that are generally adopted by a researcher while studying his/ her research
problem along with the logic behind them. It would be appropriate to mention here that
research project is not meaningful to any one unless they are in sequential order which will
be determined by the particular problem. This chapter focuses and deals with the following
aspects or methodology:
- Research design
- Population and Sample
- Source of data
- Data collection procedure
- Data processing
- Method of Date analysis
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1.9.1 Research Design

Research design is the task of defining the research problem. In other words, a research
design is the arrangement of conditions for collection and analysis of data in a manner that
aims to combine data relevance to the research purpose with economy in procedure. In
fact, the research design is the conceptual structure within which the research is conduct.
The basic objective of this research study is to examine and evaluate the financial
performance of joint venture bank i.e. EBL. In order to achieve the objective, both
descriptive and analytical research design has been followed. Descriptive research design
has been used to describe the concept of financial performance and analytical approach has
been used to depict and to analyze the current situation. This study focuses on the
examination of relationship between those variables that influence financial decision of the
sampled bank. The data and information collected from the various surveys are rearranged,
tabulated, analyzed and interpreted accordingly to the need of the study for attaining the
stated objectives.
1.9.2 Population and Sample
The term ‘population’ for research means all the member of any well defined class of
people, event or object. It means that the entire group of people, events or things of interest
that a researcher wished to investigate is population. Sample, on the other hand is the
representative part of population selected from it with the objective of investigating its
properties. If some elements are selected with the intention of finding out something about
the population from which they are taken then that group of element is called sample.
Thus, a sample is just a portion of the universe selected with a view to draw conclusions
about the universe under study. Hence, it is a representative selection of a population that
is examined to gain statistical information about the whole.
The population for this study comprises nine joint venture banks currently
operating in the country. All the joint venture banks perform the functions of commercial
banks under rules, regulations and directives of Nepal Rastra Bank. Out of these total joint
ventures banks one bank is selected as the sample by using random sampling method. For
this study Everest Bank Limited is taken as sample. This unit represents 11.11% of the
total population.
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1.9.3 Methods of Data Analysis

Data collected from various sources are in raw form. They should be classified and
tabulated as per the nature of the study and in accordance of the data. Applying different
financial and statistical tool made data analysis.

1.9.3.1 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 policies and strategies.
For the sake of analysis, following various financial tools have been used in order to meet
the purpose of the study.
Ratio Analysis
Ratio analysis helps to summarize the large quantities of financial data and to make
quantitative judgments about the firm's financial performance. Ratio is the expression of
one figure in terms of another. It is the expression of relationship between the mutually
independent figures. In financial analysis; ratio is use to as an index of yardstick for
evaluating the financial position and performance of firm. Ratio analysis is very much
powerful & widely used tool of financial analysis. It is defined 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 financial condition can be determined. It helps the
analysis to make qualitative 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. It gives
enormous and fruitful results to examine the financial performance. The obsolete
accounting figure reported in the financial statement does not provide a meaningful
understanding of the performance and financial position of the firm. An accounting figure
conveys meaning when it is related to some other relevant information. Therefore, the ratio
is the relationship between two accounting figures expressed mathematically. It helps to
summarize large quantitative relationship helps to form a quality judgment.
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A ratio is simply a number expressed in terms of another number and it expresses

the quantitative relation between any two variables. Ratio can be calculated between any
two items of financial statements. There are numerous ratios to analyze and interpret the
financial form once of the enterprise or firm. However, for our purpose, only important and
relevant ratios are used to check the financial health of Everest Bank Limited, which are as
below;
A. Liquidity Ratios
Liquidity ratios are used to judge the firm's ability to moot short-term obligation. These
ratios give insights into the present cash solvency of the firms and its ability to remain
solvent in the event of adversities. It is the comparison between short-term obligation and
the short –term resources available to meet these obligations. These ratios are calculated to
find the ability of banks to meet their short-term obligation, which are likely to mature in
the short period. The following ratios are developed and used for our purpose to find the
liquidity positions of the two joint venture bank i.e. EBL.
a) Current Ratio.
This ratio indicated the current short-term solvency position of a current ratio is the
relationship between current assets and current liabilities. It is calculated by dividing the
current liabilities by current assets, which is expressed as follows:
Current ratio =Current Assets/Current Liabilities
Current assets refer in those assets, which are convertible in cash within a year or so. They
includes, cash and Bank Balance, investment in treasury bills, money at short call, or
placement, loans and advances, bills purchased and discounted, overdrafts, foreign
currency loans, bills for collection, customer's acceptance liabilities, pre-payment
expenses, and other receivable. Similarly, current- liabilities refer to those obligations
maturing within a year. It includes, current account deposits, saving account deposits,
margin deposits, call deposits, intra-bank reconciliation A/c, bills payable, bank over-draft,
provisions, accrued expenses, bill for collection, and customer's acceptance liabilities etc.
A higher ratio indicates better liquidity position. However, a very high ratio of
current assets to current liabilities may be indicative of slack management practice, as it
might signals excessive inventories for the current requirement and poor credit
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management in terms of over-expanded account receivable. As a conventional rule, a

