Siddhartha Campus

CREDIT MANAGEMENT OF COMMERCIAL BANKS IN

NEPAL (WITH REFERENCE TO NEPAL INVESTMENT BANK
LIMITED, NABIL BANK LIMITED AND HIMALAYAN BANK
LIMITED)

A Thesis

Shridhar Upadhyay
Siddhartha Campus
Exam Roll No. 4110012
T.U. Registration No. 7-2-411-111-2012

Submitted in partial fulfillment of the requirements for the Degree of

Master of Business Studies (MBS)
Faculty of Management
Tribhuvan University

Banganga, Kapilvastu
December, 2021
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Recommendation

This is to certify that the thesis

Submitted by:
SHRIDHAR UPADHYAY

Entitled:
CREDIT MANAGEMENT OF COMMERCIAL BANKS IN NEPAL (WITH
REFERENCE TO NEPAL INVESTMENT BANK LIMITED, NABIL BANK
LIMITED AND HIMALAYAN BANK LIMITED)

has been prepared as approved by this department in the prescribed format of the
Faculty of Management. This thesis is forwarded for examination.

..………..…………. ..………..…………. ……………..…………

Indramani Pandey Kamal Prasad Pokhrel Khemraj Sharma
(Thesis Supervisor) (Head, Department of Management) (Campus Chief)

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Viva-Voce Sheet
We have conducted the viva–voce of the thesis presented

by
SHRIDHAR UPADHYAY

Entitled:
CREDIT MANAGEMENT OF COMMERCIAL BANKS IN NEPAL (WITH
REFERENCE TO NEPAL INVESTMENT BANK LIMITED, NABIL BANK
LIMITED AND HIMALAYAN BANK LIMITED)

And found the thesis to be the original work of the student and written according to
the prescribed format. We recommend the thesis to be accepted as partial
fulfillment of the requirements for
Master Degree in Business Studies (M.B.S.)

VIVA-VOCE COMMITTEE

1. Head, Department of Management (Kamal Prasad Pokhrel) ………………..

2. Member Thesis Supervisor (Indramani Pandey) ………………..

3. Member External Expert ………………..

Date:…………………

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Declaration

I hereby declare that the work reported in this thesis entitled “CREDIT
MANAGEMENT OF COMMERCIAL BANKS IN NEPAL (WITH
REFERENCE TO NEPAL INVESTMENT BANK LIMITED, NABIL BANK
LIMITED AND HIMALAYAN BANK LIMITED)” submitted to Office of the
Dean, Faculty of Management, Tribhuvan University, is my original work done in the
form of partial fulfillment of the requirement for the degree of Master of Business
Studies (MBS) under the supervision of Mr. Indramani Pandey lecturer of Siddhartha
Campus, T.U.

....…….….…………
Shridhar Upadhyay

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Acknowledgements

As the partial fulfillment of the MBS degree, I have prepared this thesis. During the
course, I worked with sincerity, honesty and diligence. Besides my continual efforts, I
also got unforgettable support from different people. I am extremely grateful and
overwhelmed by their support while completing my work.

Firstly, I owe a debt of gratitude to my respected thesis supervisor, Mr. Indramani

Pandey lecture of faculty of management for his help and clear guidance right from
the time of selection of the topic and throughout the course of the research. I would
also like to thanks out head, management of department Mr. Kamal Prasad Pokhrel,
our campus chief Mr. Khemraj Sharma and lecturers Mr. Ujjwal Adhikari for
supporting to research project all my respected teachers at Siddhartha Campus for
their kind support and valuable suggestions.

I owe great intellectual debt to campus library and librarian, Siddhartha Campus for
providing several books and articles while preparing this thesis. I am thankful to all of
my friends and seniors who assisted me in secondary data analysis and every steps of
the work.

I would like to convey my sincere thanks to my family members who supported and
encouraged me throughout the course of the study. My sincere thanks also go to all
friends and well wishers who helped me directly and indirectly during this study.

Shridhar Upadhyay

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Table of Contents

Page No.
Title Page of the Thesis
Recommendation ii
Viva-Voce Sheet iii
Declaration iv
Acknowledgements v
Table of Contents vi
List of Tables viii
List of Figures ix
List of Abbreviations x
CHAPTER-I : INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problem 3
1.3 Objectives of the Study 4
1.4 Test of Hypothesis 4
1.5 Significance of the Study 5
1.6 Limitations of the Study 6
1.7 Organization of the Study 6
CHAPTER-II : REVIEW OF LITERALURE
2.1 Conceptual Review 8
2.1.1 Concept of Credit 8
2.1.2 Criteria for Providing Loan 8
2.1.3 Various Types of Credit 9
2.1.4 Principle of Good Lending 15
2.1.5 Some Important Terminology 16
2.1.6 Lending and Recovery Management of Commercial Bank 17
2.1.7 NRB Guidelines Affecting Investment and Fund Mobilizing Policy of
Commercial Banks 22
2.2 Reviews of Related Studies 25
2.2.1 Review of Related Journals/Articles 25
2.2.2 Review of Related Thesis 27
2.3 Research Gap 28
2.4 Theoretical Framework 29

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CHAPTER-III : RESEARCH METHODOLOGY

3.1 Research Design 30
3.2 Population and Sample 30
3.3 Sources of Data Collection Procedure 30
3.4 Data Processing and Presentation 31
3.5 Data Presentation and Analysis Tools 31
3.5.1 Simple Tools 31
3.5.2 Statistical Tools 31
CHAPTER-IV : DATA PRESENTATION AND ANALYSIS
4.1 Deposit Collection of NIBL, NABIL and HBL 34
4.2 Types of Deposit Collection 35
4.2.1 Types of Deposit Collected by NIBL 36
4.2.2 Types of Deposit Collected by NABIL 37
4.2.3 Types of Deposit Collected by HBL 39
4.3 Total Loan Disbursement of NIBL, NABIL and HBL 40
4.4 Loan Disbursement to Deposit Collection 42
4.4.1 Loan Disbursement to Deposit Collection of NIBL 42
4.4.2 Loan Disbursement to Deposit Collection of NABIL 44
4.4.3 Loan Disbursement to Deposit Collection of HBL 45
4.5 Loan Loss Provision Made by NIBL, NABIL and HBL 46
4.6 Non-Performing Loan to Loan Disbursement 47
4.7 Correlation Analysis 48
4.7.1 Correlation between Deposit Collected and Loan Disbursed 48
4.7.2 Correlation between Loan Loss Provision and Loan Disbursement 49
4.7.3 Correlation between Loan Loss Provision and Non-Performing Loan 50
4.8 Test of Hypothesis 51
4.9 Major Findings 52
CHAPTER - V : SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 55
5.2 Conclusion 56
5.3 Recommendations 57
Bibliography
Appendices

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List of Tables

Table No. Title Page No.

4.1 Deposit Collected by NIBL, NABIL and HBL 34

4.2 Types of Deposits Collected by NIBL 36
4.3 Types of Deposits Collected by NABIL 38
4.4 Types of Deposit Collected by HBL 39
4.5 Total Loan Disbursement of NIBL, NABIL and HBL 41
4.6 Loan Disbursement to Deposit Collected of NIBL 43
4.7 Total Loan Disbursement to Deposit Collected of NABIL 44
4.8 Loan Disbursement to Deposit Collected of HBL 45
4.9 Loan Loss Provision to Loan Disbursement (%) 46
4.10 Non- Performing Loan to Loan Disbursement (%) 47
4.11 Coefficient of Correlation between Deposit Collected and Loan Disbursed 49
4.12 Correlation between LLP and Loan Disbursement 49
4.13 Correlation between NPL and Loan Disbursement 51

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List of Figures

Figure No. Title Page No.

4.1 Deposit Collected by NIBL, NABIL and HBL 36

4.2 Types of Deposits Collected by NIBL 37
4.3 Types of Deposits Collected by NABIL 39
4.4 Types of Deposit Collected by HBL 40
4.5 Total Loan Disbursement of NIBL, NABIL and HBL 42
4.6 Loan Disbursement to Deposit Collected of NIBL 43
4.7 Total Loan Disbursement to Deposit Collected of NABIL 44
4.8 Loan Disbursement to Deposit Collected of HBL 45
4.9 Loan Loss Provision to Loan Disbursement (%) 47
4.10 Non- Performing Loan to Loan Disbursement (%) 48

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List of Abbreviations

% : Percent

+/- : Increase or Decrease

ATM : Automated Teller Machine

B.S. : Bikram Sambat

BOK : Bank of Kathmandu

DICGC : Deposit and Credit Guarantee Corporation

EBL : Everest Bank Limited

HBL : Himalayan Bank Limited

i.e. : That is

IPO : Initial Public Offering

IRR : Internal Rate of Return

KBL : Kumari Bank Limited

L.U. : Lincoln University

LD : Loan Disbursement

LLP : Loan Loss Provision

Ltd. : Limited

MBA : Master of Business Administration

NABIL : Nabil Bank Limited

NEPSE : Nepal Stock Exchange

NIBL : Nepal Investment Bank Limited

No. : Number

NPL : Non Performing Loan

NRB : Nepal Rastra Bank

PE : Probable Error

PPA : Power Purchase Agreement

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r : Correlation

r2 : Coefficient of Determination

Regd. : Registration

ROI : Return on Investment

Rs. : Rupees

SCBNL : Standard Charted Bank Nepal Limited

SWOT : Strength Weakness Opportunity Threat

t : T-test

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CHAPTER – I
INTRODUCTION

1.1 Background of the Study

In fact, development of a country is linked with the economic development of that

country. Economic development is concerned with banking system. A great amount
of capital needs to be utilized for the economic development. It is possible to utilize a
great amount of capital only with the medium of banks. Without proper development
of banking system, there can be no economic development. The development of the
banking system is the backbone of economic development. Bank assists both the flow
of goods and services from the products to the consumers and the financial activities
of the government. Banking provides the country with a monetary system of making
payment which makes loans to maintain and increase the level of consumption and
production in the economy (Bexley, 1987).

The word credit management is divided into two parts; credit and management. Credit
means providing of overdraft, loans, discount of bills, issuance of letter of credit and
guarantee, acceptance, investment on any financial instrument (i.e. preference share,
debentures etc.) or any other actions which creates obligations or risk to the Bank’s
assets whether temporarily or permanently. Similarly, management is the process of
efficiently getting activities completed with and through other people. The
management process includes the planning, organizing, leading and controlling
activities that take place to accomplish objectives. Management must include three
common factors: goals, limited resources and people. Thus, credit management can be
defined as the process of managing the credit effectively with a goal to achieve
through the people. Here goal being the profit and effective use of sources of funds in
viable projects where the income is expected to earn smoothly by the bank. The
management of credit is approached on three levels for the commercial bank (Allen &
Powell, 2011).

The first is on a strategic level. The credit portfolio shall be structured to ensure that
no single event can have a significant adverse impact on overall performance. Also,
resources within the bank are deployed so as to take maximum advantage of

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profitable credit risk opportunities in its target markets. On a second level, the bank
establishes credit policies and procedures which provide a minimum standard for
credit activities and foster a common approach to credit risk management by
individual business units/branches. These are established to provide a prudent
framework for individual credit officers to operate within. On a third level, the bank
relies on the competence of the staff involved in credit related activities to identity
acceptable credit risks and to make sound decisions in the approval and ongoing
management of those risks (Mathur, 1990).

Credit means a direct or indirect promise to invest money and the right to recover
such amount of investment in return and the interest of such credit or payment of
other charges, the refinance given against the security of creditor investment, credit
restructuring and renewal of credit, the guarantee made for repayment of credit or any
those promise for such repayment, and the word also includes any type of debt. Credit
management means the strategy and tools used to manage the timely return the lent
fund and good loan portfolio of sector to diverse the possible risk is called credit
management.

Nepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez Bank Ltd., was
established in 1986 as a joint venture between Nepalese and French partners. The
French partner (holding 50% of the capital of NIBL) was Credit Agricole Indosuez, a
subsidiary of one of the largest banking group in the world. Later, in 2002 a group of
Nepalese companies comprising of bankers, professionals, industrialists and
businessmen acquired the 50% shareholding of Credit Agricole Indosuez in Nepal
Indosuez Bank Ltd., and accordingly the name of the Bank also changed to Nepal
Investment Bank Ltd.

Nabil Bank Limited is the nation’s first private sector bank, commencing its business
since July 1984. Nabil was incorporated with the objective of extending international
standard modern banking services to various sectors of the society. Pursuing its
objective, Nabil provides a full range of commercial banking services through its
62 points of representation. In addition to this, Nabil has presence through over 1500
Nabil Remit agents throughout the nation.

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Himalayan Bank Limited was established in 1993 in joint venture with Habib Bank
Limited of Pakistan. Despite the tough competition in the Nepalese Banking sector,
Himalayan Bank has been able to maintain a lead in the primary banking activities-
Loans and Deposits. Legacy of Himalayan lives on in an institution that's known
throughout Nepal for its innovative approaches to merchandising and customer
service. Products such as Premium Savings Account, HBL Proprietary Card and
Thousandaire Deposit Scheme besides services such as ATMs and Tele-banking were
first introduced by HBL.

1.2 Statement of the Problem

Today as we know that banking industry is one of the fast growing businesses in
Nepal. After adoption of the liberalization policy government, this banking sector has
been growing dramatically. However due to political instability, government couldn’t
be able to pay sufficient attention in this sector. In context of Nepal, many banks are
facing huge loss by lending in a huge project or industry. Still there is the trend of
giving consortium loan for a big project so to minimize risk.

Banks and financial institutions are investing in house loan, hire purchase loan for
safety purpose. Lack of good lending opportunities, banks is facing problems of over
liquidity. Nowadays, banks have increasing number of deposits in fixed and saving
account accounts but have decreasing trend in lending behaviors. So, this has caused
major problems in commercial banks. Nowadays, due to competition among banks,
the interest rate charge for loan is in decreasing trend. Due to unhealthy competition
among banks, the recovery of the bank’s credit is going towards negative trends. Non-
performing credits of the banks are increasing year by year. To control such trend
state, the regulatory body of the banks and financial institutions, NRB has renewed its
directives of the loan loss provision.

