ANALYSIS OF LIQUIDITY AND PROFITABILITY OF

NEPAL BANGLADESH BANK LIMITED

A Project Work Report

SubmittedBy
Kishor Poudel
Pashupati Multiple Campus
T.U. Registered Number: 7-2-278-709-2015
Exam Roll No: 2780058
Campus Roll No: 242
Finance Group

Submitted to:
The Faculty of Management
Tribhuvan University
Kathmandu

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu, Nepal
May 2019
i
 DECLARATION

I hereby declare that the project work entitled ANALYSIS OF LIQUIDITY AND
PROFITABILITY OF NEPAL BANGLADESH BANK LIMITED submitted to
the Faculty of Management, Tribhuvan University, Kathmandu is an original piece of
work under thesupervision of Mr.Mani Ratna Parajuli, faculty member, PASHUPATI
MULTIPLE CAMPUS,KATHMANDU, and is submitted in partial fulfillment of the
requirementfor the degree of Bachelor of Business Studies (BBS). This project work
report has not been submitted toany other university or institution for the award of any
degree or diploma.

……………………….
Kishor Poudel
Date: May, 2019

ii
 SUPERVISOR’S RECOMMENDATION

The project work report entitledANALYSIS OF LIQUIDITY AND

PROFITABILITY OF NEPAL BANGLADESH BANK LIMITED submitted by
Kishor Poudel of PASHUPATI MULTIPLE CAMPUS, KATHMANDU, is prepared
under mysupervision as per the procedure and format requirements laid by the Faculty
of Management, TribhuvanUniversity, as partial fulfillment of the requirements for
the degree of Bachelor of Business Studies(BBS). I, therefore, recommend the project
work report for evaluation.

………………………

Mr.Mani Ratna Parajuli

Date:May 2019

iii
 ENDORSEMENT

We hereby endorse the project work report entitled ANALYSIS OF LIQUIDITY

AND PROFITABILITY OF NEPAL BANGLADESH BANK LIMITED WROK
submitted by Kishor Poudel of PASHUPATI MULTIPLE CAMPUS,
KATHMANDU, in partial fulfillmentof the requirements for the degree of the
Bachelor of Business Studies (BBS)for external evaluation.

……………………. …………………..
Fadindra Acharya Prayagraj Bhattarai
Chairman Research Committee Campus Chief
Date:May 2019 Date: May 2019

iv
 ACKNOWLEDGEMENTS

I would like to explicit my gratitude to all supporters who provided me very

informative and precious as well as proper information on penmanship this report. I
would like to thank Tribhuban University for providing as change and allowing me
for this study. I would like to thank the lecture for giving orientation class for report
writing.

It’s my pleasure to express profound gratitude to my supervisor

Mr.ManiRatnaParajuli, faculty member of Management, of Pashupati Multiple
Campus, for his patience, continuous guidance and valuable time. My thanks and
appreciations also go to all the known and unknown researchers, from where I got the
valuable information that helps me in developing the report.

Finally, an honorable mention goes to my office, family and friends for

understandings and supports me in completing this research report. Without helps for
particular that mentioned above, I would face many difficulties while doing this.

Thank You!

Kishor Poudel

Pashupati Multiple Campus

v
 TABLE OF CONTENTS

Title Page …………………………………………………………………………..… i

Declaration………………………………………………………………………… ii

Supervisor’s Recommendation ………………………………………………….…… iii

Endorsement…………………………………………………………………….…..... iv

Acknowledgements…………………………………………………………………... v

Table ofContents………………………………………………………………..…… vi

ListofTables ……………………………………………………………………… viii

ListofFigures…………………………………………………………….……..…. ix

Abbreviations………………………………………………………………………….. x

CHAPTERI:INTRODUCTION……………………………………… 1
1.1 Background … … …… …… … …… … …… …… … ………..… … ... 1

1.2 ProfileofNepal Bangladesh Bank Ltd.…… … …… ……… … …… ..... 1

1.3 Statement of Problem………………………………………………………… 3

1.4 Objectives of the study …… …… …… … …… … …… ………… ….. 4

1.5 Rationale of the study…… … ……… … …… …… … ……….. … …. . 4

1.6 Literature Review… … …… … …… … …… … …… ……… …….... 4

1.7 Research Methodology… … …… … …… ……… … .. 10

1.8 Limitations of the study……………………………………………………... 11

1.9 Report Structure………………………………………………………………… 12

vi
CHAPTERII:RESULTSANDANALYSIS…………… …..………… …... 13

2.1 DataPresentation … … …… ……… ……… ….. …… 13

2.2 Analysis ofResults.. … …… … …… … …… …… .. … …… … …. 13

2.3 Major Findings … … ………………………………….. ... 30

CHPTERIII:SUMMARY,CONCLUSIONAND RECOMMENDATIONS…… 32

3.1 Summary… … … … ... ……. … …… … ...… …… … .. … … … 32

3.2 Conclusion… …… … …… … …… ……… ……… … …… … . 33

3.3 Recommendations… …… … …… … …… ……… ……… … … 34

BIBLIOGRAPHY

vii
 LIST OF TABLES

Table No. Titles Page No

1 Liquid Assets 14
2 Liquid Assets to Deposit Ratio 15
3 Liquid Assets to Total Assets 17
4 Cash Reserve Ratio 18
5 Profit Margin 20
6 Net Interest Income 21
7 Interest Spread 22
8 Earnings per share 23
9 Dividend Per Share 25
10 Correlation between Profit margin & Liquid Ratio 29

viii
 LIST OF FIGURES

Figure No. Titles Page No

1 Liquid Assets 14
2 Liquid Assets to Deposit Ratio 15
3 Liquid Assets to Total Assets 17
4 Cash Reserve Ratio 18
5 Profit Margin 20
6 Net Interest Income 21
7 Interest Spread 22
8 Earnings per share 23
9 Dividend Per Share 25
10 Earnings per share Vs Dividend per Share 26
10 Return On Assets 27
11 Return On Equity 28

ix
 ABBREVIATION
A/C Account

BBS Bachelor of Business Studies

DPS Dividend Per Share

EPS Earning Per Share

FY Fiscal Year

i.e. That is

NBBL Nepal Bangladesh Bank Limited.

NEPSE Nepal Stock Exchange

Rs. Rupees

TU Tribhuvan University

NRB Nepal Rastra Bank

RBB Rastriya Banaijya Bank

& And

% Percentage

ROA Return On Assets

ROE Return On Equity

NII Net Interest Income

IS Interest Spread

Ltd. Limited.

x
 1

CHAPTER I

INTRODUCTION

1.1 Background

Finance is the life blood of trade, commerce and industry. Now a days, banking sector
acts as the backbone of modern business. Development of any country mainly
depends upon the banking system. A bank is a financial institution which collets
deposits from those who have it spare or who are saving it out of their income and
lend them out to those who have require it. Banks are in fact the intermediary to
channelize and spread financial resource into several areas of the economy. There are
various types of banks in terms of there functions, scopes, geographical areas covered
etc. However, they can be categorized into three parts based on their function they
perform. They are Central bank, Commercial banks and Development banks.

Liquidity and profitability are two of major consideration in any commercial banks.
Liquidity concern with the availability of funds in cash or equivalent form to meet the
immediate financial obligations and or assets creation i.e. granting loan or making
investment. In simple form, bank Liquidity refers to the ability of the bank to ensure
the availability of fund to meet financial commitments or maturing obligations at a
reasonable price at all the time. Profitability is the ability of the company to generate
return. Because, a commercial bank is a profit motive organization. It had to earn
reasonable profit to satisfy its stakeholders.