current ratio of 2 to 1 in considered satisfactory.
b) Cash and Bank balance to Current and Saving deposit ratio
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 by dividing and bank balance by current
and saving deposits.
Cash and bank balance to current and saving deposits ratio =Cash and bank
balance/Current and saving deposits
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 deposit consists of all types of deposits excluding fixed deposits.
The ratio measures the ability of banks to meet its immediate up to total deposit
obligations. The bank should maintain adequate cash and bank balance to meet the
unexpected as well as heavy withdrawal of deposits. High ratio indicates sound liquidity
position of the bank; however, too high ratio is not enough as it reveals the under
utilization of fund.
c) NRB balance to Total Deposit ratio
The ratio is computed by dividing the balance held with Nepal Rastra Bank by
totaldeposits accepted.
NRB balance to Total deposit ratio = NRB balance/Total deposit
It shows the percentage of amount deposited by the bank in Nepal Rastra Bank as
compared to the total deposits. According to the direction of NRB, this ratio should be
maintained 6%. Hence, the ratio so calculated finds whether the bank has obeyed the
direction of central bank or not.
d) Fixed Deposit to Total Deposit ratio
It is calculated as follow:
Fixed Deposit to Total Deposit ratio=Fixed Deposit/Total Deposit
The ratio shows what percentage of total deposit has been collected in form of fixed
deposit. High ratio indicates better opportunity available to the bank to invest in sufficient
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profit generating long-term loans. Low ratio means bank should invest the fund of low cost
in short-term loans.
B. Leverage Ratios
Leverage or capital structure ratios are used to judge the long-term financial position of the
firm. It evaluates the financial risk of long-term creditors greater the proportion of the
owner's capital structure, lesser will be the financial risk borne by supplier of credit funds.
Debt is more risky from the firm's point of view. The firm has legal obligation to pay
interest to deft holders irrespective of the profit made or losses incurred by the firm.
Therefore, a firm should maintain optimal mix of investors and outsiders fund for the
benefit owners and its stability.
Under this group, following ratios are calculated to test the optimality capital
structure;
-Debt-Equity ratio
-Debt-Asset ratio
-Debt to total capital ratio
-Interest coverage ratio

a) Debt –Equity Ratio

The ratio is calculated by dividing total debt by shareholder's equity.
Debt –Equity Ratio = Total Debt/Shareholder’s equity
Total debt consists of all interest bearing long-term and short-term debts. These include
loans and advances taken from other financial institutions, deposits, carrying interest etc.
Shareholder's equity includes paid-up capital, reserves and surplus and undistributed profit.
The ratio shows the mix of debt and equity in capital. It measures creditors' claims
against owners. A high ratio shows that the creditors' claims are greater than those of
owners are. Such a situation introduces inflexibility in the firms operation due to the
increasing interference and pressures from creditors' low ratio imply a greater claim of
owners than creditors. In such a situation, shareholders are less benefited if economic
activities are good enough. Therefore, the ratio should be neither too high nor too low.
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b) Debt-Asset Ratio
It is calculated as:
Debt-Asset Ratio = Total Debt/Total Assets
The ratio shows the contribution of creditors in financing the assets of the bank.
High ratio indicates that the greater portion of the bank's assets has been financed through
outsider's fund. The ratio should not be too high or too low.
c) Debt to Total Capital Ratio
The ratio is obtained by dividing total debt by total capital of the firm.
Debt to Total Capital ratio = Total Debt/Total Capital
Total capital refers to the sum of interest- bearing debt and net worth/shareholder's
equity.It shows the proportion of debt in total capital employed by the bank. High ratio
indicates greater claim of creditors. Contrary to it, low ratio is the indication of lesser claim
of outsiders. For the sound solvency position, the ratio should not be too high or too low.
d) Interest Coverage Ratio
The ratio is calculated by dividing net profit before deduction of interest and tax by interest
charges.
Interest Coverage Ratio = Net profit before interest and tax/Interest charges
The ratio, also known as times interest-earned ratio is used to test the debt servicing
capacity of the bank. It shows the number of times the interest charges are covered by
funds that are ordinarily available for their payment. It indicates the extent to which the
earning may fall without causing any embarrassment to the firm regarding the payment of
interest. Higher ratio is desirable, but too high a ratio indicates the firm is very
conservative in using debt. A lower ratio indicates excessive use of debt or insufficient
operation.
C. Turnover Ratio
Turnover ratios, also known as utilization ratios or activity ratios are employed to evaluate
the efficiency with which the firm manages and utilizes its assets. They measure how
effectively the firm uses investment and economic resources at its command. Investments
are made in order to produce profitable sales. Unlike other manufacturing concerns, the
bank produces loans, advance and other innovation for sale. High ratio depicts the
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managerial efficiency in utilizing the resources they show the sound profitability position
off the bank low ratio is the result of insufficient utilization of resources. However, too
high ratio is also not good enough as it may be due to the insufficient liquidity.
Depending upon special nature of assets and sales made by the bank, following ratios are
tested;
-Loans and advances total deposits ratio
-Investment to total deposit ratio
-Performing assets to total assets ratio
a) Loan and Advance to Total Deposit Ratio
The ratio is computed by dividing total loans and advances by total deposit liabilities.
Loan and Advances to Total Deposit ratio =Loans and advances/Total deposit
Loan and advanced consist of loans, advances, cash credit overdraft, foreign bills
purchased and discounted. The ratio indicates the proportion of total deposits invested in
loans and advances. High ratio means the greater use of deposits for investing in loans and
advances. However, very high ratio shows poor liquidity position and risk in loans on the
contrary; too low ratio may be the causes of idle cash or use of fund in less productive
sector.
b) Investment to Total Deposit Ratio
The ratio obtained by dividing investment by total deposits collection in the bank.
Investment to Total Deposit ratio = Investment/Total Deposit
Investment comprises investment in treasury bills development bonds, company shares and
other type of investment. The ratio shows how efficiently the major resources of the bank
have been mobilized. High ratio indicates managerial efficiency regarding the utilization of
deposits. Low ratio is the result of less efficiency in use of funds.
c) Performing Assets to Total Assets Ratio
It is calculated by dividing performing assets by total assets.
Performing Assets to Total Assets ratio = Performing Assets/Total Assets
Performing assets to total assets include those assets, which are invested for income
generating purpose. These consist of loans, advances; bills purchased and discounted
investment and money at call or short notice. The ratio measures what percentage of the
 20