Although most of the commercial banks increase their profit and market share, the
NPA of the banks has been increasing and thus it has created problems to the banks. It
has become a burden to the banks and as per NRB rules; banks make provisions for
such bad loans accordingly. Banks are increasingly facing credit risk (or counter party
risk) in various financial instruments other than loans, including acceptances, inter

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bank transactions, financial futures, swaps, bonds, equities, options and in the
extension of commitments and guarantees, and the settlement of transactions. Most
major banks problems have been explicitly or indirectly caused by weakness in credit
management. Therefore, the banks should be very careful in making investments
decisions and further should be able to cope with the changing economy and business
environment. The research problem of the study is highlighted below:

 What are the relationship between deposit collection and loan disbursement of
selected banks?
 What are the relationship between loan loss provision and loan disbursement
of selected banks?
 What are the relationship between non-performing loan and loan disbursement
of selected banks?

1.3 Objectives of the Study

For any kind of research work or study, first of all the objectives should be
determined. It shows the way to achieve desired goals. The main objectives related to
the study are presented below:

 To examine the relationship between deposit collection and loan disbursement

of selected banks.
 To assess the relationship between loan loss provision and loan disbursement
of selected banks.
 To examine the relationship between non-performing loan and loan
disbursement of selected banks.

1.4 Test of Hypothesis

Hypothesis or significance testing is a mathematical model for testing a claim, idea or
hypothesis about a parameter of interest in a given population set, using data
measured in a sample set. Calculations are performed on selected samples to gather
more decisive information about the characteristics of the entire population, which
enables a systematic way to test claims or ideas about the entire dataset. Hypothesis
testing is a formal procedure for investigating our ideas about the world using

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statistics. It is most often used by scientists to test specific predictions, called

hypotheses, that arise from theories. In this study the researcher conclude different
five hypothesis test between different variables.

H1: Test of Hypothesis on deposit collection and loan disbursement of NIBL,

NABIL and HBL.

H2: Test of Hypothesis on loan loss provision and loan disbursement of NIBL,
NABIL and HBL.

H3: Test of Hypothesis on non-performing loan and loan disbursement of NIBL,

NABIL and HBL.

1.5 Significance of the Study

The research work done is fruitful for all the followers including the researcher. This
research work gives glance about the profile of the bank giving emphasis on the
Credit Management of the Concerned Commercial banks. The significance of credit
management the study is conducted by deposit collection and loan.

Most of the primary function of commercial bank is to accept deposits and lend
money to the needy party. Generally, a bank should be careful at the time of lending.
This study will basically focus on the forms of deposits offered by Nabil Bank
Limited and analyze how loan and deposits are related to each other. For the
development of various sectors, loan is essential. As the basic function of bank is
receiving deposits and lend money. Offering the service of deposit allows the public
to keep the money safe. Similarly, the nominal interest rate gives by the bank through
different a/c. So, this study will elaborate the forms of deposits account offer by the
bank and mean while provide information about the deposit mobilized by it.

Loans and advances are known to be the main stay of all commercial banks. They
occupy an important part in gross earnings and net profit of the banks. The share
advances in the total asset of the banks forms a lion share (almost more than 60
percent) and as such it is the back bone of banking sector. Bank lending is very
crucial for it makes possible the financing of agricultural, industrial, construction, and
commercial 8 activities of a country. The strength and soundness of the banking

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system primarily depends upon health of the advances. Therefore the ability of banks
to formulate and adhere to policies and procedures that promote credit quality and
curtail nonperforming loans is the means to survive in the stiff competition. In ability
to create and build up quality loans and credit worthy customers leads to default risk
and bankruptcy as well as hampers economic growth of a country.

However, little work is done to search the ways and means that enable to quality loan
creation and growth as well as to determine the relationship between the theories,
concepts and credit policies both at country level or regional level. Hence, this study
is assumed to be significant in indicating best practice and concepts for prudent
lending to enhance the performance of credit management to all managers and policy
makers of the bank as well as to all financial institutions and banks. Moreover, it may
help as a benchmark for researchers who are interested in the area to extend it further.

1.6 Limitations of the Study

For the completion of the study, some facts are to be considered as limitation of this
research work:

 This study is based on credit management of selected commercial bank such

as NIBL, NABIL and HBL.
 Descriptive and correlational research designs are only used for the study.
 This study is based on secondary data collection method.
 Simple and statistical tools are used in this study.

1.7 Organization of the Study

The entire study carried out to different stages and procedures, as it needed. The study
organized in the following chapters in order to make the study easy to understand.
Chapter – I: The first chapter is an introduction chapter, which contains background
of the study, introduction of commercial banks, profile of the concerned banks,
statement of problems, objectives of the study, test of hypothesis, significance of the
study, limitation of the study and organization of the study.

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Chapter – II: The second chapter is concerned with review of literature, which
contains conceptual review, review of books, review of previous study, research paper
and published articles/journals and unpublished master’s thesis.
Chapter – III: The third chapter is the most important part of the study. It deals with
the research methodology, which is applied to collect the data and analyze them in
this study. It contains research design, sources of data, population & sample, data
collection technique and data analysis tools.
Chapter – IV: The fourth chapter deals with data presentation and analysis using
statistical tools.
Chapter – V: The fifth chapter is the last part of to study, which provides summary
and conclusion, suggestions and recommendations for improving the future
performances of the sample banks. Finally, bibliography and appendices are also
presented at the end of the thesis work.

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CHAPTER – II

REVIEW OF LITERATURE

This chapter is concerned with review of literature relevant to the topic “Credit
Management of Commercial banks in Nepal with reference to NIBL, NABIL and
HBL”. Every study is based on past knowledge. The past knowledge or the previous
studies should not be ignored as it provides foundation to the present study.
Therefore, this chapter has its own importance in this study.

2.1 Conceptual Review

2.1.1 Concept of Credit

The word “Credit” is derived from Latin word ‘credo’. In Latin, language the
meaning of ‘Credo’ is ‘I believe’. Generally, credit signifies belief on circumstance or
situation. Based on the belief banks provides much more loan on limited resources.
Therefore, credit is the loan provided by the bank with its resources based on belief.

“Credit means a direct or indirect promise to invest money and the right to recover
such amount of investment in return and the interest of such credit or payment of
other charges, the refinance given against the security of creditor investment, credit
restructuring and renewal of credit, the guarantee made for repayment of credit or any
those promise for such repayment, and the word also includes any type of debt”
(Joseph 1998).

2.1.2 Criteria for Providing Loan

To put in simple words when a loan is made the following 5 C’s of Credit needs to be
evaluated by (Clemens, 1963).

1. Character: Responsibility, truthfulness, serious purpose, and serious intention to

repay all money owed make up what a loan officer calls character. First, the loan
officer must be convinced that the customer has a well-defined purpose for requesting
bank credit and serious intention to repay. The loan officer must determine that the
borrower has a responsible attitude towards using borrowed funds and is truthful in
answering the banks questions. If the loan officer feels the customer is insincere in

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promising to use borrowed fund and in repaying as agreed, the loan should not be
made to the applicant.

2. Capacity: Capacity refers to the borrower’s ability to generate sufficient cash flow
from normal operations to meet future obligations. It needs to be analyzed whether
the business has the resources (funds, income and revenue) to repay the debt. The
business should be sound enough to generate profit, which is sufficient for not only
repayment of bank loans but also provides reasonable return for the promoters.

3. Capital: It represents the funds retained in the borrowing entity to provide a

cushion against unexpected losses. A strong equity position will provide financial
resiliency to help a firm whether periods of operational adversity. Capital is often
looked at as the amount of money that you have invested into your own business. A
financial lender or an investor may be curious as to why you are seeking financial
assistance using your own assets. Many lenders or investors also want to know if you
plan to use your own money to help your business succeed when needed.

4. Collateral: Collateral is the security proposed by the borrower. The loan officer
must answer the question: Does the borrower posses adequate net worth or own
enough quality assets to provide adequate support for the loan? The loan officer is
particularly sensitive to such feature as the age, condition and degree of specialization
of the borrower’s assets.

5. Condition: The credit analyst must be aware of trends in the borrower’s line of
work or industry. It must be clear that how the changing economic conditions might
offset the loan. A loan can look very good on paper, only to have its value wear down
by declining sales or income in a recession or by the high interest rate occasioned by
inflation.

2.1.3 Various Types of Credit

Loan portfolio management deals with managing all types of credit. There are many
types of credit that commercial banks provide authors by (Beckman, 1995). This
lending can be categorized as:

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Loan and Advances Based on Their Nature

Loan and advances based on their nature can be categorized as

A. Secured Loan Advances

A secured loan and advances may be called to those loan and advances which are
granted upon taking the higher value of security as compare to the loan granted
amount. In other words, if the Distress value of security is higher than the loan
granted amount, then this loan is called secured loan and advances. Distress value is
calculated by considering market rate and government rate.

B. Unsecured loan and Advances

An unsecured loan and advances is the one which is granted by the bank without
any collateral, or granted only upon the personal guarantee of any customers or
upon corporate guarantee. Again if the bank grant loan and advances by putting in
with lower value of the security as compare to loan amount, then this types of loan is
also referred as unsecured loan and advances. Loan and advances based on the
involvement of the fund. Based on the involvement of the fund, loan and advances
can be classified as:

1. Fund Based Loan and Advances

2. Non Funded Based Loan and Advances
1. Fund Based loan and Advances

Fund based loan and advances are the direct lending of funds to the customers. In
funded based loan and advances, loan is granted directly to customer either by cash or
by manager’s cheque. It is called funded since it involves to cash. Funded based loan
and advances are as follows:

a. Overdraft

Overdraft is a short term credit given for meeting the working capital of the borrower.
Overdraft is given only for one year. If the borrower is genuine and if their interests
are not accrued or if it is really doing a good transaction, then upon its request, it can
be renewed for further one year period. Over draft is given only to meet the working
capital requirement in any business and the business unit should possess a current

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account for the purpose. In this facility, certain limit is given to a customer or
borrower and interest is charged only on used amount from the limit. Amount can be
overdrawn up to the granted limit.

b. Cash Credit

Cash credit is a drawing account against credit granted by the bank. It is also operated
in the same way as in overdraft. A borrower is required to open a cash credit account
with the bank and bank issued separate cheque for cash credit account. Bank permits
customers to borrow fund up to fixed limit. Cash credit is allowed against the security
of tangible assets. They may be hypothecation of stock, plant and machinery along
with it insurance policy favoring to bank, and other current assets.

c. Demand Loan

Demand loan is also a short term loan granted to meet borrower's fixed working
capital Requirement. Installment is required to pay on periodically installment or on
lump-sum basis. For this a customer is required to open separate Demand loan
account. If demand loan once is repaid in full or in part, then it can’t be withdrawn
again by the customer.

d. Bridge Loan

Bridge loan is another short term loan granted to meet immediate requirement of fund
especially for any project. It is basically a loan meant for bridging the fund. Like in
demand loan, if once bridge gap loan is credited, the borrower is not allowed to
withdrawn the loan.

e. Pledge loan

Pledge loan is the bailment of the goods as security for payment of a debt or
performance of a promise. Bailment is the delivery of the goods by one person to
another for some purpose upon a contract. After the purpose is completed those goods
are to be return to the delivering person. A pledge may be in form of goods, stocks or
any movable property.

f. Hire Purchase Loan

Hire purchase loan means financing on vehicles to the customers by the bank. It is a

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credit facility introduced to finance the customer durables like motor vehicles or
contractor equipment’s. In this facility customers or borrowers are required to pay
some portion of amount and the remaining shall be financed by the bank. Generally
upon receiving the pro-forma invoice and marking to the cost as per pro forma
invoice, bank shall finance up to some cost considering the borrower's repayment
capacity and remaining should be borne by a customer. The financed vehicle will be
in the name of bank. The financed vehicle should be insured by the customer favoring
to the bank.

g. Housing Loan

Housing loan is granted for the construction of house, purchase of house,

purchase of land, extension of the house, repair and maintenance of the house for
the borrower. A certain cost required for above purposes is sketched by an engineers
or an engineering consultancy. Making base to that sketched figure, bank will finance
portion of amount seeing the borrower's repayment capacity. Borrowers should insure
the proposed house favoring to the bank.

h. Personal Loan

Personal loan is granted to the individuals or borrower to meet their cash requirement
for social function and rituals and personal cash management. This loan is borrowed
to those borrowers who has good income sources and can repay it timely.

i. Term Loan

Term loan is given for financing capital /fixed expenses on the project, ongoing
and upcoming projects. Term loan is provided to purchase or import of plant,
machinery, furniture, equipments etc. Term loan are relatively granted for relatively
longer period & are repayable on installment basis.

j. Consortium Loan

Consortium loan is participation finance. If one bank will not be able to grant higher
amount of loan either due to Single Obligor Limit or due to cash crisis, then
participating with other banks, or financing mutually with other bank refer to
consortium loan. More than one bank mutually agrees to grant loan to a borrower

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involves consortium credit or consortium financing. Under the consortium agreement,

the participating banks acquire common interest and share the advances and securities
on predetermined proportion.

k. Loan against Fixed Deposit Receipt

If any customer has fixed deposit in bank and that is not matured, then that customer
can enjoy loan against Fixed Deposit Receipt when he needed fund urgently. Bank is
bound to advance credit against same receipts.

l. Loan Against Share

Some bank may provide loan against lien of share certificate. The share should be in
listing in Stock Exchange.

m. Loan Against Gold

Some bank grant loan against gold by taking gold as a security. If the borrower is
seeking lesser amount of fund, then some bank grant them loan upon submission of
their gold as collateral.

2. Non Funded Based Loan and Advances

There are some such advances which do not involve the fund in their grant. These
kinds of advances are called non funded advances. In such advances bank only make
commitment that in case of borrowers default, the bank will make well the loss as per
the terms made in contract. If the borrower defaults on this advanced, it will convert
to fund based advances. None funded loan and advances are as follows:

a. Bank Guarantee

Bank gives guarantee to third part or beneficiary on behalf of their customers. Bank
guarantee is a written letter of undertaking issued by a bank, committing to make the
losses good to the third party in case of non compliance of the terms of the contract.
In bank guarantee, three parties are involved.

