Limited Time OfferFLAT 20% off & $20 bonus sign up. Order Now
New! Hire Essay Assignment Writer Online and Get Flat 20% Discount!!Order Now
The initiation of the formal banking system in Nepal started with the establishment of Nepal Bank Limited during the period 1937 that was the first commercial bank of Nepal. The central bank of the nation, Nepal Rastra Bank also referred to as NRB was established during the period 1956 by essentially the Act of 1955 (Budha, 2015). The implementation of different liberalization strategy, there has been quick improvement of national financial system both from the perspective of number of certain financial institutions and as essentially the ratio of different financial assets to the Gross Domestic Product.
After the formation of NRB as well as Rastriya Banijya Bank (RBB), many other commercial bank mainly under the governance of His majesty Government Nepal was instituted. Subsequently, His majesty Government Nepal assumed open as well as liberalized policies during the period of mid-1980s. This was replicated by structural adjustment procedure, this comprised of privatization, diverse tariff adjustments, and policy of liberalization of diverse industrial licensing, simplification of specific terms of foreign endowments and additional liberal trade as well as foreign exchange rule was started (Sharma, 2013).
Fund management of different commercial banks can be considered to be a significant factor for the growth as well as stability. The unusual variance between cost of fund and particularly the return of fund is striking of any kind of commercial banks. The commercial banks accepts deposits from essentially the public and provides credit. Thus, banks acts as an intermediate between customers who possess the capital deficits as well as customers that has capital surpluses (Mehta & Sharma, 2016). As such, banks borrow money by particularly receiving funds that are deposited in different current accounts of the bank, by receiving term deposits and by issuing different debt securities that includes banknotes as well as bonds. In particular, banks offer money by providing advances to its clients on different current accounts, by providing different instalment loans, also by making investment in diverse marketable securities as well as other forms of lending of money. Essentially, deposit mobilization can be considered to be a vital part of banking.
Particularly, mobilization of savings by means of intensive deposits can be considered to be an important task in Nepal. Mainstream operation of different commercial banks therefore is mobilization of rigid as well as scattered savings of essentially public for providing credit to diverse firms that need the funds for production uses (Bank, 2016). However, all other functions can be regarded as auxiliary functions. The primary objective of the current study is to understand the specific position of specifically the fund management, overall growth, profitability, trends of productivity and stability of NIC Bank and the National Investment bank during the period 2012 to 2016. The study utilizes the secondary data for undertaking the study.
In particular, different banks mobilize deposits by providing finances and by spending in different financial markets. Fundamentally deposit mobilization can be associated to the process of generation of credits. As such, receipt of deposits can be considered to be a vital role of commercial banks. By itself, deposit mobilization can be considered to be one of the rudimentary innovations in present banking action of Nepal. Therefore, in this study, an effort is made to appraise the overall trend as well as growth in mobilization of deposit in different Nepalese commercial banks (Shah, 2016). Essentially, a financial institution can characteristically carry out and follow deposit mobilization strategy. In this case, banks as well as other financial institution are encountering massive competition in addition to challenges concerning risks of liquidity, credit, inflation, operational as well as interest rate. Therefore, banks need to be cautious about mobilization of deposits.
The process of management of fund in different commercial banks can be considered to be very essential for the operative survival of the banks. However, extreme variations between cost of the fund and the return that can be earned from the bank can be considered to be very damaging for essentially the financial base of specifically commercial banks. Deposit refers to claim of definite customers to the bank against the account held (Chava et al., 2013). From the perspective of the economy, different types of wealth have the need to be distributed fairly in an equitable manner. This in turn can affect the overall stability of the state.
Essentially, banks can undertake diverse actions for mobilization of deposits. These activities mainly includes financing activities that in turn can help in distribution of wealth that can be utilized by other parties. As such, depositor acts as the person who possesses higher amount of money and the borrowers are the people who possess less amount of money. In this situation, banks essentially acts as an intermediary that can mobilize the depositor. Particularly, the banks intend to acquire positive return from the financing actions. In itself, positive return from different financing activities of the firm can help the bank tom cover the costs of non-performing assets in other financing actions (Nor & Pearson, 2015). In this way, banks can develop after proper sharing of profit between the banks and the definite depositors of the firm. Thus, the current study that concentrates on analysis of costs of funding and return from the activities of funding can be considered to be very important (Berzins et al., 2013).