assets has been funded for income generation. High ratio indicates greater utilization of
assets and hence sound profitability position.
D. Profitability Ratio
Profitability ratios are designed to highlight the end-result of the business activities, which
in the imperfect world of ours, is the sole criterion of cover all efficiency of business unit.
A company should earn profit to survive and grow over a long period. It is a fact that
sufficient profit must be earned to sustain the operations of the business, to able to obtain
funds from investors for expansion and growth; and to contribute towards the social
overheads for the welfare of society. The profitability ratios are calculated to measure the
operating efficiency of the company. Management of the company, creditors and owners
are interested in the profitability of the firm. Creditors want to get interest and repayment
of principal regularly. Owners want to get a reasonable return from their investment.
To meet the objective of study, following ratios are calculated in this group;
-Return on total assets
-Return on equity
-Return on total deposit
-Earning per share
-Dividend per share
a) Return on Total Asset
The ratio is calculated by dividing net profit after tax by total on asset on the bank.
Return on Total asset = Net profit after tax/Total assets
Net profit refers to the profit deduction of interest and tax. A total asset means the assets
that appear in asset of balance sheet. It measures the efficiency of bank in utilization of the
overall assets. High ratio indicates the success of management in overall operation. Lower
ratio means insufficient operation of the bank.
b) Return on Equity
The ratio is computed by dividing net profit after tax by net worth.
Return on Equity = Net profit after tax/Equity
The ratio is tested to see the profitability of the owner's investment reflects the extent to
which the objective of business is accomplished. The ratio is of great interest to present as
 21

well as prospective shareholders and of great significance to management, which has the
responsibility of maximizing the owner's welfare, so higher ratio is desirable.
c) Return on Total Deposit
The ratio is computed by dividing net profit after tax by total deposit.
Return on Total Deposit = Net profit after tax/Total Deposit
The ratio shows the relation of net profit earned by the bank with the total deposit
accumulated. High ratio is the index of strong profitability position.
d) Earning Per Share (EPS)
It is obtained by dividing earning available to common shareholders by number of equity
shares out-standing.
EPS = Earning Available To Common Shareholders/Number of Equity Shares
Outstanding
Earning per share refers to the income available to the common shareholders on per share
basis.It enables us to compare whether the earning based on per share basis has changed
over past period or not. The investors favor high EPS. It reflects the sound profitability of
the bank.

e) Divided Per Share (DPS)

It is obtained by dividing earning paid to shareholder by number of equity shares
outstanding.
DPS = Earning Paid To Common Shareholders/Number of Equity Shares Out-
Standing
The net profit after the deduction of preference dividend belongs to equity shareholders.
However, the income that really receives is the amount of earning distributed as dividend.
Dividend may be distributed in form of cash or bonus share. Dividend distribution affects
the price of share. Shareholders prefer high dividend. However, it may sometimes be wise
to distribute less amount of profit in investment opportunities are available.
 22