- The principal debtors on behalf of whom the guarantee is issued

- Beneficiary on favor of who guarantee is issued

- Guarantor who issue bank guarantee.

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Bank Guarantee are following types:

i) Bid Bond Guarantee

Bid bond guarantee is issued by a bank favoring the beneficiary on behalf of it's
customer for bidding the tender.

ii) Performance Bond Guarantee

Performance Bond Guarantee is issued by a bank favoring the beneficiary on behalf

of it's customer to whom the tender is awarded.

iii) Advance Payment Guarantee

Advance Payment Guarantee is issued by a bank to beneficiary on behalf of it's

customer for receiving the mobilization fund from beneficiary as per the contract.

iv) Maintenance Guarantee

Maintenance Guarantee assures the beneficiary of financial compensation to the

extent of Maintenance guarantee in case of non maintenance by the debtor.

v) Retention Guarantee
Retention Guarantee assures the creditors of financial compensation to the extent of
retained money if some defects are noticed in job accomplished by the debtors till a
specific period.
vi) Custom Guarantee
Custom Guarantee assures the customs financial compensation to the amount of
guarantee if goods are not taken out of the country by a specified time.
vii) Judicial Guarantee
Through judicial guarantee, the bank assures the court that the money will be
available on the first demand of the court if the decision goes against the accused on
whose behalf the guarantee is issued.
b. Letter of Credit
Letter of Credit; also know as Documentary Credit is a credit letter issued by a bank.
It is a bank’s conditional undertaking of payment. It is an instrument for making
payment against documents. It is a document which ensures payment importer or
buyer and Export or seller. It is an undertaking by the importer's bank that if the

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exporter exports the goods and produces document as stipulated in documentary

credit, the bank would make payment to the exporter.
2.1.4 Principle of Good Lending
All loan and Advances extended to the borrower shall be returned back after maturity
as per the terms and conditions stipulated at the time of approval. All lending officer
must study the ability of the borrower to repay the loan. Borrowers may not be able to
repay the loan or they are not willing to repay the loan. So, for this purposes, bank
should undertake the borrower's security to safeguard the loan. Banks extends credit
facilities based under certain principles such principles are regarded as credit policy
authors by (Swani, 1979). The major principles of good lending are:
a. Safety
"Safety First" is most important principle of good lending. When a bank lends, then
the bank should confirm on their lending whether they are safe or not. The bank shall
ensure that the advances when granted to the right customers and is utilized in such a
way that the advances are safe for all time.
b. Liquidity
It is not enough that the loan will come back; it is also important that the advances
granted to the customer must come on demand or in accordance with the agreed terms
of repayment. The source of repayment must be definite.
c. Profitability
The main goal of bank is to earn profit. For this, the bank is required to increase its
investment without letting the fund remain idle. The bank should try to invest only on
those projects from which it can ensure goods and timely interest income. But bank
never should forget its own liquidity condition while lending huge number of loans.
Secured and long term loan can give good income.
d. Security
No matter how attractive the interest or rate is but there is always possibility of loan
being default if it is unsecured. Security means adequate collateral having good value
which can easily sold if required. Besides security, the bank should also integrate
upon the financial position and status of borrower while lending loan.

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e. Diversification
The bank should not concentrate on only one sector while extending the loan. It
should try to diversiyear its investment. It should mobilize its resources on various
collateral, various assets, different business and different individuals and organization.
This will help to reduce the banks risk in greater extent.
f. National Interest
Even when an advance satisfies, all the above principles it might not be suitable if it
does not take into account the national interest. Banks are required to grant advances
on those sectors, which are priorities by the government on time to time in meeting
the national requirements. The bank should invest on such sectors as per the
government or Nepal Rastra Bank.

2.1.5 Some Important Terminology

The study in this section comprises of some important banking terminology for which
efforts have been made to clariyear the meaning, which are frequently used in this
research work authors by (Singh, 2063). They are as follows:

a. Deposits

Deposits are the most important source of the liquidity for each commercial bank. For
financial strength of banks, it is treated as a barometer. In the word of Eugene, “a
banks deposit is the amount that it owes to its customers.” A deposit is the life blood
of the commercial banks. Even though, they constitute the great bulk of bank
liabilities, the success of a bank greatly depends upon the extent to which it may
attract more and more deposits. For accounting and analyzing purpose, deposits are
categorized in three heading. They are -

i. Current Deposit/ Demand Deposit

The deposit in which an amount is immediately paid at the time of any account
holder’s demand is called demand deposit or current deposit. The bank does not
provide interest in this deposit.

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ii. Saving Deposit

The bank can collect fund through the saving deposit. According to Commercial
Bank Act 2031, Saving Account means, “an account of amounts deposited in a bank
for saving purposes”. Generally, in saving account there are certain restrictions like
maximum amount that can be deposited and on withdrawal of the amount also. In this
type of deposit, customers get some interest on the deposit.

iii. Fixed Deposit

According to the Commercial Bank Act 2031, Fixed Account means “an account of
amounts deposited in a book for certain period of time. The customers opening
account deposit their money in this account for a fixed period. It is also called time
deposit because this amount is deposited for a certain period. The rate of interest is
higher than the saving or other account as the banks use this amount for making
investments and granting loan and advances.

b. Loans and Advances

Commercial banks main functions are to create from its borrowed fund. Loans and
advances dominate the asset side of the balance sheet of any bank and constitute the
primary sources of income to the banks. Loans and advances may take different forms
and are allowed against various types of securities. Loans, overdraft, discounting of
bills of exchange etc. are some of the forms of bank lending. Granting loans and
advances always carries a certain degree of risk.

c. Past Due/Overdue

An amount due under any credit facility is treated as past due or overdue when it has
not been paid on the due date fixed by the bank.

d. Loan Classification

Though all the loans are good at the time of disbursement with the passes of time,
they show the sign of problem. Based on the health of loan, the loan should be
classified and provided accordingly. In the context of Nepal, according to NRB
guidelines, loans are classified into four categories. They are Pass, Substandard,
Doubtful and Loss.

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e. Events-of-Default

When the borrower violates the terms and condition of a loan agreement, after
receiving loan, such situation is called the event-of-default. Event-of-default can be
divided into two parts: Willful defaulter and Non-willful defaulter. In the part of loan
agreement, it should be specified that what actions the bank is legally authorized to
take in order to secure the recovery of its funds, incase the borrower violate the terms
of loan agreement.

f. Performing Loans

Good loans and advances are called performing loans. Performing loans are those that
repay principal and interest to the bank from the cash flow it generates. Only loans
falling under ‘PASS’ category is termed as “Performing loans”. Pass category is
known as, all loans and advances the principal of which are not past or past due for a
period up to 3 months.

g. Non-Performing loans/Non-Performing Assets

Non-Performing loans are those loans that do not repay principal and interest to the
bank timely. Loans falling under ‘Substandard’, ‘Doubtful’, and ‘Loss’, categories are
termed as “Non-Performing loans”. The details and classification standards of non-
performing loans vary from country to country as the country put in place norms as
per the requirements of their own banking system. The ratio of NPL’s is derived
through dividing the total amount of non-performing loans by total outstanding of
loan and advances.

h. Loan Loss Provision

There is associate risk in every loan. To minimize the risk from possible losses of
these loans bank has to allocate some funds as loan loss provision. Loan loss
provision is made as cushion against possible losses and to reflect the true picture of
banks assets. Hence, there is a practice of showing net loss (total loan – loan loss
provision) in the financial statement instead of gross loan. The level of provisioning is
depended upon the level of NPL’s and their quality. The ratio of provision may differ
from nation to nation. In the context of Nepal, NRB has prescribed 1%, 25%, 50%
and 100% provision for Pass, substandard, doubtful and loss loans respectively.

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2.1.6 Lending and Recovery Management of Commercial Bank

A. Loan Disbursement Process of Commercial Bank

Broadly, commercial banks provide three types of loan – Corporate loan, Business
loan and Consumer loan.

Commercial bank follows several steps to disburse loan to the borrowers. The lending
policies followed by the banks might be similar to the other banks. In general, the
steps may be listed as under authors by (Shrestha, 1993).

a) Application

The banks that consist of all details related to the particular loan provide application
forms. The needy are required submitting the form with all the required documents.
Generally, the documents required by the banks for further processing the application
form could be listed as under the loan application. The bank needs some documents
for loan approval they are loan application, citizenship certificate of applicant, salary
certificate, renewed firm, company registration certificate, income tax registration
certificate, latest audited financial statement, feasibility report. The authenticated
“Partnership deed” in case of partnership firm, memorandum and article of
association in case of company, citizenship certificate of proprietor/partners/
promoters/guarantors along with share holding percent. The letter of authority
authorizing to sign loan deed and other relevant document paper which are deemed
necessary while dealing with bank on behalf of firm company and loan deed.

b) Loan Appraisal and Processing

Once the application form and the relevant document are submitted the difficult task
of banks starts. The viability of the proposal and the documents are analyzed. Detail
enquiry of the individual is done. Commercial bank carries out loan appraisal on the
basis of past performance, future forecast and information available from the enquiry.
The bank ascertains the following during loan processing:

 Proposal should not deviate from NRB directives.

 Proposal should be in accordance with bank credit policy, credit procedural
manual and bank and financial institution (Act 2061) ordinance 2060.

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 The cost estimate is examined so that the appropriate estimate can be

accepted.
 Working capital projection has to be reasonable as compared to past
performance and on the basis of target for future expansion.
 The return on investment (ROI), internal rate of return (IRR) should be
adequate.
 SWOT (strength, weakness, opportunity, threat) analysis of the proposed
project must give reasonable assurance.
 The borrower should be credit worthy.
 Security should not be disputable. It should be easy to legally and physically
take under control by the bank whenever necessary.

Beside above points, the bank makes inspection of the physical existence of the
project. The bank also tries to ascertain whether the borrower will be able to pay
interest timely and repay the amount of loan on maturity.

c) Loan Approval

After a person, institution and project submit a proposal, bank makes a deep study
and analyze from different aspects on the proposal. The bank also evaluates necessary
documents. If the bank feels the loan proposal satisfactory, it can approve the loan
accordingly.

d) Loan Documentation

After the approval of the loan from the bank, a letter is issued showing all the terms
and conditions to be followed by the borrower. After the acceptance of the terms and
conditions by the borrower the documentation process is carried out.

As loan documentation, loan deed is signed. Loan deed is an agreement which

mention for how long the money is lent, what shall be the repayment schedule and
what shall be the cost of money lent, what against money is lent and what action is to
be taken in case of default.

Besides the loan deed, the following documents shall be obtained according to the
type and natures of credit for loan documentation process are the demand promising
note, continuing security letter, letter of lien and set-off, letter of pledge, letter of

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guarantee, mortgage deed, letter of installments, partnership letter, letter of

acknowledgement of debt, general/Special power of attorney, blue book/ ownership
certificate in case of hire purchase.

In case of mortgage of collateral security, documents required are letter of property

owner’s agreement to mortgage property, letter of approval from the office the
company register to mortgage the property of the company, in case of the company,
landowner certificate “Laal Purja”, property transfer deed “Ownership Deed”,
“Malpot” receipt, boundary certificate from town/village development committee,
survey map of the land (Blue Print), mortgage deed registered original copy,
Rokkapatra “Banks lien earmarked letter of Malpot office”, authorization of property
owner and valuation report of property.

e) Loan Disbursement

After careful appraisal and scrutinizing of the proposal and documentation, loan is
disbursed.

f) Loan Audit

A bank ants his debtor to use the loan in proper places, after it provides loan, as far as
possible with the intention of this objective, the bank performs audit of the loan.
Thus, the audit is done from time to time by the bank, in addition to other function to
find out a picture about loan utilization.

The tools used for audit of loan are:

 Performance statements.
 Cash flow statements.
 Stock turnover statements.
 Profitability statements.
 Audited balance sheet.
 Site inspection.

B. Loan Recovery Process of Commercial Bank

The credit management performs depends upon the loan recovery made. Hence we
can say the most important activities performed by the credit department is loan

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recovery. No such hard and fast rule is performed to recover loan. The recovery
process depends upon the time frame i.e. the situation in which the loan is to be
recovered.

Practically, both distribution and process of recovery are explained in the loan deed.
Loan deed contains all the necessary terms and conditions. If the terms and conditions
written in the deed are not fulfilled there will be violation of deed. In such condition
certain adjustment is added in the deed so that the terms and conditions are changed
as per the demand. Generally, arrangement and adjustment between the bank and the
customer are settled but the condition may arise to sell the mortgage to recover the
loan amount.

In general arrangement of loan i.e. adjustment of the loan as per the demand of the
customer is done. The duration of the loan payment is increased after making certain
change in loan deed. It also happens that mortgage assets are also to recover the loan.
All the recovery process is systematic and legal. As per the precaution the banks also
give through vision to find out whether the loans are utilized in the relevant area or
not.

2.1.7 NRB Guidelines Affecting Investment and Fund Mobilizing Policy of

Commercial Banks

 As per NRB guidelines, Bank’s exposure on “Productive Sector (Agriculture,

Power, Tourism and Cottage and Small Scale Industries) is required to reach
20% of total loan total loan & advances within the next three.
 Provision for investment in priority sector NRB has directed to commercial
banks to extend at least 12% of its total outstanding credit to priority sector.

