1

CHAPTER -I

INTRODUCTION

1.1 Background of study

A bank is a commercial entity that accepts deposits from the public and provides
loans to both businesses and individuals. It handles money and credit with the goal of
making a profit. Banks typically engage in financial transactions, serving as institutions
that accept deposits from individuals with savings and lend to those in need of funds for
various purposes. They administer these transactions by applying fixed annual interest
rates for borrowing and lending. In the present era, banks offer a wide range of services to
their clients' representatives, including managing cash remittances and collections, issuing
bank drafts and letters of credit, and underwriting shares for newly formed companies.
Additionally, banks assist individuals in various economic endeavors such as trade,
official duties, agriculture, administrative tasks, academic pursuits, and more.

The capital structure decision is one of the most important decisions made by
financial managers in this modern era. Eldomiaty (2007) argued capital market is less
efficient and incomplete and suffers from higher level of information asymmetry than
capital markets in developed countries. The capital structure of banks is still a relatively
under-explored area in the banking literature. Currently, there is no clear understanding
on how banks choose their capital structure and what factors influence their corporate
financing behavior.(Amidu 2007).Titman and Wessels (1988) studied the theoretical
determinants of capital structure attributed namely; assets structure, non-debt tax shield,
growth, uniqueness, industry classification, firm size and profitability were tested to see
how they affects a firm's choice of debt-equity mix.

Leon (2013) stated that capital structure is the most significant discipline of
company's operations. The capital structure decision is a vital decision with great
implication for the firm's sustainability. The ability of the organizations to carry out their
shareholder's need is closely related to the capital structure. The determination of a
company's capital structure is a difficult task to achieve. Shibru et al. (2015) observed that
profitability, bank size, tangibility and liquidity are important determinants of capital
structure of banks in Ethiopia and indicate that growth and risk of banks are unrelated to
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banks capital structure.

In the context of Nepal, there are a few studies in relation to determinants of

capital structure distinctly studied by different researchers. Ghimire et al. (2016) revealed
that profitability is the major factor affecting the capital structure in the Nepalese
commercial banks, followed by the liquidity and bank size. However, Baral (2004) that
size, growth rate and earning are stastifically significant determinants of capital structure
of the listed companies. The main role of capital in insurance is to provide a cushion
against deviations of realized losses from expected losses. Thus, the amount of capital
commercial banks has on its balance sheet relative to its liabilities to policyholders
determines its profitability of insolvency, and regulators monitor insurers capitalization
levels carefully. Pradhan and Pokhrel (2016) showed that capital structure has no
significant influence on corporate performance. Adhikari et al. (2016) concluded that
profitability is partially increases firm leverage.

The above discussion reveals that there is no consistency in the findings of various
studies concerning the determinants of capital structure of banks.

Commercial Banks in Nepal

Commercial banks are institutions that gather the savings of the community and
allocate them towards productive ventures, thereby activating capital for various sectors.
They cater to the financial requirements of modern businesses through diverse methods.
The majority of banks worldwide are established with the aim of financing and fostering
the growth of trade, industry, and commerce. Essentially, commercial banks can be
characterized by the functions they fulfill, which include accepting deposits and
extending loans primarily to businesses, thus facilitating the transfer of funds within the
economy.

Commercial banks in Nepal must follow rules set by the Nepal Rastra Bank. They
need to have a certain amount of money called paid-up capital. The top tier banks, called
"A" class financial institutions, must have at least 8 billion Nepali rupees of this capital.
 3

Commercial banks perform core functions such as accepting deposits in various

types of accounts including demand, savings, and time deposit accounts, offering interest
on saving and time deposits while not providing interest on demand deposit accounts.
They also extend different types of consumer and commercial loans to individuals and
businesses. Additionally, commercial banks offer services such as paying bills on behalf
of their customers, receiving payments, providing foreign currency exchange and
remittance services, offering deposit vault services, and furnishing information on foreign
exchange rates and banking.

In Nepal, the oldest commercial bank is Nepal Bank Limited, founded in 1994
B.S. before the central bank was established. Initially, it was set up with 51% government
investment and the remaining 49% from the public sector. The second commercial bank,
Nepal Rastriya Banijya Bank, was established in 2022 B.S. and is entirely government-
owned. Presently, there are 20 classes a commercial banks operating in Nepal. Altogether,
there are 5049 branches of commercial banks spread across the country.

1.2 Profile of the Organization, Events, Activities etc.

1.2.1 Introduction of NIC Asia Bank

NIC Asia Bank, the pioneer of its kind, was founded under the Commercial Bank
Act 2031, aligning with the liberalized economic policies of the Government of Nepal in
the early 1980s and notably after the restoration of democracy in 1990. Most private
sector joint venture banks emerged during this period, with NIC Asia Bank initially
headquartered in Biratnagar and focusing its operations within the valley.

