1.

1 Background of the study

Liquidity refers to the ease with which an asset, or security, can be converted into ready
cash without affecting its market price. Cash is the most liquid of assets, while tangible
items are less liquid. The two main types of liquidity include market liquidity and
accounting liquidity. Current, quick, and cash ratios are most used to measure liquidity.
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. Assets and
investments your company owns have financial value. And liquidity indicates how
quickly you can access that money if you need to. Assets range in their liquidity.

Measuring liquidity can give you information for how your company is performing
financially right now, as well as inform future financial planning. Liquidity planning is a
coordination of expected bills coming in and invoices you expect to send out through
accounts receivable and accounts payable. The focus is finding times when you might fall
short on the cash you need to cover expected expenses and identifying ways to address
those shortfalls. With liquidity planning, you’ll also look for times when you might
expect to have additional cash that could be used for other investments or growth
opportunities. To conduct liquidity planning, you’ll perform the same current, quick and
cash ratios we cover later in this article for future scenarios to examine financial health.

The present study about liquidity analysis of NMB bank is based on secondary data were
4 year annual report, organizations brochure and some article about bank for the purpose
of understanding what is the present condition of the liquidity of NMB bank, how was it
performing and it’s SWOT analysis and the analysis of the annual report is done by
different ratios and their sensitivity to the company’s efficiency with respect to liquidity
ratio, CASA ratio , CRR, and so on. Furthermore, the main purpose of the report is to
analyze the past, present and future trend of the organizations position with respect to its
liquidity. In this report last four-year annual report is analyzed including some aspect of
ration.

1
1.2 Introduction of NMB bank
Nepal Merchant Bank Limited also termed as NMB Bank Limited was established
in 1996 as Nepal Merchant Banking and Finance Company, and became a class ‘A’
bank in May 2008. The bank has head office at Babar mahal, Kathmandu. NMB
Bank is a commercial bank founded in 1992 A.D by Zimbabweans. This bank has
been operating in the financial market for over twenty years and is one of the
leading commercial banks in the banking industry of Nepal. The bank has 180
branches (including head office), 9 extension counters and 135 ATM scattered in
different places in the country as of 2020.
In its 22 years of journey, the commercial bank has emerged to become a leading
financial institution in Nepal driven by value-based approach, banking innovation,
progressive business model and social obligations.
NMB Bank has played a crucial role in materializing the project financing of
Hongshi-Shivam Cement which is the largest project loan syndication in Nepal till
date. After becoming a commercial bank in 2008, accession to the Global Alliance
for Banking on Values (GAVB) in 2013 was another major milestone for NMB
Bank.
NMB is the only member bank from Nepal in GAVB, an independent worldwide
network of banks whose objective is to use finance to deliver sustainable economic,
social and environmental development.
In 2015 NMB Bank merged with four different financial institutions namely, Clean
Energy Development Bank, Bhrikutee Development Bank, Pathibhara Bikas Bank
Prudential Finance Company following the new paid-up capital requirement
announced by the Nepal Rastra Bank in the Monetary Policy of 2015/16. Similarly,
in 2020 KDBL also got merged with NMB Bank. So, this enabled the bank to
expand its network all over the country.
Earlier in 2010, NMB Bank diversified its activities by establishing NMB Capital
and NMB Microfinance as its subsidiaries. For its persistence, performance and
services, among other parameters for evaluation, NMB was named as “Bank of the
Year Nepal” at the prestigious “Bank of the Year-2017” awards organized by
renowned British magazine The Banker. NMB Bank also has been awarded the
prestigious "Bank of the Year-2020'', by The Banker, The Financial Times, London,
the third award in 4 years.
NMB is among the few joint venture banks operating in Nepal. It is a JV of
Neverlands FMO, a development bank with stakes of the Dutch government and
large Dutch banks. In 2015, the bank welcomed one of the largest Foreign Direct
Investments (FDIs) in the Nepali banking sector through 20 percent equity of FMO.
NMB is the first bank to bring in foreign currency loan from IFC in Nepal. It was
also awarded from Best Trade Partner Bank of IFC in 2018.