Liquid assets work as insulin to any commercial banks. However, the excessive liquid
assets is also harmful to the organization because liquid assets, also known as current
assets, generate lower rate of return then that of long term assets, such as term loan.
So after the certain level of liquid assets , there seems a tradeoff between liquidity and
profitability.

1.2 Profile of Nepal Bangladesh Bank Limited.

Nepal Bangladesh Bank Ltd. is a leading ‘A’ class commercial bank licensed by
Nepal Rastra Bank. Nepal Bangladesh Bank was registered with Office of Company
 2

Registrar (50-050/051, Dated January 14, 1994) as a public company limited by

shares. Nepal Bangladesh Bank started its banking operation from 6th June, 1994.
Nepal Bangladesh Bank was established as a joint venture bank with IFIC Bank Ltd.,
Bangladesh. Shares of the bank are listed in Nepal Stock Exchange Ltd. Since 1995.

Nepal Bangladesh Bank has been started with the following capital structure:
Authorized Capital 2400000@Rs.100 each Rs. 24,00,00,000, Issue Capital 1200000
@ Rs.100 each Rs. 12,00,00,000 and Paid-up Capital 1200000@ Rs.50 Rs.
6,00,00,000. The ownership of bank is Nepali local investor 60% and Foreign investor
i.e. IFIC Bank Bangladesh 40% at starting period. Now till FY2074/75 the ownership
of bank is Nepali local investor including general public 59.91% and Foreign investor
i.e. IFIC Bank Bangladesh has 40.09%. The bank has 806 Nos. employee and share is
traded at Rs.214 in end of FY2074/75.The bank has 81 branches, 60 ATM, 5 Nos. of
Branch less Banking and 6 Nos. of extension counter throughout the country. Bank is
preparing to expand its branches to 100 Nos. in FY2075/76. The bank has adequate
capital as prescribed by NRB i.e. 8 billion.

Vision

 The bank for everyone.

Mission

To offer financial services and become the “bank for everyone" by dedicating the
progress and growth of the bank to the community, customers, employees and
stockholders by:

 Fulfilling financial expectation of all level of society

 Providing excellent customer services by offering personalized quality

services and products

 Giving reasonable returns to all related stakeholders

 Using the latest technology aimed at customer satisfaction & act as an

effective catalyst for socio-economic developments

 Maintaining high standard corporate governance in all levels

 3

Core Values and Code of Conduct/Ethical Principles

The Bank has defined following core values for achieving the vision and mission:

 Deliver quality and complete financial services

 Provide value to the stakeholders

 Be accountable for delivering what we promise

 Demonstrate honesty and integrity in all actions

 Be balanced in customer orientation and risk consciousness

 Be efficient and technology oriented

Overall Strategic Objectives

 Stick on core values and code of conduct for betterment of the bank

1.3 Statement of Problem

A study conducted by WolskiBolek (2016) found that there is negative relationship

between liquidity and profitability. The increase in liquid assets decreased the
profitability as there is tradeoff between these two components. However, a study
conduct by Ahamad (2016) in Pakistan found that there is a positive relationship
between liquidity and profitability. There is a controversial thoughts among scholars
on relationship between liquidity and profitability. In Nepal ,very few researches have
been conducted in the areas of liquidity and profitability. Some studies are found.
However, they are focused on entire banking industry rather then a single company.
We can conduct a study by taking a single bank as a case as well. So considering
these two research gap , this study is going to be conducted.

This study deals with the following statement of problem:

 What is the relationship between liquidity and profitability of Nepal

Bangladesh Bank Limited?
 How is the liquidity position of Nepal Bangladesh Bank Limited?
 4

 How is the profitability position of Nepal Bangladesh Bank Limited?

1.4 Objective of the study:

The objective of this research will be :

 To find out the relationship between liquidity and profitability of Nepal

Bangladesh Bank Limited.
 To explore the liquidity position of Nepal Bangladesh Bank Limited.
 To explore the profitability position of Nepal Bangladesh Bank Limited.

1.5 Rationale of the study:

This study is useful to the interested parties of Nepal Bangladesh Bank limited to
understand the relationship between liquidity and profitability. This study can be
source of a reference as well as foundation of their study. Those seeking information
on liquidity and profitability can be benefited from the findings of this research.

 Shareholders and stakeholders of NBBL

 Information on liquidity and profitability concern party can be benefited.
 Researchers to use as a secondary data for research.
 To make the decision about NBBL.

1.6 Literature Review

This section includes both conceptual and review of past studies.

Conceptual Reviews

It includes literature related to conceptual aspects of liability and profitability.

Liquidity:

Liquidity is the degree to which an asset or security can be quickly bought or sold in
the market without affecting the asset's price. Liquidity can be classified into two
parts :- Market liquidity and accounting liquidity. Market liquidity refers to the extent
to which a market, such as a country’s stock market or a city's real estate market,
 5

allows assets to be bought and sold at stable prices. Cash is considered the most liquid
asset,while real estate, fine art and collectibles are all relatively illiquid. Accounting
liquidity measures the ease with which an individual or company can meet their
financial obligations with the liquid assets available to them. (www.investopedia.com)

Adequate liquidity enables a bank to meet three risks. First is funding risk - the ability
to replace net outflows either through withdrawals of retail deposits or nonrenewal of
wholesale funds. Secondly, adequate liquidity is needed to enable the bank to
compensate for the non receipt of inflow of funds if the borrower or borrowers fail to
meet their commitments. The third risk arises from calls to honor maturity obligation
or from request for funds from important customers. Adequate liquidity enable the
bank to find new funds to honor the maturity obligations such as sudden upsurge in
borrowing under atomic or agreed lines of credit or to be able to undertake new
lending when desirable. For instance a request from a highly valued customers.
(Nwankwo,1991).

Rostami (2015), in his research article entitled "CAMEL's Analysis in banking

industry" stated that liquidity position of the bank can be examined using various
ratios. Two major ratios are investment to total assets and liquid assets to to total
assets ratio.

Investment to total assets:

It measures the portion of investment on total assets of the bank. Since investment of
banks are , normally, of short period, higher investment indicates higher liquidity.

Liquid assets to total assets:

It measures the portion of total liquid assets on total assets of the bank. Higher the
ratio, higher liquidity and vice versa.

Profitability:

Profitability is the ability of the business to earn a profit. A profit is what is left of the
revenue a business generates after it pays all expenses directly related to the
generation of the revenue, such as producing a product , and other expenses related to
the conduct of the business activities. ( www.study.com)
 6

Profitability is a measure of firm’s efficiency (Khan & Jain, 1998). It is also a control
measure of the earning power of a firm as well as operating efficiency. Weston and
Copland (1998) described profitability as net result of a large number of policies and
decisions. Ratios are used to measure profitability and give final answers to how
effectively the firm is being managed in terms of its financial performance. Therefore,
management, creditors and owners are also interested in the profitability ratio of the
firm (Pandey, 1995).

Profitability is one of the vital parameter to analysis the performance of any

organization. An organization with better profitability is considered a good company ,
while an organization with unsatisfactory profitability position is considered as bad
company. A book written by Joshi et al (2016) explains that profitability of a
company can be examined using various ratios such as Return on Assets(ROA),
Return On Equity(ROE), Net Profit Margin etc. The writer explain following ways:

Return on Assets (ROA):

ROA refers to the relationship between net profit after tax and total assets. It measures
the overall effectiveness in generating profit with respect to available assets.

Return on Equity (ROE):

ROE refers to the relationship between net profit after tax and common shareholder
equity. It measures the overall effectiveness in generating profit with respect to
common shareholder equity

Net Profit Margin:

It refers to the relationship between net profit after tax and revenue income that the
company earns such as sales or interest income.