NIC Asia Bank has emerged as one of the leading private sector commercial
banks in the nation, boasting significant capital, a sizable balance sheet, numerous
branches, an extensive ATM network, and a large customer base. With 360 branches, 671
ATMs, 115 extension counters, and 51 branchless banking outlets across Nepal, its
network spans all major financial hubs in the country. The bank is deeply committed to
principles of meritocracy, transparency, professionalism, teamwork, and service
excellence. These core values are ingrained across all facets of the bank's operations and
are evident in its business practices.
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Following the merger, NIC ASIA effectively navigated the integration phase,
earning praise from regulators and stakeholders, thereby setting a positive example for
further mergers and consolidations within the Nepalese financial sector. Subsequently,
NIC Asia was honored with the "Bank of the Year 2013-Nepal" award by The Banker,
Financial Times UK, marking the second time the bank received this prestigious
recognition, the first being in 2007.

NIC Asia Bank originated from NIC Bank, founded on July 21st, 1998. Following
the merger of NIC Bank with Bank of Asia Nepal on June 30th, 2013, the institution was
renamed NIC Asia Bank. This merger between two prosperous commercial banks was a
significant event in the country's banking history. Presently, NIC Asia Bank has solidified
its position as one of the most thriving commercial banks in Nepal.

Source: Website of NIC ASIA Bank

1.2.2 Service Provided by NIC Asia Bank

In today's contemporary banking landscape, as the banking sector becomes

increasingly service-oriented, the key to the growth and advancement of a bank lies in
providing high- quality customer service. Beyond the traditional roles of lending money
with interest against guarantees and accepting deposits, banks are required to fulfill a
myriad of functions to ensure customer satisfaction. Emphasizing the delivery of
exceptional customer service has become paramount in today's banking environment.

As NIC Asia commenced its operations with a focus on marketing principles, it

has become increasingly attentive to customer service in order to remain competitive with
other contemporary banks. To enhance the reliability and informativeness of its customer
service, NIC Asia consistently endeavors to expand its range of services offered to
customers. Furthermore, all bank personnel are actively engaged in pursuing the bank's
objectives.

The primary services provided by NIC Asia Bank include:

 Bank guarantees

 loans
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 Bill purchases

 Letters of credit

 Current accounts, savings accounts, and fixed deposit accounts in both local
and foreign currencies.

Additionally, the bank offers services such as clearing collections, the purchase
and sale of traveler's cheques, fund transfers (via draft, T.T., and fax), along with other
associated services. Furthermore, NIC Asia Bank provides safe deposit lockers and
banking services through SWIFT.

1.2.3 Future Planning and Programs

a) To meet the growing demands of our expanding customer base, the Hetauda branch
has been inaugurated and is now operational. Drawing from feasibility studies
conducted on additional locations, the bank aims to establish branches in other areas
across the country.

b) Regarding the utilization of technology, we will employ the most up-to-date models
of existing computer technology to ensure faster, more efficient, and reliable customer
services
c) The maintenance of staff efficiency will involve continued participation in theoretical
and practical training programs.

d) With the aim of promoting and mobilizing savings among the general public, the bank
is dedicated to introducing new and appealing deposit schemes for the benefit of
depositors. In the Nepalese context, it is anticipated that these new deposit schemes
will aid in consolidating deposit mobilization efforts. NIC Asia will prioritize
expanding its service offerings and devising marketing strategies to enhance the
structure of its deposit mix.

1.2.4 Global Banking Increase in Customer Bargaining Power

Currently, commercial banks are experiencing increased competition due to the

privatization of the financial sector, the rise of numerous companies, multinational
financial institutions, insurance firms, and the development of liberal banking
 6

regulations. Domestic commercial banks are particularly encountering significant

competition compared to joint venture foreign banks. Private banks have begun offering
various services such as customer loans, financial advisory, equipment leasing, venture
capital loans, insurance policy sales, retirement plan sales, security brokerage services,
investment banking, and merchant banking services to stay competitive in the global
banking landscape.

Due to globalization, financial customers in Nepal are becoming increasingly

informed and are gradually seeking more advanced services. Therefore, commercial
banks can only succeed in their banking business by focusing on delivering personalized
services rather than routine ones. Examples of recent new services introduced by private
commercial banks in the country include credit banking, mobile banking, and ATM
machines.

