PROFITABILITY ANALYSIS OF NEPAL BANK

LIMITED

Title Page

A proposal

Submitted By:
Umesh Pariyar
T.U. Reg. No 7-2-754-135-2020
Newton International College
Narayantar, Kathmandu

Submitted to:
The Faculty of Management
Tribhuvan University
Kathmandu

In Partial fulfillment of the Requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)
Kathmandu, Nepal
2025

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 Table of Contents
Table of Contents...........................................................................................................ii
CHAPTER I:INTRODUCTION....................................................................................1
1.1 Background of the Study......................................................................................1
1.2 profile of Organization.........................................................................................1
1.3 Statement of the problem......................................................................................2
1.4 Objective of the study...........................................................................................3
1.5 Organization of the study.....................................................................................4
1.6 Rational of The Study...........................................................................................4
1.7 Limitations of the study........................................................................................4
1.8 Rewiew of Literature............................................................................................5
1.9 Research methodology.........................................................................................6
BIBLIOGRAPHY..........................................................................................................7

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 ABBREVIATIONS

ATM = Automatic Teller Machine

EPS = Earnings Per Share
FYE = Fiscal Year End
i.e = That is
Ltd = Limited
NOI = Non-Operating Income
NBL = Nepal Rastra Bank
PE = Probability Error
ROA = Return on Asset
ROE = Return on Equity
T.U = Tribhuwan University

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 CHAPTER I
INTRODUCTION

1.1 Background of the Study

In general terms, bank is financial institution that collects deposits from the public and
creates credit. It collects deposits from public with idle money paying certain interest and
provides credit to the needy ones for certain interest. Apart from the its basic function to
accept deposits and grant loan, banks also issue cheque, act as an intermediary for
financial transactions, provides locker services and many other services. In today's
economy, banks collect small savings from general people and lend it for various
productive purposes. Bank is a financial institution involved in credit creation that deals
in money and helps in the socio-economic growth of a nation.

Although, the basic concept is to accept deposit and create credit, various writers have
defined bank in various ways. According to Cambridge English Dictionary (2003), Bank
is "An organization where people and business can invest or borrow money, change it to
foreign money etc or a building where these services are offered." According to Crowther
(2017), "A bank collects money from those who have it to spare or who are saving it out
of their incomes and lend this money to those who require it." Thus, we can say that bank
is a financial institution that receives the idle money in from of deposit, invests and
creates credit to the public for certain interest.

1.2profile of Organization
Nepal Bank Limited (NBL), the first bank of Nepal proudly holds the glory of marking
the formal beginning of banking system in Nepal. Nepal Bank Limited was established as
FIRST bank of Nepal on Kartik 30, 1994 (November 15, 1937 A.D.) under Nepal Bank
Act 1937. The bank was established with an authorized capital of Rs.10 million, issued
capital of Rs.2.5 million and paid-up capital of Rs.0.842 million. In its earlier days, the
shares held by the government and private sector was 40 percent and 60 percent,
respectively. Today, Nepal government holds 51 percent of the total outstanding share
capital, making it the majority shareholder of the bank.

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Absence of any bank in Nepal was hampering the economic progress of the country. This
was taken into consideration by Nepal Bank Limited with key focus on overcoming such
economic hamper and difficulties of general public. This was initiated by providing
banking services to people removing their inconvenience. This objective got better and
bigger with the time. Nepal Bank Limited has so far adopted according to the
technological changes, national economic welfare, customer preferences in services,
market competition and global financial scenarios to become a leading, glorious and
highly reputed bank of Nepal.

1.3 Statement of the problem

Nepalese commercial banks have faced many difficulties over the years for a multitude of
reasons; the major cause of serious banking problems continue to be directly related to
changes that being due to many political turmoil and changes in rules and regulations.
One such example can be the global financial crisis of 2008 that is affecting the economy
of the country till date. Financial sector which has been correlated with trading and
industry was heavily affected as the investment in the productive sector kept decreasing
due to security and labor problem. Apart from that, various mergers and acquisitions are
being encouraged by NRB to foster the consolidation process so reducing the number of
banks operating and also changes in its administration are prevalent.