Review of Previous works:

Thapalliya Uma (2017) conducted a study entitled "A Liquidity Management of

Nepalese Commercial Banks With reference to Everest Bank Limited and Nepal
SBI Bank Limited." The main objective of the study was to analyze the liquidity
position of sample bank and explore the deposit and investment trend. In study,
 7

descriptive and analytical research design was used. Among 28 commercial banks two
commercial banks were used. The findings suggested that the liquidity position of
Everest Bank was comparatively better than that of Nepal SBI Bank Limited.
Similarly, the Current Ratio of sampled banks has maintained considerably sufficient
to meet the obligation.

Adhikari (2010) conducted a study entitled "Comparative Analysis of Financial

Performance of Nepal Bank Limited and Nabil Bank Limited." The main
objective of the study was to compare the financial performance between government
owned banks and private sector banks. In study, descriptive research design was used.
Among 26 commercial banks two commercial banks were used. The findings
suggested that the liquidity position of Nepal Bank was comparatively better then that
of Nabil Bank Limited. Similarly, the ROE of NABIL Bank was than Nepal Bank
limited. So Nepal Bank is better at liquidity management where as NABIL Bank
limited was better at profitability.

A study by Ibrahim (2017) examined the influence of liquidity on profitability of

Iraqi commercial banks. Five banks based in Iraq namely: North bank, Iraqi Islamic
bank, Sumer bank, Dar Es-Salam bank and Babylon bank were randomly selected and
analyzed for the period 2005 to 2013. Moreover, annual reports of these banks were
studied and the main ratios of profitability and liquidity were calculated. The
variables that were identified as independent for liquidity were, loan deposit ratio ,
deposit assets ratio, and cash deposit ratio, while return on assets as dependent
variable for profitability. The Ordinary Least Square (OLS) model used to examine
the impact of liquidity on profitability. The study observed that any increase in
liquidity ratios as above mentioned will lead return on assets to increase as well.
Depending on this study, it could be better for Iraqi banks to keep a balance between
liquidity and profitability

Olareqaju and Adeyemi (2015) examined the existence and direction of

causalitybetween liquidity and profitability of deposit money Banks in Nigeria.
Fifteen quoted banks out of the existing nineteen banks were selected for the study.
Pairwise Granga Causality test was carried out to determine the presence and
direction of causality between banks liquidity and profitability. The result revealed
that there is no causal relationship (be it unidirectional orbidirectional) between
 8

liquidity and probability of Guaranty trust bank, Zenith bank, Sterling bank, Diamond
bank, IBTC, Unity bank, UBA, Fidelity bank, Wema bank, Union bank, and Eco
bank. The result also shows that there is a trace of unidirectional causality relationship
running from liquidity ot profitability for banks iike Skye bank, First bank, Access
bank and FCMB. Based on findings and conclusions, the study recommend that the
Apex Bank (Central Bank of Nigeria) should ensure close supervision and monitoring
of deposit money bank's strength and level of liquidity in an attempt to stabilize
strengthen the financial sector of the economy.

Liquidity might have a negative impact on the profitability because when the firm or
any financial organization has more profit this might be the result of keeping a little
money in their accounts. The financial institutions have to be highly concentrated on
developing sound techniques for the proper tradeoff between liquidity and
profitability due to its highiy deal with ensuing adequate liquidity assets than non-
financial institutions to meet the customers demands. There are many authors who
supported that liquidity has a negative effect on profitability. For example, Shafana
(2015) have found that liquidity have negative effect on profitability of financial
institutions in Sri Lanka for the period from 2009 to2013 which covered 16 banks and
finance firms quoted in the Colombo Stock Exchange. For theseobjectives, the study
used Cash Position Indicator (CPI), Capacity Ratio (CR) andTotal Deposit Ratio
(TDR) as independent variables to measure the liquidity level to examine its
determinants on Return on Assets (ROA) of financial institutions in Sri lanka.

Alshatt (2015) investigated the effect of liquidity management on profitability in the

Jordanian commercial banks during time period 2005 to 2012. Thirteen banks had
been chosen to express on the whole Jordanian commercial banks. The liquidity
indicators were used : Investment Ratio, Quick Ratio, Capital Ratio, Net credit
facilities/ Total Assets and liquid assets ratio. Similarly, Return on Equity (ROE) and
Return On Assets (ROA) were the proxies for profitability. Augmented Dickey Fuller
(ADF) stationary test model was used to test for a unit root in a time series of the
research variable and then testing hypothesis by using regression analysis. The
empirical results show that an increase in the quick ratio and the investment ratio of
the available funds leads to an increase in the profitability. While an increase in
capital ratio and the liquid assets ratio leads to decrease in the profitability of the
Jordanian commercial banks.
 9

A study by Maqbool (2014) attempted to find the profitability and liquidity

relationship of full- fledged Islamic banks operating in Pakistan. ROA, ROE, cash
balance and cash equivalents were analyzed. The study has analyzed the panel data
through simple regression analysis. Results show that liquidity has inverse
relationship with Islamic banks profitability.

Ibe (2013) conducted a study entitled "The Impact of Liquidity management on the
profitability of Banks in Nigeria" with the aim to investigate the impact of liquidity on
profitability of the banks in Nigeria. Three banks were randomly selected to represent
the entire banking industry in Nigeria. The result of this study has shown that liquidity
management is indeed a crucial problem in the Nigerian banking industry. The study
therefore recommends that banks should engage competent and qualified personnel
to ensure management of optimal level of liquidity.

Elangkumaran, Periyathamby&Et, Karthiga. (2013).An analysis of liquidity,

profitability and risk-A study of selected listed food, beverage and tobacco companies
in Sri Lanka. Abstract The study is to analysis the effects of liquidity, profitability and
risk of listed food, beverage and tobacco companies on Colombo Stock Exchange
(CSE) in Sri Lanka. In this study purpose, six companies have been selected from
CSE for six years period from 2006/2007 to 2011/2012. The following ratios were
used as indicators such as current ratio and quick ratio for liquidity, Earnings per
Share (EPS) and Return on Assets (ROA) for profitability and Degree of Combined
Leverage (DCL) for combined risk. This study highlights that liquidity is insignificant
impact on profitability.

Similarly, Saluja and Kumar (2012) examined the tradeoff between liquidity and
profitability. Authors claimed that if the firm decreases its liquidity, the profitability
would be high. The resuls showed that there was a negative relationship between
profitability and liquidity. So it is essential for the every firm to maintain equilibrium
between profitability and liquidity.

Eljelly (2004) used correlation and regression on a simple of 929 joint stock
companies in order to examine the link between liquidity and profitability and found
that there is a significant negative relation between them which has measured by
current ratio as measure of liquidity.
 10

Research Gap:

Research gap refers to the gap between previous research and this research. The
different students, experts and researcher have done the research on liquidity and
profitability of different commercial banks. They have been done numerous research
studies on financial companies and public enterprise regarding liquidity and
profitability. Some studies are related to case study of one company and some others
are comparative in nature. But the study on analysis of liquidity and profitability is
hard to find out.

The financial and statistical tools used by most of the researchers were ratio analysis,
test of hypothesis and regression analysis. This research includes different tools like
ratio analysis and correlation coefficient analysis is used as specific tools. Thus study
made on “Analysis of Liquidity and Profitability of Nepal Bangladesh Bank Ltd.”
will be an effort to analyze on detail about liquidity and profitability position in
present situation with the help of various financial as well as statistical tools and
technique. This study can be beneficial to all the concerned parties and people as well.

1.7 Research Methodology:

Research Methodology is the way to solve the problem systematically and

scientifically. Research is under taken not only to solve a problem existing in the
work setting, but also to add or contribute to the general body of knowledge in a
particular area of interest to the researcher. Research is thus a knowledge, which can
be used for different purposes. It is used to build a theory , develop policies, support
decision making and solve problems. The main objectives of research methodology
are to achieve the basic objective and goals of research study.