1.2.5 Positions of NIC Asia in the Liberalized Economic Scenario of Nepal

In Nepal, the presence of approximately 20 commercial banks and 17
development banks has led to a crowded market, resulting in intense competition among
banks. Despite this challenging environment, NIC Asia Bank has maintained a stable
position within Nepal's liberalized economy. This is evident from the fact that NIC Asia
Bank, established in 1998, continues to stand strong against older banks like Himalayan
Bank Ltd., founded in 1993, and Standard Chartered Bank Ltd., established in 1987.
A significant measure of a bank's performance or standing is its stability, which is
evaluated based on its reserves and net worth. The greater the reserve a bank possesses,
the more likely it is to be stable. Compared to other banks, NIC has the highest share
capital of Rs. 500 million. Regarding capital adequacy, all banks have met the standard
set by the Nepal Rastra Bank (NRB) of 10% of their total funds, while NIC Asia has
maintained a capital fund of 20.9%. Banks must also consider the liquidity of their
deposits to ensure liquidity. NRB, the regulatory authority, has set a certain percentage of
total deposits as the cash reserve ratio. NIC Asia has efficiently maintained a sufficient
CRR, accounting for 13.39% of their funds, ensuring both liquidity and profitability.
Given that commercial banks primarily engage in deposit collection and lending,
it's essential to consider the credit-to-total-deposit ratio (CD ratio) for this purpose. NIC
Asia Bank maintains a CD ratio of seventy-nine percent. However, the bank's ability to
 7

thrive in global challenges doesn't solely rely on its CD ratio but also on diversifying its
business into more income-generating areas. Another indicator of the bank's position is
profitability, and NIC Asia has recorded a profit of 1.29 billion rupees in the first three
months of the fiscal year 2080/81 B.S.
The standing of a bank is also influenced by the quality of assets in which it has
invested, particularly in terms of loans and advances. NIC Asia maintains a low loan
provision of 3.80% of total credit and interest suspense of 6.04% of total interest income,
indicating the high quality of its assets. Therefore, it can be concluded that NIC Asia's
position remains stable in Nepal's liberalized economic landscape.

1.3 Objectives of the Study

The primary aim of this study is to inspect and evaluate the capital management
practices implemented by NIC ASIA BANK LTD. This encompasses three specific
objectives:
i. To analyze the overall capital management of NIC Asia Bank.

ii. To investigate the investment activities related to shares, debentures, and bonds
undertaken by NIC Asia Bank.

1.4 Rationale of the Study

This report has been created to assess the financial performance of capital
management at NIC ASIA BANK LIMITED. The study holds significance in enhancing
students' understanding in the field of banking. The information presented in this project
report can guide the bank in implementing recommendations to address any shortcomings
if it fails to meet established standards.

1.5 Literature Review

A literature review summarizes existing knowledge on a topic, including findings

and contributions to theory and methodology. It's a secondary source found in academic
journals, distinct from book reviews. Literature reviews are essential in nearly every
academic field and often precede new research in scholarly articles, providing context
and situating the study within existing literature.
 8

This study will involve examining the book and articles published by NIC Asia, as
well as relevant materials available on the NIC Asia websites. Additionally, journals,
articles, and research reports pertaining to this topic have been reviewed. The study aims
to reference nearly all published books related to the topic and have also considered prior
reports by students of BBS on this subject.

This section of the report serves to demonstrate the rationale behind the research
and identify the necessity and scope of the study. These concluding remarks aid in
highlighting any research gaps and the relevance of the study. Conducting a literature
review before commencing research is advisable for the following reasons:

 examining previous research to ascertain what has and hasn't been explored

 crafting general explanations for observed variations in behavioral phenomena

 pinpointing potential relationships between variables to formulate research

hypotheses

 locating data sources utilized in another research

 identifying unresolved issues from prior studies

 understanding the methodologies employed by other researchers

1.5.1 Conceptual Review

Capital is essential as it provides the necessary funds to establish and operate a

bank's structure before deposits begin to accumulate. Additionally, capital fosters public
confidence in a bank and reassures its creditors of the institution's financial stability. It
must also be robust enough to assure borrowers that the bank can fulfill their credit needs
even during economic downturns. Furthermore, capital facilitates the growth and
development of new service programs and facilities within the organization. As a bank
expands, it requires additional capital to support its growth and undertake the risks
associated with offering new services and constructing new facilities. Often, banks
outgrow their initial facilities, and introducing additional capital enables them to expand
into larger premises or establish additional branch offices to accommodate their
expanding market area and provide convenient services to customers.
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1.5.2 Research Gap

The comprehensive review of relevant literature has significantly enriched the

foundational understanding and knowledge necessary to ensure the study's significance
and purposefulness. While numerous articles have been published regarding capital
management in commercial banks, there is limited research available specifically on
"Capital Management" within NIC Asia Bank Limited. Hence, the researcher endeavors
to delve into this area. This study on capital management at NIC Asia Bank is anticipated
to be pioneering in its subject matter, offering valuable insights for interested parties,
scholars, professors, students, businessmen, and government officials from both
academic and policy perspectives.