In addition to this, study of the provision of the working capital can also be considered to be very important. Thereafter, this also involves transference of funds into productive hands. Furthermore, the process also involves stabilization of performance of banks that in turn can become a mainstay of nation-wide economy (Reinhart & Rogoff, 2013). Thus, banks in specifically financial markets, investment functions are essentially undertaken by the Treasury Office. As such, the treasury put in funds in order to ensure optimum utilization of available resources, arising from supplementary resources essential for credit demands and handling market as well as liquidity risks.
This current study is essentially fragmented into five different chapters. In this study, the first chapter presents the introductory section that explicates in detail different aspects of the banking system in Nepal. In addition to this, the introductory section reflects the background of the study, primary focus of the study, main objectives, identified problem of the study, rationale of the study and lastly the framework or structure of the report. Thereafter, chapter 2 deals with systematic assessment of literature that can be obtained from particular books, prior research works, official websites, journals and many others.
The third chapter essentially includes the process of research methodology that includes research design, research approach, sources of the accumulated data, population, sampling, methods as well as tools of collection of data, analysis and finally elaborate definition of key terms. Thereafter, the chapter 4 deals with presentation of data and interpretation. This section essentially deals with overall presentation as well as interpretation of pertinent data that are utilized for the purpose of analysis of data. Finally, the last chapter presents a summarized view of the study and draw conclusive statements of the study based on the findings of the study.
As rightly put forward by Estrella-Ramón et al., (2017), funds can be utilized depending upon the nature as well as different circumstances of the environment. Particularly, there are essentially three different concepts of funds namely, cash concept, resource notion in addition to working capital notion. As per the cash concept, fund is necessarily identical to cash. In addition to this, different cash receipts can be considered to be inflow of cash and different payments of cash can be considered to be fund outflow. Therefore, at the time when fund is utilized as cash fund, the statement essentially into receipts as well as payments (Ferreira et al., 2016).
As per the resource concept, the term fund replicates total assets or else total resources of the corporation. As such, all alterations that essentially lead to augmentation in assets as well as liabilities or else decrease in overall assets as well as liabilities are essentially reflected in the fund flow declaration. As such, the decline in the assets as well as augmentation in liabilities essentially refers to fund source and are also indicated as inflows of fund (Berzins et al., 2013). On the contrary, augmentation in assets and decrease in liabilities can considered to be uses of funds pointing out towards fund outflow. In particular, fund pronouncement prepared and presented based on resource concept, the sources of funds need to equate with the uses as in the balance sheet the assets and liabilities equate (Estrella-Ramón et al., 2017). As per the working capital notion, fund is considered as the net working capital of the firm. In general, the net working capital can be considered to be the difference between the current assets and the current liabilities.
As correctly put forward by Chen et al., (2013), the fund management needs to ensure that banks have adequate cash to make payments to all the depositors at the time when there is outflow of deposit as depositors need to make drawings as well as demand payments. As rightly indicated by (), the management of the bank need to pursue reasonably low risk by obtaining assets that have a low default rate and by diversification of different asset holdings referred to as asset management. Again, the banks also need to obtain bonds at a very low cost and this refers to management of asset. In addition to this, management of the banks also need to decide total amount of capital that needs to be maintained and then obtain the required capital. Particularly, this is referred to as the capital adequacy management (Bodie, 2013).
The fund management can be considered to be a very balanced approach towards management of asset as well as liability. Bank management needs to exercise control over essentially the volume. Thus, management of control over particularly the assets needs to be synchronized with the control over liabilities in order to maintain internal consistency of the process of management of asset and liability (Nor & Pearson, 2015). Furthermore, banks need to assume policies in order to maximize the overall return and at the same time minimize the costs from services as revenues as well as costs might stem from both the sides of the balance sheet of the bank.