Banks today are under great pressure to meet the objectives of their stockholders,
employees, depositors and borrowing customers, while somehow keeping government
regulators satisfied that the bank’s policies, loans, investment are sound. An analysis of
the profitability reveals how the profit positions stand as a result of total transaction made
during the year. Such analysis is particularly interesting to suppliers of funds who can
evaluate their investment and take decision accordingly. Profit ratios are equally
beneficial to the management because these ratios reflect the efficiency of the enterprise
as a whole.

Profitability can be analyzed either on the basis of operating profit or net profit. In
operating profit, we generally exclude all non-operating items which may be income or
expenditure. On the other hand, in net profit all operating and non-operating income and
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expenditure are included. To exist in the market, commercial banks have to maintain
certain level of profit. They must make profit out of the responsibilities assigned so the
manager should take the decision very carefully to tackle with the situations. Various
factors create problem to profitability position of the commercial banks. Monetary policy
of the government, strong competition between the banks, strikes and political situation
of the country directly hampers the profitability of the bank.

The study attempts to evaluate the profitability in respect of Nepal Bank Limited (NBL).
It attempts to know the behavior from Profitability ratios, if the company is able to
generate profit or not. And this study seeks to know if the company’s ratios have been in
increasing or decreasing trend. To point of the basics the study deals with the following
issues:
i. Do profitability ratios show any behavior?
ii. Whether or not NBL is able to generate profit?
iii. Do profitability ratios vary widely from year to year in books of NBL?
iv. Do the ratios have increasing or decreasing trend?

1.4 Objective of the study

This study aims to identify key factors influencing the bank's profitability, such as
income generation, expense management, asset utilization, and capital efficiency. By
analyzing financial statements, ratios, and other performance indicators, the study seeks
to assess the bank's overall financial health and provide insights into its operational
efficiency. Furthermore, the study intends to highlight potential areas for improvement,
guide strategic decision-making, and contribute to the development of effective financial
practices for sustainable growth in the competitive banking sector of Nepal.To examine
overall financial performance condition of the bank. for the completion of Bachelor of
Business Studies (BBS) which includes the following:
 To examine the relationship of profitability with its determinants.
 To examine overall financial performance condition of the bank
 To analyze the trend of profitability of selected commercial bank.

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1.5 Organization of the study
The significance of conducting a profitability analysis of Nepal Bank Limited lies in its
potential to offer valuable insights for both the bank itself and stakeholders. By closely
examining the bank's financial performance, this study can identify strengths and
weaknesses in its operations, guiding strategic decision-making for enhancing
profitability. Moreover, it can provide benchmarks for comparison with industry
standards and competitors, aiding in the formulation of competitive strategies.
Additionally, findings from this analysis can inform policymakers and regulators about
the overall health of the banking sector in Nepal, contributing to efforts aimed at
fostering financial stability and sustainable economic growth. Ultimately, the study's
outcomes can serve as a foundation for improving the efficiency and effectiveness of
Nepal Bank Limited's operations, thus fostering its long-term success and contributing to
the broader financial ecosystem of the country.

1.6Rational of The Study

The rationale of the study on the profitability analysis of Nepal Bank Limited lies in its
significance for understanding the bank's financial performance and its role in the
banking sector of Nepal. As one of the oldest and most prominent financial institutions in
the country, Nepal Bank Limited's profitability directly reflects its operational efficiency,
strategic management, and market competitiveness. This study is essential for identifying
the factors contributing to or hindering its profitability, thereby providing valuable
insights for stakeholders, including management, investors, regulators, and policymakers.
Additionally, the study can help assess the bank's ability to adapt to changing economic
conditions, meet customer expectations, and maintain financial stability. By uncovering
trends and patterns in profitability, the study aims to support informed decision-making
and contribute to the overall growth and sustainability of the banking sector in Nepal.

1.7 Limitations of the study

Given the study's emphasis on meeting the requirements for the BBS course at T.U., it is
essential to acknowledge the limitations that may arise due to the reliability of different
statistical methodologies and the researchers' limited experience in conducting such
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investigations. Furthermore, the study must proceed despite the constraints posed by time
and resource limitations.
 The study covers five year period from the fiscal year 2076/77 to 2080/81.
 Focus only on profitability part i.e. ROA and ROE.
 The study only covered one commercial bank i.e. Nepal Bank Limited.
 In this study NRB is taken as an authentic source of data.
 Study limit on banking sector only.