1.6 Research Methodology

Research methodology refers to a structured approach utilized in conducting

research. Sociologists utilize a diverse range of research methods, encompassing both
qualitative and quantitative approaches, such as experiments, survey research, participant
observation, and the use of secondary data. Quantitative methods focus on categorizing
features, tallying them, and employing statistical techniques to test hypotheses and
elucidate observations.
Conversely, qualitative methods aim to provide comprehensive and detailed
descriptions of observations, including the contextual understanding of events and
circumstances. In this study, the research design, interviews, data collection procedures,
and presentation analysis techniques are tailored accordingly.

1.6.1 Types of Research

Different types of research are outlined below:

a) Descriptive research design: This type of research is tailored for subjective

investigations. It involves setting objectives, collecting samples, gathering data,
analyzing the data, and preparing reports.
b) Case study research design: This method provides detailed and in-depth analysis of a
single event. It employs qualitative data collection techniques, and the results are not
generalized. The process involves determining objectives, preparing questions for the
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specific event or unit, and compiling a report.

c) Development research design: This approach focuses on predicting future trends by
considering changes in events and human social and cultural activities.
Developmental research methods include longitudinal growth studies and cross-
sectional growth studies.
d) Comparative research design: This type of research examines how the position of a
case impacts certain works. It involves explaining the effects, causes, and impacts of
events and is categorized into correlation research and causal-comparative research.
e) Experimental research design: In this design, the researcher controls all other
variables and conducts research focusing on a few variables through observation or
experimental research. It is classified into two categories: true experimental research
design and quasi-experimental research design.
Out of the aforementioned types, this research design aligns with descriptive
research design as it focuses solely on a single variable. It does not delve into the
relationship between variables.

1.6.2 Sources of Data

The methodology employed for conducting this study relies on secondary data
sources. These sources encompass published materials and annual reports from bank.

1.6.3 Data Processing Procedures

In this study, data obtained from published materials and annual reports of banks

are reviewed and organized into various categories. Following tabulation, they are

arranged using both financial and statistical methods. The collected data are initially

gathered in a systematic manner and subsequently analyzed using various financial and

statistical tools to fulfill the research objectives. Additionally, graphs and tables have

been utilized to analyze, interpret, and present the findings of the study.

Financial Highlights:

Authorized capital Rs.20 Arba

Issued capital Rs. 5 Arba

Paid up capital Rs. 11.56 Arba
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Deposits Rs. 311.36 Arba

Loans, Advances & Bill purchase Rs.262.09 Arba
Operating profit Rs.0.62 Arba
Source: Annual Report of NIC ASIA Bank Ltd (2079/80)

1.6.4 Population and Sample

Population denotes the complete set of individuals, events, or items of interest that
a researcher aims to examine. When specific elements are chosen with the purpose of
gaining insights into the larger population they represent, this selected group is termed a
sample, and the associated selection process is known as sampling. In the context of this
research report, the total population comprises 20 commercial banks in Hetauda.
However, for the research report, NIC ASIA Bank is singled out as the sample from
among these 20 banks.

1.7 Limitation of Study

This fieldwork report is subject to certain limitations, which have been taken into
account during its preparation. The following considerations were made:

1. The study is based on data from the past three years.

2. Information for the study was gathered from the NIC ASIA website.
3. The accuracy of the findings depends entirely on the information provided by the
relevant authorities.
4. The study exclusively focuses on capital management at NIC ASIA Bank Ltd.
5. Due to time constraints, it was challenging to collect all necessary information for
the study.
6. Only NIC ASIA Bank Ltd. was included in the analysis.
7. The study primarily relies on secondary data.
8. Emphasis is placed on quantitative aspects rather than qualitative aspects.
9. Analysis is conducted using a limited number of financial and statistical tools.
10. Time availability is another constraint that influenced the study
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CHAPTER -II

RESULT AND FINDINGS

2.1 Introduction

Effectively managing capital is a pivotal and intricate responsibility, as the

prosperity and advancement of a bank hinge entirely on its capital management. This
chapter aims to elucidate this crucial subject by presenting, analyzing, and interpreting all
pertinent data.