The current section explains different concepts of profit. As rightly put forward by Nor & Pearson (2015), the variances that exist between income and expends can be regarded as the profits or else loss. Reinhart & Rogoff (2013) opined that there are essentially two different approaches of profit, namely, accounting profit and particularly social profit. Shah (2016) asserts that accounting profits can be considered to be figures that can be essentially obtained after matching the cost as against the specific revenue in a particular period of time. Bank (2016) advocates that social profit can be considered to be a measure of profit that can be obtained from essentially the social responsibility accounting. Sharma (2013) mentions that social profit can be obtained by deducting the social cost from the social benefits.
As rightly put forward by Mehta & Sharma (2016), profitability indicates towards the capability of the firm to generate profit. Essentially, evaluation of profitability can be grounded on different key financial ratio, certain absolute figures along with particular statistical information concerning financial transactions. As such, in different commercial banks, profit is referred to as the difference between total earning and expends. Interests as well as non-interest sources can be considered to be the income as well as expenditure sources of all the commercial banks. In essence, in commercial banks, variance between interest income and expenditure can be considered as the spread and the difference between non-interests expends and non-interest income is referred to as the burden (Berzins et al., 2013). Conversely, profit is referred to as the variance between spread and burden.
As per NRB during the period 2015, total deposits of different commercial banks augmented by around 21.5% as compared to growth of 18% during the period 2014. Among different elements of deposits, current deposits augmented by approximately 22.8% as compared to 15.1% during the previous year. Saving as well as fixed deposits also increased by around 24.2% and 15% respectively. A study examined the portfolio behaviour of commercial banks of specific economy counting agriculture, industry, commercial as well as social service segment.
This results of this study referred to the fact that the lending strategy of different commercial banks is mainly grounded on profit maximization criterion of organizations. A comparative study conducted between particularly NABIL and HBL shows that HBL has maintained better financial position in comparison to NABIL. Essentially, HBL has enhanced cash position as well as bank balance, investment on government securities as well as improved collection of deposit compared to NABIL. Thus, NABIL successfully attracted deposit as well as different interbank funds and used the same for releasing loans and advances from total assets by assuming risk. This helped the bank to increase the overall level of profit and maximize the firm’s value.
The Nepal Investment Bank Limited can be considered to be one of the foremost commercial banks operating in Nepal that was earlier referred to as Nepal Indosuez Bank Ltd. This bank was essentially instituted during the year 1986 especially as a joint venture between Nepalese as well as Credit Agricole Indosuez (Nepal Investment Bank Limited - Truly a Nepali Bank, 2017). However, mission of the bank is to become a leading bank especially in Nepal by delivering whole financial solutions to all the customers, enhanced value to the shareholders as well as encouraging growth opportunities to the employees. Different categories of services delivered by Nepal Investment Bank Limited (NIBL) are credit card services, tele-banking, internet banking service, deposit locker facility, remittance facility, Automated Teller Machine (ATM) facility, Bancassurance and SMS Banking.
NABIL is a commercial bank established in Nepal during the year 1984. This bank delivers a wide range of commercial services through essentially 51 points of representation across the nation. The company operates through branches across different countries that has essentially head offices situated in Kathmandu (Home - Nabil Bank Limited – First Private Commercial Bank, 2017). In particular, Nabil was first amalgamated with the aim of extending worldwide standard banking service to different sectors of the community. This bank offers an array of commercial banking service across Nepal.
The present chapter highlights the methodology used to carry out the research. The overall framework of research undertaken to achieve the objectives of the study is provided in this chapter. For the present study we use secondary data. Further the study is diagnostic as well as exploratory in nature.
The management of cash inflow of banks is a major noteworthy subject for the growth as well as the stability of a commercial institution. The research here analysis the cost of the funds position of two commercial banks of Nepal. The present research work on fund management can be advantageous to the framers of policies and the government.