1.8 Rewiew of Literature

A literature review in the research field is a critical analysis and synthesis of existing
literature relevant to a particular topic or research question. It involves identifying,
evaluating, and synthesizing scholarly sources such as books, journal articles, and
conference proceedings to provide a comprehensive understanding of the topic under
investigation. Literature reviews serve as the foundation for a research study by situating
it within the context of existing knowledge and identifying gaps that the study aims to
address.

It is a way to discover what other research in the area of the research topic has uncovered.
It helps the researcher to develop a thorough understanding and insight into previous
research works that relates to the study. It is also a way to avoid investigating problems
that have already been definitely answered. The purposes of Literature Review are listed
below:
 To avoid needless duplication of work.
 To explain historical background of a topic.
 To describe and compare the schools of thought on an issue.
 To highlight and critique research methods.
 To note areas of disagreement.
Conceptual review
Profitability analysis is a financial evaluation process aimed at assessing the ability of a
business or investment to generate profits over a specific period. It involves analyzing
various financial metrics, including revenue, costs, margins, and return on investment

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(ROI), to determine the efficiency and effectiveness of an organization's operations. The
concept revolves around identifying the sources of profitability, understanding the factors
influencing profitability fluctuations, and making strategic decisions to optimize
profitability. Through comparative analysis, trend analysis, and benchmarking against
industry standards, profitability analysis provides insights that enable businesses to
enhance performance, allocate resources effectively, and maximize returns for
stakeholders.
Profitability analysis can be done using various financial ratios. And such various
financial ratios can be calculated through accounting data contained from financial
statements. The ratios can be categorized into four groups, which are as follows:

a) Liquidity ratio
b) Leverage ratio
c) Activity ratio
d) Profitability ratio

1.9 Research methodology

The research process involves a set of well-planned activities that include collecting data
and determining the sources used to obtain that data. This process, known as research
methodology, includes analyzing and interpreting the data to find a solution to a problem
or answer a question. Research is undertaken to contribute to the general body of
knowledge in a particular area of interest to the researcher, not just to solve problems in a
work setting.
(Michael, 2000) defines research as a systematic and in-depth study or search for a
particular topic or subject backed by the collection, presentation, and interpretation of
relevant data.
Some of the important ratios for evaluating the company’s profitability are:
a) Return on Assets
b) Return on Equity
c) Price to Earnings Ratio
d) Dividend Payout Ratio

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 BIBLIOGRAPHY

Abreu, M. and Mendes, V. (2002), Commercial bank interest margins and profitability:

Evidence from EU countries. Porto Working paper series.

Adhikari, K. (2020). Impact of liquidity on profitability in nepalese commercial bank.

journal of management , 3 (1), 52-62.

Alarussi, A. S., & Alhaderi, S. M. (2018). Factors affecting profitability in Malaysia.

Journal of Economic Studies , 45 (3), 442-458.

Almazari, A. A. (2014). Impact of internal factors on bank profitability. Journal of

Finance and Banking , 4 (1), 125-140.

Ameur, I. G. Ben, & Mhiri, S. M. (2013). Explanatory Factors of Bank Performance

Evidence from Tunisia. International Journal of Economics, Finance and

Management, 2(1).

Bhatt, M. P. (2022). Profitability analysis of commercial banks in Nepal (Doctoral

dissertation, Department of Management).

Bhattarai, Y. R. (2017). Effect of non-performing loan on the profitability of

commerccial banks in nepal. Prestige international journal of management and

research , 10.

Davydenko, A. (2010), Determinants of bank profitability in Ukraine. Undergraduate

Economic Review,Vol. 7( 1).

Demirgüç-Kunt, A., & Huizinga, H. (2000). Financial Structure and Bank Profitability.

International Journal of Cooperative Information Systems.

https://doi.org/10.1596/1813-9450-2430

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Gul, S., Irshad, F., & Zaman, K. (2011). Factors Affecting Bank Profitability in Pakistan.

Romanian Economic Journal, 3(2).