2.2 Need and Analysis and Interpretation of Data:

In many instances, simply presenting data in a table may not provide a
comprehensive understanding unless it is accompanied by further analysis. Therefore,
providing explanations alongside the data is crucial to assist readers in comprehending the
presented information. Additionally, the investigator should draw logical conclusions
from the collected and analyzed data, aiming to facilitate comparisons and enhance their
level of expertise. Hence, there is a significant requirement and importance placed on the
analysis and interpretation of data, as it not only aids in understanding the presented data
and processes but also the entire subject matter related to the topic.
Table No: 1 Showing Share and Ownership of NIC ASIA Bank

SHARE CAPITAL & OWNERSHIP (in Rs.)

Particular F.Y. 2075/76 F.Y. 2076/77 F.Y. 2077/78 F.Y. 2078/79 F.Y. 2079/80
Authorized 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000
Capital
100,000,000
Ordinary share of
Rs. 100 each
..Nonredeemable
shares of Rs.
..Redeemable
preference share of
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Rs.

Issued Capital 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000

50,000,000
Ordinary share of
Rs.100 each
..Non-edeemable
share of Rs.
..Redeemable
preference share of
Rs.

Paid-up Capital 499,954,500 499,954,500 499,954,500 500,000,000 11,560,000,000

499,954,500
Ordinary share of
Rs.100 each
..Non-edeemable
share of Rs.
..Redeemable
preference share of
Rs.
Source: Annual Report of NIC ASIA Bank Ltd

Table No: 2 Showing Share Ownership of NIC ASIA Bank

SHARE OWNERSHIP (‘000’)

Particular F.Y.2075/76 F.Y.2076/77 F.Y.2077/78 F.Y.2078/79 F.Y.2079/80

% Amount %
Amount %
Amount %
Amount %
Amount
1. Domestic 1500000 100 500000 100 500000 100 500000 100 500000
Ownership 00
1.1 His - - - - - - - - - -
Majesty
Government
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1.2 525000 525000 840000 840000 10 50000

Commercial
Banks
1.3 Finance - - - - - - - - - -
Companies
1.4 Corporate - - - - - -
Institution
1.5 General 95 475000 95 4750000 92 460000 92 460000 90 450000
Public
2.Foreign - - - - - - - - - -
Ownership
Total 100 500000 100 500000 100 500000 100 500000 100 500000
Source: Annual Report of NIC ASIA Bank Ltd

Footnote: % of ordinary share is only showed in share ownership

Analysis: The table above illustrates the share capital and ownership distribution of NIC
ASIA Bank Limited. The first column displays the share capital and ownership for the
fiscal year 2075/76, while the second column depicts the figures for the fiscal year
2076/77. Subsequent columns represent the amounts for the fiscal years 2077/78,
2078/79, and 2079/80, respectively.

The table indicates a consistent increase in NIC's share capital each year, which is
beneficial for the bank's economic standing.
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Table No: 3 Showing Investment of NIC ASIA Bank

INVESTMENTS (in Rs.)

Particular F.Y.2075/76 F.Y.2076/77 F.Y.2077/78 F.Y.2078/79 F.Y.2079/80
1.HMG’S 1,235,273,32 1,194,311,87 1,337,596,24 1,345,239,71 1,440,273,34
9 7 0 1 2
A. Treasury 1,008,890,75 967,928,300 1,026,539,53 1,027,638,63 1,030,477,43
Bills 2 2 1 3
B.Development 226,385,577 226,385,577 311,056,708 315,112,709 317,132,701
Bonds
C. National - - - - -
Savings
Certificate
2. Foreign - - - - -
Govt.Bonds
A… - - - - -
B… - - - - -
3. Nepal - - - - -
Rastra Bank
Debenture
4. Share, 8,000,000 1,507,000 1,975,800 1,991,231 2,013,284
Debenture and
Bonds
5. Other 524,674,299 377,081,158 402,586,250 405,673,200 410,753,892
Investment
A. Certificate - - - - -
of Deposit
B. Mutual - - - - -
Funds
C. Domestic 114,830,000 90,000,000 160,251,513 162,201,375 165,703,242
Banks
D. Foreign 409,817,299 287,081,158 287,081,158 289,091,423 312,342,173
Banks
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E. Others - - - - -
Total 1,760,723,62 1,572,802,03 1,742,158,29 1,781,247,18 1,821,358,29
Investment 8 5 0 0 0
Provision for - - - - -
Loss
Net Investment1,760,723,62 1,572,802,03 1,742,158,29 1,781,247,18 1,821,358,29
8 5 0 0 0
Source: -Annual Report of NIC ASIA Bank Ltd

Analysis: Analysis of the table indicates that NIC Asia has allocated a significant portion
of its investments, totaling Rs. 1,821,358,290, into top-tier securities such as treasury bills
and development bonds. Specifically, the bank has invested Rs. 1,440,273,342 in
government securities to uphold a favorable equilibrium between liquidity and
profitability. This strategic investment approach allows the bank to address unforeseen
challenges effectively, as it can liquidate these high-quality securities in the market when
necessary. Consequently, NIC Asia demonstrates adept management of its capital within
this sector.
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Table No:4 Showing Investment of Share Debenture & Bonds

Investment in share, debenture and bonds (in Rs.)