2
 Beside economic activities, NMB has been carrying out CSR activities aimed at
raising the livelihoods of people. It conducts CSR activities considering the
environmental issues. According to the CEO of NMB Bank, the bank spends at least
one percent of its total net profit on CSR activities every year. “We are working on
an integrated model village in the eastern part of Nepal. We are supporting different
other initiatives.” NMB with its tagline “Sambridha Nepal Ko Lagi”, has been
working with International Center for Integrated Mountain Development (ICIMOD)
and other similar multinational agencies in various sectors.
The composition share holder pattern is: Foreign Promoter 22.23, Employ Provident
fund- 6.86% Domestic individual and corporate promoters- 15.56 and the General
Public 55.35%. Its paid capital RS 4155 million after merged.

1.2.1 Mission of the organization

The bank desires to be one of the leading banks of the industry by fulfilling the
interest of the stakeholders and also aims to provide total customer satisfaction by
way of offering innovative products and by developing and retaining highly
motivated and committed staffs. The following mission statement is a guide to meet
the vision of the bank.

• Helping clients and customers to achieve financial security

• Strengthening and promoting sustainable socio-economic development
by working actively with local and international stakeholders
• Being responsible for bringing about positive environmental and social
impacts
• Promoting self-reliance through financial products for real economy
• Creating an innovative climate within the organization, utilizing the
skills and potential of staff.
• Delivering banking products and services to create delightful customer
experience. (NMB BANK, 2018)

1.2.2 Vision of the organization

• NMB Bank Limited runs with a vision to be financially sound,

operationally efficient and to keep abreast with technological
developments.
• Building communities through responsible banking, preferred by all
stakeholders, enabling customers and clients achieve their financial goals
thus contributing towards prosperous Nepal is also another vision.

3
1.2.3 Objective of the organization
Every organization has mission and objective. Generally, on organization
mission is based on the customer satisfaction. It describes an organization’s
present capabilities, customer focus activities, business makeup which leads
to the fulfillment of its objectives. Similarly, NMB Bank strives to provide
banking and financial solutions in a simplified way with customer focus
while adding value to stakeholder’s interests.
NMB envisages client to be put in the focal point in everything we do, be it
for sales/ service, process reengineering, risk in order to achieve enhanced
customer satisfaction and deepen of customer relationship.
The objective should not be contrary with strategic management. Strategic
management helps to analyze environment. It is the string of decision and
actions which leads to the development of an effective strategy or strategist
to help achieve organizational objectives. A game plan is needed to
accomplish according to the objectives. Successful organization
continuously adapt to changing markets place. This can change the strategic
plan the objective made. As commercial bank NMB Bank has the following
objectives.
➢ Satisfied Stakeholders
➢ Motivated Workforce
➢ Quality Assets
➢ Well Diversified Portfolio
➢ Optimum Return to Shareholders
➢ High Standards of Corporation Governance

1.2.4 BOD of Directors

S.N Name Post
1 Mr. Pawan Kumar Golyan Chairman
2 Mr. Nico PIJL Director(representative of FMO)
3 Mr. Jeevan Kumar Katwal Director
4 Mr. Yogendra Lal Pradhan Director
5 Mr. Uttam Bhlon Director
6 Mr. Sirish Kumar Murarka Director
7 Mrs. Pradeep Raj Pandey Independent Director

4
1.2.5 Organizational structure
Organization structure is a system that consists of explicit and implicit
institution rules and policies designed to outline how various work roles and
responsibilities are delegated, controlled, and coordinated. Organizational
structure also determines how information flows from level within the
company.
The board of directors is responsible for policy making and guidance to the
management. The government nominates all board members including the
chairman. An organization structure of NMB bank is outline below:

5
1.3 Statement of problem
Liquidity is the status and part of the asset can be used to meet the obligation. It can
be viewed in the balance sheet in term of liquidity available through purchased fund.
The degree of liquidity depends upon the relationship between cash asset plus those
assets which can be quickly turned into cash and liability awaiting to depositors
when they demand for administrative expenses, for maintaining cash reserve ratio in
the central bank etc. so, liquidity is defined as the bank’s capacity to pay cash in
exchange of deposits. Liquidity is crucial in the business-like banking. Because if
the bank has high liquidity, it can have desired profit and if the bank has the shortfall
of the liquidity, it cannot satisfy its customers. Inadequate liquidity may lead to
collapse of the bank while excess liquidity is determinant to bank’s profitability. In
order to remove problems associated with maintaining inadequate and excess
liquidity, bank should maintain and optimum level of liquidity. This is possible only
when bank’s liquidity is correctly predicted.