Research Design:

Research Design is a plan to obtain the answer of research question through analysis
of data. The formidable problem that follows the task of defining the research
problem is the preparation of the design of the work, particularly known as the
“research design”. Research design is the conceptual structure within which research
is conducted, it constitutes the blueprint the collection, measurement and analysis of
 11

data. As requirement of the study, this research has a combined form of descriptive
and analytical research design.

Population and Sample

All the 28 commercial banks of Nepal are considered the population of this study.
Only Nepal Bangladesh Bank Limited is considered the sample. A total of 5 Fiscal
Year (2070/71) to 2074/75) is used as sample.

Data Collection Method

The data are collected from Secondary source. The data are collected through banks
official website (www.nbbl.com.np). The financial data are extracted from the annual
reports of the respective bank.

Data Analysis:

Correlation is used to examine the relationship between liquidity and profitability.

The collected data are entered into excel and output are analyzed with the help of
tables, bar diagrams, and trend analysis generated by excel.

1.8 Limitations of the Study:

This study is conducted for the partial fulfillment of Bachelor of Business

Studies. So, it possesses some limitation of its own kind. Lots of limitations have
been faced while preparing this research report. Some of them are listed below: -

 The study is based only in secondary data so it may contain reporting

errors.
 There are in total 28 commercial banks in country but researcher takes
only one of them. The sample bank is Nepal Bangladesh Bank Ltd.
 The study covers the past and present state of the Nepal Bangladesh Bank
Ltd and will not make any forecast of future.
 The study is made within limited time frame, limited data, and with lack of
research experiment.
 The study covers data of only five fiscal years and conclusion drawn only the
period 2070/71 to 2074/75.
 12

 In this research only the selective tools were used for analysis and
interpretation of data.

1.9 Report Structure:

This study has been organized into three chapters. The chapter consists of following
elements:

Chapter 1 - Introduction:

This chapter consists of background, profile of the organization, events, activities,

objectives of the study, rationale of the study; method of the study, review of
literature; limitations of the study and Report Structure.

Chapter 2 - Results and Findings:

This chapter consists of presentation of results and findings of project work. This is
the key chapter of research study. In this chapter data which are in primary or
secondary data presented in appropriate form. Analysis and interpretation of data have
been done there after. From this major findings were found.

Chapter 3 – Summary, Conclusion and Recommendations:

In this chapter a brief summary of the report, conclusion based on the findings of the
report and Recommendations.

Bibliography:

This includes all sources used in the study, using APA format for citation.
 13

CHAPTER II

RESULTS AND FINDINGS

2.1 Data Presentation

This chapter deals with the presentation of data in tabular and graphic forms and
analysis of these data. Annual Reports data will be analyzed. It consists of Income
statement Balance Sheet and others items. Presentation and analysis is important part
in research. Its main purpose is to make unprocessed data into understandable form. It
is the process of selecting; organizing the data by tabulating and then placing that data
in presentable form by using various tables figures and sources. Analysis of
profitability and liquidity of the bank is very important to those party who are directly
or indirectly related with this bank. Liquidity is the most important factor to determine
the profit. To show the data we use table and graph.

This chapter is the main volume of the field work report. This is a chapter under
which collected data and information are presented and analysis with help of
tabulation, figure tools, financials tools, accounting tools and statistical tools.

2.2 Analysis of Result

Liquidity:

In accounting, the term liquidity is defined as the ability of a company to meet its
financial obligations as they come due. The liquidity ratios are computations that are
used to measure a company's ability to pay its short term debts. Liquidity ratios
measure a company's ability to pay debt obligations and its margin of safety.
Bankruptcy analysts and liquidity measurement ratios. Liquidity ratios of bank
includes Cash reserve ratio, liquid assets to total assets, liquid assets to total deposits
etc.
 14

Liquid Assets:

A liquid asset is cash in hand or an asset that can be readily converted to cash. An
asset that can readily be converted into cash is similar to cash itself because the asset
can be sold with little impact on its value. Cash in hand is considered a liquid asset
due to its ability to be readily accessed. Cash is legal tender that a company can use to
settle its current liabilities. For example, the money in your current account, savings
account, or money market account is considered liquid because it can be withdrawn
easily to settle liabilities.

Liquid assets for Bank can be calculated as following:

Particulars Anount (Rs.)
Cash XX
Bank Balance XX
Money at call and short Notice XX
investment in government securities XX
Balarce at NRB XX
Liquid Assets XXX

Particulars 2070/71 2071/72 2072/73 2073/74 2074/75

Cash
965,973,506 948,357,020 2,394,586,624 1,837,228,463 3,705,995,838

Bank Balance
691,728,232 72,041,020 1,873,270,287 3,393,272,609 2,259,775,506
Money at call and short
Notice 50,000,000 - - - -
investment in government
securities 739,085,367 264,975,383 974,033,798 1,825,232,713 -

Balarce at NRB
64,368,496 2,931,925,000 6,868,710,457 8,978,963,427 6,890,126,176

Liquid Assets
2,511,155,601 4,217,298,423 12,110,601,166 16,034,697,212 12,855,897,520
Table 1 Liquid Assets of Nepal Bangladesh Bank Ltd.
 15

Liquid Assets of Nepal Bangladesh Bank Ltd in figure

Rs. 18,000,000.00
Rs. 16,000,000.00
Rs. 14,000,000.00
Amounts Rs. Rs. 12,000,000.00
Rs. 10,000,000.00
Rs. 8,000,000.00
Rs. 6,000,000.00
Rs. 4,000,000.00
Rs. 2,000,000.00
Rs. -
2070/71 2071/72 2072/73 2073/74 2074/75
Liquid Assets Rs. 2,511,1 Rs. 4,217,2 Rs. 12,110, Rs. 16,034, Rs. 12,855,

Figure 1: Liquid Assets of Nepal Bangladesh Bank Ltd.

Table 1 and Figure 1 represent the trend of Total Liquid Assets in five year period
from FY 2070/71 to 2074/75. In sample period liquid assets is in increasing trend.
Among five year period liquid assets growth rate is highest in the year 2073/74. Total
liquid assets for the year 2070/71, 2071/72, 2072/73, 2073/74 and 2074/75 is
Rs.2511155601, Rs. 4217298423, Rs. 12110601166 Rs. 16034697212, and Rs.
12855897520 respectively.

Liquid assets to deposits ratio:

This ratio is the value of liquid assets (easily converted to cash) to total deposits.
Liquid assets include cash and due from banks, trading securities and at fair value
through income, loans and advances to banks, reverse repos and cash collaterals.
Deposits include total Customer depoxits (current. savings, call and fixed deposits).

Liquid Assets to Total Deposits = Total Liquid Assets ×100

Total Deposits

Particulars 2070/71 2071/72 2072/73 2073/74 2074/75

Liquid
2,511,155.60 4,217,298.42 12,110,601.17 16,034,697.21 12,855,897.52
Assets
Total
25,706,916.00 33,832,696.00 39,923,543.00 43,860,305.00 48,052,953.00
deposits
Ratio 10% 12% 30% 37% 27%
Table 2 Liquid Assets to Total Deposit of Nepal Bangladesh Bank Ltd.
 16

Liquid Assets to Total Deposit of Nepal Bangladesh Bank Ltd in figure

40%
35%
30%
Percentage
25%
20%
15%
10%
5%
0%
2070/71 2071/72 2072/73 2073/74 2074/75
Liquid Assets to total
deposit Ratio 10% 12% 30% 37% 27%

Figure 2: Liquid Assets to Total Deposit of Nepal Bangladesh Bank Ltd.