Particular F.Y.2075/7 F.Y.2076/7 F.Y.2077/7 F.Y.2078/7 F.Y.2079/8

6 7 8 9 0
1. Investment in 800,000 800,000 800,000 800,000 800,000
shares
1.1 Rural Micro - - - - -
Finance Development
Centre Ltd.
8000 Ordinary shares 800,000 800,000 800,000 800000 800000
of Rs. 100 each
2.Investment in - 707,000 1,175,800 1,760,000 1,920,000
debenture and bonds
3.Provision for risks - - - - -

3.1 Provision up to - - - - -
last year
3.2 Current years - - - - -
surplus/Deficit
Total 800,000 1,507,000 1,255,800 2,560,000 2,720,000
Source: -Annual Report of NIC ASIA Bank Ltd
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3000000

2500000

2000000

1500000

1000000

500000

0
2075/76 2076/77 2077/78 2078/79 2079/80

Figure No:2 total investement of share, debenture and bond

Analysis: The table above illustrates NIC Asia Bank's investments in shares. While the
total investment in shares remains unchanged, there has been a gradual increase in
investments in debentures and bonds over the course of the past five years.
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Table No:5 Cash flow statement of NIC ASIA Bank Limited (2077-2080)

Particular Amount (in Rs.)

F.Y.2077/78 F.Y.2078/79 F.Y.2079/80
A. Cash flow from 109,007,726 63,755,740 111,501,980
operation
1.Cash Receipts 605,475,684 518,782,883 417,217,673
1.1 Interest Income 532,536,515 454,532,594 363,087,482
1.2 Commission & 29,254,789 27,101,792 27,296,000
Discount inc.
1.3 Forex Fluctuation 25,452,114 24,605,930 403,421
Income
1.4 Non-Operating 425,125 10,968,272 10,101,379
Income
1.5 Other Income 17,807,141 9,180,305 17,813,424
2.Cash 496,468,438 498,027,143 499,028,254
Payments
2.1 Interest 310,254,521 225,992,488 311,342,981
Expenditure
2.2 Employee Welfare 39,921,544 39,003,504 35,226,223
& Salary
2.3 Office Operating 60,114,255 51,629,103 61,243,213
Expenses
2.4 Forex - - -
Fluctuation
Expenses
2.5 Non-operating - - -
Expenses
2.6 Other Expenses 126,099,662 138,402,054 140,302,183
B. Cash flow from 1,923,103,859 2,128,014,662 2,562,154,865
Investment activities
1.Changes in Bank 17,947,104 686,200,918 820,125,500
Account
 20

2. Changes in money 989,762,838 39,781,877 43,012,555

at Call/Short notice
3.Change in 607,461,411 187,821,596 317,215,451
Investment
4.Changes in Loan, 1,141,615,972 1,150,576,521 1,254,691,121
Advance& B/P
5.Changes in Fixed 6,928,259 16,210,342 18,654,213
Assets
6.Changes in Assets 49,388,275 47,423,378 108,455,935
C.Cash flow from 182,456,008 1,504,937,969 1,663,548,633
financial activities

a) Changes in 214,732,426 381,046,472 43,548,961

Borrowing
b) Changes in 2,002,162,167 1,094,895,110 1,094,531,556
Deposits
c) Changes in Bills 856,528 45,292,002 59,414,451
payable
d) Changes in Other 28,253,739 33,547,909 45,955,454
Liabilities
e) Changes in Share 50,000 40,500 98,211
Capital
D. Net cash flow for (16,699,553) 9,264,260 14,531,354
the year
E. Opening cash and 95,741,671 79,042,118 98,451,514
bank balance
F. Closing cash and 79,042,118 69,778,585 81,542,115
bank balance
Source: - Annual Report of NIC ASIA Bank Ltd

Analysis: The table above displays NIC ASIA Bank's operating cash flow statement for
the fiscal year 2079/80, indicating a total of Rs. 111,501,980. The cash flow from
investment activities amounts to Rs. 256,154,865, while cash flow from financial
 21

activities stands at Rs. 1,663,548,633. Consequently, NIC ASIA Bank's net cash balance
is Rs. 14,531,354, with an opening cash balance of Rs. 98,451,514 and a closing balance
of Rs. 81,542,115. It's important to note that the cash flow statement solely reflects cash
transactions.
Table No:6 Showing Balance Sheet of NIC ASIA Bank ( In Rs.)