Prediction covers inflow and outflow of liquidity. If prediction shows more

outflows, bank should be prepared to cover the shortfall by borrowing or by
liquidation assets. If inflow is greater than outflows, bank should plan where to
invest that income in order to increase it. Bank attach great importance to short term
and long-term predictions. Prediction of liquidity need should be in the form of
primary and secondary reserve so that bank generates income and at the same time
does not compromise to liquidity. Banks got failure because of wrongly analyzed
liquidity position and wrongly predicted liquidity requirement and management
policy of liquidity. Thus, to gain the trust of the customers and be success on the
operation, the bank should maintain and forecast the liquidity need for the period
and optimum. So, the researcher of this study will seek the answer to the following
question.

➢ What is the liquidity ratio of bank in last five periods?

➢ What is the liquidity position of bank?
➢ what is the relationship between liquidity and bank profitability?

1.4 Objective of study

The main objective of the study is to analyze the liquidity position of NMB bank.
Based on the analyzed liquidity position the study will suggest the liquidity need and
its management for the current year. Here are some objectives of this study listed as
below:

➢ To check the liquidity position of NMB bank

➢ To analyze the financial performance
➢ To check the NMB bank’s profitability
➢ To suggest the amount of optimum level of liquidity

6
 ➢ To suggest the liquidity management policies
➢ To fulfill the partial requirement of FWU for the degree of BBA

1.5 Significance of the study

This report is prepared to analyze the liquidity position of Nepal merchant bank ltd.
This report comprises the data from 2019 to 2021. This would help the bank to
observe the trend of the liquidity position hold in those periods. Beside that this
study also evaluates the role of short-term obligation and the bank’s ability to pay
current maturity obligation. Moreover, the study will check the profitability of the
bank. This will help bank to take corrective action if there are any errors in the past
performance and the study aims to recommend correcting the division if the standard
has not been met.

1.6 Limitations of the study

This study is simply conducted for the partial fulfillment of the requirement of the
degree of BBA of Far-western university. And only the secondary data is used and
analyzed which could not disclose the actual results. And being the first endeavor,
the report can comprise some mistakes which may cause misinterpretation of the
result. Some of these limitations are listed as below:
➢ The study is totally based on secondary data.
➢ The data available in published annual reports have been assumed to be
correct and true.
➢ It is based on last six-year annual report so it can not conclude proper
information.
➢ Unavailability of some written information.
➢ Policy is changed time to time. This report does not explain any policy.

1.7 Scope and importance of the study

This study will be usable and valuable to various parties for making some policy and
strategy, to improve previous strategies as well as to make appropriate decisions.
Main beneficiary of the study is:
➢ Bank management,
➢ Researcher
➢ Lender and borrower
➢ Investors
➢ Creditors
➢ client and government.

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1.8 Organizations of the study
The whole study divided into different three chapter. They are as flows:

Chapter-I: Introduction
Chapter-II: Data analysis and presentation of the data
Chapter-III: Major findings, conclusions, and suggestion

To notice that, chapter one includes the background of the study, brief introduction
of NMB bank ltd., statement of problem, objectives of the study, significance of
study, limitation of the study, organization of the study, literature review and
research methodology (including research design, data collection, method of
analysis)

Chapter two includes data presentation and analysis using some leverage ratio, some
major finding and discussion and chapter three dealt with summary, conclusions and
recommendation i.e., suggestion etc.

Finally, this report includes references and appendix or annexes.

1.9 Literature review

Review of literature means reviewing research studies or other relevant preposition
in the related areas of the study so that all past studies, their conclusion, and
deficiencies may be known, and further research can be conducted. This part
highlights upon the literature that have already been conducted by some project
research in this topic of liquidity analysis of commercial banks. Some of them, as
are supposed to be relevant for this study purpose.

1.9.1 Conceptual framework

Many researchers have conducted different research on the field of banking
and financial institution about their liquidity management. One of the
sensitive factors in the bank is liquidity. Liquidity refers to the convertibility
of assets into cash. It means how fast the asset can be changed into cash.
There are many assets that can be converted into cash immediately and easily
by a bank.

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 Such as cash in hand, cash at bank, cash at central bank, investment in
government securities. But some assets are difficult to get converted into cash
such as loan and fixed assets.