The present study is based on financial statements of last five years of National Investment bank and NABIL bank of Nepal. Since in the present study we are using the financial statements already provided by the banks, thus we are using secondary data for the analysis of the fund management of the banks. In spite of the fact that secondary data was used to undertake the present research, the effort required to collect the data as well as analyze the data was of a very high level.
Data for the present research was collected from annual reports of National Investment Bank of Nepal and NABIL Bank Limited, Nepal. Annual reports for the last five years from 2011-12 to 2015-16 was used to collect data for analysis. The present study is restricted to areas related to the fund management of the two commercial banks.
Annual reports as well as financial statements of the two commercial banks were collected from the official websites of the banks. For the analysis of the data related to fund management different statistical and financial tools have been used. To measure the economic development as well as asset management policies of the banks different financial ratios have been used. In addition graphical methods have also been used to depict the assets positions.
Financial analysis tools provide useful insight into the current financial position of the bank / company. The purpose of the use of financial analysis tools is to do SWOT analysis of the commercial institution. Different financial ratios are used to analyze the performance of the banks.
The word fund is used to mean different things under various subjects. For a financial institution the concept of fund varies with cash, total resources and working capital.
According to the Cash concept, fund would mean the inflow and outflow of the funds in the financial institutions. For the cash concept, fund can be the financial statement with the receipts and payments account.
The total resources concept states that funds are concerned with total assets of the banks. The fund flow statement of a commercial bank provides for the assets and liabilities. The sources of funds are concerned with the decrease in assets and increase in liabilities.
The net working capital of a commercial institution is referred to as fund according to the working capital concept. Thus the difference between assets and liabilities is the working capital concept. Thus
Profit can be defined as the excess of the difference between total income and total expenditure. The income and receipts from all sources is known as gross income.The overall performance of a bank in terms of efficiency is measured with the aid of a firm’s ability to make profits. Profitability ratios of a commercial institution like bank are measured with the help of financial ratios. For the measurement of profitability of a commercial institution ratio of absolute profit to the total deposits, total net worth, operating income etc can be calculated. The ratios used to measure the profitability of a bank should be reflective of the bank.
The health of a financial institution is determined by the profitability ratios. The collective effects of asset management, liquidity and debt on the operating results are shown by profitability ratios. When there is a positive difference between revenues and costs then banks earn profits. In the present research we analyze the following profitability ratios:
The ratio of net profit to total loans and advances of the banks is known as return on loans and advances. The ratio shows the efficiency of utilizations of resources of the banks.The equity is the sum of Share Capital and Reserve fund. The ratio of net profit to equity is the return on equity.The ratio of net profit to net income is known as the profit margin.
Correlation analysis between deposits and loans and advances is used to study the efficiency of utilization of deposits by the banks. Correlation analysis studies the strength and direction of the two variables.
The overall productivity of National Investment Bank for the session 2012-16 is shown in Table 4.1. From the table we find that the five year average of Reserve Fund, Total Deposits and Total loans and advances for the period is Rupees 998 million, Rupees 78506 million and Rupees 59753 million respectively. Similarly the five year average for revenue and cost of the bank is Rupees 4118 million and Rupees 2237 million respectively. The average total loan provision of the bank is Rupees 1406 million.
Year | Reserve Fund | Total Deposits | Total Loans and Advances | Revenue | Cost | Total Net Profit | Total Loan loss Provision |
2012 | 1532 | 57011 | 42907 | 2910 | 1871 | 1039 | 1270 |
2013 | 2165 | 62429 | 47700 | 3999 | 2084 | 1915 | 1301 |
2014 | 388 | 73831 | 53458 | 4146 | 2206 | 1940 | 1439 |
2015 | 392 | 90631 | 67690 | 4172 | 2210 | 1962 | 1471 |
2016 | 510 | 108627 | 87009 | 5364 | 2813 | 2551 | 1549 |
Average | 998 | 78506 | 59753 | 4118 | 2237 | 1881 | 1406 |
SD | 810 | 21194 | 17851 | 870 | 350 | 540 | 118 |
CV | 1 | 4 | 3 | 5 | 6 | 3 | 12 |
The overall productivity of NABIL Bank for the session 2012-16 is shown in Table 4.2. From the table we find that the five year average of Reserve Fund, Total Deposits and Total loans and advances for the period is Rupees 4169 million, Rupees 81656 million and Rupees 56854 million respectively. Similarly the five year average for revenue and cost of the bank is Rupees 6662 million and Rupees 4427 million respectively. The average total loan provision of the NABIL bank is only Rupees 170 million.