CHAPTER II
DATA PRESENTATION AND ANALYSIS
This chapter deals with the analysis and interpretation of data following the researcher
methodology dealt in the previous chapter. In the course of analysis, data gathered from the
various sources have been inserted in the tabular form according to their homogenous
nature and processed and changed them into an understandable presentation using financial
tools as mentioned in previous chapter. Using financial tools, the data have been analyzed
the result of the analysis as been interpreted keeping in mind the conventional standard
with respect to ratio analysis, directives of NRB and other factors while using other tools.
Moreover, financial performance of the sampled bank has especially been analyzed in
cross-sectional manner. Therefore, this chapter is the heart of the study, as all the findings,
conclusions and recommendation are going to be driven from the calculations and analysis
done in this section.
2.1 Ratio Analysis
Ratio analysis has been adapted to evaluate the financial health, operating result and
growth of the sampled banks. In order to analyze and interpret the tabled data, the
following ratios have been used.
-Liquidity ratios
-Leverage ratios
-Turnover ratios
-Profitability ratios
2.1.1 Liquidity Ratios
Liquidity ratios have been employed to test the ability of the banks to pay immediate
liabilities. These include current ratio, cash and bank balance to current and saving deposit
ratio, NRB balance to total deposit ratio and fixed deposit to total deposit ratio.
a) Current Ratio
The current ratio of recent five years of Everest Bank Limited has shown in the
table below:
 23

Table 2.1Current Ratio

Years Current Assets Current Liabilities Ratio
(in Lakhs) (in lakhs)
2016/17 298130 279680 1.07
2015/16 294490 246960 1.19
2014/15 269999 231704 1.17
2013/14 237850 110330 2.16
2012/13 223360 62040 3.60

The above table shows that current ratio of EBL for the study period remained
3.60:1,2.16:1, 1.17:1, 1.19:1 and1.07:1 respectively from the year 2012/13 to 2016/17. The
ratio of the bank showed slightly decreasing trend. The ratios in EBL are slightly less
which depicts that the bank could not maintain the conventional standard of 2:1. Having a
glance at the nature of assets and liabilities of the commercial banks, the ratio below the
stated standard may be accepted as satisfactory, but it signifies that the bank have the poor
liquidity position. Bank may face the problem of working capital if they need to pay the
current liabilities at demand. Delay in payment of the liabilities may lead the banks to lose
their goodwill. They will have the problem in winning the confidence of current depositors
and short-term lenders
b) Cash and Bank balance to Current and Saving Deposit Ratio
The ratios are shows that the bank’s ability to pay the immediate current obligation or
heavy current withdrawals by the current depositors. High ratio is preferable but very high
ratio is also the indicators of idle cash money which ultimately declines the rate of return
of the bank. The ratios are shown in the table below:

Table 2.2 Cash and Bank balance to Current and Saving Deposit Ratio
Years Cash and Bank Current and Saving Ratio
 24

balance (in lakhs) deposit (in lakhs) (%)

2015/16 93613.75 472795.08 19.80
2014/15 79903.25 396855.49 20.13
2013/14 37258.61 329795.67 11.30
2012/13 30107.03 291665.36 10.32
2011/12 22035.52 233675.43 9.43

The above table shows that, the ratio remained 9.43%, 10.32%, 11.30%, 20.13%,
and 19.80% in the respective years of the period. The ratio appeared in increasing trend; it
remained highest in the year 2014/15. This means ratio of EBL appeared growing higher in
recent period, which indicates that the former is more efficient in paying the immediate
obligation or EBL has the greater ability to repay the deposit i.e. EBL is more efficient to
serve the customers from liquidity point view.
c) NRB Balance to Total Deposit Ratio
The ratios are shown below:
Table 2.3 NRB Balance to Total Deposit Ratio
Years NRB Balance Total Deposit Ratio
(in lakhs) (in lakhs) (%)
2015/16 133560.18 937354 14.25
2014/15 171261.55 830937 20.61
2013/14 94469.21 621081 15.21
2012/13 82050.90 577204 14.21
2011/12 81597.53 500061 16.31

From the above table depicts that the ratios of EBL reached 16.31%, 14.21%, 15.21%,
20.61% and 14.25% in the respective years under the study. The ratio of EBL showed
decreasing trend in the period of review except the year 2014/15. It has the minimum of
14.21% in the year 2012/13 to maximum of 20.61% in the year 2014/15. In all of the years,
the ratio remained higher than 6%, the minimum standard set by NRB. It shows that it has
followed the policies formulated by the NRB which is good indicator.
d) Fixed Deposit to Total Deposit Ratio
The table presented below exhibits the ratio of fixed deposit to total deposit of EBL
for five consecutive years:
Table 2.4 Fixed Deposit to Total Deposit Ratio
 25

Years Fixed Deposit Total Deposit Ratio

(in lakhs) (in lakhs) (%)
2016/17 259990.38 937354 27.73
2015/16 197848.89 830937 23.81
2014/15 145288.58 621081 23.39
2013/14 141047.79 577204 24.44
2012/13 130074.78 500061 26.01