Name of the Banks Required Deprived Sector Lending as % of total

outstanding credit
Commercial Banks 5%
Development Banks 4.5%
Finance Companies 4%
(Source: NRB Unified Directives 2020)

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 Licensed institutions shall implement the interest rates for deposits and
lending, procedures for calculation of interest, penal interest, commission and
services only after approval. The institutions cannot vary the interest for
deposits in excess of 0.5% over the published rates.
 Maintenance of Liquidity in NRB
Group Total Deposit
A class institutions 6%
B class institutions 5%
C class institutions 4%
B and C class institutions accepting deposits other than 2%
current a/c deposit)
(Source: NRB Unified Directives 2020)
 Maintenance of Minimum Capital Fund
Group Required capital fund on the basis of weighted risk assets (in
(institutions) %)
Core capital Capital fund
A As per Capital Adequacy Framework, 2020

B (National As per Capital Adequacy Framework, 2020 (Updated 27 July

Level) 2020)
Others B 5.5% 11%
and C (Source: NRB Unified Directives 2020)
 Loan classification and loss provision, NRB has directed to classiyear their
outstanding loan and advances, investment and other assets into four
categories.
Loan Classification Loan Loss Provisioning
Pass 1%
Watch List 5%
Substandard 25%
Doubtful 50%
Loss 100%
(Source: NRB Unified Directives 2020)

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 For the loans that have been insured in Deposit and Credit Guarantee
Corporation (DICGC), only 25% of the insured percentage shall be maintained
i.e. (0.25 % for pass loan, 6.25% for Sub-standard, 12.5% for doubtful & 25%
for the Loss).

 For the loans that have been rescheduled or restructured into pass loan, 12.5%
of provisioning shall be done. If the payment of principal and interest for the
rescheduled or restructured loan is regular for 2 years, it can be converted in
pass loan. The loan granted to the investors investing in Initial Public
Offering (IPO) cannot be rescheduled or restructured.

 According to the directive, with effective from Shrawan 13, 2067 (28 July
15, 2020) commercial banks may extend credit to single borrower or group
of related borrowers in such a way that the amount of Fund Based Loans and
Advances and Non Fund Based Off-Balance Sheet facilities like letters of
credit, guarantees, acceptances, commitments up to 25% of its Core Capital
Fund.
However, NRB has made special arrangement regarding investment in Hydropower
project, Electricity transmission line and construction of cable car project.
Commercial banks may lend up to 50% of their core capital as funded as well as non
funded facilities. But, in the case of investment of more than 25% of core capital,
there shall be compulsorily be Power Purchase Agreement (PPA) signed with the
concerned entity.

 Margin Lending
Loan against the pledge of shares of companies listed in Nepal Security Exchange
Limited in the nature of margin lending may be extended up to 50% of the average
value of the pledged shares as calculated on the basis of closing price of previous 180
working days or 50% of prevailing market price of shares, whichever is lower. Once
the loan has been extended either the upward revision on the credit limit or grant of
additional credit shall not be allowed by way of revaluing the value of such pledged
shares.
The tenor of such loan shall not exceed one year. Where the borrower enjoying
margin type lending repays at least 25% of the total loan and there are no dues in

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interest, the margin lending against pledge of shares may be renewed up to 75% of the
balance principal amount.

2.2 Reviews on Related Studies

2.2.1 Review of Related Journals/Articles

Satyal (2009) has reviewed the present credit policy with main focus of the credit
decision being based on the collateral. He argues that only collateral should not be
considered as the basis of the credit decision.

Access to finance is vital element for entrepreneurship development in the country.

Without it, one cannot think of starting business of any sort. It’s mainly due to this
reason; most of the students after completing their single-mindedly look for
employment opportunity. No other options, no matter how attractive it would be enter
into their mind. It has created huge pressure in the labor market. In the absence of
entrepreneurial activities in the country, employment opportunity will be very limited
and even qualified and competent people do not get job.

Koirala (2016) has concluded that the unorganized moneylenders in Nepal never
loose. They used to assess the record of accomplishment of potential borrowers and
innocent characters termed as the best borrower. The bank, on the other hand, is an
institution established to support and improves development process of a nation. The
politicians and the staffs have been responsible for the existence of huge volume of
NPA in stated-owned commercial banks. In order to improve the situation, there is a
need to evolve a more acceptable working system backed by cooperation and
realization by the banks employees as well as the politicians and stakeholders, who
can influence in banks operation.

Dhungana (2015) has concluded that poor credit management and deterioration in the
quality of loans give birth to non-performing assets. The internal measures play
significance role to control the growth of NPL. Best credit practices, culture and
policies are required to strengthen the internal factors. The banks should have a
proper system and should insure that risk are accurately identified, assessed and

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controlled properly. A proper risk management is undoubtedly an important tool for a

good banking and NPL management.

Bhandari (2007) in his article concluded that lending agencies should adopt several
strategies for achieving their target of credit repayment. However, before enforcing
coercive actions against entrepreneur and the enterprise, the banks and the lending
agencies should follow a series of liberal strategies for recovering their loans.

Zerith (2016), in her article firmed that to manage the credit portfolio; bankers must
understand not only the risk posed by each credit but also how the risks of individual
lending and portfolios are interrelated. These interrelationships can multiply risk
many times beyond what would be if the risks were not related. Until recently, few
banks used modern portfolio management concepts to control credit risk. Now, many
banks view the credit portfolio in its segment as well as among loans. These practices
provide management with a more complete picture of the bank’s credit risk profile
and with more tools to analyze and control the risk. She further concluded that
effective credit portfolio management begins with oversight of the risk in individual
loans.

2.2.2 Review of Related Thesis

Tiwari (2010), conducted a thesis entitled on “Credit Management of Himalayan

Bank Limited.” The research findings of the study is the loan & advances to total
deposit ratio is slightly lower than standard measurement, which is due to unable to
mobilize fund, the interest income to total income ratio shows the more consistent and
overall predominance is satisfactory and current ratio of banks shows fluctuating
trend. It study shows satisfactory liquidity position.

Katuwal (2013), conducted a thesis entitled on “Credit Policy Analysis of

Commercial Banks – Kumari Bank Limited and Himalayan Bank Limited.” The
research findings of the study are mean ratio of credit risk of Kumari Bank is higher
than that of Himalayan Bank i.e. Kumari Bank has adopted more risk to Himalayan
Bank, Kumari Bank has maintained higher level of growth ratio in total loan and
advances, total investment, total deposit and net profit. Trend analysis of net profit of
both banks is in increasing trend and mean ratio of total investment to total deposit of

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KBL is lower than that of HBL. The variability of the total of KBL is more consistent
than HBL.

Shrestha (2014), conducted a thesis entitled on “Comparative Study on Credit

Management of Commercial Banks – Nabil Bank Limited and Standard Chartered
Bank Limited.” The research findings of the study are the measurement of liquidity
has revealed those liquid funds to total deposit of both banks are not widely varied,
cash and bank balance to interest sensitive deposit has measured the liquidity risk
arising from fluctuating of interest rate in the market rate, combined mean of SCBNL
is highest among them which shows high volume to interest sensitive liability and
measurement of lending strength in relative term has revealed that a total asset to total
liability of SCBNL has highest than NABIL.

Subedi (2016), conducted a thesis entitled on “Credit Management in Commercial

Banks of Nepal – NABIL Bank, Standard Chartered Bank, Everest Bank and
Himalayan Bank.” The research findings of the study are the HBL has disbursed
highest credit and advances than others, EBL has utilized the total deposit maximally
than other banks in granting loan and advances, SCBNL has remained more effective
in managing credit to gain highest interest income, the interest income on credit and
advance to total assets has indicated that credit and advances is the major source of
income in all banks and the credit of HBL is most risky than that of others.

Ghimire (2018), conducted a thesis entitled on “Study of Credit Management of Joint

Venture Commercial Banks – Nepal Investment Bank and Bank of Kathmandu.” The
research findings of the study are the BOK has maintained higher credit and advances
to total deposit, fixed deposit is the main sources of granting credit for both banks,
credit loss provisioning is in decreasing trend. So, it indicates efficient credit policy
and interest rate effects amount of deposit, which in turn affect credit.

2.3 Research Gap

All of the above research, although a good attempt for exploring the credit
management, are mainly based on the quantitative analysis and thus ignored the
qualitative analysis, which encompasses the difficulties and problems in credit
management procedures. Thus, the study has detected this gap and in this study, the

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researcher tries to enlighten the qualitative factors, primary data analysis, that are
essential for credit managements such as whether the borrowers experience paper
harassment, the efficiency of bank in credit management and so on, along with the
analysis of secondary data. The previous researcher used the NEPSE index, but this
study finds out conclusion using banking index which is a sub index, banking index
calculated based on listed commercial banks.

Past researcher’s entitled was the credit management, credit policy analysis,
comparative study on credit management of commercial banks in Nepal. The previous
researcher was concluded that finding are loan and advance to total deposit ratio, fund
mobilized, interest income to total income ratio, mean ratio of credit risk of selected
banks. Again, the findings of previous researchers was the trend analysis of net profit
of both banks is in increasing trend and mean ratio of total investment to total deposit
of selected commercial banks, the bank has maintained higher credit and advances to
total deposit, fixed deposit is the main sources of granting credit for both banks, credit
loss provisioning is in decreasing trend. The previous researcher was collected data
and information from primary and secondary sources and simple and statistical tools
are used such as table, figure, trend line, bar-diagram, correlation, t-test, percent,
ratio, etc.

The current research is about the credit management of commercial banks in Nepal
with reference to NIBL, NABIL and HBL. This study fulfills the gap by giving an idea
about credit management of selected commercial banks. The objectives for these
studies are the relationship between total deposit and loan disbursement, loan loss
provision and loan disbursement and non-performing loan and loan disbursement. The
test of hypothesis is total deposit to loan disbursement, loan loss provision to loan
disbursement and non-performing loan to loan disbursement. Descriptive &
correlational research design is used and simple and statistical tools are used such as
table, figure, correlation, probable error, t-test, ratio, percentage, etc. At the last for
comparison, previous research was during the period for data over the 6 year but
current research is done by only five fiscal years data for the study. The sample of
observation for previous researchers was more than 50 but the current research is
taking sample for bank only 18 observations.

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2.4 Theoretical Framework

The theoretical framework aims to update and refine the existing concepts to reflect
the changes. In this study the theoretical framework shows the relationship between
the independent variable and dependent variable. The conceptual framework shows
that the independent variable (Loan Loss Provision, Non Performing Loan and
Deposit) has a direct effect on the dependent variable (Credit Management: Loan
Disbursement).

Independent Variable Dependent Variable

Loan Loss Provision

Loan Disbursement
Non-performing Loan

Total Deposit

(Source: Researcher, 2021)

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CHAPTER – III

RESEARCH METHODOLOGY

Research methodology is a systematic way to solve the research problem. In other

words, research methodology describes the methods and process applied in the entire
aspect of the study defines, “Research methodology as the various sequential steps to
be adopted by a researcher in studying a problem with certain objectives in view”
(Joshi, 2003). Thus, the overall approach to the research is presented in this chapter.
This chapter consists of research design, population and sample, sources of data
collection procedure, data processing and presentation and statistical tools used for
data analysis.

3.1 Research Design

A research design is a plan for the collection and analysis of data. This study is
designed to the credit management of commercial bank reference to NIBL, NABIL
and HBL. A descriptive and correlative research design has been used in this study.

3.2 Populations and Sample

Population refers to the institutions of same nature and their services and product is
general. A sample is a collection of items or elements from the population. Till Year
2020, there are 27 licensed commercial banks in Nepal. All the banks conduct the
credit culture functions. It is not possible to study the credit management activities of
all the commercial banks. So, among the 27 commercial banks three banks namely
NIBL, NABIL and HBL have been selected for this study using convenient sampling
method for non-performing loan is less in current year than other banks.

3.3 Sources of Data Collection Procedure

This study is mainly based on secondary data. Secondary data are collected from
information available through NRB, annual reports of NIBL, NABIL and HBL and
journals, articles unpublished data and different websites.

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3.4 Data Processing and Presentation

The data obtained from the different sources are in raw form. The raw data is
processed and converted into the required form. For this study, required data are
taken from the secondary sources and presented in this study. For presentation,
different tables and figures are used. Computation has been done with the help of
scientific calculator and computer software program.

3.5 Data Presentation Analysis Tools

The statistical data has been tested in the computer by using the Microsoft Word and
Microsoft Excel. Both descriptive and empirical methods have been used to analyze
the results and data in this study. In this research work, the qualitative method is used
for the analysis of time series data.
3.5.1 Simple Tools
Data collected from various sources and method cannot be meaningful without its
presentation and analysis. So following tools are used for data presentation and
analysis tools such as.

 Table

 Bar-diagram

 Trend line

3.5.2 Statistical Tools

In order to get the concrete results from this research, data are analyzed by using
different types of tools. As per topic requirements, emphasis is given on statistical
tools rather than financial tools. So for this study following statistical tools are used:

a. Correlation Coefficient

Correlation coefficient is a statistical technique that measures the degree and direction
of relation between two variables. It is used to know whether the deposit collected is
significantly mobilized in loan disbursement or not. Correlation coefficient may be
positive or negative and ranges from -1 to +1. When r = +1 there is perfect positive
correlation; when r = -1, there is perfect negative correlation; when r = 0, there is no
correlation and when r < 0.5 then there is low degree of correlation.

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The simple correlation coefficient ‘r’ is calculated by using following formula:

nXY  XY
Simple coefficien t of correlatio n (r ) 
nX 2  X  nY 2  Y 
2 2

Where,

n = Total number of observations

X and Y = Two variables

b. Coefficient of Determination (r2)

Coefficient of determination is the square of correlation coefficient. It denotes the

extent of changes in dependent variables that can be explained by the independent
variable. In this study, Coefficient of determination is used to analyze the changes in
collection by disbursement.

Coefficient of determination = r2

c. Probable error (PE)

Probable error can judge the degree of reliability of computed correlation. In this
study, PE is calculated to find the extent of collection that can be explained by
disbursement and to measure the consistency of correlation coefficient.

PE is calculated by using following formula:

Probable Error P.E   0.6745 

1 - r2
n

Where,

r = Correlation coefficient

n = Number of observation

If r < P.E, then the correlation coefficient is insignificant.

If r > 6P.E, then the correlation coefficient is significant.

If PE<r<6PE nothing can be concluded.

