A STUDY

ON

LIQUIDITY ANALYSIS OF

NIC ASIA BANK LIMITED

A Project Work Report

Submitted By:
Manish Bhandari
Exam Roll No.:9200071
T.U. Regd. No: 7-2-920-65-2016
Group: Account
Danfe College
Putalisadak, Kathmandu.

Submitted To:
Office of Controller of Examination
Faculty of Management
Tribhuvan University

In the partial fulfillment of the requirement for the degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu, Nepal
January, 2021

1
 DECLARATION

I hereby declare that the project work entitled “A STUDY ON LIQUIDITY

ANALYSIS OF NIC ASIA BANK LIMITED” submitted to the faculty of
management, Tribhuvan University, Kathmandu. This is original piece of work done
under the supervision of Mr. GANESH KHADKA, Research Professor, DANFE
COLLEGE and is submitted in partial fulfillment of the requirement for the award of
the degree of Bachelor of Business Studies (BBS). This project has not been
submitted to any other university or institution for the award of any degree or
diploma.

………………………

Manish Bhandari

T.U. Regd. No.: 7-2-920-65-2016

2
 SUPERVISOR’S RECOMMENDATION

The project work report entitled “A STUDY ON LIQUIDITY ANALYSIS OF

NIC ASIABANKLIMITED” submitted by Manish Bhandari of DANFE
COLLEGE, KATHMANDU, is prepared under my supervision as per the
procedure and format requirements laid by the Faculty of Management,
Tribhuvan University, as partial fulfillment of the requirements of the degree of
Bachelor in Business Studies (BBS). I, therefore, recommend the project work
report for evaluation.

Mr. Ganesh Khadka

Supervisor

Signature:

Date:

3
 ENDORSEMENT

We hereby endorse the project work report entitled “A STUDY ON LIQUIDITY

ANALYSIS OF NIC ASIA BANK LIMITED”submitted by ManishBhandari of
DANFE COLLEGE, KATHMANDU, in partial fulfillment of the requirements
for the degree of Bachelor in Business Studies (BBS) for external evaluation.

Signature: Signature:

Name of chairman: Name of principal: Mr. RidipKhanal

Chairman,ResearchCommitee Campus chief/Principal

Date: Date:

4
 ACKNOWLEDGEMENTS

This project is entitled “A STUDY ON LIQUIDITY ANALYSIS OF NIC ASIA

BANK LIMITED” is a partial fulfillment of the requirement for the degree of
Bachelor in Business Studies.

Firstly, I would like to express my gratitude to Tribhuvan University for providing me

chance to have a practical knowledge of project by performing the field work
assessment report. This report would never be accomplished without the support of
bank manager and staffs, for providing necessary primary data. I am equally grateful
to my respected teacher, Mr. GANESH KHADKA for his excellent supervision of my
work time to time.

Lastly, I would like to thanks to all the people who supported me directly and
indirectly for their constant support and inspiration from initial to putting everything
together into final print out.

Thank You
Manish Bhandari
Danfe College

5
 TABLE OF CONTENTS

Page No.

TITLE PAGE
DECLARATION................................................................................................................................................................................II

SUPERVISOR’S RECOMMENDATION.......................................................................................................................................III

ENDORSEMENT.............................................................................................................................................................................IV

ACKNOWLEDGEMENTS...............................................................................................................................................................V

TABLE OF CONTENTS..................................................................................................................................................................VI

LIST OF TABLES...........................................................................................................................................................................VII

LIST OF FIGURES........................................................................................................................................................................VIII

CHAPTER I: INTRODUCTION

1.1 BACKGROUND OF STUDY............................................................................................................................................1

1.2 PROFILE OF ORGANIZATION.......................................................................................................................................4

1.3 OBJECTIVES OF STUDY................................................................................................................................................4

1.4 RATIONAL OF STUDY....................................................................................................................................................5

1.5 STATEMENT OF PROBLEM...........................................................................................................................................6

1.6 REVIEW OF LITERATURE.............................................................................................................................................6

1.7 RESEARCH METHODOLOGY.......................................................................................................................................8

1.8 LIMITATION OF THE STUDY......................................................................................................................................11

1.9 ORGANIZATION OF THE STUDY...............................................................................................................................11

CHAPTER II: RESULTS AND ANALYSIS

2.1 DATA PRESENTATION.................................................................................................................................................13

2.2 RATIO ANALYSIS.........................................................................................................................................................13

2.3 LIQUIDITY RATIO.........................................................................................................................................................13

2.4 MAJOR FINDINGS.....................................................................................................................................................23

CHAPTER III: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

3.1 SUMMARY......................................................................................................................................................................24

3.2 CONCLUSION.................................................................................................................................................................25

3.3 RECOMMENDATIONS.............................................................................................................................................25

BIBLIOGRAPHY
APPENDICES

6
 List of Tables

Page No:

TABLE 1 CURRENT RATIO14

TABLE 2 QUICK RATIO16

TABLE 3 CASH AND BANK BALANCE TO TOTAL DEPOSIT RATIO17

TABLE 4 CASH TO CURRENT ASSETS RATIO19

TABLE 5 CASH AND BANK BALANCE TO TOTAL CURRENT LIABILITIES20

TABLE 6NET WORKING CAPITAL RATIO22

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 List of Figures

Page No:

FIGURE 1: CURRENT RATIOOF NIC ASIA BANK LTD.15

FIGURE 2: QUICK RATIOOF NIC ASIA BANK LTD.16

FIGURE 3: CASH AND BANK BALANCE TO TOTAL DEPOSIT RATIO OF NICASIA BANK
LTD18

FIGURE 4: CASH TO CURRENT ASSETS RATIO OF NIC ASIA BANK LTD19

FIGURE 5: CASH AND BANK BALANCE TO TOTAL CURRENT LIABILITIES OF NIC ASIA
BANK LTD21

FIGURE 6: NET WORKING CAPITAL RATIOOF NIC ASIA BANK LTD22

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 CHAPTER - I
INTRODUCTION

1.1 Background of Study

Banks are important to the financial system and they are inherently fragile if they do
not have sufficient safety margins. Capital is possibly the most important safety
buffer, since it provides the resources to recover from substantial losses of any nature
and also gives those dealing with the bank confidence in its safety.