The above table highlights that the ratios of EBL remained 26.01%, 24.44%,
23.39%,23.81% and 27.73% in the respective years of study period. The ratios of EBL are
in decreasing trend up to year 2013/14 and start to increase and reaches highest in year
2015/16. It suggests that greater portion of total deposit in EBL will have been occupied by
fixed deposit in coming year. It can grasp the opportunity of investing the fund in more
profitable loans.
2.1.2 Leverage Ratios
Leverage ratios have been analyzed and interpreted to judge the long-term financial health
of the sampled banks. These include dept-equity ratios, debt-asset ratio, debt to total capital
ratio and interest coverage ratio.

a) Debt-equity Ratio
The debt-equity ratios of EBL are presented in the table below:
Table 2.5 Debt-Equity Ratio
Years Total Debt Total Equity Ratio
(in lakhs) (in lakhs)
2016/17 948068.25 85141 11.14
2015/16 841626.34 68903 12.21
2014/15 625769.80 54572 11.47
2013/14 585916.69 48278 12.14
2012/13 500061 41773 11.97
 26

The above table depicts that the debt–equity ratios of EBL were 11.14, 12.21, 11.47, 12.14
and 11.14 in the respective years of study period. The bank seems levered but in
comparison, EBL seems more levered in other words, capital structure of EBL is riskier
because the debt is higher in comparison to its equity. Higher debt means higher pressure
of creditors which is not good enough for the better performance of bank.
b) Debt-Asset Ratio
The debt-asset ratios of EBL are presented in the table below:
Table 2.6 Debt-Asset Ratio
Years Total Debt Total Asset Ratio
(in lakhs) (in lakhs) (%)
2016/17 948068.25 1138850.46 83.25
2015/16 841626.34 991672.93 84.87
2014/15 625769.80 704450.82 88.83
2013/14 585916.69 657411.50 89.12
2012/13 500061 558131.29 89.60

The table depicts that the ratios for EBL remained 89.60%, 89.12%, 88.83%, 84.87% and
83.25% in the respective years of study period form the years 2012/13 to 2016/17. The
ratio reflected inconsistent policy of the banks in financing the assets proportion of interest
bearing debt for the purpose. The bank has financed most of its assets through interest
bearing debt which is riskier as well as it will harm in profit generation which will
ultimately decreases the profitability condition of the Everest Bank Limited in the coming
years.
c) Debt to Total Capital Ratio
The ratios are presented below:
Table 2.7 Debt to Total Capital Ratio
Years Total Debt Total Capital Ratio
(in lakhs) (in lakhs) (%)
2016/17 948068.25 1033184.13 91.76
2015/16 841626.34 910560.11 92.43
2014/15 625769.80 680341.27 91.98
2013/14 585916.69 634195.13 92.39
2012/13 500061 541834.03 92.29
 27

Above table highlights that the ratios of EBL remained 92.29%, 92.39%, 91.98%,
92.43%,and 91.76% in the respective years of study period. The ratios of EBL are in both
decreasing and increasing trend. The analysis makes it obvious that debt capital i.e.
outsider’s fund was dominant in the capital structure of the bank. EBL seems using higher
amount of outsider’s fund rather than that of shareholders

d) Interest Coverage Ratio

The ratios are shown in the table below:
Table 2.8 Interest Coverage Ratio
Years Earning before Interest charges Ratio
interest and tax (in lakhs)
(in lakhs)
2016/17 46626.92 18284.92 2.55
2015/16 45335.93 21169.93 2.14
2014/15 47527.36 22587.36 2.10
2013/14 45807.82 21791.82 2.10
2012/13 46373.34 28733.34 1.61

Above table reveals that the ratios of EBL remained 1.61:1, 2.10:1, 1.10:1, 2.14:1
and2.55:1 in the respective year of review period. The ratio in EBL depicted increasing
trend up to the last year. In all the years of study period, the fund available for the payment
 28

of interest remained more than the requirement; however, the margin was not satisfactorily
high.
2.1.3 Turnover Ratio
Turnover ratios have been used to evaluate the efficiency that how the bank has managed
and utilized their assets. These, include loans and advances to total deposit ratio,
investment total deposit ratio, performing assets to total assets ratio.
a) Loans and Advances to Total Deposit Ratio
The loan and advances to total deposit ratio shows that to what extend the bank is using its
total deposit in profit generating purpose. High ratio is preferable because higher the ratio
higher the net income of the bank and lower the ratio lower the rate of return of the bank.
So, the bank should always try to maximize its loan and advances to total deposit ratio. The
ratios are shown in the table below:

Table 2.9 Loan and Advances to Total Deposit Ratio

Years Loan and Advances Total Deposit Ratio
(in lakhs) (in lakhs) (%)
2016/17 689115 937354 73.52
2015/16 553635 830937 66.63
2014/15 485403 621081 78.15
2013/14 441977 577204 76.57
2012/13 366168 500061 73.22