Liquidity is also defined as the ability or position of a bank to meet current

obligation of customer such as payment of cheque, payment of demand draft,
disbursement of approved loans, etc. Bank needs to maintain some reasonable
level of liquidity to fulfill different commitments such as provide money to
depositors when the demand, for administrative expenses and so on. Liquidity
is crucial component for business like banking. Because if the bank has high
liquidity, it can earn desired profit without struggling and in contrast if the
bank has shortfall of liquidity, it cannot satisfy its customers, because of so it
got bankrupt. Inadequate liquidity may lead to the collapse of the bank while
excess liquidity is detrimental to bank’s profitability. To remove demerits
associated with maintaining adequate and excess liquidity, banks should
maintain an optimum level of liquidity. This is possible when bank’s liquidity
need is correctly predicted. Prediction covers in present outflows of liquidity.
If prediction shows more outflows, bank should be prepared to cover the
shortfall by borrowing or by liquidating assets. If flow is greater than
outflow, bank should plan where to invest so that income can be increase.
Banks attach great importance to short term and long-term predictions.
Prediction of liquidity need should be in the firm of primary and secondary
reserves so that bank generates income and at the same time does not
compromise to liquidity.

1.9.1.1 Liquidity assets

The assets that can be converted into cash immediately with or without a
normal loss of value is known as liquidity assets. Liquidity can be in the
form of treasury bills, investment in government securities, gold and
silvers, inventories, and marketable securities, etc.

9
1.9.1.2 Cash reserve ratio
Central banks the world over make other banks to maintain a 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.

1.9.1.3 Statutory liquidity ratio

Central bank orders to the banks to maintain the certain level of liquidity to
total deposit liabilities in the form of the cash and bank balance and
treasury bills and government securities and bonds. Such liquidity
requirement is called the statutory liquidity ratio.

1.9.1.4 Importance of liquidity for the bank

The liquidity is important for the bank for the motives cited as follows:
➢ Transaction motive
➢ Speculative motive
➢ Precautionary motive

1.9.1.5 Need of liquidity for the bank

a. To meet the expenses for the bank’s administrative works
b. To pay all sorts of deposit on demand
c. To repay the debts
d. To gain trust or faith
e. To provide security to the bank

1.9.1.6 Usage and source of liquidity in bank

Usages:
➢ Withdrawal of customer deposit
➢ Acceptable loan request
➢ Repayment of non-deposit borrowings
➢ Payment of dividends
➢ Expansion and growth

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 Sources:
➢ Capital issue
➢ Retained earning
➢ Borrowings
➢ Bond issues
➢ Repayment of loans
➢ Other incomes

1.9.1.7 Liquidity to be maintained with the central bank

Nepal Rastra Bank, as the central bank of Nepal, has made it mandatory for
commercial banks to maintain liquidity as under:
• Balance at Nepal Rastra Bank- 5% of total deposits
• Cash in vault- 2% of deposit liabilities

1.9.1.8 Penalty for non-compliance

Penalty will be levied for falling to maintain the adequate liquidity as
above under any of the following conditions:
• In case of shortfall in maintenance of balance with NRB but
maintenance of cash at vault more than 2%, then on such shortfall
amount.
• In the case of shortfall in maintenance of balance with NRB
maintenance of cash at vault more than 2% up to 1% excess cash of
total is added in the balance with NRB, then on such shortfall
amount (after adding up to 1% excess)
• In case of shortfall in maintenance of cash in vault as well as
shortfall in balance held with NRB, than on total shortfall amount.

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 1.9.1.9 Applicable penalty rates
1. For 1st time shortfall Equivalent to bank rate

2. For 2nd time shortfall Equivalent to 2 times of bank rate

3. For 3rd time shortfall and all Equivalent to 3 times of bank rate
subsequent shortfalls

1.9.1.10 Review form related studies

Bank needs to maintain some reasonable amount of liquidity to fulfill
different commitments. Such as provide money to depositors when they
demand for administrative expenses, for maintaining cash reserve ratio in
the central bank etc. so, liquidity define banks capacity to pay cash in
exchange of deposits. Liquidity needs of commercial banks are unique
because in no other type of business there will be such large portion of
deposits payable on demand. Inadequate liquidity does not damage credit
standing of other organization as well as but a banks fails to pay the
deposits on demands, the bank loses the faith of the public. Bank may
maintain the liquidity in the form of:
• Cash and bank balance
• Placement money at short calls or short notice
• Investment in gov. securities and other securities convertible into
cash

1.10 Research methodology

Methodology is the systematic, theoretical analysis of the methods applied to a field
of study. It comprises the theoretical analysis of the body of methods and principles
associated with a branch of knowledge. The research methodology is generally
followed to achieve basic objective of the study. Follow of research methodology is
very crucial to all type of researcher because it helps to researcher to understand
certain technique/method or procedure.