1.1.1 Background of Banking Industry in Nepal

Nepal bank Ltd. is the first modern bank of Nepal. It is taken as the milestone of
modern banking of the country. Nepal bank marks the beginning of a new era in the
history of the modern banking in Nepal. This was established in 1937 A.D. Nepal
Bank has been inaugurated by King Tribhuvan Bir Bikram Shah Dev on 30th Kartik
1994 B.S. Nepal bank was established as a semi government bank with the authorized
capital of Rs.10 million and the paid -up capital of Rs. 892 thousand. Until mid-
1940s, only metallic coins were used as medium of exchange. So, the Nepal
Government (His Majesty Government on that time) felt the need of separate
institution or body to issue national currencies and promote financial organization in
the country.
Nepal Bank Ltd. remained the only financial institution of the country until the
foundation of Nepal Rastra Bank is 1956 A.D. Due to the absence of the central bank,
Nepal Bank has to play the role of central bank and operate the function of central
bank. Hence, the Nepal Rastra Bank Act 1955 was formulated, which was approved
by Nepal Government accordingly, the Nepal Rastra Bank was established in 1956
A.D. as the central bank of Nepal. Nepal Rastra Bank makes various guidelines for
the banking sector of the country.

1.1.2 Concept of Commercial Bank

Commercial banks are those institutions, which deals in accepting deposit of

individual and giving loans. These banks provide working capital needs of trade,

1
industry and even to agricultural sector. Moreover, commercial banks also provide
technical and administrative assistance to industries, trade and business enterprises.
Thus, as per today’s concept, the commercial banks have become one of the bases for
the measuring level of economic development of nation.

S.No. Bank Name Headquarter

1 Kumari Bank Ltd Tangal, Kathmandu
2 Agriculture Development Bank Ltd Ramshahpath, Kathmandu
3 Nabil Bank Ltd Beena Marg, Kathmandu
4 Nepal Investment Bank Ltd Durbarmarg, Kathmandu
5 Standard Chartered Bank Nepal Ltd Nayabaneshwor, Kathmandu
6 Himalayan Bank Ltd Kamaladi, Kathmandu
7 Nepal SBI Bank Ltd Kesharmahal, Kathmandu
8 Nepal Bangaladesh Bank Ltd Kamaladi, Kathmandu
9 Everest Bank Ltd Lazimpat, Kathmandu
10 Nepal Bank Ltd Dharmapath,Kathmandu
11 Laxmi Bank Ltd Hattisar, Kathmandu
12 Citizens Bank International Ltd Narayanhitipath, Kathmandu
13 Prime Commercial Bank Ltd Kamalpokhari, Kathmandu
14 Sunrise Bank Ltd Gairidhara, Kathmandu
15 Century Commercial Bank Ltd Putalisadak, Kathmandu
16 Sanima Bank Ltd Nagpokhari, Kathmandu
17 Machhapuchhre Bank Ltd Lazimpat, Kathmandu
18 NIC Asia Bank Ltd Thapathali, Kathmandu
19 Global IME Bank Ltd Kamaladi, Kathmandu
20 NMB Bank Ltd Babarmahal, Kathmandu
21 Siddhartha Bank Ltd Hattisar, Kathmandu
22 Bank of Kathmandu Ltd Kamaladi, Kathmandu
23 Civil Bank Ltd Sundhara, Kathmandu
24 Nepal Credit and Commerce Bank Ltd Bagbazar, Kathmandu
25 Rastriya Banijya Bank Singhadurbarplaza,Kathmandu
26 Prabhu Bank Ltd Babarmahal, Kathmandu
27 Mega Bank Nepal Ltd Kamaladi, Kathmandu

2
1.1.3 Concept of Liquidity

Liquidity position is a very important dimension of any commercial banks. Liquidity

is ability of a company to pay back its debts in the short term.  Liquid assets are those
that can be converted to cash quickly if needed to meet financial obligations;
examples of liquid assets generally include cash, central bank reserves, and
government debt.
Generally, liquidity means conversion of assets in to cash during normal courses of
business and to have regular uninterrupted flow of cash to meet outside current
liability (Generally maturing within a year) as and when due and payable and also the
ensure money for day-to-day business operations. Hence the flow of current should
circulate with such a rapid speed that they are converted in to cash within a year so
that timely payment may be made to outsiders for interest dividend etc. if a major part
of current assets is blocked in inventories and credit sales, not only ready cash will be
available to pay current dept but there is a risk shrinkage in the total current assets
available because of possible fall in the value of inventories or possible losses an
account of bad depts. The quality of current assets is therefore very important for
analyzing liquidity. To know the liquidity position working capital analysis must be
done. The term" liquidity" refers to the ability of a firm to meet its maturing
obligations. The failure of a company to meet its obligations results in bad credit
rating and leads to closure of the company. A major precondition for the very survival
is an avoidance of serious resource constraints.
Thus, the importance of liquidity to meet debt obligations when they become due can
hardly be over emphasized. To ensure increased liquidity, a manager will be in favor
of maintaining a high level of current assets. But a very high degree of liquidity is not
warranted, as funds will be unnecessarily locked up in current assets involving idle
capital Cost which will hamper the profitability. Hence a sound financial management
policy seeks to maintain adequate liquidity without impairing profitability. Effective
management of liquidity would result in higher profit accrual, especially, if the
effectiveness were due to lowering of receivable accounts and inventories. Of course,
there are examples of companies who have witnessed a decline in profits despite
effective management of liquidity. But then the rate of decline in profit probably
would have been higher if not countered by effective liquidity management.

3
1.2 Profile of Organization

NIC ASIA Bank has its antecedents in NIC Bank which was established on 21st July
1998.The Bank was rechristened as NIC ASIA Bank after the merger of NIC Bank
with Bank of Asia Nepal on 30th June 2013. This was a historic merger in the annals
of Nepalese financial landscape as the first of its kind merger between two successful
commercial banks in the country.

During the post-merger integration phase, NIC ASIA managed the transition very
smoothly receiving accolades from the regulators as well as the stakeholders, paving
the way for other mergers and consolidation in the Nepalese financial sector. After the
merger, NIC ASIA was recognized as “Bank of the Year 2013-Nepal” by The Banker,
Financial Times, UK. This is the second time that the Bank was recognized with this
prestigious award, the previous occasion being in 2007.