Above table exhibits that the ratios of EBL remained 73.22, 76.57, 78.15, 66.63 and
73.52percent in the respective years of study period. EBL ratio increases in three years
than decreased to 66.63 in second last year from 78.15in the base year. The trend of the
ratioin EBI showed that in spite of decrease in the final year, there remained higher
utilizationcapacity in each succeeding year. In last year, fall in the ratio could be noticed
due to theincrease in the amount of deposit by large volume than the volume of loans and
advances.
b) Investment to Total Deposit Ratio
 29

The ratios are shown in the table below:

Table 2.10 Investment to Total Deposit Ratio
Years Investment Total Deposit Ratio
(in lakhs) (in lakhs) (%)
2016/17 181987 937354 19.41
2015/16 151026 830937 18.18
2014/15 65042 621081 10.47
2013/14 92638 577204 16.05
2012/13 78636 500061 15.73

he above table exhibits that the ratio of EBL remained 15.73%, 16.05%, 10.47%, 18.18%
and19.41% respectively. In EBL it showed fewer increasing trend. It arrived to 19.41% in
the last year from 15.73% beginning year of the review period. The ratio came much
higher in recent years, which signifies that EBL has more successfully allocated its deposit
in investment portfolio. The ratio depicts that the investment of deposit in recent years are
increasing which is good and better utilization of the deposit.
c) Performing Assets to Total Assets Ratio
The ratios are shown in the table below:
Table 2.11 Performing Assets to Total Assets Ratio
Years Performing Assets Total Assets Ratio
(in lakhs) (in lakhs) (%)
2016/17 861538.46 1138850.46 75.65
2015/16 695851.39 991672.93 70.17
2014/15 540762.09 704450.82 76.76
2013/14 526570.45 657411.50 80.10
2012/13 437745.74 558131.29 78.43

According to above table, the ratio of EBL remains 78.43%, 80.10%, 76.76%, 70.17%
and75.65% in the corresponding years of the period. The ratio in the bank increased in the
first two year then, it declined in the latter year and again increased in last year. The ratio
of bank has similar trend throughout the study period. EBL utilized its assets in terms of
loans and advances, investment and bill discounting and purchasing more effectively in the
first two year and in last year.
 30

2.1.4 Profitability Ratio

Profitability ratios have been employed to measure the operating efficiency of the sampled
bank. For the purpose return on asset, return on equity, earning per share, dividend per
share have been analyzed and interpreted.

a) Return on Total Assets (ROA)

The table below shows the percentage of return on assets:

Table 2.12 Return on Total Assets (ROA)

Years Net Profit Total Assets ROA
(in lakhs) (in lakhs) (%)
2016/17 17302 1138850.46 1.52
2016/15 15743 991672.93 1.59
2013/1 15497 704450.82 2.2
2012/13 14711 657411.50 2.24
2011/13 10906 558131.29 1.95
The above table demonstrates that the ratio in EBL remained 1.95%, 2.24%, 2.2%, 1.59%
and1.52% in the respective years of review period. In EBL, the ratio showed fluctuating
trend. It rose in the second year but declined after the second year of the review period up
to the recent last year. The ratio shows that the return on the assets employed by EBL is in
decreasing which indicates that the assets is not being properly utilized in income
generation as compared to the old period of review period.
b) Return on Equity (ROE)
The returns on equity are shown on the table below:
Table 2.13 Return on Equity (ROE)
Years Net Profit Total Equity ROE
(in lakhs) (in lakhs) (%)
2015/17 17302 85141 20.32
2015/16 15743 68903 22.85
 31

2014/15 15497 54572 28.4

2013/14 14711 48278 30.47
2012/13 10906 41773 26.11
Above table depicts that the ratios in EBL for the respective years of the study period
were26.11%, 30.47%, 28.4%, 22.85%, and 20.32%.In EBL, it remained increasing, for
first years of the study period and decreases up to the last years of study period. But it is
not satisfactory in the last year. It has decreased by 22.18% during the study period. This
indicates that the earning of EBL former with respect to the shareholder’s fund is
decreasing in the recent years of study which indicates poor use of the shareholders fund in
profit generation sector.
c) Return on Total Deposit
The ratios are shown in the table below:
Table 2.14 Return on Total Deposit
Years Net Profit Total Deposit Ratio
(in lakhs) (in lakhs) (%)
2016/17 17302 937354 1.85
2015/16 15743 830937 1.89
2014/15 15497 621081 2.50
2013/14 14711 577204 2.55
2012/13 10906 500061 2.18

Above table exhibits that the ratios in EBL remained 2.18%, 2.55%, 2.50%, 1.89%
and1.85% for the respective years of research period. In EBL, ratios are in decreasing trend
over the four years of period, ratio in the fiscal year 2013/14 is increased to 2.55%. During
the observation period ratio is decreased by 15.14%. The above ratios show that the
earning on deposits is not satisfactory because the ratio is decreasing in each of the recent
years. It is because the bank is not able to utilize the collected deposit in the productive
sector so that the profit can be generated.
 32

d) Earning Per Share (EPS)