Table 2 and Figure 2 shows that the over sample period Proportion of liquid assets on
total deposit is increasing trend from FY 2070/71 to 2073/74 than it is decreased in
FY 2074/75.Bank was weak in liquidity position in the year 2070/71 and 2071/72 as
compare to other year. In that year the amount was used as long term investment, loan
and advances. However, bank seems to utilize larger portion of deposit into liquid
assets.

Liquid assets to Total assets:

The liquid assets to total assets ratio is an important liquidity management tool to
assess on ongoing basis the extent liquid assets can support its asset base. It is the
share of liquid assets on total assets. It is calculated using following formula:

Liquid assets to total assets = Total liquid assets ×100

Total Assets
 17

Particulars 2070/71 2071/72 2072/73 2073/74 2074/75

Liquid Assets 2,511,155,601 4,217,298,423 12,110,601,166 16,034,697,212 12,855,897,520

Total Assets 30,873,612,915 39,483,572,200 46,684,253,432 57,008,219,556 61,377,135,953

Liquid Assets to 8% 11% 26% 28% 21%

total assets Ratio

Table 3 Liquid Assets to Total Assets of Nepal Bangladesh Bank Ltd.

30%

25%

20%
Percentage

15%

10%

5%

0%
2070/71 2071/72 2072/73 2073/74 2074/75
Liquid Assets to total
Assets Ratio 8% 11% 26% 28% 21%

Figure 3 Liquid Assets to Total Assets of Nepal Bangladesh Bank Ltd.

Table 3 and figure 3 show the proportion of liquid assets on total assets is in
increasing trend and liquid assets is fluctuating. The ratio was highest among the FY
2070/71 to 2074/75 in year 2073/74 i.e.28% and lowest in the year 2070/71 i.e.8%.
The data shows that bank has managed sufficient amount of liquid assets. Over the
five year period, the liquid assets is increased from Rs. 2,511,155,601 to Rs.12,
855,897,520 at the growth rate of 411.95%. And the total assets is increased from Rs.
30,873,612,915 to Rs. 61,377,135,953 at the growth rate of 98.8%. Therefore, the
growth of liquid assets is greater than growth of total assets in five year sample
period.
 18

Liquidity Ratio as Cash Reserve Ratio (CRR)

Cash Reserve Ratio (CRR) maintained by commercial bank in Nepal Rastra Bank has
been widely used by Nepalese commercial bank as the measure of liquidity. Cash
Reserve Ratio (CRR) is the ratio between cash reserve in Nepal Rastra Bank and total
deposits. It is calculated using following formula:

Cash Reserve Ratio (CRR) = Total Cash Reserve in NRB ×100

Total Deposits

Fiscal Year Total Cash Reserve in Total Deposits (Rs) Cash Reserve Ratio
NRB (Rs)
2070/71 6,436,849,648 25,706,915,697 25.04%

2071/72 5,702,204,850 33,832,696,025 16.85%

2072/73 6,868,710,457 39,923,543,084 17.20%

2073/74 8,978,963,427 43,860,305,237 20.47%

2074/75 6,890,126,176 48,052,952,763 14.34%

Table 4 Cash Reserve Ratio of Nepal Bangladesh Bank Ltd.

Cash Reserve Ratio (CRR)

30.00%

25.00%

20.00%
CRR %

15.00%

10.00%

5.00%

0.00%
2070/71 2071/72 2072/73 2073/74 2074/75
Cash Reserve Ratio (CRR) 25.04% 16.85% 17.20% 20.47% 14.34%

Figure 4: Cash Reserve Ratio of Nepal Bangladesh Bank Ltd.

Table 4 and figure 4 shows that the liquidity ratio of the bank has decreased over five
year from 25.04 percent in 2070/71 to 14.34 percent in the year 2074/75. Over the
five years period, CRR is highest 25.04 percent in the year 2070/71. On the other
 19

hand, CRR is lowest 16.85 percent in the year 2071/72. In the entire years liquidity
ratio measured as Cash reserve ratio are above 6 percent which is the minimum
requirement set by Nepal Rastra Bank. Bank is continuously increasing the amount of
funds into loans and advances rather than retaining then a liquid assets. Therefore, the
amount of liquid assets in terms of CRR is sufficient as they are above 6%, which are
the minimum requirements of the bank.

Profitability:

Profitability is the ability of a business to earn a profit. A profit is what is left of the
revenue a business generates after it pays all expenses directly related to the
generation of the revenue, such as producing a product, and other expenses related to
the conduct of the business activities.

There are many different ways for you to analyze profitability. This lesson will focus
on profitability ratios, which are a measure of the business's ability to generate
revenue compared to the amount of expenses it incurs. Let's look at a few of the
primary analytical approaches.

Profit Margin

Profit margin is one of the commonly used profitability ratios to gauge profitability of
a business activity. It represents how much percentage of sales has turned into profits.
Simply put, the percentage figure indicates how many cents of profit the business has
generated for each sale. It is relationship between net profit and total revenue. This
ratio is calculated as follows:

Profit Margin = Net Profit after tax

Total Revenue

Where:
Total Revenue = Interest Income + Commission and Discount +
Exchange Profit + Other Operating Income
 20

Year NPAT (Rs) Total Revenue (Rs) Profit Margin

2070\71 742,432,538 2,574,759,953 28.84%
2071\72 813,976,568 3,011,531,117 27.03%
2072\73 1,198,297,230 3,728,783,445 32.14%
2073\74 1,199,704,091 4,793,622,783 25.03%
2074\75 1,144,035,276 6,561,436,233 17.44%
Table 5Profit Margin of Nepal Bangladesh Bank Ltd.

Profit Margin
35.00%
30.00%
Profit Margin(%)

25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2070\71 2071\72 2072\73 2073\74 2074\75
Profit Margin 28.84% 27.03% 32.14% 25.03% 17.44%

Figure 5: Profit Margin of Nepal Bangladesh Bank Limited.

Table 5 and Figure 5 shows that the profit margin for the five years periods (2070/71
to 2074/75) B.S is in between 16% to 29%.NBBL’S Profit margin is floating.
NBBL’S Profit margin is increased in Fiscal Year 2072/73 at the level 32.14 % it
shows the improvement of profitability. In the Fiscal Year 2074/75 profit margin is
decreased to 17.44%. it shows the lower profitability.

Net Interest Income (NII)

Net interest income is difference between interest income and interest expenses. It can
be calculated by subtracting interest expenses from interest income. Interest income is
the major source of banks profitability. Similarly, interest expenses is the major
source of cash expenses for bank. It is calculated by following ways:

Net interest income = Interest Income - Interest expenses

 21

Table 6 reports in Interest Income, Interest expenses and Net interest income of Nepal
Bangladesh Bank Limited. Interest Income, Interest expenses and Net interest income
are in increasing trend.

Net Interest Income

Particular 2070\71 2071\72 2072\73 2073\74 2074\75

Interest Income 2,032,467,693 2,351,305,410 1,918,753,829 3,671,247,158 5,427,432,495

Interest Expenses 1,179,941,271 1,261,069,650 1,456,393,671 2,129,546,590 3,456,810,907

Net Interest
Income 852,526,422 1,090,235,760 462,360,158 1,541,700,568 1,970,621,588

Table 6 Net Interest Income of Nepal Bangladesh Bank Ltd.(Source:Annual report of

NBBL)
Over the five year period Net Interest Income of NBBL is in increasing trend. NII is
increased by 131.15% from FY 2070/71 to 2074/75. It indicates that bank has good
control over the cost of deposit. It provides a positive signal to the profitability
position of the bank in sample period.