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d. T-test

The T-test is a test of a statistical significant difference between two groups. A

"significant difference" means that the results that are seen are most likely not due to
chance or sampling error. In any experiment or observation that involves sampling
from a population, there is always the possibility that an observed effect would have
occurred due to sampling error alone. But if result is "significant," then the
investigator may conclude that the observed effect actually reflects the characteristics
of the population rather than just sampling error or chance.

x1  x2
t=
s1 2  s2 2
n1 n2

Where:

 x1 is the mean of sample 1

 s1 is the standard deviation of sample 1
 n1 is the sample size of sample 1
 x2 is the mean of sample 2
 s2 is the standard deviation of sample 2
 n2 is the sample size in sample 2

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CHAPTER – IV
DATA PRESENTATION AND ANALYSIS

This chapter is concerned with the presentation and analysis of data. The main
objective of this study is to examine the credit management of commercial banks of
Nepal with reference to NIBL, NABIL and HBL. This study is based on secondary
data. This chapter contains deposit collection of concern banks, types of deposit
collected, lending and recovery management, lending/loan disbursement, loan loss
provision and finally non-performing loans to loan disbursement. Statistical tools are
used to analyze all the above-mentioned facts.

4.1 Deposit Collection of NIBL, NABIL and HBL

Under this section collected data are presented in the systematic way in order to draw
some reasonable conclusion. Banks collects the deposit by attracting individuals to
provide a satisfactory interest rate. These collections of scattered deposit are then
mobilized in the relevant sectors. The deposit collected by NIBL, NABIL and HBL
are during six years period is presented in the table below:
Table 4.1
Deposit Collected by NIBL, NABIL and HBL
(Amount in Rs. ‘000’)
NIBL NABIL HBL
Years Amount (+/-) in % Amount (+/-) in % Amount (+/-) in %
2015 90631487 - 104237910 - 73538201 -
2016 108626642 16.57 110267272 5.47 87335786 15.80
2017 125669355 13.56 118896157 7.26 92881114 5.97
2018 140071167 10.28 134810670 11.81 98988791 6.17
2019 149392282 6.24 162953999 17.27 109387060 9.51
2020 166362126 10.20 190806470 14.60 125264382 12.68

(Sources: Annual Reports of NIBL, NABIL & HBL)

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The above table shows the deposit collected by NIBL from Year 2015 to 2020. In
year 2016 the deposited amount to Rs. 108626642 thousand which was the increased
by 16.57% then that of previous year. In year 2017, the deposit collection amount
reached to 125669355 thousand which was the increment by 13.56% than that of
previous year. In year 2018, the deposit collection amounted to Rs. 140071167
thousand which was the increment by 10.28%. In year 2019, the deposited collection
amounted to 149392282 thousand which was increment by 6.24% then that of
previous year. In year 2020 the deposited collected amount to is 166362126 thousand
which was increased by 10.20% then that of previous year.

The deposit collected by NABIL during different period. In year 2015, it reached to
Rs. 110267272 thousand which increased by 5.47%. In year 2016, the deposit
collection amounted to Rs. 118896157 thousand that increased by 7.26% and reached
to Rs. 134810670 thousand in the year 2017. The total deposit collection to Rs.
162953999 thousand in year 2018 with the increment of 11.81%. In year 2019, it
reached to Rs. 162953999 thousand which increased by 17.27%. In year 2020, the
deposit collection amounted to Rs. 190806470 thousand that increased by 14.60%.

The deposit collected by HBL from year 2015 to year 2020. The deposit collection of
HBL is in increasing trend during different period. In year 2016, the percentage
increased in deposit collection is 15.80% which total deposit is Rs. 87335786
thousand. The percentage increase of deposit collection in year 2017 and 2018 is
5.97% and 6.17% respectively with the deposit of Rs. 92881114 thousand and Rs.
109387060 for the year 2017 and 2018. The percentage increase of deposit collection
in year 2019 and 2020 is 9.51% and 12.61% respectively with the total deposit of Rs.
109387060 thousand at the year 2019 & Rs. 125264382 thousand at the year 2020.

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120000

100000
Amount in Million

80000
NIBL
60000 NABIL
HBL
40000

20000

0
2011 2012 2013 2014 2015 2016
Fiscal Year

Figure 4.1

Deposit Collected by NIBL, NABIL and HBL

4.2 Types of Deposit Collection

The types of deposit collection has been classified broadly in five types namely
Current deposit, Fixed deposit, call deposit and other deposit. The table below shows
the types of deposits of NIBL, NABIL and HBL.

4.2.1 Types of Deposit Collected by NIBL

This shows the different amount of deposit collection of NIBL by Current, Saving,
Fixed, Call and Other deposits. Other deposits include margin deposits.

Table 4.2
Types of Deposits Collected by NIBL
(Amount in Rs. ‘000’)
Year (+/-) Saving (+/-) Fixed (+/-) Call (+/-) Other (+/-)
Current
in % deposit in % deposit in % deposit in % deposit in %
Deposit

2015 11742719 - 31733317 - 21229162 - 24708943 - 1217345 -

2016 13871208 15.34 39423304 19.51 26485130 19.84 27259405 9.36 1587594 23.32

2017 14023176 1.08 36419924 -8.25 53692554 50.67 19127541 -42.51 1402317 -13.21

2018 11219811 -24.99 39379302 7.52 66009624 18.66 16086749 -18.9 1496522 6.29

2019 13458036 16.63 41062864 4.1 69075658 4.44 22747306 29.28 2992645 49.99

2020 15412455 12.68 45936190 10.61 81646621 15.4 20086511 -13.25 3256777 8.11

(Sources: Annual Reports of NIBL)

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The table shows that the larger amount of deposit was collected in the saving account
by NIBL. The only fixed deposit of NIBL was in increasing trend from year 2015 to
year 2020. In year 2015 the current deposit was Rs. 11742719 thousand which was
continuously (except year 2020) increased and reached to Rs. 15412455 thousand in
the year 2020 but only in year 2018 was decreases i.e. 24.99%. Likewise, in year
2015 the saving deposit was Rs. 31733317 thousand which was continuously
increased and reached to Rs. 45936190 thousand in the year 2020 but it has decreases
in year 2017 i.e. 8.25%. However there was highly fluctuating in the call deposit
during the period. The other deposit was highly decreases in year 2017 after that
continuously increased by 2018 to 2020 respectively. There is also increasing trend of
call deposit but decreases in year 2015 to 2016. The other deposit was reached to Rs.
3256777 thousand to year 2020.

90000000
80000000
Amount in Rs. '000'

70000000
Current deposit
60000000
Saving deposit
50000000
Fixed deposit
40000000
Call deposit
30000000
Other deposit
20000000
10000000
0
2015 2016 2017 2018 2019 2020
Years

Figure 4.2

Types of Deposit Collected by NIBL

4.2.2 Types of Deposit Collected by NABIL

This shows the different amount of deposit collection of NABIL by Current, Saving,
Fixed, Call and Other deposits. Other deposits include margin deposits.

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Table 4.3

Types of Deposits Collected by NABIL

(Amount in Rs. ‘000’)

(+/-) in Saving (+/-) in Fixed (+/-) in Call (+/-) in Other (+/-) in

Current
Year % deposit % deposit % deposit % deposit %
Deposit

2015 12848380 - 42715056 - 15871935 - 30941069 - 1861470 -

2016 16237276 20.87 53437506 20.07 8868608 -78.97 28931405 -6.95 2792477 33.34

2017 16946016 4.18 51398993 -3.97 24044677 63.12 23634431 -22.41 2872039 2.77

2018 17325807 2.19 72654807 29.26 29856762 19.47 25069742 5.73 6364803 54.88

2019 17986691 3.67 49871917 -45.68 41173132 27.48 28402513 11.73 25519747 75.06

2020 18235156 1.36 56885369 12.33 51879359 20.64 35382318 19.73 28424268 10.22

(Sources: Annual Reports of NABIL)

The table shows that the larger amount of deposit was collected in the saving account
by NABIL. The current deposit and other deposit of NABIL were in increasing trend
from year 2015 to year 2020. In year 2015 the current deposit was Rs. 16946016
thousand which was continuously (except year 2020) increased and reached to Rs.
18235156 thousand in the year 2020. Likewise, in year 2015 the other deposit was
Rs. 1861470 thousand which was continuously increased and reached to Rs.
28424268 thousand in the year 2020. However there was highly fluctuating in the
saving deposit during the period. The fixed deposit was highly decreases in year 2016
after that continuously increased by 2017 to 2020 respectively. There is also
increasing trend of call deposit but decreases in year 2015 to 2016. The call deposit
was reached to Rs. 32382318 thousand to year 2020.

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80000000
70000000
Amount in Rs. '000'

60000000
Current deposit
50000000 Saving deposit
40000000 Fixed deposit
30000000 Call deposit
Other deposit
20000000
10000000
0
2015 2016 2017 2018 2019 2020
Years

Figure 4.3

Types of Deposit Collected by NABIL

4.2.3 Types of Deposit Collected by HBL

The table below shows the increasing trend in current, saving, fixed deposit but
fluctuating trend in call and other deposit.

Table 4.4

Types of Deposit Collected by HBL

(Amount in Rs. ‘000’)

(+/-) in Saving (+/-) in Fixed (+/-) in Call (+/-) in Other (+/-) in

Current
Year % deposit % deposit % deposit % deposit %
Deposit

2015 8499073 - 38731973 - 10305426 - 1476382 - 1237906 -

2016 9022903 5.81 46429004 16.58 16763515 38.52 1358366 -8.69 1536699 19.44

2017 9032610 0.11 38133809 -21.75 37501074 55.30 6419602 78.84 1794019 14.34

2018 9599836 5.91 38996613 2.21 41659172 9.98 4027838 -59.38 4705333 61.87

2019 9680557 0.83 38494637 -1.30 50428567 17.39 5243925 23.19 5337115 11.84

2020 12605851 23.21 43836268 12.19 56927069 11.42 6086095 13.84 5641672 5.40

(Sources: Annual Reports of HBL)

The current deposit, fixed deposit and other deposit of the bank is increasing trend
during the period (2015 to 2020) but saving and call deposit has been fluctuated. The

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Current deposit of HBL was highly increased by 23.21% i.e. Rs. 12605851 thousand
in year 2020 and less increased by 0.11% in year 2017 i.e. Rs. 9032610 thousand.
However thereafter, the fixed deposit is in increased trend. The fixed deposit was
increased by 38.52% to 11.42% in year 2016 to 2020, it has reached to Rs. 10305426
thousand to Rs. 56927069 thousand. Other deposit of the bank was continuously
increased in the following years 2016, 2017, 2018, 2019 and 2020. The other deposit
was increased by Rs. 1536699 thousand i.e. 19.44% to reach Rs. 5641672 thousand
i.e. 5.40% in year 2016 to 2020. Again, saving and call deposit has been fluctuated
trend to every year.

60000000

50000000
Amount in Rs. '000\

Current deposit
40000000
Saving deposit
30000000 Fixed deposit
Call deposit
20000000
Other deposit
10000000

0
2015 2016 2017 2018 2019 2020
Fiscal Year

Figure 4.4

Types of Deposit Collected by HBL

4.3 Total Loan Disbursement of NIBL, NABIL and HBL

The amount of deposit collected is disbursed as per the demand-taking loan. Before
loan is provided details about, the individual is analyzed. The total lending of NIBL,
NABIL and HBL for 6 years are presented below:

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Table 4.5
Total Loan Disbursement of NIBL, NABIL and HBL
(Amount in Rs. ‘000’)
NIBL NABIL HBL
Years
Amount (+/-) in % Amount (+/-) in % Amount (+/-) in %
2015 67690199 - 65501925 - 55428007 -
2016 87009792 22.20 76106017 13.93 67745979 18.18
2017 106683877 18.44 89877127 15.32 77640977 12.74
2018 120825496 11.70 113625155 20.90 86160213 9.89
2019 122866554 1.66 127500243 10.88 92697318 7.05
2020 135082099 9.04 148054071 13.88 101728467 8.88

(Sources: Annual Reports of NIBL, NABIL & HBL)

The above table shows the trend of total loan disbursement of NIBL, NABIL and
HBL from year 2015 to 2020. In each year, the amount of loan disbursed has
increased. The amount of NIBL loan disbursed was. Rs. 67690199 thousand in year
2015. The amount increased by 22.20% and reached to Rs. 87009792 thousand in
year 2016. In year 2017 and 2018, the loan disbursed amount reached to Rs.
106683877 thousand and Rs. 120825496 thousand respectively. In year 2019 the total
loan disbursed was 122866554 thousand which was the increment of 1.66% then that
of previous year. In year 2020 the total loan disbursed were 135082099 thousand
which was the increment of 9.04% then that of previous year.

It reveals that the pattern of loan disbursement of NABIL from year 2015 to 2020.
The loan disbursement of NABIL was in increasing trend during the period. In year
2015, total loan disbursed amounted was Rs. 65501925 thousand. In year 2016, the
loan disbursed amounted increased and reached to Rs. 76106017 thousand which was
the increment of 13.93% than that of previous year. In year 2017 the loan amount
reached to 89877127 thousand. As the trend is in increasing form finally the loan
reached to Rs. 113625155 thousand in year 2018. In year 2019, the loan disbursed
amounted increased and reached to Rs. 127500243 thousand which was the increment
of 10.88% than that of previous year. As the trend is in increasing form finally the

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loan reached to Rs. 148054071 thousand in year 2020 which was increasing by
13.88% than previous year.

The trend of total loan disbursement of HBL from year 2015 to 2020 has presented.
The loan disbursement of HBL was in increasing trend. In year 2015, total loan
disbursed amounted to Rs. 55428007 thousand and reached to Rs. 67745979 thousand
in year 2016. The amount increases by 12.74% and 9.89% in year 2017 and 2018 and
reached to Rs. 77640977 thousand and Rs. 86160213 thousand respectively. In year
2019, total loan was reached Rs. 92697318 thousand & reached to Rs. 101728467
thousand in year 2020 which was increased by 8.88% then previous years.