NIC ASIA Bank is now, one of the largest private sector commercial banks in the
country in terms of capital base, balance-sheet size, number of branches, ATM
network and customer base. The Bank has 317 branches, 95 extension counters, 44
branches less banking and 405 ATMs across Nepal with a network covering all major
financial centers of the country. The Bank strongly believes in Meritocracy,
Transparency, Professionalism, Team spirit and Service Excellence. These core
values are internalized by all functions within the Bank and are reflected in all actions
the Bank takes during the course of its business.

1.3 Objectives of Study

The main objective of this study is to make the comparative study of the liquidity and
profitability analysis of NIC Asia Bank. Liquidity ratios are important to investors
and creditors to determine if a company can cover their short-term obligations, and to
what degree. A ratio of 1 is better than a ratio of less than 1, but it isn’t ideal.Creditors
and investors like to see higher liquidity ratio. The higher the ratio is, the more likely
a company is able to pay its short-term bills. A ratio of less than 1 means the company
faces a negative working capital and can be experiencing a liquidity crisis. Creditors
analyze liquidity ratios when deciding whether or not they should extend credit to a

4
company. They want to be sure that the company they lend to has the ability to pay
them back. Any hint of financial instability may disqualify a company from obtaining
loans. Low liquidity ratios raise a red flag, but “the higher, the better” is only true to a
certain extent. At some point, investors will question why a company’s liquidity ratios
are so high. Yes, a company with a liquidity ratio of 8.5 will be able to confidently
pay its short-term bills, but investors may deem such a ratio excessive. An abnormally
high ratio means the company holds a large amount of liquid assets.

The other specific objectives are as follows.

 To analyze the liquidity positionof NIC Asia Bank Limited.

 To examine trend of liquidity position of NIC Asia Bank Limited.
 To evaluate the strength and weakness of bank and market position in terms of
liquidity.
 The research is done for the partial fulfillment of the requirement for the degree of
Bachelor of Business Studies (BBS).

1.4 Rational of Study

It is entirely possible for the economic value of a bank’s assets to be more than
sufficient to cover all of its claims and yet for that bank to go bust because its assets
are not liquid and its liabilities have short-term maturities.
The main purpose of the study is to find out the liquidity position of NIC Asia Bank
Limited and the effect on the performance of bank due to the fluctuation in the money
supply in the market.
 This study will provide information to those who are planning to invest in NIC
Asia Bank Limited.
 Important to the management bodies of the bank for the evaluation of
performance of bank.
 Important to the government bodies or the policy makers such as the central
bank.
 The study will help general public to know about the overall financial position
of NIC Asia Bank Limited.

5
1.5 Statement of Problem
Currently, there are 27 commercial banks in Nepal. Optimum liquidity in the banks
and financial institution is important for the proper functioning of the economy as
well. In mid-2019, the banking sector suffered liquidity crunch. As a result, the
commercial banks didn’t have enough loanable amounts at their disposal. To avoid
such circumstances, it is necessary to monitor the liquidity status of the banks and
factors affecting it. Poor liquidity or minimum level of liquidity results in losing
depositors’ trust, and the banks’ status may be spoiled which can also attract high
penalties from the regulators. Therefore, it is of utmost important for banks to
maintain adequate liquidity levels. Thus, this study is mainly focused on following
problems, especially related to the liquidity of NIC Asia Bank Ltd.

 What is the liquidity ratio of NIC Asia Bank Ltd?

 What are the regulatory requirements relating to liquidity of the banks and their
compliance by NIC Asia Bank Ltd?
 What are the factors affecting liquidity of NIC Asia Bank Ltd?
 What is the credit to core capital and deposit ratio of NIC Asia Bank Ltd.?

1.6 Review of Literature

Review of literature means reviewing research studies or other relevant proposition in
the related area of the study so that all the past and previous studies, their conclusion
and perspective of deficiency may be known and further researcher can be conducted
or done. It helps to find out already discovered things. Review of relevant literature
implies putting new spectacle in old eyes to think in new way by posting the problem
with new data and information to see that what results are derived.
For review study, the researcher uses different books and journal, reviews and
abstracts, indexes, reports, and dissertation or research studies published by various
institutions, encyclopedia etc.
We study the review of literature dividing into three headings:
 Conceptual Review
 EmpiricalReview

1.6.1 Conceptual Review

6
A commercial bank receives deposit in different accounts namely current, fixed and
saving. These are the direct deposits. When a bank receives cash, it grants a right to
the depositors to withdraw it whenever they like. This is the reason why banks need to
ensure that they have sufficient liquidity to be able to provide to the depositors at any
time. Nepal Rastra Bank – the central bank of Nepal has also enforced regulation in
this regard in the form of SLR (Statutory liquidity ratio), Cash reserve ratio (CRR),
Credit to core capital and deposit ratio (CCD). Central banks over the world makes
banks maintain the certain level of liquidity to total deposit liabilities in the form of
the cash and bank balance, treasury bills government securities and bonds. This ratio
of liquidity required and total deposit liabilities, is called the statutory liquidity ratio.
Central banks over the world makes banks maintain the certain level of liquidity to
total deposit liabilities in the form of the cash and bank balance. This ratio is known
as the cash reserve ratio or primary reserve.
Liquidity though not a new phenomenon in finance literature has no universally
accepted definition. Adler (2012) asserts that the lack of agreed-upon definition
emanates from the fact that the concept of liquidity arises from different economic
perspectives. Liquidity can be defined in the context of how easy a security can be
traded and in the context of how easy one can obtain funding to trade a security, the
former being called market liquidity and the latter being funding liquidity.
In the study by Azam and Siddiqui (2011) the main determinants of performance of
financial institutions considered were capital adequacy, credit risk, liquidity, deposit
growth, Gross Domestic Product (GDP), and inflation.
Bhunia and Khan (2011), Liquidity management becomes a very important part in
financial management decisions, where the liquidity management efficiency could be
achieved by firms that manage a trade-off between liquidity and profitability.
Brunnermeier, Krishnamurthy, and Gorton (2013) notes that it’s not the level of
gearing that is important, but rather the proportion of debt that is comprised of short-
term demandable deposits. Brunnermeier et al. (2013) argue that if banks hold illiquid
assets that are financed by short-term debt in periods when banks run behaviour
emerges, this may result in increased systemic risk.
Tobin (1958) advocated that liquidity is held for transaction purposes and for
investments reasons. Tobin’s proposal was a simplification of Keynes’ liquidity
preference theory. Keynes (1936) argued money is demanded for transaction,
speculative, and precaution purposes. Therefore, it can be firmly said without any

7
prejudice that liquid assets over and above mandatory requirements are held for
transaction, speculative and precautionary purpose.