12
 Researcher not only want to have method but to develop some conclusion they
also need certain procedure of calculation ratios, and so on. Specially for this
report, appropriate research methodology is used there is no questions.

1.10.1 Research design

A research design is the arrangement conditions, for the collection and
analysis of data in a manner that aims to combined relevance to the research
purpose with economy in procedures. This study aims on the financial
analysis of the Nepal Merchant Bank Ltd. This study is only based on
secondary data which are collected from prospective annual report especially
from the NMB bank’s web sites and various other journals and from Security
Board of Nepal (SEBON) and Nepal Stock Exchange (NEPSE).

1.10.2 Data collection techniques

Generally, for the purpose of this study, secondary data source is enough. So
I collected the main annual reports of this bank directly from the web site.
And other various articles and journals from various publication and some
from the SEBON, NEPSE and previous field reports are also taken into
accounts.
1.10.3 Data Analysis Tools
Data analysis tool means tools that researcher used for present and analyzed
the data. The main tool of analysis are mathematical and statistical tools. In
this report statistical and financial ratios are used as tools for data analysis.
Mean and correlation is calculated for the analysis of data as statistical tools.

1.10.3.1 Ratios
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. These are:

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a. Liquidity ratios
Liquidity ratios are a measure of the ability of a company to pay off
its short-term liabilities. Liquidity ratios determine how quickly a
company can convert the assets and use them for meeting the dues
that arise. The higher the ratio, the easier is the ability to clear the
debts and avoid defaulting on payments. It can be calculated
through two ways:
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
i. 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠−𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
ii. 𝑄𝑢𝑖𝑐𝑘 𝑟𝑎𝑡𝑖𝑜 =
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

b. Saving deposit to total deposit ratio

This ratio measures the percentage of saving deposit out of total
deposit. This is calculating by:
𝑠𝑎𝑣𝑖𝑛𝑔 𝑑𝑒𝑝𝑜𝑠𝑖𝑡
i. SA ratio =
𝑡𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡

c. Fixed deposit to total deposit ratio

This ratio measures the percentage of fixed deposit out of total
deposit. This is calculated by:
fixed deposi
i. 𝐹𝐷 𝑟𝑎𝑡𝑖𝑜 = 𝑡𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡

d. Cash and bank balance to total deposit ratio

This ratio measures the percentage of cash and bank balance out of
total deposit. This is calculated by:
cash and bank balance
i. 𝐶𝐵 𝑟𝑎𝑡𝑖𝑜 = 𝑡𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡

14
 e. Balance to NRB to current and saving deposit ratio
This ratio measures the percentage of balance deposited in central
bank out of current and saving deposit amount. This is calculated
by:
i. 𝑁𝑅𝐵 𝑡𝑜 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑑𝑒𝑝𝑜𝑠𝑡 𝑟𝑎𝑡𝑖𝑜 =
balance deposited into NRB
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑛𝑑 𝑠𝑣𝑖𝑛𝑔 𝑑𝑒𝑝𝑠𝑖𝑡

f. Balance with NRB to fixed deposit ratio

This ratio measures the percentage of balance deposited in central
bank out of current and saving deposit amount. This is calculated
by:
balance deposited ratio
i. 𝑁𝑅𝐵 𝑡𝑜 𝑓𝑖𝑥𝑒𝑑 𝑑𝑒𝑝𝑜𝑠𝑖𝑡 𝑟𝑎𝑡𝑖𝑜 = 𝑓𝑖𝑥𝑒𝑑 𝑑𝑒𝑝𝑜𝑠𝑖𝑡 𝑟𝑎𝑡𝑖𝑜

g. Total investment to total deposit ratio

This ratio measures the percentage of total investment out total
deposited amount. This is calculated by:
total investment
𝑇𝐼𝑇𝐷 𝑟𝑎𝑡𝑖𝑜 =
𝑡𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡

h. Loan to deposit ratio

This ratio measures the percentage of total loans out of total
deposited amount. This is calculated by:
total loans
𝐿𝐷𝑅 =
𝑡𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡

1.10.3.2 Statistical tools

a. Arithmetic mean

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 CHAPTER II
DATA ANALYSIS AND PRESENTATION
This chapter deals with the analysis and interpretation of the data for the purpose of
developing the unprocessed form of data to an understandable presentation. Analyzing
the data indicates organizing, tabulating and calculating relevant financial analysis of the
data gathered from the various sources. The financial analysis is made after collecting the
raw data from the various sources. The result of the analysis has been interpreted under
the rationality of the ratio analysis, prudential requirements issued by the NMB Bank for
the commercial banks, offsite supervision manual, on-site inspection manual and other
factors regarding to the tools used.