Capital & F.Y.2075/76 F.Y.2076/77 F.Y.2077/78 F.Y.2078/79 F.Y.2079/80

Liabilities
Share Capital 499,954 500,000,000 500,000,000 1,072,000,000 1,156,000,000
Reserve 120,438,224 181,193,958 210,258,545 1,327,000,000 1,433,000,000
Borrowings from 6,001,774 450,371,046 428,001,523 2,613,420,000 2,620,900,000
other
Banks/Agencies
Deposits 5,146,483,050 6,241,378,460 7,494,021,225 3,127,300,000 3,213,600,000
Bills Payable 32,921,342 25,329,320 35,889,112 7,321,200,000 68,200,000
Other Liabilities 70,247,525 103,795,434 150,220,780 49,348,610 50,940,000
Total 5,876,046,415 7,508,068,218 8,818,391,185 8,921,188,610 9,212,378,342
Assets
Cash & Cash items 79,042,118 69,777,858 78,025,125 79,034,125 81,034,175
Balance with Bank 240,263,619 935,771,567 1,625,822,224 1,725,922,344 1,742,812,456
Money at call and 129,662,838 89,880,961 97,251,121 97,251,121 99,251,131
short notice
Investment 1,760,723,628 1,572,902,035 1,654,212,511 1,642,121,511 1,742,121,544
Bill purchased, Loan 3,561,138,780 4,711,712,301 5,201,552,554 5,321,521,564 5,311,024,781
& Advances
Fixed Assets 43,285,524 59,895,866 92,102,225 93,104,225 98,104,335
Other Assets 115,950,708 68,527,330 69,425,425 72,425,425 82,425,321
Total 5,930,037,215 7,508,068,218 8,818,391,185 8,921,188,610 9,212,378,342
Source: -Annual Report of NIC ASIA Bank Ltd.

Analysis: -The table above illustrates the balance sheet of NIC ASIA, constructed by
determining the types and values of its assets and liabilities. It offers a detailed
breakdown of the bank's assets, capital, and liabilities. Notably, NIC ASIA's cash
holdings for the current fiscal year 2079/80 have raised compared to the previous year.
Additionally, there's a noticeable uptrend in share capital, reserves, and funds, indicating
 22

effective capital management by the bank.

 23

Table No:7 Showing Income and Expenditure of NIC ASIA Bank (in Rs.)

Income & F.Y.2075/76 F.Y.2076/77 F.Y.2077/78 F.Y.2078/79 F.Y.2079/80

Expenditure
Income 327,767,561 416,707,673 546,928,820 642,349,281 2,002,575,140
Expenditure 280,192,128 348,446,806 412,909,465 413,981,322 523,741,273

Profit 47,575,433 68,260,867 152,019,355 610,328,737 4,214,926,951

Profit growth (14.15) 43.48 122.7 123.7 130
(%)
Expenses 27.23 24.36 18.5 19.5 25.2
growth (%)
Income growth 18.91 27.14 31.25 42.3 45.5
(%)
Source: - Annual Report of NIC ASIA Bank Ltd

2,500,00
0,000

2,000,00
0,000

1,500,00
0,000

1,000,00
0,000

500,000,
000

Figure No: 1 Total Income and Expenditure of NIC ASIA Bank Ltd

Analysis: - In the depicted graph, NIC ASIA Bank's revenue has experienced a
marginal increase alongside its expenses. Notably, there has been a significant rise in its
profits for the fiscal years 2078/79 and 2079/80, as evidenced by the provided profit trend
analysis.
 24

Table No:8 Main Index of NIC ASIA BANK Ltd

PRINCIPLE INDICATES
S.N. Particular Indicato F.Y. 2075/76F.Y.2076/77 F.Y.2077/7 F.Y.2078/7 F.Y.2079/8
r 8 9 0
1 Percentage Percent 16.38 21.93 26.02 27.993 28.20
of
net
profit/Gross
income
2 Earnings Rs. 12.36 15.5 13.65 22.75 25.15
per share
3 Market Rs. 198 268 218 366 378
value per
share
4 Price Ratio 14.2 17.5 15.97 16.09 18.2
earnings
ratio
5 Dividend Percent 11 22 - 30 40
(including
bonus) on
share
6 Cash 5 4 - 10 17
Percent
dividend on
share
capital
7 Interest Percent 5.69 5.56 7.54 7.71 8
income
/Loans&
Advances
8 Staff Percent 13.5 14 13.23 12.32 12.56
expenses
and total
 25

operating
expense
9 Interest Percent 4.5 3.89 3.53 3.38 4.12
expenses/
total
deposit and
borrowing
10 Exchange Percent 0.24 0.54 0.9 0.34 0.46
gain
/Total
income
11 Staff Percent 32.1 29.4 30.53 46.93 43.25
bonus/Total
staff
expenses
1Net profit Percent 1.3 3.2 1.8 2.32 3.12
2 /Loan &
Advances
Source: - Annual Report of NIC ASIA Bank Ltd
 26