6,000,000,000.00

5,000,000,000.00

4,000,000,000.00
2070\71
3,000,000,000.00 2071\72
2072\73
2,000,000,000.00
2073\74

1,000,000,000.00 2074\75

-
Interest Income Interest Net Intrest
Expenses Income

Source Annual Report of NBBL

Figure 6 Net Interest Income of Nepal Bangladesh Bank Ltd
 22

Interest Spread (IS)

Interest spread is the difference in borrowing and lending rates of financial institution.
It is considered analogous to the margin of non financialcompanies.Interest spread is
expressed as interest yield on assets such as loan , assets that generate interest minus
interest paid on borrowed funds.

Interest Spread = Interest in assets - Interest in borrowed funds

Fiscal Year IS AS Per Annual Report

2070/71 4.32%
2071/72 4.03%
2072/73 4.54%
2073/74 3.92%
2074/75 3.67%
Table 7 Net Interest Income of Nepal Bangladesh Bank Ltd.

Interest Spread
5.00%
4.50%
4.00%
Interest Spread (%)

3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2070\71 2071\72 2072\73 2073\74 2074\75
Interest Spread 4.32% 4.03% 4.54% 3.92% 3.67%

Source Annual Report of NBBL

Figure 7: Interest Spread of Nepal Bangladesh Bank Ltd.
Table 7 and figure 7 shows the weighted average rate of interest spread of NBBL for
five year from FY 2070\71 to 2074/75. Interest spread is decreasing trend in FY
2071/72, 2073\74 and 2074\75. In FY 2072/73 interest spread is increased. In sample
period interest spread is lower than as prescribed by NRB i.e.5%. Although, interest
spread in fiscal year 2070\71,2071\72, 2072\73, 2073\74 and 2074\75 has not above
 23

the maximum limit set by Nepal Rastra Bank. Bank can increase it profit by
increasing rate of interest on loans and advances without exceeding the limit of 5
percent set by Nepal Rastra Bank. Another option to increase profit can be to decrease
the rate of interest on deposits as far as possible. It helps reduce the costs. However,
this strategy can be risky as it can decrease the source of fund i.e. deposits.

Earnings per Share (EPS)

Earnings per share (EPS) can defined as the rupees amount earned per share. Earnings
per share (EPS) is the portion of a company's profit that is allocated to each
outstanding share of common stock, serving as an indicator of’ health. Earnings per
share is the portion of a company's net income that would be earned per share if all
the profits were paid out to its shareholders. EPS is used typically by analysts and
traders to establish the financial strength of a company. EPS is calculated by dividing
net profit after tax by number of share outstanding.

Earnings per share (EPS) = Net Profit after tax ×100

No. of share outstanding

Fiscal Year EPS AS Per Annual Report

2070/71 Rs. 36.94
2071/72 Rs. 33.48
2072/73 Rs. 39.43
2073/74 Rs. 28.05
2074/75 Rs.14.95
Table 8 Earnings per Share (EPS) of Nepal Bangladesh Bank Ltd.
 24

Earnings per Share (EPS) trend in Figure

Rs. 45.00
Rs. 40.00
Rs. 35.00
EPS in Rs. Rs. 30.00
Rs. 25.00
Rs. 20.00
Rs. 15.00
Rs. 10.00
Rs. 5.00
Rs. -
2070/71 2071/72 2072/73 2073/74 2074/75
EPS AS Per Annual Report Rs. 36.94 Rs. 33.48 Rs. 39.43 Rs. 28.05 Rs. 14.95

Source Annual Report of NBBL

Figure 8 :Earnings per Share (EPS)of Nepal Bangladesh Bank Ltd.

Table no.8 and Figure 8 reports earnings per share of fiscal year from 2070/71 to
2074/75. Earnings per share are in declining trend. It was basically due to n drastic
increase in paid up capital as required by Nepal Rastra bank. The rate in growth in
paid up capital was higher than that of net profit. Therefore. Bank experienced decline
in EPS.

Dividend Per Share (DPS)

Dividend per share (DPS) is the sum of declared dividends issued by a company for
every ordinary share outstanding. The figure is calculated by dividing the total
dividends paid out by a business, including interim dividends, over a period of
time by the number of outstanding ordinary shares issued. A company's DPS is often
derived using the dividend paid in the most recent quarter, which is also used to
calculate the dividend yield. Dividend can be either cash or stock dividend. Dividend
can be either cash dividend or stock dividend.
 25

Dividend Per share (DPS) = Dividend Paid to shareholders

Numbers of Shares Outstanding

Fiscal Year No. of share (in 000_ Dividend (in 000) DPSRs.
2070/2071 20,094 486,274 24.20
2071/2072 24,314 639,834 26.32
2072/2073 30,392 1,023,734 33.68
2073/2074 72,191 1,140,184 15.79
2074/2075 80,883 851,400 10.53
Table 9 Dividend per Share (DPS) of Nepal Bangladesh Bank Ltd.

40
35
Dividend Per Share %

30
25
20
15
10
5
0
2070/71 2071/72 2072/73 2073/74 2074/75
Stock Dividend % 10 25 32 12 0
Cash Dividend % 12 1.32 1.68 3.79 10.53
Total Dividend % 22 26.32 33.68 15.79 10.53
Source Annual Report of NBBL
Figure 9 : Dividend per Share (DPS) of Nepal Bangladesh Bank Ltd.

Figure 9 reports that the dividend per share (DPS) percentage. In FY 2070/71 bank
distribute cash and stock dividend. In FY 2072/73 the DPS is higher then other fiscal
year i.e. Rs.33.68. Stock dividend is also higher in FY 2072/73. In FY 2071/72,
2072/73 and 2073/74 has less cash dividend as because the requirement of the Nepal
Rastra Bank to increase the paid up capital to Rs. 8 billion. In FY 2074/75 bank did
not distribute the stock dividend because the paid up capital is fulfilled by the bank.
 26

Earnings per Share (EPS) vs Dividend Per Share (DPS)

 Earnings per share and dividends per share are both reflections of a company's
profitability.

 Earnings per share are a gauge of how profitable a company is per share of its
stock.

 Dividends per share, on the other hand, measure the portion of a company's
earnings that is paid out to share.

Rs. 45.00
Rs. 40.00
Rs. 35.00
Rs. 30.00
Rs. 25.00
Rs.

Rs. 20.00
Rs. 15.00
Rs. 10.00
Rs. 5.00
Rs. -
2070/71 2071/72 2072/73 2073/74 2074/75
DPS Rs. 24.20 Rs. 26.32 Rs. 33.68 Rs. 15.79 Rs. 10.53
EPS Rs. 36.94 Rs. 33.48 Rs. 39.43 Rs. 28.05 Rs. 14.95

Source Annual Report of NBBL

Figure 10: EPS vs DPS of Nepal Bangladesh Bank Ltd.
Figure 10 shows the comparison of EPS and DPS for the five fiscal year from
2070/71 to 2074\75. There is greater EPS then DPS. Bank is capable to distribute the
profit.

Return on Assets (ROA):

Return on assets represents the portion of net income on total assets. Higher the ROA,
the performance will be better and vice versa. Return on assets (ROA) is an indicator
of how profitable a company is relative to its total assets. ROA gives a
manager, investor, or analyst an idea as to how efficient a company's management is
at using its assets to generate earnings. Return on assets is displayed as a percentage.
Return on assets is calculated by :
 27

Return on assets (ROA) = Net Profit after tax ×100

Total Assets

3.00%

2.50%

ROA % 2.00%

1.50%

1.00%

0.50%

0.00%
2070/71 2071/72 2072/73 2073/74 2074/75
Return On Assets 2.40% 2.06% 2.57% 2.10% 1.86%

Figure 11: Return on Assets of Nepal Bangladesh Bank Ltd.