EPS of the EBL are shown in the table below:
Table2.15 Earning Per Share (EPS)
Years Net Profit Number of shares EPS
(in lakhs)
2016/17 17302 26226041 65.97
2015/16 15743 20173878 78.04
2014/15 15497 18012391 86.04
2013/14 14711 16011264 91.88
2012/13 10906 12316357 88.55

This table depicts that the EPS in EBL were Rupees 88.55, 91.88, 86.04, 78.04 and 65.97
in the respective years of review period. The ratioin EBL is sharply increased for the first
one year and then decreased in the all four recentyears. In overall EPS is decreased by
25.50% in last year in comparison to the first year.The net profit in EBL is increased by
1.59 times in the same period. Net income has increased in the study period but the EPS
has decreased in the same period because EBL have issued the new shares in large number
within that period.
2.2 Major Findings of the Study
The following findings have been derived form the analysis and interpretation of
data:
1) Liquidity Position
 In term of current ratio the bank is below than the normal standard butin first two
years EBL has maintained its normal standard. The ratios of EBL indicates that it is
riskier and there are fluctuations in the ratios and are decreasing
 In term of Cash and bank balance to current and saving deposit ratio the ratios are
in increasing trend which is better that it can pay off its current obligation in
immediate demand. On the other hand, this shows that the bank is unable to invest
its current deposits in productive or profitable area.
 33

 In term of NRB balance to deposit ratio, EBL has maintained the ratio higher than
the requirement which indicates that EBL is loyal to the policies of NRB.
 Ratio of fixed deposit to the total deposit ratio came higher in EBL in recent years.
It means that EBL can grasp the opportunity of investing the fund in more
profitable sectors like long term loans. On the other hand, EBL can utilize less cost
bearing fund in current assets and hence to strengthen the liquidity position.
2) Leverage ratio or Capital Structure ratio
 The total debt to shareholders equity ratio describes the lenders contribution for
each rupee of the owners’ contribution. The ratio is higher in EBL. High total debt
to shareholders equity ratio refers that the use of debts by the bank helps to enhance
the rate of return of shareholders fund.
 While comparing total debt to total assets ratio, the ratio of EBL from above
analysis, is high and is in decreasing trend which implies that EBL has riskier debt
financing position as over the study period.
 In respect of Debt to total capital ratio the bank is using maximum debt in financing
its total capital.
 In terms of in terms of interest coverage ratio the bank has adequate operating
profit to pay the interest and also it is increasing which indicates better profitability
position of EBL.
3) Activity or Turnover Ratio
 The loan and advance to total deposit ratio is employed to measure the utilization of
their total deposit on loan and advances. The ratio of EBL isin fluctuation trend but
in recent years it has increased. It shows that bank hasbetter utilization of deposits
in recent years of study in profit generation sector.
 The investment by total deposit ratio measures the capacity utilization. It shows
that greaterfluctuation in ratios of EBL. From the above analysis it is employed
thatEBL is utilizing its deposits more on investment in recent years of study period.
It has better position in utilizing itsproportion of deposits in investment in order to
generate higher level of profit.
 34

 In terms of performing assets to total assets ratio the bank’s ratio has decreased first
but increased at last which indicates the bank has employed most of its assets in
direct income generation.
4) Profitability Ratio
Profitability ratio is measurement of efficiency and the search for itprovides the
degree of success in achieving desired profit.
 Profitability in term of Net Profit to total assets ratio of EBL is found in fluctuating
trend but in recent years it is decreasing. EBL has managed to earn a somehow
steady rate of return on its assets employed in each fiscal year which concludes that
EBL has found better performance by utilizing overall resources.
 Net Profit to Total Equity ratio of EBL has increased in first two year but it has
decreased to all recent years which indicate that poor profitability condition of the
bank.
 Return on total deposit has also been increased in first two years and decreased in
all recent years and same condition in the earning per share of the bank.
 Dividend per share is in fluctuation trend but it has provide adequate dividend to
satisfy its owners.
 35