CHAPTER – III

SUMMARY AND CONCLUSION

3.1 Summary

The evolution of banking in Nepal, transitioning from goldsmiths and local money
lenders to its contemporary role, underscores the critical significance of banks in fostering
economic development. With governmental involvement and equitable participation from
private and public sectors, banks play a pivotal role in driving development initiatives.
This study, titled "Capital Management," focuses on evaluating the investments made by
NIC ASIA Bank Ltd. in various sectors within Nepal. The study aims to fulfill its
objectives by examining the sources and utilization of funds, comparing total sources of
funds, analyzing the types of investments made by the bank across different years,
assessing the rate of return on government securities, determining the ratio of investment
to total deposits, and examining the correlation between total income and return on
investment, among other factors.

This study relies solely on secondary data provided by NIC ASIA Bank Limited,
and the accuracy of the findings hinges entirely on the data supplied by the bank.

To derive results, various tools have been employed, primarily financial and
statistical tools. Financial tools include ratio analysis, while statistical tools encompass
methods such as calculating average percentages and examining correlations.
Additionally, to enhance the specificity of the study, graphical representations like
diagrams and pie charts have been utilized.

3.2 Conclusion

The primary findings of this case study can be summarized as follows:

a) A small fraction of the total sources of funds has been allocated to investments.

b) Investments are predominantly focused on government securities.

c) The bank demonstrates a low rate of return on government securities,

 27

averaging only 3.12% from fiscal year 2075/76 to 2079/80.

d) There exists a significant positive correlation between total deposits and total
investments.

e) The return on investment shows a consistent annual increase.

Thus, it can be inferred that the bank's investment strategy is deemed satisfactory.
The bank exhibits a preference for investing in government securities and less risky
sectors, reflecting a conservative approach to investment. With a considerable portion of
its total deposit allocated to government securities and a favorable rate of return, the
investment policy of NIC ASIA Bank Limited is considered satisfactory based on the
findings.
 28

BIBLIOGRAPHY
Adhikari, N.P. Pandey, P. Yogi, R. Thapa, & P. Bhandari (2016). Capital structure and its
determinants: Evidence from Nepalese commercial banks. Nepalese Journal of
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Amidu, M. (2007). Determinants of capital structure of banks in Ghana: an empirical

approach. Baltic Journal of Management.2(1),67-79

Bara, K. J. (2004). Determinants of capital structure: A case study of listed companies of

Nepal. Journal of Nepalese Business Studies, 1(1), 1-13.

Eldomiaty, T .I. (2007). Determinants of corporate capital structure: evidence from an

emerging economy. International Journal of Commerce and Management, 17(16), 25-43

Ghimire, R.R Acharya, R. Shrestha and R. Singh (2016). Determinants of capital

structure: A case of selected Nepalese commercial banks. Nepalese Journal of
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Leon, S. J. (2013). The impact of capital structure on financial performance of the listed
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Omran, M. M, & J. Pointon (2009). Capital structure and firm characteristics: An

empirical analysis from Egypt. Review of Accounting and Finance, 8(4), 454-474

Pradhan, R.S. & K Pokhrel (2016). Capital structure and corporate performance: A case
of Nepal. Nepalese Journal of Finance, 3(4), 1-12

Shibru, W. M, H. Kedir, and Y. Mekonnen (2015), Factors affecting the financing policy
of commercial banks in Ethiopia. International Journal of Research in Business and
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Titman and R. Wessels (1988). The determinants of capital structure choice. The Journal
 29

of finance, 43(1), 1-19

I. Annual Reports

– Annual Report of NIC ASIA Bank Ltd

II. Books

– New Business Age

– Rawal Dirgha, Sapkota Chandrakanta, Timalsina Nabin (2073)
– Commercial Bank Management: Samjhana Publication

III.Website

– www.nicasiabank.com.np
– www.merolagani.com
– www.sharesansar.com
– www.tucl.tu.edu.np
– www.elibrary.tucl.edu.np
– www.researchgate.net
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