2.1 Data presentation

Under this chapter various financial ratios related to liquidity and the fund
mobilization are studied to evaluate and analyze the performance of NMB Bank.
Those ratios that are most important from the point of liquidity analysis. And some
of them are presented and described right below:

2.1.1 Participation of all the deposit on the total deposit

Bank deposits are a common occurrence in which customers deposit funds into
their accounts. The bank must provide cash to the customer whenever funds are
withdrawn; if not withdrawn, however, banks will typically use the funds as
investments or loans to other customers until the depositor makes a withdrawal.
This process is significant regarding money supply and has several ramifications.
There is various type of deposits in the form of which an individual can deposit
money.

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Table no.2.1 participation of all deposit in bank (In billions)

Fiscal year Saving Current Fixed deposit total deposit

deposit deposit
2019/18 20.55 18.46 22.16 84.10
2018/19 28.92 18.87 21.03 98.52
2019/20 38.98 26.33 36.73 134.81
2020/21 53.94 38.81 42.30 166.45
Note: total deposit, saving deposit, current deposit, and fixed deposit for further
calculation (Source: Annual Reports of NMB)

Fig. 2.1 Growth in total deposit since last 4 year (in billion)

Total deposit
180
160
140
120
100
80
60
40
20
0
2017/18 2018/19 2019/20 2020/21

According to the table 2.1 and figure, growth of total deposit had ranged from 2017 to
2021 is 84.10, 98.52, 134.81 and 166.45 billion respectively. Every year deposit is
growing by large difference that indicate company is growing very well by each year.

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 Fig. 2.2 Total saving deposit (in billion)

SAVING DEPOSITS
60 53.94
50
38.98
40
28.92
30
20.55
20
10
0
2017/18 2018/19 2019/20 2020/21

According to the table 2.1 and figure 2.2, growth of saving deposit had ranged from 2017
to 2021 is 20.55, 28.92., 38.98 and 53.94 billion respectively. Every year deposit is
growing by large difference that indicate company is growing very well by each year.

Fig.2.3 total current deposits (in billion)

CURRENT DEPOSITS
45
38.81
40
35
30 26.33
25
18.46 18.87
20
15
10
5
0
2017/18 2018/19 2019/20 2020/21

According to the table 2.1 and figure 2.3, growth of current deposit has ranged from
2017 to 2021 is 18.46, 18.87., 26.33 and 38.81 billion respectively. First two year deposit
was grown by small difference but after that it was grown by huge difference that
indicate company is growing very well nowadays.

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 Fig. 2.4 fixed deposits (in billion)

FIXED DEPOSITS
45
40
35
30
25
20
15
10
5
0
2017/18 2018/19 2019/20 2020/21

According to the table 2.1 and figure 2.4, growth of fixed deposit has ranged from 2017
to 2021 is 22.16, 21.03, 36.73 and 42.30 billion respectively. In comparison to first two-
years deposit was decreased by small difference but after that it was grown by huge
difference that indicate company is growing very well those years.

2.2 Ratios

Ratio analysis refers to the comparisons between different pieces of financial

information in the financial statements of a business. They are mainly used by
external analysts to determine various aspects of a business such as its
profitability, liquidity, and solvency. Liquidity ratio analysis provide quick way
to identify its liquidity position over the different period. In this study following
ratio are analyzed to understand well management of capital structure.

2.2.1 Saving deposit to total deposit ratio

CASA ratio of a bank is the ratio of deposits in current and saving
accounts to total deposits. A higher CASA ratio indicates a lower cost
of funds because banks do not usually give any interests on current
account deposits.