1.6.2 Empirical Review

The Empirical Analysis of Liquidity starts with an overview of how liquidity is

measured and specialized issues in liquidity measurement. Next, it examines what is
known about cross-sectional and time series patterns in liquidity. Banks influence
their own liquidity through broad range of corporate decisions. The volume of
deposit, their mobilization and the lending pattern and policies of the bank affects the
liquidity of the bank. The interest spread of the bank also affects the liquidity of the
bank. There are various factors affecting the liquidity of the bank and it is important
to understand the roles of these factors in liquidity in order to bring the liquidity of the
bank to an optimum level.

Similarly, this chapter also sheds light on some of the rules and regulations prescribed
by the central bank regarding the commercial banks' liquidity requirements

This chapter is basically concerned with review of literature relevant to the topic
“Liquidity of NIC Asia Bank Limited”. Every study is very much based on past
knowledge. The previous studies cannot be ignored because they provide the
foundation to the present study. In other words, there has to be continuity in research.
This continuity in research is ensured by linking the present study with the past
studies.

1.7 Research Methodology

A well-designed research method is a must to prepare a better and qualitative report. I
have tried my optimum effort to create a proper methodology that will be applied
while preparing the report to achieve the set of objectives determined in the proposal
ahead in the Introduction chapter.

1.7.1 Research Design

A research design is the set of methods and procedures used in collecting and
analyzing measures of the variables specified in the research problem research. In

8
other words, research design is the framework for a study that helps the analysis of
data related to study topic. The research design of this study is descriptive. This study
aims on the liquidity analysis of NIC Asia Bank Limited. The study report is based
mostly on secondary information which has been collected from Economic Bulletins,
audited and unaudited annual report of NIC Asia Bank Limited.

1.7.2 Data Collection Sources

This study is mainly based on secondary data. Secondary data are data are collected
from annual report, bank’s brochures etc. Also, some data has been gathered from
Nepal Stock Exchange’s Website. Similarly, articles, journals related to the financial
performance study, previous research report etc., have also taken into account while
collecting information

1.7.3 Population and sample

The population for this study comprises all the commercial banks currently operating
in the country. All the functions of commercial banks under rules, regulations and
directives of Nepal Rastra Bank. There are 27 Commercial banks currently operating
in Nepal.Among all the commercial banks the sample is NIC Asia Bank Limited.

1.7.4 Data Collection Procedure

This research has been conducted in secondary data basis and data’s taken for the liquidity
analysis is of last five years. Data has been mostly collected from the following sources:

 Notices published in newspapers, articles.

 NRB published books, reports and bulletin
 Annual reports and statement of NIC Asia Bank Limited.
 Banks bulletin
 Webpage of NIC Asia Bank Limited.

1.7.5 Data Analysis Tools

9
The collected and observed data is tabulated after adjusting necessarily the amount of
each overhead, however for the analysis of the data two types of tools are used in this
research and:

A. Financial tools:
Financial tools are those, which are used for the analysis and interpretation of
financial data. These tools can be used to get the precise knowledge of a business,
which in turn, are fruitful in exploring the strengths and weaknesses of the financial
policies and strategies.An arithmetical relationship between two figures is called ratio.
It is the most useful and analytical tools to evaluate in respect to one variable over
another. Here, for our purpose, only the liquidity related ratios are calculated.
1) Current Ratio
2) Quick Ratio
3) Ratio of Cash and Bank Balance to Total Deposit
4) Ratio of Cash to Current Assets
5) Ratio of Cash and Bank Balance to Total Current Liabilities
6) Net Working Capital Ratio

B. Statistical tools:
Being the quantitative research, the collected data are analyzed with MS Excel.
Almost all the collected data of this research have been analyzed descriptively with
frequency and percentage and chi-square test for testing hypothesis. The information
collected through websites are transferred into quantitative data sheet and then the
necessary tabulation is done using Microsoft excel. Statistical tools provided in
Microsoft excel to make bar chart. In this way various statistical tools have been used
for statistical analysis in this project. Here, several statistical tools are used during the
analysis of data. Some of them are listed below:
 Arithmetic Mean
The average of a set of numerical values, as calculated by adding them together and
dividing by the number of terms in the set then we get arithmetic mean or average.
Arithmetic Mean ¿
Where,

∑x= Sum of all values of the variable x

10
 N= Number of Years

 Standard Deviation.

The standard deviation of a random variable, statistical population, data set,

or probability distribution is the square root of its variance. A useful property of the
standard deviation is that, unlike the variance, it is expressed in the same units as the
data. It is denoted by σ

Standard Deviation (σ) = √ ∑ ¿ ¿ ¿

 Coefficient of Variance
The coefficient of Variance(C.V), also known as relative standard deviation is
a standardized measureof dispersion of a probability distribution or frequency
distribution. It is often expressed as a percentage, and is defined as the ratio of
the standard deviation to the mean. It is donated by C.V.
σ
Coefficient of variance (C.V) =
X
Where,

σ = Standard Deviation

x = Mean

1.8 Limitation of the Study

The analysis performed and conclusion drawn regarding the Liquidity analysis of NIC
Asia Bank Ltd., there is considerable place for arguing about its accuracy and
reliability.

The limitation of this study are as follows:

 Different companies operate in different industries having different environmental

conditions such as regulations, market structures, etc. such factors are so
significant that a comparison of two companies from different industries might be
misleading.
 Financial accounting information is affected by estimates and assumptions.
Accounting standard allow different accounting policies, which impairs
comparability and hence liquidity analysis is less useful in such situations.