CHAPTER III
SUMMARY AND CONCLUSION
This chapter is dedicated to provide conclusions after comparatively analyzing the
financial performance of joint venture bank named Everest Bank Limited. It also tries to
provide some recommendations to the concerned bank from the conclusion derived from
the study.
3.1 Summary
A bank is a financial institution and a financial intermediary that accepts deposits and
channels those deposits into lending activities. Banks, which deal with commercial
activities, are known as commercial banks. These financial institutes help to integrate
every financial activity of the community. The main objective of a commercial bank is to
play a vital role in the development of good trade.
Commercial banks are mechanisms of mobilizing funds in returnable resources.
They offer financial support to all types of business through providing various types of
loans and other financial services. Commercial banks aid the economic development of the
nation.
Commercial banks pool together the savings of the community and use the funds
productively through prudent investments. The commercial act 2031 defines a commercial
banks as a bank which deals in exchanging currency, accepting deposits, giving loans an is
involved in commercial activities.
Integrated and speedy developed of the country is possible only when competitive
banking service reach every nooks and corners of the country. Today number of
commercial bank are concentrated in only few places because lack of development of
infrastructure in remote places. Government must give attention toward remote places.
Bank plays vital role in the economic development of nations. So today it is challenging
for government to formulate the new banking policy rationally in remote area. Actually
more than 60% of total areas of Nepal are covered with rural areas. For the economic
development of rural areas it is necessary to provide banking services in rural areas.
The research work should have reached the destiny where we satisfy with the
queries of research problems which were specified in the statement of the problem in the
 36

introductory chapter. To conduct the research work, the researcher consulted mainly the
secondary sources such as documents published by concerned banks and also consulted the
personalities of the related bank as primary sources where as necessary. Before
representing and analyzing the data, there was also need to review of related books, prior
research on the topic. Obviously, it helped the researcher to construct conceptual
framework and to analyze and interpret the secondary data according to objective set forth
previously. Then the research work was analyzed and interpreted by financial tools such as
liquidity ratio, activity turnover ratio, leverage ratio, earning per share, profitability ratio
and dividend per share
In this way, the researcher analyzed and presented the 4th chapter, which was the
main body of the research work. On the basis of data analysis and presentation, the
researcher extracted some major findings. It has been explained along with the data
analysis and presentation. 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 real performance of bank, the researcher observed and analyzed the
comparative performance analysis of Everest bank for five years period. It is hoped that the
comparative performance analysis of the Everest bank will give a rational result and
represent the overall banking scenario in terms of performance analysis.
 37

3.2 Conclusions
Establishment of commercial banks especially joint venture banks have continued
in response to the economic liberalization policies of the government. So, now in Nepal
there are thirty (research period) commercial banks competing with each other in their
business. These joint venture banks are mainly concentrated themselves on financing
foreign trade, commerce and industry. This study has been mentioned already that the
research concentrates only on the joint venture bank i.e. EBL. The researcher has evaluated
data for the least 5 years period i.e. 2012/13 to 2016/17. The researcher has analyzed the
data by using financial tools like ratio analysis in this study.
 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 EBL are below the normal
standard (i.e. 2:1). It shows that the liquidity position in term of current assets to
current liabilities of EBL is better in first two years then declined to below normal
standard. So, it is concluded that EBL is not in better short-term solvency position.
The Liquidity position of cash and bank balance to current and saving deposit ratio
of EBL is higher in all recent years. So, it is concluded that EBL has sufficient cash
and bank balance to pay off its current deposit obligation. Here, EBL has so high
ratio that it is not better because “ideal assets earn nothing”. So, the bank should
invest in productive area. In the same way, fixed deposit to total deposit ratio of
EBL is better in recent years. The ratio of EBL is higher. So, the higher ratio of
fixed deposit to total deposit ratio indicates the strong liquidity position.
 The activity turnover ratio is used to examine the efficiency with which the firm
manages and utilizes its assets. The activity turnover of EBL in terms of loan and
advances to total deposit ratio is slightly higher in the recent years of study. From
the analysis; it is concluded that EBL has been successfully utilized their deposits
in term of loan and advances for profit generating purpose in recent years compared
to past years. In terms of investment by total deposit ratio of EBL has higher
fluctuation ratio but the ratio is high in recent years. So, it can be concluded that
EBL is successful in utilizing its deposits on investment for income generating
 38

purpose. So in term of investment by total deposit ratio, EBL seems better in recent
years.
 The capital structure position in terms of total debt to shareholders equity ratio of
EBL seems consistent in the period but considerably high. The average of total debt
to shareholders equity ratio implies that the proportion of outsiders claim, in the
total capitalization, is higher in EBL. It seems relatively more leverage. Thus, EBL
has more risky and aggressive capital structure. Total debt to total assets ratio
implies a bank’s success in exploiting debts to be more profitable as well as its
riskier capital structure. The average of total debt to total assets ratio of EBL is in
decreasing trend which means EBL is moving from riskier to non riskier capital
structure. From this analysis, debt to total capital ratio is consistent in all years
which means that bank has increased both in equal proportion. And the interest
coverage ratio clearly defines that EBL has generate enough income to pay its
interest obligation.
 Profitability ratio is measurement of efficiency. It provides the degree of success in
achieving desired profit. Profitability in terms of net profit to total assets ratio, net
profit to total deposit ratio, return to net worth (shareholders equity), Earning per
share, EBL ratio is in decreasing trend. Thus, it can be concluded that EBL is not
getting good return from its investment. The analyzed data proved that the major
source of income of bank i.e. EBL is interest receipt. The dividend distributed
among the shareholders is in fluctuation trend but considerably high.