160000000

140000000
Amount in Rs. '000'

120000000

100000000 NIBL
80000000 NABIL
60000000 HBL

40000000
20000000

0
2015 2016 2017 2018 2019 2020
Years

Figure 4.5
Total Loan Disbursement of NIBL, NABIL and HBL

4.4 Loan Disbursement to Deposit Collection

The main task of bank is to supply the surplus amount to the people who are in
needing loan disbursed to deposit collected of NIBL, NABIL, and HBL has been
presented in the table below:
4.4.1 Loan Disbursement to Deposit Collection of NIBL
The total loan disbursement to deposit collection of NIBL for 6 years is presented
below:

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Table 4.6
Loan Disbursement to Deposit Collected of NIBL
(Amount in Rs. ‘000’)
Total Loan Deposit Undisturbed Loan to Deposit
Years
Disbursement Collected amount Ratio (%)
2015 67690199 90631487 22941288 74.69
2016 87009792 108626642 21616850 80.10
2017 106683877 125669355 18985478 84.89
2018 120825496 145670355 24844859 82.94
2019 122866554 149336508 26469954 82.27
2020 135082099 166338554 31256455 81.21
(Sources: Annual Reports of NIBL)

The table displays the amount of loan disbursed in comparison to the deposit
collection. The percentage of total lending with respect to deposit collected were
74.69%, 80.10%, 84.89%, 82.94% 82.27% & 81.21% from a year 2015 to 2020
respectively. The maximum amount undisturbed was in year 2020 and the maximum
% on lending with respect to deposit collected was in year 2017.

180000000
160000000
140000000
Amount in Rs. '000'

120000000
Total Loan Disbursement
100000000
Deposit Collected
80000000
Undisturbed amount
60000000
40000000
20000000
0
2015 2016 2017 2018 2019 2020
Years

Figure 4.6
Deposit and Loan NIBL

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4.4.2 Loan Disbursement to Deposit Collection of NABIL

The total loan disbursement to deposit of NABIL for 6 years is presented below:
Table 4.7
Total Loan Disbursement to Deposit Collected of NABIL
Amount in Thousand
Total Loan Deposit Undisturbed Loan to Deposit
Years
Disbursement Collected amount Ratio (%)
2015 65501925 104237910 38735985 62.84
2016 76106017 110267272 34161255 69.02
2017 89877127 118896157 29019030 75.59
2018 113625155 134810670 21185515 84.28
2019 127500243 162953999 35453756 78.24
2020 148054071 190806470 42752399 77.59
(Sources: Annual Reports of NABIL)

The table displays the percentage of total lending with respect to deposit collected
were 62.84%, 69.02%, 75.59%, 84.28%, 78.24 and 77.59% in year 2015 to 2020
respectively. The maximum amount undisturbed was in year 2020. However,
maximum percentage change in loan disbursed with respect to the deposit collected
was in year 2018.

250000000

200000000
Amount in Rs. '000'

150000000 Total Loan Disbursement

Deposit Collected
100000000 Undisturbed amount

50000000

0
2015 2016 2017 2018 2019 2020
Years

Figure 4.7
Deposit and Loan of NABIL

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4.4.3 Loan Disbursement to Deposit Collection of HBL

The total loan disbursement to deposit collection of HBL for 6 years is presented
below:
Table 4.8
Loan Disbursement to Deposit Collected of HBL
Amount in Rs. ‘000’
Total Loan Deposit Undisturbed Loan to Deposit
Years
Disbursement Collected amount Ratio (%)
2015 55428007 73538200 18110193 75.37
2016 67745979 87335786 19589807 77.57
2017 77640977 92881114 15240137 83.59
2018 86160213 98988791 12828578 87.04
2019 92697318 109387060 16689742 84.74
2020 101728467 125096954 23368487 81.32
(Sources: Annual Reports of HBL)

The table below reveals the amount and percentage of loan disbursed with respect to
deposit collection. Percentage of total loan disbursed with respect to deposit collected
were 75.37%, 77.57%, 83.59%, 87.04%, 84.74% and 81.32% in year 2015 to 2020
respectively. The maximum amount undisturbed was in year 2020 and the maximum
percentage of loan disbursed to deposit collected was in year 2018.

140000000

120000000
Amount in Rs. '000'

100000000

80000000 Total Loan Disbursement

Deposit Collected
60000000 Undisturbed amount

40000000

20000000

0
2015 2016 2017 2018 2019 2020
Years

Figure 4.8
Deposit and Loan of HBL

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4.5 Loan Loss Provision Made by NIBL, NABIL and HBL

There is associate risk in every loan. Some loan may be good but some convert into
bad, if necessary precaution is not taken in due course of time. NRB directive
provides the provision for those loans converted into bad loans. In this regard the
directive has classified the loan and loan loss provision as per of default and other
criteria. The loan loss provision made by NIBL, NABIL and HBL is presented below:

Table 4.9

Loan Loss Provision to Loan Disbursement (%)

(Amount in Rs. ‘000’)

NIBL NABIL HBL

Years
Total Ratio Total Ratio Total Ratio
LLP LLP LLP
Lending (%) Lending (%) Lending (%)

2015 719630 67690199 1.06 659409 65501925 1.01 566044 55428007 1.02

2016 827081 87009792 0.95 768414 76106017 1.01 761825 67745979 1.12

2017 1060765 106683877 0.99 907688 89877127 1.01 822551 77640977 1.06

2018 1124556 120825496 0.93 1117842 113625155 0.98 943202 86160213 1.09

2019 1135430 122866554 0.92 1114687 127500243 0.87 1061130 92697318 1.14

2020 1247326 135082099 0.92 1528946 148054071 1.03 1703395 101728467 1.67

Mean 0.96 0.99 1.18

(Sources: Annual Reports of Banks)

The above table shows the ratio of loan loss provision to loan disbursement of NIBL,
NABIL, and HBL for six consecutive years. The figure represents in the table shows
that HBL has high loan loss provision ratio than NIBL and NABIL. The average loan
loss provision ratio of NIBL, NABIL and HBL are 0.96, 0.99 and 1.18 respectively.

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1.8
1.6
1.4
1.2
Ratio in %

NIBL
1
NABIL
0.8
HBL
0.6
0.4
0.2
0
2015 2016 2017 2018 2019 2020
Years

Figure 4.9
Loan Loss Provision to Loan Disbursement (%)

4.6 Non-Performing Loan to Loan Disbursement

To the NRB directives the loans under category of substandard, doubtful and loss
loan are regarded as non-performing loan. Higher ratio implies the bad quality of loan
in the form credit. As per international standard, 5% NPL is allowed.

Table 4.10
Non- Performing Loan to Loan Disbursement (%)
(Amount in Rs. ‘000’)
NIBL NABIL HBL
Year
Lending NPL % Lending NPL % Lending NPL %
s
2015 67690199 846127 1.2 65501925 119213 1.8 55428007 681764 1.2
5
0.6 5 2
1.1 3
0.8
2016 87009792 591667 8 76106017 867609 4 67745979 575841 5
2017 10668387 885476 0.8 89877127 719017 0.8 77640977 659948 0.8

2018 7
12082549 164322 3
1.3 11362515 624938 0
0.5 86160213 120624 5
1.4
6
12286655 7
341569 6
2.7 5
12750024 5
0.7 3
103821 0
1.1
2019 943502 92697318
4
13508209 0
393088 8
2.9 3
14805407 145093 4
0.9 10172846 0
102745 2
1.0
2020
9 9 1 1 0 8 7 8 1
Mean 1.6 1.0 1.0
4 1 Annual Reports of Banks)
(Sources: 8

The above table reveals the ratio of non- performing loans to total loan disbursement
of NIBL, NABIL, and HBL for six consecutive years. The figure represents in the

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table shows that NIBL has high non- performing loans than NABIL and HBL. The
mean non- performing loan to total loan disbursement of NIBL, NABIL, and HBL are
1.64%, 1.01%, and 1.08% respectively.

3.5
3
NPL Ratio in %

2.5
NIBL
2
NABIL
1.5
HBL
1
0.5
0
2015 2016 2017 2018 2019 2020
Years

Figure 4.10
Non- Performing Loan to Loan Disbursement (%)
4.7 Correlation Analysis
The correlation analysis of deposit and loan, loan loss provision and loan, loan loss
provision and non performing loan of selected commercial banks i.e. NIBL, NABIL
and HBL.
4.7.1 Correlation between Deposit Collected and Loan Disbursed

Correlation coefficient is used to define the relationship between loan disbursements

(dependent variable) and deposit collection (independent variable). Correlation
coefficient always ranges from +1 to –1. Plus figure indicates the positive relation and
minus figure indicates the negative relation between the concerned data. In the study,
calculated ‘r’ denotes whether the increase in loan collection makes increase in loan
disbursement.

The correlation and coefficient of determination of NIBL, NABIL and HBL is

presented in the following table:

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Table 4.11
Coefficient of Correlation between Deposit Collected and Loan Disbursed

Correlation Coefficient of Probable

Banks 6P.E
Coefficient (r) determination (r2 ) Error
NIBL 0.9933 0.9866 0.0037 0.0221
NABIL 0.9748 0.9503 0.0137 0.0821
HBL 0.9796 0.9596 0.0111 0.0667
(Sources: Appendix-I, II, III)
The table above shows that the coefficient of correlation between deposit collection
and loan disbursement of NIBL, NABIL and HBL is 0.9933, 0.9748 and 0.9796
respectively, which shows that there is very high positive correlation between the
variables.
Probable error of NIBL is found to be 0.0037 and 6 P.E is 0.0221. Likewise the P.E
of NABIL is calculated to be 0.0137 and 6 P.E is 0.0821 and P.E of HBL is
calculated to be 0.0111 and 6 P.E is 0.0667. The above value of ‘r’ is more than 6
times of P.E that reveals that there is very high positive correlation between the
deposit and loan disbursed.

4.7.2 Correlation between Loan Loss Provision and Loan Disbursement

The correlation between LLP and loan disbursement shows the degree of relationship,
how increment in loans and advances affect the loan loss provision. Here, loan
disbursement is dependent variable and LLP is independent variable.

Table 4.12

Correlation between LLP and Loan Disbursement

Correlation Coefficient of Probable

Banks 6P.E
Coefficient (r) determination (r2 ) Error
NIBL 0.9919 0.9838 0.0045 0.0268
NABIL 0.9734 0.9474 0.0145 0.0869
HBL 0.8934 0.7981 0.0556 0.3336
(Sources: Appendix-IV, V, VI)

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The above table shows relationship between loan loss provision and loan
disbursement. The correlation coefficient of NIBL is 0.9919 and it is more than 6
times the value of P.E. which reveals that, there is very highly positive correlation
between loan loss provision and loan disbursement. The correlation coefficient of
NABIL is 0.9734, P.E is 0.0145 and 6P.E is 0.0869. Since ‘r’ is more than P.E, which
reveals that, there is very highly positive correlation between loan loss provision and
loan disbursement. The correlation coefficient of HBL is 0.8934, P.E is 0.0556 and
6P.E is 0.3336. Since ‘r’ is less than 6P.E, it shows significant positive relationship
correlation between loan loss provision and loan disbursement.

4.7.3 Correlation between Non-Performing Loan and Loan Disbursement

The correlation between NPL and LD describe the relationship between NPL and LD.
Here LD is dependent variable and NPL is independent variable. AS earlier
mentioned LD are the loans falling on the category of substandard, doubtful and loss
loan and the respective provisioning requirement is 25%, 50% and 100%. Higher the
LD higher will be provision amount.

Table 4.13

Correlation between Non Performing Loan and Loan Disbursement

Correlation Coefficient of Probable

Banks 6P.E
Coefficient (r) determination (r2 ) Error
NIBL 0.8025 0.6440 0.0980 0.5883
NABIL 0.3085 0.0952 0.2492 1.4950
HBL 0.7507 0.5635 0.1202 0.7211
(Sources: Appendix-VII, VIII, IX)

The above table explains the relationship between NPL and LD. The correlation
coefficient of NIBL, NABIL and HBL is 0.8025, 0.3085 and 0.7507 respectively
which is greater than 6.P.E but the NABIL is less there the correlation coefficient of
NABIL is less on the other banks which reveals there is positive relationship between
NPL and LD.

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4.8 Test of Hypothesis

H1: Test of Hypothesis on deposit collection and loan disbursement of NIBL,

NABIL and HBL.

To test the average of independent variable is deposit collection and dependent

variable is loan disbursement of NIBL, NABIL and HBL.

t = 1.706 (Source: Appendix-XIII)

Degree of freedom = n1 + n2 – 2 = 6 + 6 - 2 = 10

Level of significance,  = 5%

Critical Value: The tabulated value of t at 5% level of significance for two tailed test
and for 10 degree of freedom is 2.228 i.e. t0.05 (10) = 2.228

Decision: Since the calculated value of t is 1.706 which is less than the tabulated
value 2.228, the null hypothesis (H1) is accepted. This means there is no significant
different between average of deposit collection and loan disbursement of NIBL,
NABIL and HBL.

H2: Test of Hypothesis on loan loss provision and loan disbursement of NIBL,
NABIL and HBL.

To test the average of independent variable is loan loss provision and dependent
variable is loan disbursement of NIBL, NABIL and HBL.

t = -9.617 (Source: Appendix-XIV)

Degree of freedom = n1 + n2 – 2 = 6 + 6 - 2 = 10

Level of significance,  = 5%

Critical Value: The tabulated value of t at 5% level of significance for two tailed test
and for 10 degree of freedom is 2.228 i.e. t0.05 (10) = 2.228

Decision: Since the calculated value of t is (9.617) which is less than the tabulated
value 2.228, the null hypothesis (H2) is accepted. This means there is no significant
different between average of loan loss provision and loan disbursement of NIBL,
NABIL and HBL.

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H3: Test of Hypothesis on non-performing loan and loan disbursement of NIBL,

NABIL and HBL.

To test the average of independent variable is non-performing loan and dependent

variable is loan disbursement of NIBL, NABIL and HBL.

t = -9.592 (Source: Appendix-XV)

Degree of freedom = n1 + n2 – 2 = 6 + 6 - 2 = 10

Level of significance,  = 5%

Critical Value: The tabulated value of t at 5% level of significance for two tailed test
and for 10 degree of freedom is 2.228 i.e. t0.05 (10) = 2.228

Decision: Since the calculated value of t is (9.592) which is less than the tabulated
value 2.228, the null hypothesis (H3) is accepted. This means there is no significant
different between average of non-performing loan and loan disbursement of NIBL,
NABIL and HBL.