11
 Liquidity analysis is done from the past data. Therefore, they don't provide
complete information about future forecasting.
 The study only covers a period from the year 2071/72 to 2075/76.
 Only simple statistical tools are used to present and analyze the data.
 This report is heavily based on secondary data.
 The research is done for the partial fulfillment of the requirement for the degree of
Bachelor of Business Studies (BBS).

1.9 Organization of the Study

This study has organized into the following three chapters:

Chapter I Introduction

Chapter explains the background of the study, objective of the study, significance of
study, Review of literature, research methodology and structure of the study.

Chapter II Results and Analysis

The second chapter is concern with techniques used in analyzing the collected data
and its presentation and analysis in the descriptive and analytical manner and also
includes major findings of the study.

Chapter III Summary, Conclusion and Recommendations

This is the last chapter of the study and presents summary of the study, conclusion of
the study and needful recommendations for further improvement of the financial
performance of the selected banks and for investment decision for investors.

12
 CHAPTER- II
RESULTS AND ANALYSIS

2.1 Data Presentation

Data presentation and analysis forms a major part of the research studies which helps
in analyzing the data and interpreting them to make the relevant decisions regarding
various things and answer the research questions. Presenting the data includes the
pictorial presentation of the data by using graphs, charts, maps, and other methods.
These methods help in adding the visual aspect to data which makes it much more
comfortable and quicker to understand. Analysis of data involves financial ratio
analysis of information available.

2.2 Ratio Analysis

A financial ratio is a relative magnitude of two selected numerical values taken from an
enterprise’s financial statements. Often used in finance and accounting, there are many
standard ratios used to try to evaluate the overall financial condition of a corporation or other
organization. Financial ratios may be used by managers within a firm, by current and
potential shareholders of the firm, and by a firm’s creditors. Financial analysists use financial
ratios to compare the strengths and weaknesses in various companies. If shares of a company
are traded in a financial market, the market price of the shares is used in certain financial
ratios. Values used in calculating financial ratios are taken from the balance sheet, income
statement, statement of cash flows or (sometimes) the statement of changes in equity. There
are various types of financial ratios to make a comparative analysis of financial statement.

2.3 Liquidity Ratio

Liquidity ratios are an important class of financial metrics used to determine a debtor's ability
to pay off current debt obligations without raising external capital. Liquidity ratios measure a
company's ability to pay debt obligations and its margin of safety through the calculation of
metrics including the current ratio, quick ratio, and operating cash flow ratio.

2.3.1 Current Ratio:

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This ratio shows the relation between current assets and current liabilities. The current ratio is
calculated by dividing current assets by current liabilities. The objective of the ratio is to
measure the ability of the firm to meet its short-term obligation. Here current assets are those
assets which can be converted into cash within a short period of time or within a year. On the
other hand, current liabilities are those obligations, which must be paid within a short period.

Current Assets
Current Ratio¿
Current Liabilities

NIC Asia’s five years current ratio is shown in the table below:

Table :1Current ratio of NIC Asia Bank (Rs. in millions)

Fiscal Year Current Assets Current Liabilities Current Ratio (in times)

2071/72 42,363.58 57,248.08 0.74

2072/73 57,843.72 90,380.82 0.64

2073/74 71,303.24 73,508.49 0.97

2074/75 118,145.92 84,969.77 1.39

2075/76 149,465.68 92,262.77 1.62

Mean 1.07

S. D 0.14

C.V.% 13.23

(Source: Annual Report of NIC Asia 2071/72-2075/76)

According to above table a bar graph is plotted which shows Current Assets, Current
Liabilities and Current Ratioof NIC Asia for Five Fiscal Years.

14
 1.80

1.60

1.40

1.20
current ratio

1.00

0.80
current ratio
0.60

0.40

0.20

-
2071/72 2072/73 2073/74 2074/75 2075/76

Fiscal year

Figure 1: Current ratio of NIC Asia Bank Ltd.

Table 1 and Figure 1 show current assets, current liabilities and current ratio during
the five fiscal years.Current Ratio of the Bank was in a decreasing trend, from 0.74 during
2071/72, to 0.64 during 2072/73. After 2072/73, Current Ratio increased significantly because
of massive growth in current assets in comparison to current liabilities This indicates that,
the bank’s assets are used to the optimum level and the bank is unable to maintain the
standard level of current ratio i.e. 2:1 and the standard deviation is 0.38 and
Coefficient of Variance is 35.12%.

2.3.2 Quick ratio

Quick ratio means firm’s availability to convert its current assets quickly into cash in
order to meet its current liabilities. Quick ratio is calculated by dividing quick assets
by current liabilities.
QuickAssets
Quick Ratio=
CurrentLiabilities

Where,

Quick Assets ¿ CurrentAssets−Inventory −prepaidExpenses

15
NIC Asia’s five years quick ratio is presented below in the table:

Table: 2Quick Ratio

(Rs in millions)
FY Quick Assets Current Liabilities Quick ratio(in times)
2071/72 148,494 57,248.08 2.59
2072/73 117,378 90,380.82 1.30
2073/74 70,840 73,508.49 0.96
2074/75 57,468 84,969.77 0.68
2075/76 42,088 92,262.77 0.46
Mean 1.20
S.D 0.75
C.V 62.88
(Source: Annual Report of NIC Asia 2071/72-2075/76)

According to above table a bar graph is plotted which shows Quick Assets, Current
Liabilities and Quick Ratioof NIC Asia for Five Fiscal Years.

3.00

2.50

2.00
Quick ratio

1.50

Quick ratio
1.00

0.50

-
2071/72 2072/73 2073/74 2074/75 2075/76

Fiscal year

Figure 2: Quick ratio of NIC Asia Bank Ltd.

16
Table 2 and Figure 2 shows a comparative quick ratio analysis of the NIC Asia’s five
years data shows that in year FY 2071/72 it has higher quick ratio than in other years
and its average ratio is 1.2.It shows Quick Assets, Current Liabilities and Quick ratio
of NIC Asia for five years. The table also shows that in FY 2071/72 Quick ratio is
2.59 which is the highest and in FY 2075/76 the Quick ratio is 0.46 which is the
lowest one. And the standard deviation is 0.75 and Coefficient of Variance is 62.88%.

