Presented by: Manzil Bhattarai

A Comparative Study between

Commercial Banks of the Nepal

Introduction

Banking in Nepal started in 8th century in the

reign of Guna Kama Dev.

Nepal bank ltd. Was the first bank in Nepal estd in

1937.

Nabil bank was first joint venture bank of Nepal,

with 50% share of UAE, 20% financial institution

and rest by general public.

Liberalization of financial sector begin at 80’s and

speeded at 90’s.

Number of Banks & Financial InstitutionsLicensed by NRB

Nepalese Financial System

At a glance

BFIs Regulated by

Nepal Rastra Bank

Other Financial

Institutions regulated by GoN

Commercial

Banks

32other

Insurance

BoardSEBON

Insurance

Co.

25

NEPSE

Financial

Institutions

Finance

Companies

76

Development

Bank

89

Cooperatives

16

4

Objective: To compare the financial performance of different

ownership structured commercial banks in Nepal

based on their financial characteristics

Identify the determinants of performance exposed by

the financial ratios

Econometric model (multivariate regression analysis)

by formulating two regression models was used to

estimate the impact of capital adequacy ratio

Non-performing loan ratio, interest expenses to total

loan, net interest margin ratio and credit to deposit

ratio on the financial profitability namely return on

assets and return on equity of banks

Methodology and variables:

Out of 220 listed companies in Nepal Stock

Exchange (NEPSE) the sample of the study

considers five ‘A’ class commercial banks

The study has used Ms Excel for the calculation

of regression analysis, correlation coefficient and

descriptive statistics

Used5 banks and 5-year data each making total

observations of 25

The seven selected ‘A’ class

Commercial Banks are:

BOK (Bank of Kathmandu)

DCBL (Grand Bank)

Himalayan Bank

Kumari Bank

Nabil Bank

:

Data analysis (Finding):

Descriptive statistics

The mean value of liquidity risk is 0.0193 these ratios

show the ability of the firm to converts its total assets

into cash.

The mean value of ROE is 0.2105, which shows the

ability of the firm to utilize its money.

The CD ratio of banks is 0.7792, which show out of

the total deposit how much amount distributed as loan

to its customer.

The standard error of banks in case of liquidity risk,

size of the firm, return on equity, and CD ratio is

0.0018, 0.0324, 0.0171 and 0.1753 respectively,

which is the estimation of that standard deviation,

derived from a particular sample used to compute.

The deviation Minimum and Maximum value is higher

for size of the firm in compare to another variable.

Cont… Mean of size of the firm is 23.3712. This has been

quite seen in the banks that the assets size of thebanks is quite huge so the logarithm has been used toreduce the big figures to 10 powers. Such assets thatbanks holds are large which may include cash,debtors, loans physical assets or even investments.

ROE of the overall banking sector is at 21.05%, whichis an ideal position for banks. This means that 21.05%of Share Holder Equity are actually equal to the Netincomes of Banks.

CD ratio has an average of 77.92%. This is again acomfortable position, as the ideal place is 75-80%.The CD ratio of banks shows the relationship betweenthe loans and the deposits. It states what proportionof the deposits made as loans.

Return on Equity:

0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 0.3000

BOK

DCBL

HBL

KUMARI

Return on Equity

Return on Equity

Liquidity Risk:

0.0000 0.0050 0.0100 0.0150 0.0200 0.0250 0.0300

BOK

DCBL

HBL

KUMARI

Liquidity Risk

Liuidity Risk

Size of the Firm:

21.0000 21.5000 22.0000 22.5000 23.0000 23.5000 24.0000 24.5000

BOK

DCBL

HBL

KUMARI

Size of the firm

Size of the firm

CD ratio:

0.000% 20.000% 40.000% 60.000% 80.000% 100.000% 120.000%

BOK

DCBL

HBL

KUMARI

NABIL

CD ratio

CD ratio

Non-performing loan

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

BOK

DCBL

HBL

KUMARI

NABIL

NPL

NPL

Profitability:

BOK DCBL HBL KUMARI NABIL

Earning Per Share(EPS) 44.67011654 10.90386497 52.98064428 19.2031357 110.95881

Dividend Per Share(DPS) 15.0198777 2.835700771 16.45980204 2.003613521 66.075158

Return on Assets (ROA) 1.968% 1.327% 1.501% 1.294% 2.485%

Return on Equity(ROE) 24.721% 9.181% 22.173% 14.243% 31.882%

Cont…

0.000% 5.000% 10.000% 15.000% 20.000% 25.000% 30.000% 35.000%

BOK

DCBL

HBL

KUMARI

NABIL

Return on Equity(ROE)

Return on Assets (ROA)

Correlation coefficient:

ROE and liquidity risk share a small share of

relationship and not significant.