Figure 11 represents the Return on Assets of Nepal Bangladesh Bank Ltd. ROA is in
decreasing trend but in fiscal year 2072/73 the ROA is greater than over the five year
period. ROA is decreased till the year 2071/72, again it is decreased from 2073/74 and
2074\75. ROA is lowest in the year 2074/75 i.e. 1.86% . Bank could not earn
sufficient returns on increased assets. Assets is not proper utilize to generate profit.
But in FY 2072/73 ROA is improved.

Return on Equity (ROE):

Return on equity (ROE) is a measure of financial performance calculated by

dividing net income by shareholders' equity. Because shareholders' equity is equal to a
company’s assets minus its debt, ROE could be thought of as the return on net assets.

ROE is considered a measure of how effectively management is using a company’s

assets to create profits. ROE is expressed as a percentage and can be calculated for
any company if net income and equity are both positive numbers. Net income is
calculated before dividends paid to common shareholders and after dividends to
preferred shareholders and interest to lenders.

The Formula for Return on Equity (ROE) = Net Profit after tax ×100
Shareholder Equity
 28

25.00%

20.00%

ROE %
15.00%

10.00%

5.00%

0.00%
2070/71 2071/72 2072/73 2073/74 2074/75
Return On Equity 18.06% 16.64% 19.84% 11.11% 9.75%

Figure 12 : Return on Equity of Nepal Bangladesh Bank Ltd.

Figure 8 shows that ROE in decreasing trend up to the 2074/75. However, it improved
in the year 2072/73. Over the five years, ROE has decreased from 18.06 percent in the
year 2070/71 to 9.75 percent in the year 2074/75. ROE decreased because net income
could not increase in relationship to the increased in shareholders’ equity. However,
in the year 2072/73 has a positive sign of increase ROE has been experienced. The
expansion of business in terms of loan and advances led to higher net income, which
resulted into increase in ROE.

The relationship between liquidity and profitability:

Karl Pearson's. Correlation coefficient method has been applied in order to calculate
the relationship between liquidity and profitability. This method is also known as
pearsonian coefficient of correlation. It is widely used mathematical method in which
correlation coefficient between two variable x and y is calculated as follows:

∑
Correlation coefficient (r) =
∑ ∗ ∑
 29

The values of r lies between +1 and - 1 Where +1 denote the perfectly positive
relationship ,-1 denotes perfectly negative relationship and 0 denotes no relationship
between two variables.

Table 10

Correlation between Profit Margin (X) and Liquid Ratio (Y) in percentage

Profit Liquid
Fiscal x= y=
Margin Ratio xy
Year (x-26.10) (y-18.78)
(X) (Y)
2070/71 28.84 25.04 2.74 6.26 7.51 39.19 17.15
2071/72 27.03 16.85 0.93 -1.93 0.86 3.72 -1.79
2072/73 32.14 17.20 6.04 -1.58 36.48 2.50 -9.54
2073/74 25.03 20.47 -1.07 1.69 1.14 2.86 -1.81
2074/75 17.44 14.34 -8.66 -4.44 75.00 19.71 38.45
∑X = ∑Y = ∑ = ∑ =
∑xy=42.46
130.48 93.90 120.99 67.98
Mean 26.10 18.78

∑ .
Mean of X = = = 26.10

∑ .
Mean of Y = = = 18.78

Now,

∑
Correlation coefficient (r) =
∑ ∗ ∑

.
= . ∗√ .
√

Correlation coefficient (r) = 0.468138

Table 10 reports the correlation coefficient between liquidity and profitability. Data
shows that there is positive relationship between liquidity and profitability. It
indicates that increase in liquidity increase the profitability. The correlation
coefficient of 0.46813 indicates that 1 percent increase in liquidity increase profit
margin by 0.468138 percent.
 30

2.3 Major Findings:

The major findings of Nepal Bangladesh Bank Ltd. can be highlighted as follows:

 Liquid assets of NBBL are in increasing trend. Total liquid assets for the year
2070/71, 2071/72, 2072/73, 2073/74 and 2074/75 is Rs.2511155601, Rs.
4217298423, Rs. 12110601166 Rs. 16034697212, and Rs. 12855897520
respectively.
 The proportion of liquid assets on total deposit is in decreasing trend. It
indicates that bank has been reducing the share of liquid assets on total
deposits. In the Fiscal Year 2074/75 liquid assets to total deposit is decreased
to 27%.
 Although liquid assets to total assets ratio has increased over five year’s
period, the annual growth rate is fluctuating in nature. The ratio was highest
in the year 2073/74 and lowest in the year 2070/71. In the Fiscal Year 2074/75
liquid assets to total assets is 21%. Data shows that bank has managed
sufficient of liquid assets.
 Liquid assets measured in terms of CRR has decreased over five years. In the
Fiscal Year 2074/75 CRR is decreased to 14.34%. However, bank is able to
manage sufficient amount of liquid assets to meet its immediate or short term
obligations.
 Bank experienced a floating profit margin of 28-25 percent in four out of five
fiscal years. Profit margin in the fiscal margin in the fiscal year 2072/73
surged to 32.14 percent. Therefore, the improvement in profit margin in
experienced only in fiscal year 2072/73.In the Fiscal Year 2074/75 profit
margin is decreased to 17.44%. It shows the lower profitability.
 Net interest income, interest income and interest expenses are all in increasing
trend. Over the five years the growth rate is higher in net interest income than
interest income and interest expenses. Therefore, there is sign of improvement
in net interest income over the five years period.
 Interest spread is in decreasing trend. Except for the year 2072/73, interest
spread are below five percent. Which is the maximum limit set by Nepal
Rastra Bank Ltd. Since there is an opportunities that bank increase its interest
rate on loans and advances and earn more profit. However, Interest Spread
 31

should not exceed five percent. In the Fiscal Year 2074/75 interest spread is
decreased to 3.67%
 Bank could not maintain at least equal growth rate in net profit in comparison
to growth rate in paid up capital. Therefore, EPS is in decreasing trend. Over
the five years period, banks EPS fell from Rs. 39.43 to Rs.14.95.
 Divided per share of NBBL had decreased over five years period. The priority
had changed from cash dividend to stock dividend. It was basically due to the
requirements of the NRB to increase its paid up capital to Rs. 8 Billion.
 The negative gap between EPS and DPS is in increasing trend. In the last
three years, DPS is lower than EPS. So, bank did not utilizing its reserve
amount to distribute dividend.
 Although, ROA had decreased from 2.40 Percent to 1.86 percent over five
years, sign of improvements can be seen in ROA as of fiscal year (i.e.
2072/73). Assets utilization in terms of profit generation is improving.In the
Fiscal Year 2074/75 ROA is decreased to 1.86%
 ROE, which was in decreasing trend, but it has improved in the year 2072/73.
In the Fiscal Year 2074/75 ROE is decreased to 9.75%. The drastic fall in
ROE was due to heavy amount of increase in paid capital, a requirement set
by NRB. Bank could not expand its business in the rate paid up capital was
increased.
 The evidences suggest that there positive relationship between liquidity and
profitability. It indicates that increase in liquid assets is increase profit margin
of the Bank.
 32

CHAPTER III

SUMMARY, CONCLUSION AND RECOMMENDIATIONS

3.1 Summary:

Liquidity and profitability are two of the major consideration in any commercial
banks. Liquidity is concerned with the availability of the funds in cash or cash
equivalent form to meet the immediate financial obligations and/or assets creation i.e.
granting loan or making investments. Profitability is the ability of the company to
generate rectum. The general objective of the study is to examine the relationship
between liquidity and profitability of Nepal Bangladesh Bank Limited. Further, the
study aims to study the liquidity and profitability position of Nepal Bangladesh Bank
limited. A total of 28 commercial banks have been considered as population of the
study. Nepal Bangladesh bank has been selected as sample of the study. Sample
period includes a five-year period from 2070/71 to 2074/75.