2.3.3 Cash and Bank Balance to Total Deposit Ratio

Cash and bank balance include cash on hand, foreign cash on hand, cheque and other
cash items, balance with domestic and abroad banks whereas the total deposits
include current deposits, saving deposits, fixed deposits, money at call and short-term
notice and other deposits.
CashandBankBalance
Cash and bank balance to total deposit ratio=
TotalDeposit

Table :3Cash and bank Balance to total Deposit Ratio (Rs in millions)
FY CBB TD CBB to TD ratio(in times)
2071/72 6,672.51 53,477.18 0.12
2072/73 7,829.45 69,488.00 0.11
2073/74 13,751.35 86,679.10 0.16
2074/75 24,307.15 139,589.61 0.17
2075/76 36,696.41 176,820.69 0.21
Mean 0.16
S.D 0.03
C.V.% 21.98
(Source: Annual Report of NIC Asia 2071/72-2075/76)

According to above table a bar graph is plotted which shows Cash and Bank Balance,
Total Deposit and their Ratios of NIC Asia for Five Fiscal years.

17
 0.25

0.20

0.15
CBB to TD

0.10 CBB to TD

0.05

-
2071/72 2072/73 2073/74 2074/75 2075/76

Fiscal Year

Figure 3: Cash and Bank Balance to Total Deposit Ratio of NIC Asia Bank Ltd.

Table 3 and Figure 3 show the Cash and Bank Balance to Total Deposit Ratio and it
shows the Ratio is fluctuating from one to another Fiscal Year. The ratio is highest on
FY 2075/76i.e.0.21 and lowest on FY 2072/73 i.e. 0.11.The Average ratio is 0.16,
Standard Deviation is 0.03 and Coefficient of Variance is18.76% as shown in the
table.

2.3.4 Cash to Current Assets Ratio

The cash to current assets ratio tells us what portion of total current assets is

constituted by the most liquid assets of the company – cash and cash equivalents and
marketable securities.

CashandbankBalance
Cash and Bank Balance to Total Current Ratio=
TotalcurrentAssets

18
Table :4Cash to Current Assets Ratio (Rs. In Millions)

Cash & Cash Cash to Current Assets Ratio (in

Fiscal Year Current Assets
Equivalents times)
2071/72 1,041.57 42,363.58 0.02
2072/73 1,168.27 57,843.72 0.02
2073/74 1,840.16 71,303.24 0.03
2074/75 8,132.49 118,145.92 0.07
2075/76 20,214.54 149,465.68 0.14
Mean 0.05
S. D 0.04
C.V % 79.84
(Source: Annual Report of NIC Asia 2071/72-2075/76)

According to above table a bar graph is plotted which shows Cash and Cash
Equivalents, Current Assets and their Ratios of NIC Asia for Five Fiscal Years.
0.16

0.14

0.12
Cash to assets ratio

0.10

0.08

0.06 Cash to Assets Ratio

0.04

0.02

-
2071/72 2072/73 2073/74 2074/75 2075/76

Fiscal Year

Figure 4: Cash and Bank Balance to Assets ratio of NIC Asia Bank Ltd.

Table 4 and Figure4shows ratio of cash and cash equivalents to current assets. And
the ratio is in decreasing trend. In 2075/76 the ratio is highest as in 0.14 and lowest is

19
on 2072/73 which is 0.02.The average ratio is 0.05, Standard Deviation is 0.04 and
Coefficient of Variance is 79.84% as shown in the table.

2.3.5 Cash and Bank Balance to Total Current Liabilities

The cash ratio is another measurement of a company's liquidity and their ability to

meet their short-term obligations. The formula for the cash ratio, like the current and
the quick ratio uses current liabilities.
CashandBankBalance
Cash and Bank Balance to Total Current Liabilities =
TotalCurre ntLiabilities

Table :5Cash and Bank Balance to Total Current Liabilities ratio (Rs. In millions)

Fiscal Year CBB Current Liabilities Ratio (in times)

2071/72 6,672.51 57,248.08 0.12

2072/73 7,829.45 90,380.82 0.09
2073/74 13,751.35 73,508.49 0.19
2074/75 24,307.15 84,969.77 0.29
2075/76 36,696.41 92,262.77 0.40
Mean 0.21
S.D 0.11
C.V. 53.24
(Source: Annual Report of NIC Asia 2071/72-2075/76)

According to above table a bar graph is plotted which shows Cash and Bank Balance,
current Liabilities and their Ratios of NIC Asia for Five Fiscal Years.

20
 0.45

0.40

0.35

0.30
CBB to CL ratio

0.25

0.20
CBB to CL
0.15

0.10

0.05

-
2071/72 2072/73 2073/74 2074/75 2075/76

Fiscal Year

Figure 5: Cash and Bank Balance to Current liabilities of NIC Asia Bank Ltd.

Table 5 and Figure 5cash and bank balance and current liabilities kept by NIC Asia
during the fiscal year from 2071/72 to 2075/76. The ratio is in fluctuating trend and
the ratio of cash and bank balance to current liabilities is highest on FY
2075/76i.e.0.40 and lowest is on FY 2072/73 i.e. 0.09. The Average ratio is 0.21,
Standard Deviation is 0.11 and Coefficient of Variance is 53.24% as shown in the
table

2.3.6 Net Working Capital Ratio

The net working capital ratio is the net amount of all elements of working capital.
It is intended to reveal whether a business has a sufficient amount of net funds
available in the short term to stay in operation.
Net working capital = Current assets −¿ Current Liabilities

Net Working Capital

Net working capital ratio =
TotalAssets

21
Table :6Net working capital ratio (Rs. In millions)
Fiscal Current Current Net Total Net working
Year Assets Liabilities working Assets capital ratio (in
capital times)
2071/72 42,363.58 57,248.08 (14,884.50) 60,519.40 (0.25)
2072/73 57,843.72 90,380.82 (32,537.09) 80,456.52 (0.40)
2073/74 71,303.24 73,508.49 (2,205.25) 99,274.04 (0.02)
2074/75 118,145.92 84,969.77 33,176.15 170,943.18 0.19
2075/76 149,465.68 92,262.77 57,202.91 217,697.05 0.26
Mean (0.04)
S.D 0.25
C.V.% (588.12)
(Source: Annual Report of NIC Asia 2071/72-2075/76)

According to above table a bar graph is plotted which shows Net working capital and
total Assets and their Ratios of NIC Asia for Five Fiscal Years.