4.9 Major Findings

The major findings of this study are as follows:

 The percentage of total lending with respect to deposit collected of NIBL were
74.69%, 80.10%, 84.89%, 82.94% 82.27% & 81.21% from a year 2015 to
2020 respectively. The maximum amount undisturbed was in year 2020 and
the maximum % on lending with respect to deposit collected was in year
2017.
 The percentage of total lending with respect to deposit collected of NABIL
were 62.84%, 69.02%, 75.59%, 84.28%, 78.24 and 77.59% in year 2015 to
2020 respectively. The maximum amount undisturbed was in year 2020.
However, maximum percentage change in loan disbursed with respect to the
deposit collected was in year 2018.

 The percentage of total loan disbursed with respect to deposit collected of

HBL were 75.37%, 77.57%, 83.59%, 87.04%, 84.74% and 81.32% in year
2015 to 2020 respectively. The maximum amount undisturbed was in year

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2020 and the maximum percentage of loan disbursed to deposit collected was
in year 2018.

 HBL has high loan loss provision ratio than NIBL and NABIL. The average
of loan loss provision ratio of NIBL, NABIL and HBL are 0.96, 0.99 and 1.18
respectively.

 NIBL has high non- performing loans than NABIL and HBL. The mean of
non- performing loan to total loan disbursement of NIBL, NABIL, and HBL
are 1.64, 1.01, and 1.08 respectively.

 The coefficient of correlation between deposit collection and loan

disbursement of NIBL, NABIL and HBL is 0.9933, 0.9748 and 0.9796
respectively, which shows that there is very high positive correlation between
the variables.
 Probable error of NIBL is found to be 0.0037 and 6 P.E is 0.0221. Likewise
the P.E of NABIL is calculated to be 0.0137 and 6 P.E is 0.0821 and P.E of
HBL is calculated to be 0.0111 and 6 P.E is 0.0667. The above value of ‘r’ is
more than 6 times of P.E that reveals that there is very high positive
correlation between the deposit and loan disbursed.

 The correlation coefficient of NIBL is 0.9919 and it is more than 6 times the
value of P.E. which reveals that, there is very highly positive correlation
between loan loss provision and loan disbursement. The correlation
coefficient of NABIL is 0.9734, P.E is 0.0145 and 6P.E is 0.0869. Since ‘r’ is
more than P.E, which reveals that, there is very highly positive correlation
between loan loss provision and loan disbursement. The correlation
coefficient of HBL is 0.8934, P.E is 0.0556 and 6P.E is 0.3336. Since ‘r’ is
less than 6P.E, it shows significant positive relationship correlation between
loan loss provision and loan disbursement.

 The correlation coefficient of NIBL, NABIL and HBL is 0.8025, 0.3085 and
0.7507 respectively which is greater than 6.P.E but the NABIL is less there
the correlation coefficient of NABIL is less on the other banks which reveals
there is positive relationship between NPL and LD.

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 The calculated value of t is 1.706 which is less than the tabulated value 2.228,
the null hypothesis (H1) is accepted. This means there is no significant
different between average of deposit collection and loan disbursement of
NIBL, NABIL and HBL.

 The calculated value of t is (9.617) which is less than the tabulated value
2.228, the null hypothesis (H2) is accepted. This means there is no significant
different between average of loan loss provision and loan disbursement of
NIBL, NABIL and HBL.

 The calculated value of t is (9.592) which is less than the tabulated value
2.228, the null hypothesis (H3) is accepted. This means there is no significant
different between average of non-performing loan and loan disbursement of
NIBL, NABIL and HBL.

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CHAPTER – V

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

After the restoration of democracy in Nepal, there was tremendous development in

banking sector. Different types of banking activities are being operated. It has played
a positive role in the economy of the country. Today there is no possibility of
economic development of a country without the development of banking system. At
present banks are facing many challenges. One of the major challenges for Nepalese
commercial banks is proper manage of credit. Considering the importance of credit
management in commercial banks, this research aimed at studying the credit
management of selected commercial banks. For this purpose, descriptive and
analytical research design was adopted. Out of 27 commercial banks, three banks (i.e.
NIBL, NABIL, and HBL) were taken as sample. The analysis has been conducted
with the data collected from various sources. Appropriate statistical tools have been
used to analyze the data. The data of six consecutive years of the three banks have
been analyzed to meet the objectives of the study.

This research is about the credit management of commercial banks in Nepal with the
6 research period in year. In the first chapter describe the credit management by the
authors. The objective analyzes credit management practice and shows the
relationship between some research variables, which is based on the secondary data
collection. The second chapter includes some review, review on related studies and
research gap, which gives the detail of loan management process in commercial
banks and also gives the important of different meaning of savings and interest.
Similarly, the 3rd chapter shows descriptive and correlation research design and
research variables that are used in this research. Lastly the 4th chapter includes various
types of deposit collected and loan provided by the selected banks. The collected data
presented in table, bar-diagram, trend line. The total deposit and loan disbursed is
increasing every year of selected banks. The loan to deposit ratio of NABIL, NIBL
and HBL is fluctuated trend but NABIL has first 3 year same ratio as 1.01%.

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5.2 Conclusion

From the above analysis and findings of the study, the researchers have been able to
draw following certain conclusion:

From the analysis, it is found that The percentage of total lending with respect to
deposit collected of NIBL were 74.69%, 80.10%, 84.89%, 82.94% 82.27% & 81.21%
from a year 2015 to 2020 respectively. The maximum amount undisturbed was in year
2020 and the maximum % on lending with respect to deposit collected was in year
2017. The percentage of total lending with respect to deposit collected of NABIL were
62.84%, 69.02%, 75.59%, 84.28%, 78.24 and 77.59% in year 2015 to 2020
respectively. The maximum amount undisturbed was in year 2020. However,
maximum percentage change in loan disbursed with respect to the deposit collected
was in year 2018. The percentage of total loan disbursed with respect to deposit
collected of HBL were 75.37%, 77.57%, 83.59%, 87.04%, 84.74% and 81.32% in
year 2015 to 2020 respectively. The maximum amount undisturbed was in year 2020
and the maximum percentage of loan disbursed to deposit collected was in year 2018.

HBL has high loan loss provision ratio than NIBL and NABIL. The average loan loss
provision ratio of NIBL, NABIL and HBL are 0.96, 0.99 and 1.18 respectively. NIBL
has high non- performing loans than NABIL and HBL. The mean non- performing
loan to total loan disbursement of NIBL, NABIL, and HBL are 1.64%, 1.01%, and
1.08% respectively.

The coefficient of correlation between deposit collection and loan disbursement of

NIBL, NABIL and HBL is 0.9933, 0.9748 and 0.9796 respectively, which shows that
there is very high positive correlation between the variables. Probable error of NIBL is
found to be 0.0037 and 6 P.E is 0.0221. Likewise the P.E of NABIL is calculated to be
0.0137 and 6 P.E is 0.0821 and P.E of HBL is calculated to be 0.0111 and 6 P.E is
0.0667. The above value of ‘r’ is more than 6 times of P.E that reveals that there is
very high positive correlation between the deposit and loan disbursed.

The correlation coefficient of NIBL is 0.9919 and it is more than 6 times the value of
P.E. which reveals that, there is very highly positive correlation between loan loss
provision and loan disbursement. The correlation coefficient of NABIL is 0.9734, P.E

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is 0.0145 and 6P.E is 0.0869. Since ‘r’ is more than P.E, which reveals that, there is
very highly positive correlation between loan loss provision and loan disbursement.
The correlation coefficient of HBL is 0.8934, P.E is 0.0556 and 6P.E is 0.3336. Since
‘r’ is less than 6P.E, it shows significant positive relationship correlation between
loan loss provision and loan disbursement.

The correlation coefficient of NIBL, NABIL and HBL is 0.8025, 0.3085 and 0.7507
respectively which is greater than 6.P.E but the NABIL is less there the correlation
coefficient of NABIL is less on the other banks which reveals there is positive
relationship between NPL and LD.

This means there is all value are no significant different between average of
independent variables are deposit collection, loan loss provision and non-performing
and dependent variables is loan disbursement of NIBL, NABIL and HBL.

5.3 Recommendations

Based on the analysis and the findings of the study, the following recommendations
are suggested to improve present credit management of selected banks as well as to
further researchers:

 Bank need to focus/target more on Saving Deposit rather than on Current

Deposit & Fixed Deposit. Saving Deposit are usually the fund collected from
individual/ retail depositors, deposited for saving habits, so these funds are the
one bank can utilize for long term lending. So, keen interest is to be taken on
such deposit.

 Cash and Bank balance of commercial banks are high. Unused cash and bank
balance do not provide return to the bank. Therefore some percentage of cash
and bank balance should be invested somewhere in profitable sectors which
gives higher return. There must be good investment decision which increases the
cooperative value of the firm.

 Loan Loss Provision is increasing day by day. Higher in ratio indicates higher
non-performing loan in total loan disbursement. So, bank should be alert to
recover the bad loan for long run profit & steady growth in market.

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 It should be maintained every time to ensure the loans provided are good and in
healthy condition as well utilized properly.

 Banks are seen following the NRB directives to minimize loan loss provision &
non-performing loan but still they are lacking behind to minimize the provision
to major extent. This thing has really made a major problem for many
commercial banks & financial institutions these days. Hence, banks should set
up target to minimize the non-performing loan & increase the profit every year.
Healthy recovery efforts should be followed to collect the loans in time.

 Bank should target to mobilize the fund not only in city/urban areas but should
focus the same in rural areas too. Basically to meet social responsibilities, it is
recommended to these banks to promote and mobilize the funds in rural areas.

 Due to lack of good governance in the Nepalese market, few financial

institutions are in process to collapse and many of them are unable to operate
smoothly & efficiently. So, good governance should be ensured for long run
operation & steady growth in market.

 This research is based on 3 selected commercial banks for the study. It is

suggested to increases more banks and selected any other financial institution
with more observation.

 The current research is limited only 3 objectives and only 2 statistical tools are
used for this study. It is recommend to increases more objective with the related
research topic and take other statistical tools like as average, standard deviation,
t-test, correlation, etc.

 Show the relationship variables taking from deposit, loan, loan loss provision
and non performing loan of the bank. It is suggested to the researcher taking
other variables which impact on credit management of the bank such as interest
income, interest expenses, debt, net profit, etc.

 It is recommended to taking other data presentation and analysis tools such trend
line, time ratio, future forecast trend, pie-chart, etc.

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BIBLIOGRAPHY

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Sharpe, W.F., Alexander, G.J. and Bailey, J.V. (2005), "Investment", New Delhi:
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Unpublished Thesis
Ghimire, S. (2018), “Study of Credit Management of Joint Venture Commercial
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Master Degree Thesis, Shanker Dev Campus.
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Limited and Himalayan Bank Limited.” An Unpublished Master Degree
Thesis, T.U.
Shrestha, J. (2014), “Comparative Study on Credit Management of Commercial
Banks – Nabil Bank Limited and Standard Chartered Bank Limited.” An
Unpublished Master Degree Thesis, T.U.
Subedi, R. (2016), “Credit Management in Commercial Banks of Nepal – NABIL
Bank, Standard Chartered Bank, Everest Bank and Himalayan Bank.”, An
Unpublished Master Degree Thesis, Peoples Campus.
Tiwari, P. (2010), "Credit Management of Himalayan Bank Limited". An
Unpublished Master Degree Thesis, Lumbini Banijya Campus.
Websites
https://www.google.com
https://www.himalayanbank.com
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https://www.sharesansar.com.np
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Appendix-I
Correlation between Total Deposit and Loan Disbursement of NIBL

(Amount in Billion)
Fiscal Year X Y X2 Y2 XY
2015
90.63 67.69 8213.80 4581.94 6134.74
2016
108.63 87.01 11800.48 7570.74 9451.90
2017
125.67 106.68 15792.95 11380.62 13406.48
2018
145.67 120.83 21219.75 14599.89 17601.31
2019
149.34 122.87 22302.44 15097.04 18349.41
2020
166.34 135.08 27669.00 18246.61 22469.21
n=6 ΣX=786.28 ΣY=640.16 ΣX2=106998.40 ΣY2=71476.83 ΣXY=87413.04

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Total Deposit
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  87413.04  786.28  640.16

=
6  106998.40  786.28 6  71476.83  640.16 
2 2

524478.24  503345.0048
=
641990.4  618236.2384 428860.98  409804.8256
21133.2352
=
23754.1616 19056.1544
21133.2352
=
154.1239  138.0440
21133.2352
=
21275.8797
= +0.9933
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Appendix-II
Correlation between Total Deposit and Loan Disbursement of NABIL

(Amount in Billion)
Fiscal Year X Y X2 Y2 XY
2015
104.24 65.5 10865.98 4290.25 6827.72
2016
110.27 76.11 12159.47 5792.73 8392.65
2017
118.9 89.88 14137.21 8078.41 10686.73
2018
134.81 113.63 18173.74 12911.78 15318.46
2019
162.95 127.5 26552.70 16256.25 20776.13
2020
190.81 148.05 36408.46 21918.80 28249.42
n=6 ΣX=821.98 ΣY=620.67 ΣX2=118297.56 ΣY2=69248.23 ΣXY=90251.11

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Total Deposit
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  90251.11  821.98  620.67

=
6  118297.56  821.98 6  69248.23  620.67 
2 2

= +0.9748
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Appendix-III
Correlation between Total Deposit and Loan Disbursement of HBL

(Amount in Billion)
Fiscal Year X Y X2 Y2 XY
2015
73.54 55.43 5408.13 3072.48 4076.32
2016
87.34 67.75 7628.28 4590.06 5917.29
2017
92.88 77.64 8626.69 6027.97 7211.20
2018
98.99 86.16 9799.02 7423.55 8528.98
2019
109.39 92.7 11966.17 8593.29 10140.45
2020
125.1 101.73 15650.01 10348.99 12726.42
n=6 ΣX=587.24 ΣY=481.41 ΣX2=59078.30 ΣY2=40056.35 ΣXY=48600.66

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Total Deposit
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  48600.66  587.24  481.41

=
6  59078.30  587.24  6  40056.35  481.41
2 2

= +0.9796
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Appendix-IV
Correlation between Loan Loss Provision and Loan Disbursement of NIBL