Findings suggest that the bank is in good position in terms of profitability. Profit
margin is stable in between 17-29 percent. Net interest income is in increasing trend.
The growth rate of Net interest income is more than that of interest income and
expenses. Interest spread is in decreasing trend. However, it is below 5 percent, which
is the maximum limit set by Nepal rastra bank. Bank could not increase high earning
when paid up capital increased by four folds. Therefore, EPS is in decreasing trend.
DPS also in decreasing trend over five years period. The bank has , prioritized its
divided from cash dividend to stock dividend. Although, ROA and ROE decreased
over the sample periods, a positive sign of improvements can be seen in the year
2072/73 of the sample period.

The bank has managed sufficient amount of liquid assets and it is in decreasing trend.
The proportion of liquid assets on total deposit is in increasing trend. It indicates that
bank has been reducing the share of liquid assets on total deposits. Although, liquid
assets to total assets ratio has increased over four year’s period, the annual growth rate
is fluctuating in nature. The ratio was highest in the year 2073/74 and lowest in the
year 2070/71. Data shows that bank has managed sufficient amount of liquid assets. A
 33

liquid assets measured in term- of CRR has decreased over the period. However, they
are above the requirements. The evidences suggests that bank has hold more that
necessary amount of liquid assets. So there is necessity to reduce its liquid assets.
Finally, there is positive relationship between liquidity and profitability of Nepal
Bangladesh Bank limited. It indicates that increase in liquid assets increase in profit
margin.

3.2 Conclusion:

The evidences suggest that there is positive relationship between liquidity and
profitability of Nepal Bangladesh bank limited. Bank is able to manage sufficient
amount of liquid assets. However, since the relationship between liquidity and
profitability is positive, it can be implied that bank is able to maintain an optimum
level of liquid assets. Rather, the amounts are above the optimum level. Therefore,
bank should reduce its liquid assets amount and invest in other areas like, long term or
medium term loans and advances, which offer higher returns. It can be said that bank
has been losing opportunity to earn more profits by maintaining optimum amount of
liquid assets. The bank is in good position in terms of profitability. Although,
profitability was in decreasing trend at beginning of sample period, bank is in
improvement stage in the last two years. The parameters tike ROA, ROE, IS, NII etc.
show positive indication regarding the profitability of Nepal Bangladesh Bank.

Net interest income, interest income, and interest expenses are all in increasing trend.
Over the five years, the growth rate is higher for net interest income than interest
income and interest expenses. Therefore, there is a sign of improvement in net interest
income over the five years period. Bank could not maintain at least equal growth rate
in net profit in comparison to growth rate in paid up capital. Therefore, EPS is in
decreasing trend. Over the five years period, bank's EPS fell from Rs. 39.43 to
Rs.14.95. Dividend per share of NBBL had also decreased over five years period. The
priority of dividend had changed from cash dividend to stock dividend. It was
basically due to the requirements of the NRB to increase its paid up capital to Rs. 8
billion.
 34

3.3 Recommendations:

Suggestion is the output of the whole study. It helps to take corrective action in their
activities in future. Different analysis is done to arrive at this step. On the basis of
analysis and findings of the study following suggestions and recommendations may
be referred to over come weakness, inefficiency to liquidity management and or
corrective action for the concern authorities and other researchers.

Based on findings of the research, following points are suggested to the bank:

 Liquidity analysis should be prepared quarterly basis and send to NRB in

prescribed time.
 An effort should be made on human resource development on risk and
Liquidity - profitability management.
 An effort should be made on development of market for the liquidity
generating assets such as ,T- bills, Options and Bank CD's etc.
 Satisfied employees are backbone of the bank. So, necessary steps should be
step forwarded to developed satisfied and obedient employees, which may
reduced the problems of bank defaulters and corruption.
 Rules and regulations are the guidelines of things to do or not to do. So, its
effects can be seen after the implementations. In order to manage the liquidity
effectively the rules and regulations should be practice effectively.

This study may be helpful to fulfill the gap of proper research in liquidity and
profitability analysis of commercial banks. It may provide the knowledge about
liquidity and profitability in Nepali commercial banks. This research covers the
existing liquidity and profitability management practice, existing liquidity and
profitability trend, factor affecting liquidity and profitability management.
 Bibliography

Books:
Joshi, K.R. (2016). Fundamental of Financial Management, Kathmandu: Ayam’s Book
Publication & Distributors.

Nwankwo U (1992). Economic Agenda for Nigeria, Centralist Production Ltd. Lagos
Nigeria. Peter's book publication

Thapa, R. & Rawal. K. (2015). Nepalese Banking, Katmandu: Buddha academic publishers
and distribution Pvt. Ltd.

Shrestha, S. &Amatya, S., Business Statistics, Kathmandu : Buddha Academic Enterprises

Pvt. Ltd.

Thesis:
Adhikari, A. (2010). Comparative analysis of financial performance of Nepal bank Limtied
and NABIL Bank Limited. An Unpublished Master's Degree Thesis, Shankar Dev
Campus, Tribhuvan University

Thapaliya, Uma. (2017). A Liquidity management of Nepalese Commercial banks with

reference to Everest bank Limited and Nepal SBI Bank Limited. An Unpublished
Master's Degree Thesis, Pashupati Multiple Campus, Tribhuvan University.

Journals and reports:

Addin, M. M. Nayebzadeh. S., & Pour. M. A. (2013).The relationship between modern
liquiuity indices and stock returns in companies listed in Tehran stock exchange.
Interdisciplinary Journal of Contemporary Research in Business, 5(4), 350-360.

Aishatti, A S. (2015). The effect of liquidity management on profitability in the Jordanian

commercial banks. International Journal of Business and Management, 10(1), 62-71.

Eljelly. A. M. (2004). Liquidity_ Profitability tradeoff: An empirical investigation in

emerging market. International Journal of Commerce and management, 14(2), 48-61.

Ibe, S. (2013). The impact of Liquidity Management on the profitability of Banks in Nigeria,
Journal of Finance and bank management, 1(1). 37-48.

lbrahim, S. S. (2017). The impact of liquidity on profitability in banking sector of Iraq: A

case study of Iraqi commercial banks. Journal of finance and Banking Studies, 6(1),
113-121.

Maqbool, F. 2014). The mpact of Liquidity on Islamic Profitability. International Journal of

Scientific & Engineering Research,5(2), 227-230.
Olarewaju, O. M., & Adeyemi, O. K. 2015). Casual relationship between liquidity and
profitability in Nigerian deposit money banks. International Journal of Academic
Research in Accounting, Finance and Management Studies, 5(2), 165-171.

Rostami, M. (2015). CAMEL's analysis in banking industry. Global Journal of Engineering

Science and Research Management, 2(11), 10-26.

Saluja, P., & Kumar, P. (2012).Liquidity and profitability tradeoff, International Journal of
Advace Research in Management and Social Science, 1(3), 78-84.

Shafana, M. (2015). Liquidity and profitability in financial institutions in Sri Lanka.

International Journal of Science and Research, 4(6), 589-593.

Wolsk, R. & Bolek, M. (2016. Liquidity - profitability relationship analyzed once again: The
case of Poland. European Scientific Journal. 127).34-46.

Nepal Bangladesh Bank Limited Annual Report Retrieved from

https://www.nbbl.com.np/download/annual_reports

Websites:
https:/www.investopedia.com/terms//iquiditv.aspHixzz52xffe7JP

https://study.com/academy/ ny/lesson/what-is isprofitability-defioition-analysis-quiz.html

https://www.sharesansar.com/company/nbb