Net working capital ratio

0.40
0.30
Net Working Capital Ratio

0.20
0.10
-
2071/72 2072/73 2073/74 2074/75 2075/76 Net working capital ratio
(0.10)
(0.20)
(0.30)
(0.40)
(0.50)

Fiscal Year

Figure 6: Net Working Capital Ratio of NIC Asia Bank Ltd.

Table 6 and Figure 6 show Current Assets, Current Liabilities, and the Net Working
Capital Ratiomaintained by NIC Asia during the fiscal year from 2071/72 to 2075/76.

22
The ratio is in fluctuating trend and the ratio was negative since 2071/72 to 2073/74
and has been positive since 2074/75. The ratio was highest on FY 2075/76i.e.0.26 and
lowest is on FY 2072/73 i.e. -0.40 as shown above and the average ratio is -0.04,
Standard Deviation is 0.25 and Coefficient of Variance is -588.12% as shown in the
table

2.4 Major Findings

Major Findings are listed below:

 Current Ratio of the Bank was in a decreasing trend, from 0.74 during
2071/72, to 0.64 during 2072/73. After 2072/73, Current Ratio increased
significantly because of massive growth in current assets in comparison to
current liabilities.
 In FY 2071/72 Quick ratio is 2.59 which is the highest and in FY 2075/76 the
Quick ratio is 0.46% which is the lowest one. And the standard deviation is
0.75% and Coefficient of Variance is 62.88%.
 The Average ratio of Cash and Bank Balance to Total Deposit Ratio of NIC
Asiais 0.16, Standard Deviation is 0.03% and Coefficient of Variance is
21.98%.The ratio is highest on FY 2075/76 i.e. 0.21 and lowest on FY
2072/73 i.e. 0.11.
 The Average ratio of Cash to Current Liabilities Ratioof NIC Asiais 0.21,
Standard Deviation is 0.11% and Coefficient of Variance is 53.24%. In
2075/76 the ratio is highest as in 0.40 and lowest is on 2072/73 which is 0.09.
 The Average ratio of Cash to Current Assets Ratioof NIC Asiais 0.05,
Standard Deviation is 0.04% and Coefficient of Variance is 79.84%.In
2075/76 the ratio is highest as in 0.14 and lowest is on 2072/73 which is 0.02.
 Average Ratio of Net Working Capital ratio of NIC Asiais -0.04, Standard
Deviation is 0.25% and Coefficient of Variance is -588.12% The ratio was
highest on FY 2075/76 i.e. 0.26 and lowest is on FY 2072/73 i.e. -0.40.

23
 CHAPTER - III
SUMMARY, CONCLUSION AND RECOMMENDSATIONS

3.1 Summary
This case study or fieldwork report is concerned with the financial performance of
NIC Asia. This is specially dealt with the financial statements like balance sheet and
profit and loss account. In this case study ratio analysis is used to evaluate the
financial position and performance of NIC Asia Bank Ltd. It expresses the
mathematical relationship between two accounting figures. It is needed for the
interpretation of financial statement. In fact, it covers many background histories of
NIC Asia Bank Ltd.Financial planning and analysis are concerned with transforming
financial data in firm that can be used to monitor the firm’s financial position
evaluating the needed for increased productivity capacity. It helps to know the
efficiency of the management.

In this case study the conceptual background relating all over the position of financial
management. Its general background, objectives, limitation, importance and research
methodology of the case study is described in first chapter. Presentation of data is
needed for analysis on financial proportion is broadly highlighted in relevant chapter
second. Ratio analysis comparative balance sheet and Profit and loss account of NIC
Asia Bank Ltd. is described in third chapter.

In Nepalese banking sector, commercial banks including ventures banks are operating
at present. In the absences of modern banking any country cannot develop the
economic activity. Therefore, it is essential to find out whether or not the banks are
serving an important contribution to develop sectors of economy. Liquidity is said to
be general business of fund, which shows the bank ability to meet cash requirement.
In this record, this study has been based upon the objective to evaluate the liquidity
position of NIC AsiaBank ltd.

24
 3.2 Conclusion
From the above analysis of the facts the following conclusions has been derived.
From the above it can be clearly said that liquidity performance of NIC Asia Bank
Ltd. satisfactory but its current ratio is slightly lower than its standard ratio. Current
assets, fixed assets and current liabilities are increased as years. Comparative analysis
of balance sheet is able to bear its liabilities. Human resources of NIC Asia Bank Ltd.
are well trained and are dedicated towards the bank. It is providing high remuneration
and other benefit to its staff

NIC Asia Bank Ltd. is equipped with latest technology; computer does most of the
banking services. Thus, the services of the bank are prompt and accurate. In the
portion of liability, its assets are increasing trend than its liabilities. From this case
study we analysis about the financial condition of NIC Asia Bank Ltd. from the year
2071/72 to 2075/76. This will help in the study of financial analysis of NIC Asia.NIC
AsiaBank Ltd.should utilize the strength, avoid the weakness, grab opportunity and
overcome the threat by facing up so that it can achieve its target and fulfill its
objectives.

3.3 Recommendations
With the help of above research, I found some weakness of the bank in the
maintaining theliquidity position. So, to overcome such weakness researcher provides
following recommendation to the management of NIC Asia Bank Limited. They are
as follows: -
 Though the current ratio of bank is in increasing trend still it is below the standardi.e.
2:1. The case is similar for other ratios of the bank.So, the bank should focus on
maintaining sufficient liquid assets to meet the current liabilities.
 Bank should have extensive policy and guidelines to maintain proper liquidity
positionand developed internal control processes and contingency plans for managing
liquidity risk.
 The bank should arrange diversified funding sources in addition to its core deposit base,
and adopted a policy of continuously managing assets with liquidity in mind and of
monitoring future cash flows and liquidity on a daily basis.

25
 The liquidity position should be assessed and managed under a variety of scenarios, giving
due consideration to stress factors relating to both the market in general and specific to the
Bank.
 The bank should manage its intraday liquidity positions and risk to meet payment and
settlement obligations on a timely basis under both normal and stressed conditions and thus
contribute to the smooth functioning of payment and settlement systems.