Year | Reserve Fund | Total Deposits | Total Loans and Advances | Revenue | Cost | Total Net Profit | Total Loan loss Provision |
2011-12 | 3025 | 54906 | 41606 | 6800 | 5100 | 1700 | 414 |
2012-13 | 3663 | 63506 | 46370 | 6433 | 4206 | 2227 | 27 |
2013-14 | 4015 | 75361 | 54684 | 6489 | 4158 | 2331 | 238 |
2014-15 | 4731 | 104238 | 65502 | 6515 | 4417 | 2098 | 167 |
2015-16 | 5410 | 110267 | 76106 | 7074 | 4255 | 2819 | 5 |
Average | 4169 | 81656 | 56854 | 6662 | 4427 | 2235 | 170 |
SD | 928 | 24562 | 14076 | 271 | 389 | 405 | 167 |
CV | 4 | 3 | 4 | 25 | 11 | 6 | 1 |
Year | Return on Loans and Advances |
2011-12 | 2.42 |
2012-13 | 4.01 |
2013-14 | 3.63 |
2014-15 | 2.90 |
2015-16 | 2.93 |
The above table shows the returns on loans and advances for national investment bank for the period 2011/12 to 2015/16. As can be seen from the figure 4.1 the bank maintains a stable return on loans and advances.From the above table we find that the return on equity for National Investment Bank was 17.18% during the period 2011-12. The return on Equity initially rose to 27.28% during 12-13. During the period 2015-16 the return on Equity was 15.60%.
The above table shows the profit margin of national investment bank from 2011 to 2015-16. From the above table we find that the profit margin is stable during last five years.
The correlation between Total Deposits and Total Loans and Advances for the last five years is 0.993. The correlation analysis shows that National Investment Bank has a very robust fund utilization policy.The above table shows the returns on loans and advances for NABIL bank for the period 2011/12 to 2015/16. As can be seen from the figure 4.4 the returns on loans and advances for NABIL bank have decreased since 2012-13.From the above table we find that the return on equity for NABIL Bank was 31.14% during the period 2011-12. The return on Equity initially rose to 33.19 he above table shows the profit margin of NABIL Bank from 2011-12 to 2015-16. From the above table we find that the profit margin has risen constantly during the last five years.
The correlation between Total Deposits and Total Loans and Advances for the last five years is 0.982. The correlation analysis shows that NABIL Bank has a very robust fund utilization policy.
Banks as a financial institutions carry out such activities through which they mobilize funds and therefore create credits. Mobilization of funds forms a core activity of a bank. Nepal at present has about 28 commercial banks which function under NRB. NRB acts as the central body which supervises controls as well as directs the activities of the Banks.
Proper management of the funds of a commercial bank in indispensable for the success of a bank. For any commercial bank extreme differences of cost and return of funds is not a very healthy sign. To be viable commercial banks should be able to offer credits to customers. The endeavor of commercial banks is proper utilization of funds. Any idle money of a commercial bank can be used for investments in profitable sectors of for providing loans. To be effective commercial banks should follow a proper policy for investment of funds as well as disbursement of loans. At the same time they should make adequate provisions for risk situations.
The present research investigates the profitability ratios of two commercial banks – National Investment Bank and NABIL Bank of Nepal. From the study it is found that both the banks have a sound deposit mobilization process. Further the profit margins of both the banks are very high. Thus it can be said that the operating process and fund position of both the commercial banks are sound. Although the research shows that the return on equity of both the banks is not very healthy for the financial year 2015-16. In addition the fund mobilization of NABIL is better as compared to that of National Investment Bank.