They share a positive relationship, which means

that rise in ROE would lead to a rise in cash/total

assets and vice versa

The size of the firm and the ROE share a high

positive significant relationship as ROE and Size

of firms are quite very much related.

A significant negative relationship being

established between ROE and CD ratio.

Therefore, when the ROE is high CD ratio is low.

Cont..

The liquidity risks to the size of the firms share a

low significance positive relationship at o.293

There is not much relationship shown between

the Liquidity risks and size of firms.

Kumari Bank being one of the smallest banks has

a very good liquidity position.

Regression analysis:

liquidity risk = dependent variables and ROE, size

of firms,CD ratio are independent variables.

Multiple R = 0.5010

R Square = 0.2510

Adjusted R Square = 0.1439

Standard Error = 0.0082

Observations = 25

Cont.. The regression analysis done where ROE considered

as the dependent variables and liquidity risk, size, CD

ratio as independent variables.

The overall change in liquidity risks explained by

independent variables would cause 25.1% of change

in the dependent variable Liquidity risks

The standard error of the Liquidity risk is a low at

0.0082, which means other factors have about 0.82%

effect on liquidity risks

The coefficient of Size is 0.0094, which means a unit

change in size would result to 0.0094 units of positive

change in liquidity risks.

Regression analysis:

ROE (dependent variables) and other independent

variables are Liquidity risks, SIZE, Leverage.

Multiple R = 0.7593

R Square = 0.5765

Adjusted R Square = 0.5160

Standard Error = 0.0595

Observations = 25

Cont..

The regression analysis done where liquidity risk

considered as the dependent variables and ROE,

size, CD ratio as independent variables.

The overall change in liquidity risks explained by

independent variables would cause 57.65% of

change in the dependent variable Liquidity risks

The standard error of the Liquidity risk is a low at

0.0595, which means other factors have about

5.95% effect on liquidity risks.

Major Findings: While comparing banks DCBL banks seems to have

the highest risks in terms of liquidity, leverage and

least assets as well.

BOK, Himalayan Bank, Nabil Bank is really

performing well.

Current ratios of the banks are more than required

CD ratio of all the banks average around 70 to 80%,

which is an ideal position to be at.

Liquidity position of Kumari Bank found to be the

safest.

Nabil Bank is the best bank and has high ROE in

comparison to other banks.

Kumari bank is liquid, and it can convert its assets

quickly into cash.

Cont.. Kumari bank to be the best bank in compare to CD

ratio as it in between 80-85% DCBL bank's CD ratio isalmost100% which implies the that all the depositscollected are sanctioned as loan.

Himalayan bank is the largest bank of all amongthose seven banks, where as DCBL which is relativelynew among all and is the smallest bank in terms ofsize.

Nabil Bank has the highest EPS at Rs.110.95 andother banks such as BOK and Himalayan banksshare a high EPS at the same time as DCBL has thelowest and it is the same with kumara Bank.

In case of DPS Nabil Bank has given the highestdividends and kumara having paid the lowest and it’sthe same with DCBL bank as well.

Cont.. The ROA of Kumari is the least. This could be

because of fewer earnings or because of huge assets

in comparison to earnings.

The current assets of all the banks is more than

required at high double digits but Nabil bank has the

lowest at around 4 %.Such high CR would mean high

CA over CL and lesser profits but high liquidity.

Liquid assets/total deposits all banks are at around

10%, which is good for the banks.

Nabil bank has a PE ratio of 0.8120, which means

that it holds a good position in terms of stocks

performance. Such happens because of good profits

and dividends.

Conclusion:

Looking at the profitability ratios Nabil bank

seems to be best because it has highest ROE

and ROA.

In an average, both ROA and ROE of Nabil bank

is higher than other banks. This shows that on

average, in overall profitability analysis, Nabil

bank is doing better than other is and is best.

As per the above liquidity, risk analysis one can

conclude that Kumari bank is liquid and it can

converts its assets quickly into cash followed by

Bank of Kathmandu.

Cont.. DCBL bank and Himalayan bank has lowest cash

to total asset ratio, which means that it is leastliquid than other banks. In terms of size of totalassets Himalayan bank is the largest bank of allamong the five banks followed by Nabil Bank.DCBL, which is relatively new among all, is thesmallest bank in terms of size.

The average CD ratio of DCBL bank is highestamong all and that of Himalayan bank ltd is thelowest. Therefore, we can conclude that DCBLBank was the most risky of all the banks.

DCBL bank seems to have the highest risky interms of liquidity, leverage and least assets aswell.

Thank you