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 Generally short-term deposits are not beneficial for the banks as it
cannot be invested in long term basis and it’s lower ratio shows higher
short term liquidity position of the bank.
Table no. 2.2 saving and current deposit to total deposit ratio (in billion)

Fiscal year Saving deposit Current total CASA ratio

deposit deposit (in %)

2017/18 20.55 18.46 84.10 46.385

2018/19 28.92 18.87 98.52 48.507

2019/20 38.98 26.33 134.81 48.445

2020/21 53.94 38.81 166.45 55.722

Mean 49.765

(Note: dividing sum of current and saving deposit by total deposit (Source: Annual
Report of NMB)

Fig 2.5 saving and current deposit to total deposit ratio

CASA ratio (in %)

60
50
40
30
20
10
0
2017/18 2018/19 2019/20 2020/21

In above table 2.2 and figure 2.5, it shows that the CASA ratio is gradually increasing
in trend which is considered as good sign for organization growth but in 2020 CASA
ratio has decreased due to pandemic. Similarly, the data ranged in 2017/18 is 0.24
times, in 2018/19 is 0.29 times, in 2019/20 is 0.28 times, and in 2020/21 is 0.32 times.

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 2.2.2 Fixed deposit to total deposit ratio
Based on fixed deposit to total deposit ratio, it’s concluded that the
bank has higher long-term liquidity or not because fixed deposits are
deposited for long period of time and can be invested for long term by
bank. So, it’s beneficial for bank to have higher fixed deposit to total
deposit ratio.
Table no. 2.3 Fixed deposit to total deposit ratio (in billion)

Fiscal year Fixed deposit total deposit Ratio (in %)

2019/18 22.16 84.10 26.34

2018/19 21.03 98.52 21.35

2019/20 36.73 134.81 27.25

2020/21 42.30 166.45 25.42

Mean 25.89

(Source: Annual Repot of NMB)

Fig. 2.6 fixed deposit to total deposit ratio

FD to TD ratio (in %)
30

25

20

15

10

0
2017/18 2018/19 2019/20 2020/21

Based on the table 2.3 and figure 2.6 given above, it’s clear that FD to TD ratio is
fluctuating but gradually increasing in trend which is considered as good sign for
organization’s growth but in 2018 it got decreased. Similarly, the data ranged in
2017 is 26.34 %, in 2018 is 21.35%, in 2019 is 27.25 times and in 2020 is 25.89 %.

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 2.2.3 Cash reserve ratio
Cash reserve ratio is used to measure ability to meet its current ratio
obligation. It’s determined by the ratio of cash and bank balance to
total deposit. That is called total cash reserve ratio.
Table 2.4 cash reserve ratio (in billion)

Fiscal year Cash and equivalent total deposit ratio

2019/18 5.95 84.10 7.07
2018/19 8.81 98.52 8.94
2019/20 12.27 134.81 9.10
2020/21 14.45 166.45 8.68
Mean 8.456
Source: Annual Report of NMB

Fig. 2.7 cash reserve ratio

CRR (in %)
10
9
8
7
6
5
4
3
2
1
0
2017/18 2018/19 2019/20 2020/21

The above given table and graph shows the total cash and bank balance to total
deposit ratio of NMB from fiscal year 2017/18 to 2020/21. It is in fluctuating
trend as it is increasing till fiscal year 2019/20 but decreasing since then. The mean
of CRR is 8.45. Commercial banks must maintain their cash and bank balance in
terms of total deposits as directed by NRB.

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 2.2.4 Balance with NRB to FD ratio
The banks must deposit a proportion of the total deposited amount by
the customer for capital adequacy and minimization of risk. It
includes both a proportion of fixed deposit and current as well as
saving deposits.

Table. 2.5 Balance with NRB to FD ratio (in billions)

Fiscal year Balance with NRB Fixed deposit Ratio (in %)
2019/18 6.87 22.16 31
2018/19 10.84 21.03 51.54
2019/20 15.28 36.73 41.60
2020/21 19.25 42.30 45.50
Mean 42.41
Source: Annual Report of NMB

Fig 2.8 Balance with NRB to FD ratio

Balance with NRB to FD ratio

60

50

40

30

20

10

0
2017/18 2018/19 2019/20 2020/21

According to above table and figure, The % change in amount deposited in NRB from
FD. From the above the ratio is increased by huge amount in the fiscal year 2018/19 and
then decreased gradually and again increased. It means that the amount deposited as fixed
saving is higher in year 2018/19 as comparison to other 3 years. Change in amount
deposited in NRB from year 2017 to 2018 is 31% and from 2018 to 2019 is 51.54%,
similarly decreasing from 2019 to 2020 is 41.60% and again increased in 2020/21 by
45.50%.

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 2.2.5 Total investment to total deposit ratio
Investment to deposit ratio shows that which amount of deposit is used to as
investment. And it’s the amount invested out of total deposited amount.