Profitability ratios and financial tools were used to assess the mobilization of deposits of the two commercial banks. From the study it is found that both the banks have a strong financial position, which is good for Nepal. In addition the profit margins and returns on loans and investments are also very sound for the banks. Hence it can be said that the asset management of both the banks are sound.
Fund mobilization and utilization is one of the major functions of a bank. To be viable the banks should have an optimum profit margin. Moreover, banks should also be prepared for losses due to none return of loans or bad loans. It was found that both the commercial banks have made adequate provisions for loan loss provision. The proper planning of resources of thee banks is essential for secure funds and thus have maximum gain on investment.
The study shows that both the banks have a healthy revenue income. In addition the total deposits for both the banks have constantly grown in the last five years. The productivity study shows that there has been an upward growth in deposits, loans and advances of both the commercial banks.
Bank, N. R. (2016). Nepal Rastra Bank-Banking and Financial Statistics. Retrieved, 10(7), 2016.
Berzins, J., Liu, C. H., & Trzcinka, C. (2013). Asset management and investment banking. Journal of Financial Economics, 110(1), 215-231.
Berzins, J., Liu, C. H., & Trzcinka, C. (2013). Asset management and investment banking. Journal of Financial Economics, 110(1), 215-231.
Bodie, Z. (2013). Investments. McGraw-Hill.
Budha, B. B. (2015). Monetary Policy Transmission in Nepal (No. 29/2015). Nepal Rastra Bank, Research Department.
Chava, S., Oettl, A., Subramanian, A., & Subramanian, K. V. (2013). Banking deregulation and innovation. Journal of Financial Economics, 109(3), 759-774.
Chen, J., Hong, H., Jiang, W., & Kubik, J. D. (2013). Outsourcing mutual fund management: firm boundaries, incentives, and performance. The Journal of Finance, 68(2), 523-558.
Estrella-Ramón, A., Estrella-Ramón, A., Sánchez-Pérez, M., Sánchez-Pérez, M., Swinnen, G., Swinnen, G., ... & VanHoof, K. (2017). A model to improve management of banking customers. Industrial Management & Data Systems, 117(2), 250-266.
Estrella-Ramón, A., Estrella-Ramón, A., Sánchez-Pérez, M., Sánchez-Pérez, M., Swinnen, G., Swinnen, G., ... & VanHoof, K. (2017). A model to improve management of banking customers. Industrial Management & Data Systems, 117(2), 250-266.
Ferreira, M. A., Matos, P. P., & Pires, P. (2016). Asset management within commercial banking groups: International evidence.
Home - Nabil Bank Limited – First Private Commercial Bank. (2017). Nabilbank.com. Retrieved 3 May 2017, from http://www.nabilbank.com
Mehta, K., & Sharma, R. (2016). Customers” Persistence for Green Banking in Nepal. Asian Journal of Research in Banking and Finance, 6(10), 30-44.
Nepal Investment Bank Limited - Truly a Nepali Bank. (2017). Nibl.com.np. Retrieved 3 May 2017, from http://www.nibl.com.np
Nor, K. M., & Pearson, J. M. (2015). The influence of trust on internet banking acceptance. The Journal of Internet Banking and Commerce, 2007.
Reinhart, C. M., & Rogoff, K. S. (2013). Banking crises: an equal opportunity menace. Journal of Banking & Finance, 37(11), 4557-4573.
Shah, K. K. (2016). Electronic Banking: Its Use and Challenge in Nepal. Academic Voices: A Multidisciplinary Journal, 5, 9-15.
Sharma, N. (2013). Web-based disclosures and their determinants: evidence from listed commercial banks in Nepal. Accounting and Finance Research, 2(3), p1.
No matter how close the deadline is, you will find quick solutions for your urgent assignments.
All assessments are written by experts based on research and credible sources. It also quality-approved by editors and proofreaders.
Our team consists of writers and PhD scholars with profound knowledge in their subject of study and deliver A+ quality solution.
We offer academic help services for a wide array of subjects.
We care about our students and guarantee the best price in the market to help them avail top academic services that fit any budget.
15,000+ happy customers and counting!