26
 BIBLIOGRAPHY

Adler, D. (2012). The New Field of Liquidity and Financial Frictions. Research Foundation
Literature Reviews, 7(2), 1-37

Azam, M., & Siddiqui, S. (2011). Domestic and Foreign Banks’ Profitability: Differences and
Their Determinants. International Journal of Economics and Financial Issues, 2(1),
33-40.

Bhunia, A., & Khan, I. U. (2011). Liquidity management efficiency of Indian Steel
Companies (a Case Study). Far East Journal of Psychology and Business, 3(3), 3-13.

Brunnermeier, M., Krishnamurthy, A., & Gorton, G. (2013). Liquidity mismatch

measurement. In Risk Topography: Systemic Risk and Macro Modeling. University
of Chicago Press. Europe, North America and Australia. Journal of Banking &
Finance, 13(1), pp. 65-79.

Keynes, J. M. (1936). The general theory of interest, employment and money.

Tobin, J. (1958). Liquidity preference as behavior towards risk. The review of economic
studies, 65-86

Website:

www.nicasiabank.com.np
 APPENDICES

Appendix 1:

Calculation of Mean, Standard Deviation and Coefficient of Varianceof Table 1:

(Rs. In millions)
Fiscal Year Current Assets Current Current Ratio(x) (x−x )
2

Liabilities
2071/72 42,363.58 57,248.08 0.74 0.11
2072/73 57,843.72 90,380.82 0.64 0.19
2073/74 71,303.24 73,508.49 0.97 0.01
2074/75 118,145.92 84,969.77 1.39 0.10
2075/76 149,465.68 92,262.77 1.62 0.30
N= 5 ∑x= 5.36 ∑
2
(x−x ) =0.71

∑ X 5.36
Mean (x) = = = 1.07
N 5

Standard Deviation (σ) = √ ∑ ¿ ¿ ¿ =

√ 0.71
5
= 0.38

σ 0.14
Coefficient of variation (C.V) = = =35.12%
x 1.07
Appendix 2:

Calculation of Mean, Standard Deviation and Coefficient of Variance of Table 2:

(Rs. In millions)
FY Quick Assets Current Quick rato (x) (x−x )
2

Liabilities
2071/72 148,494 57,248.08 2.59 1.95
2072/73 117,378 90,380.82 1.30 0.01
2073/74 70,840 73,508.49 0.96 0.05
2074/75 57,468 84,969.77 0.68 0.27
2075/76 42,088 92,262.77 0.46 0.55
N= 5 ∑x= 5.99 2
∑( x−x) =2.84

∑ X 5.99
Mean (x) = = = 1.2
N 5

Standard Deviation (σ) = √ ∑ ¿ ¿ ¿=

√ 2.84
5
= 0.75

σ 1.65
Coefficient of variation (C.V) = = = 62.88%
x 1.2
Appendix 3:

Calculation of Mean, Standard Deviation and Coefficient of Variance of Table 3:

(Rs. In millions)
2
FY CBB TD CBB to TD ratio(x) (x−x )
2071/72 6,672.51 53,477.18 0.12 0.0009
2072/73 7,829.45 69,488.00 0.11 0.0018
2073/74 13,751.35 86,679.10 0.16 0.0000
2074/75 24,307.15 139,589.61 0.17 0.0003
2075/76 36,696.41 176,820.69 0.21 0.0027
N= 5 ∑x=0.78 ∑( x−x)2=0.0058
∑ X 0.78
Mean (x) = = = 0.16
N 5

Standard Deviation (σ) == √ ∑ ¿ ¿ ¿=

√ 0.0058
5
= 0.03

σ 5.23
Coefficient of variation (C.V) = = = 18.76%
x 27.87
Appendix 4:

Calculation of Mean, Standard Deviation and Coefficient of Variance of Table 4:

(Rs. In millions)
Fiscal Year Cash & Cash Current Assets Ratio (x) (x−x )2
Equivalents
2071/72 1,041.57 42,363.58 0.02 0.0009
2072/73 1,168.27 57,843.72 0.02 0.0012
2073/74 1,840.16 71,303.24 0.03 0.0008
2074/75 8,132.49 118,145.92 0.07 0.0002
2075/76 20,214.54 149,465.68 0.14 0.0064
N=5 ∑x=0.27 2
∑( x−x) =0.0096
∑ X 0.27
Mean (x) = = = 0.05
N 5

Standard Deviation (σ) = = √ ∑ ¿ ¿ ¿=

√ 0.0096
5
= 0.04

σ 0.04
Coefficient of variation (C.V) = = = 79.85%
x 0.05
Appendix 5:

Calculation of Mean, Standard Deviation and Coefficient of Variance of Table 5:

(Rs. In millions)
Fiscal Year CBB Current Liabilities Ratio(x) ( x−x )2
2071/72 6,672.51 57,248.08 0.12 0.01
2072/73 7,829.45 90,380.82 0.09 0.02
2073/74 13,751.35 73,508.49 0.19 0.00
2074/75 24,307.15 84,969.77 0.29 0.01
2075/76 36,696.41 92,262.77 0.40 0.03
N=5 ∑x=1.07 2
∑( x−x) =¿
0.07
∑ X 1.07
Mean (x) = = = 0.21
N 5

Standard Deviation (σ) = √ ∑ ¿ ¿ ¿=

√ 0.07
5
= 0.11

σ 0.11
Coefficient of variation (C.V) = = = 53.24%
x 0.21
Appendix -6

Calculation of Mean, Standard Deviation and Coefficient of Variance of Table 6:

(Rs. In millions)
Fiscal Year Net working Total Assets Net working (x−x )2
capital (Rs.) (Rs.) capital ratio% (x)

2071/72 (14,884.50) 60,519.40 (0.25) 0.04

2072/73 (32,537.09) 80,456.52 (0.40) 0.13
2073/74 (2,205.25) 99,274.04 (0.02) 0.00
2074/75 33,176.15 170,943.18 0.19 0.06
2075/76 57,202.91 217,697.05 0.26 0.09
N=5 ∑x=-0.22 2
∑( x−x) =0.32
∑ X −0.22
Mean (x) = = = -0.04
N 5

Standard Deviation (σ) = √ ∑ ¿ ¿ ¿=

√ 0.32
5
= 0.25

σ 0.25
Coefficient of variation (C.V) = = = -588.12%
x −0.04