(Amount in Billion)
Fiscal Year X Y X2 Y2 XY
2015
0.72 67.69 0.52 4581.94 48.74
2016
0.83 87.01 0.69 7570.74 72.22
2017
1.06 106.68 1.12 11380.62 113.08
2018
1.12 120.83 1.25 14599.89 135.33
2019
1.14 122.87 1.30 15097.04 140.07
2020
1.25 135.08 1.56 18246.61 168.85
n=6 ΣX=6.12 ΣY=640.16 ΣX2=6.45 ΣY2=71476.83 ΣXY=678.29

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Loan Loss Provision
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  678.29  6.12  640.16

=
6  6.45  6.12 6  71476.83  640.16 
2 2

= +0.9919
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Appendix-V
Correlation between Loan Loss Provision and Loan Disbursement of
NABIL

(Amount in Billion)
2 2
Fiscal Year X Y X Y XY
2015
0.66 65.50 0.44 4290.25 43.23
2016
0.77 76.11 0.59 5792.73 58.60
2017
0.91 89.88 0.83 8078.41 81.79
2018
1.12 113.63 1.25 12911.78 127.27
2019
1.11 127.5 1.23 16256.25 141.53
2020
1.53 148.05 2.34 21918.80 226.52
n=6 ΣX=6.10 ΣY=620.67 ΣX2=6.68 ΣY2=69248.23 ΣXY=678.93

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Loan Loss Provision
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  678.93  6.10  620.67

=
6  6.68  6.10 6  69248.23  620.67 
2 2

= +0.9734
 Siddhartha Campus

Appendix-VI
Correlation between Loan Loss Provision and Loan Disbursement of HBL

(Amount in Billion)
Fiscal Year X Y X2 Y2 XY
2015
0.57 55.43 0.32 3072.48 31.60
2016
0.76 67.75 0.58 4590.06 51.49
2017
0.82 77.64 0.67 6027.97 63.66
2018
0.94 86.16 0.88 7423.55 80.99
2019
1.06 92.70 1.12 8593.29 98.26
2020
1.70 101.73 2.89 10348.99 172.94
n=6 ΣX=5.85 ΣY=481.14 ΣX2=6.47 ΣY2=40056.35 ΣXY=498.94

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Loan Loss Provision
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  498.94  5.85  481.14

=
6  6.47  5.85 6  40056.35  481.14 
2 2

= +0.8934
 Siddhartha Campus

Appendix-VII
Correlation between Non-performing Loan and Loan Disbursement of
NIBL

(Amount in Billion)
Fiscal Year X Y X2 Y2 XY
2015
0.85 67.69 0.72 4581.94 57.54
2016
0.59 87.01 0.35 7570.74 51.34
2017
0.89 106.68 0.79 11380.62 94.95
2018
1.64 120.83 2.69 14599.89 198.16
2019
3.42 122.87 11.70 15097.04 420.22
2020
3.93 135.08 15.44 18246.61 530.86
n=6 ΣX=11.32 ΣY=640.16 ΣX2=31.69 ΣY2=71476.83 ΣXY=1353.06

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Non-performing Loan
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  1353.06  11.32  640.16

=
6  31.69  11.32 6  71476.83  640.16 
2 2

= +0.8025
 Siddhartha Campus

Appendix-VIII
Correlation between Non-performing Loan and Loan Disbursement of
NABIL

(Amount in Billion)
2 2
Fiscal Year X Y X Y XY
2015
1.19 65.50 1.42 4290.25 77.95
2016
0.87 76.11 0.76 5792.73 66.22
2017
0.72 89.88 0.52 8078.41 64.71
2018
0.62 113.63 0.38 12911.78 70.45
2019
0.94 127.5 0.88 16256.25 119.85
2020
1.45 148.05 2.10 21918.80 214.67
n=6 ΣX=5.79 ΣY=620.67 ΣX2=6.06 ΣY2=69248.23 ΣXY=613.85

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Non-performing Loan
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  613.85  5.79  620.67

=
6  6.68  5.79 6  69248.23  620.67 
2 2

= +0.3085
 Siddhartha Campus

Appendix-IX
Correlation between Non-performing Loan and Loan Disbursement of
HBL

(Amount in Billion)
Fiscal Year X Y X2 Y2 XY
2015
0.68 55.43 0.46 3072.48 37.69
2016
0.58 67.75 0.34 4590.06 39.30
2017
0.66 77.64 0.44 6027.97 51.24
2018
1.21 86.16 1.46 7423.55 104.25
2019
1.04 92.7 1.08 8593.29 96.41
2020
1.03 101.73 1.06 10348.99 104.78
n=6 ΣX=5.20 ΣY=481.14 ΣX2=4.48 ΣY2=40056.35 ΣXY=433.67

Calculation coefficient correlation between X and Y.

Where,
X = Stands for Non-performing Loan
Y = Stands for Loan Disbursement
n XY   X  Y
rxy =
n X 2   X  n Y 2   Y 
2 2

6  433.67  5.20  481.14

=
6  4.48  5.20 6  40056.35  481.14 
2 2

= +0.7507
 Siddhartha Campus

Appendix-X
Annual Data of Himalayan Bank Limited

Himalayan Bank Limited

Amount in Rs. '000'
Particulars / Fiscal Year 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
1 Total Capital and Liabilities 84753328 99863008 108502198 116462301 133151142 15588918
1.1 Paid up Capital 3332700 4499145 6491624 8114529 8520256 9372281
1.2 Reserves and Funds 2459755 2974880 3590667 6024368 5303396 5720210
1.3 Debentures and Bonds 600000 600000 600000 623358 623149 2563661

1.4 Borrowings 600000 1600000 622958 623358 1183961 2719398

1.5 Deposits 73538201 87335786 92881114 98988791 109387060 125264382
1.6 Income Tax Liability
1.7 Other Liabilities 3656227 2103454 3275887 2711256 2777022 3544577
Current Liabilities 77194428 89439240 96157001 101700047 113348043 131528357

2 Total Assets 84753328 99863008 108502198 116462301 133151142 15588918

2.1 Cash & Bank Balance 8387412 7874984 8915386 8800528 4658554 7231139
2.2 Money at Call & Short Notice 1063950 1482160 500040 1010109
2.3 Investment 17113389 19306073 17929265 11654172 16466202 18241667
2.4 Loan & Advances 55428007 67745979 77640977 86160213 92697318 101728467
2.7 Other Assets 1439298 1530969 1097159 1339310 1075034 1129984
Current Assets 83432056 97940165 105582787 108454263 114897108 129341366
Quick Assets 82110784 96017198 103406894 106231586 112387600 126778472
2.5 Fixed Assets 1321272 1922967 2175893 2222677 2509508 2562894
2.6 Non Banking Assets

3 Profit & Loss Account

3.1 Interest Income 4627751 5015844 6938503 9724871 11625415 12178993
3.2 Interest Expenses 1954263 1565896 3173334 5403047 6594074 7357290
A Net Interest Income 2673488 3449948 3765169 4321824 5031341 4821704
B Total Operating Income 4057999 4757683 5216756 5853378 6680856 6418810
F Profit before bonus & Taxes 1600372 3023705 3411879 2765179 3933160 3558386
G Net Profit (Loss) 1112287 1935907 2178235 1875610 2763848 2586723
(Source: Annual Report of Himalayan Bank Limited from Fiscal Year 2071/72 to 2076/77)
 Siddhartha Campus

Appendix-XI
Annual Data of Nabil Bank Limited
Nabil Bank Limited
Amount in Rs. '000'
Particulars/Fiscal Year 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
1 Total Capital and Liabilities 115985701 127300195 140332060 160978071 201138821 237680030
1.1 Paid up Capital 4754950 6183540 8041159 8043221 9011845 10097497
1.2 Reserves and Funds 4980902 6123004 7167067 12543136 10441359 12181664
1.3 Debentures and Bonds 300000 300000 300000

1.4 Borrowings 1900000 3056310 32518

1.5 Deposits 104237910 110267272 118896157 134810670 162953999 190806470
1.6 Income Tax Liability 964
1.7 Other Liabilities 1710975 2526379 2871367 5434686 4302083 4496848
Current Liabilities 105949849 114693651 124823834 140277874 167256082 195303318

2 Total Assets 115985701 127300195 140332060 160978071 201138821 237680030

2.1 Cash & Bank Balance 16003740 10262849 13091730 7952350 12479698 4799630
2.2 Money at Call & Short Notice 323541 819418 17532566 11078729 20021031
2.3 Investment 30972487 36098550 32593660 18388083 25303073 33633397
2.4 Loan & Advances 65501925 76106017 89877127 113625155 127500243 148054071
2.7 Other Assets 2371567 3228906 3978577 2325322 2590770 2428477
Current Assets 115173260 126515740 139541094 159823476 178952513 208936606
Quick Assets 114360820 125731284 138750129 158837216 177900721 207618492
2.5 Fixed Assets 812440 784456 790965 986260 1051792 1318114
2.6 Non Banking Assets
3 Profit & Loss Account
3.1 Interest Income 5762345 6155660 8065591 11349867 15243780 16462914
3.2 Interest Expenses 2236064 1829689 2606091 5087808 8084526 9479249
A Net Interest Income 3526281 4325971 5459501 6262059 7159253 6983665
B Total Operating income 4759498 5729639 7068677 8242893 9328810 9124139
F Profit before bonus & Taxes 3279460 4408554 5655589 3254978 6041319 5095007
G Net Profit (Loss) 2093814 2819334 3613200 3981893 4238853 3463241
(Source: Annual Report of Nabil Bank Limited from Fiscal Year 2071/72 to 2076/77)
 Siddhartha Campus

Appendix-XII
Annual Data of Nepal Investment Bank Limited

Nepal Investment Bank Limited

Amount in Rs. '000'
S.No. Particulars / Fiscal Year 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
1 Total Capital and Liabilities 105816403 131331446 152877103 171893547 185841988 203023897
1.1 Paid up Capital 6345701 8706612 10626436 10645599 12869749 14248955
1.2 Reserves and Funds 3461252 7581140 8081448 14225423 10539136 10269224
1.3 Debentures and Bonds 1550000 1550000 1550000 1250000 3250000 2654985

1.4 Borrowings 263116 250480 241324 762666 67647

1.5 Deposits 90631487 108626642 125669355 140071167 149392282 166362126
1.6 Income Tax Liability
1.7 Other Liabilities 3564847 4616573 6708540 4938692 3024074 2804939
Current Liabilities 94459450 113493695 132619219 145772525 152484003 169167065

2 Total Assets 105816403 131331446 152877103 171893547 185841988 203023897

2.1 Cash & Bank Balance 14315048 13025832 17897590 10610892 13520574 7538029
Money at Call & Short Notice
2.2 149380 40000
2.3 Investment 21462588 29226762 25615645 17154379 16973475 26078437
2.4 Loan & Advances 67690199 87009792 106683877 120825496 122866554 135082099
2.7 Other Assets 1195704 632912 1005953 1211518 3307966 1613011
Current Assets 104663539 130044678 151243065 149802285 156668569 170311576
Quick Assets 103609407 128994232 149938760 149740821 156167389 169595698
2.5 Fixed Assets 1054132 1050446 1304305 61464 501180 715878
2.6 Non Banking Assets

3 Profit & Loss Account

3.1 Interest Income 5786160 6776755 9248699 13574102 14975215 15201326
3.2 Interest Expenses -2807361 -2855650 -4464552 -7723924 -8801709 -9423657
A Net Interest Income 2978799 3921105 4784147 5850178 6173506 5777669
B Total Operating Income 4171987 5363816 6605593 7930785 8347809 8076831
F Profit before bonus & Taxes 3099144 4078191 4926055 4940221 4486534 3512270
G Net Profit (Loss) 1961852 2550884 3114131 2740978 3324113 2423186
(Source: Annual Report of Nepal Investment Bank Limited from Fiscal Year 2071/72 to 2076/77)
 Siddhartha Campus

Appendix-XIII
T-test of Average of Total Deposit to Loan Disbursement
Average of Total Deposit Average of Loan Disbursement
89469199 62873377
102076567 76953929
112482209 91400660
124623543 106870288
140577780 114354705
160810993 128288212

t-Test: Two-Sample Assuming Equal Variances

Average of Total Deposit Average of Loan Disbursement

Mean 121673381.7 96790195
Variance 6.80691E+14 5.95E+14
Observations 6 6
Pooled Variance 6.37857E+14
Hypothesized Mean Difference 0
df 10
t Stat 1.706494089
P(T<=t) one-tail 0.059362154
t Critical one-tail 1.812461102
P(T<=t) two-tail 0.118724308
t Critical two-tail 2.228138842
 Siddhartha Campus

Appendix-XIV
T-test of Average of Loan Loss Provision to Loan Disbursement
Average of Loan Loss Provision Average of Loan Disbursement
648361 62873377
785773 76953929
930335 91400660
1061867 106870288
1103749 114354705
1493222 128288212

t-Test: Two-Sample Assuming Equal Variances

Average of Loan Loss Provision Average of Loan Disbursement

Mean 1003884.5 96790195
Variance 86433076641 5.95E+14
Observations 6 6
Pooled Variance 2.97555E+14
Hypothesized Mean Difference 0
df 10
t Stat -9.617900007
P(T<=t) one-tail 1.13453E-06
t Critical one-tail 1.812461102
P(T<=t) two-tail 2.26905E-06
t Critical two-tail 2.228138842
 Siddhartha Campus

Appendix-XV
T-test of Average of Non-performing Loan to Loan Disbursement

Average of Non-performing
Loan Average of Loan Disbursement
906675 62873377
678372 76953929
754814 91400660
1158136 106870288
1799134 114354705
2136426 128288212

t-Test: Two-Sample Assuming Equal Variances

Average of Non-performing Average of Loan

Loan Disbursement
Mean 1238926.167 96790195
Variance 3.56968E+11 5.95E+14
Observations 6 6
Pooled Variance 2.97691E+14
Hypothesized Mean Difference 0
df 10
t Stat -9.592119457
P(T<=t) one-tail 1.16259E-06
t Critical one-tail 1.812461102
P(T<=t) two-tail 2.32517E-06
t Critical two-tail 2.228138842