Table no. 2.6 investment to deposit ratio (in billions)

Fiscal year Total investment total deposit Ratio (in%)

2019/18 10.02 84.10 11.91
2018/19 10.57 98.52 10.72
2019/20 15.38 134.81 11.40
2020/21 17.83 166.45 10.71
Mean 11.19

Source: Annual Report of NMB

Fig. 2.9 Total investment to deposit ratio

investment to deposit Ratio

12.2
12
11.8
11.6
11.4
11.2
11
10.8
10.6
10.4
10.2
10
2017/18 2018/19 2019/20 2020/21

According to above table 2.6 and graph 2.9 the bank’s investment to deposit ratio in
fiscal year 2017/18 is 11.91%, in 2018/19 is 10.72%, in 2019/20 is 11.40%, and in
2020/21 is 10.71%. It’s highly fluctuated in those years. It means the proportion of
investment out of deposited amount is not predictable. Sometimes it increases and
sometimes decreases due to various constraints.

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 2.2.6 Total loan to total deposit ratio
The loan-to-deposit ratio (LDR) is used to assess a bank's liquidity by
comparing a bank's total loans to its total deposits for the same period. The
LDR is expressed as a percentage. If the ratio is too high, it means that the
bank may not have enough liquidity to cover any unforeseen fund
requirements. Conversely, if the ratio is too low, the bank may not be
earning as much as it could be.

Table no. 2.7 Loan to deposit ratio (in billion)

Fiscal year Total loan total deposit Ratio (in %)

2019/18 7.57 84.10 9
2018/19 9.19 98.52 9.32
2019/20 12.18 134.81 9.03
2020/21 15.81 166.45 9.49
Mean 9.21

Source: Annual Report of NMB

Fig no. 2.10 Loan to deposit ratio

LDR (in%)
9.6
9.5
9.4
9.3
9.2
9.1
9
8.9
8.8
8.7
2017/18 2018/19 2019/20 2020/21

From the above figure and table, it’s clear that the ratio of LDR has been fluctuation by huge
difference. In the fiscal year 2017/18 it was maintained at 9%, in 2018/19 by 9.32, in 2019/20 by
9.03 and in 2020/21 by 9.49 percentage. It has lower LDR ratio, means it’s liquidity position is
quiet strong.

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 CHAPTER III
MAJOR FINDINGS, CONCLUSIONS AND SUGGESTION

3.1 Major findings of the study

The presentation and analysis of data gives the clear picture in terms of financial strength
and weakness of the bank. The main finding of the study are as follows:

Growth of deposits

➢ Growth of total deposit had ranged from 2017 to 2021 is 84.10, 98.52, 134.81
and 166.45 billion respectively. Every year deposit is growing by large
difference that indicate company is growing very well by each year.

➢ Growth of saving deposit had ranged from 2017 to 2021 is 20.55, 28.92.,
38.98 and 53.94 billion respectively. Every year saving deposits are also
growing by large difference that indicate company is growing very well by
each year.
➢ Growth of fixed deposit has ranged from 2017 to 2021 is 22.16, 21.03, 36.73
and 42.30 billion respectively. In comparison to first two-years deposit was
decreased by small difference but after that it was grown by huge difference
that indicate company is growing very well those years.

Liquidity ratios
➢ The CASA ratio is gradually increasing in trend which is considered as
good sign for organization growth but in 2020 CASA ratio has decreased
due to pandemic. Similarly, the data ranged in 2017/18 is 0.24 times, in
2018/19 is 0.29 times, in 2019/20 is 0.28 times, and in 2020/21 is 0.32
times. And arithmetic mean is 49.765.
➢ FD to TD ratio is fluctuating but gradually increasing in trend which is
considered as good sign for organization’s growth but in 2018 it got
decreased.

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 ➢ The total cash and bank balance to total deposit ratio of NMB from
fiscal year 2017/18 to 2020/21. It is in fluctuating trend as it is
increasing till fiscal year 2019/20 but decreasing since then. The mean
of CRR is 8.45.
➢ The % change in amount deposited in NRB from FD. From the above the
ratio is increased by huge amount in the fiscal year 2018/19 and then
decreased gradually and again increased. It means that the amount deposited
as fixed saving is higher in year 2018/19 as comparison to other 3 years.
➢ The bank’s investment to deposit ratio in fiscal year 2017/18 is 11.91%, in
2018/19 is 10.72%, in 2019/20 is 11.40%, and in 2020/21 is 10.71%. It’s
highly fluctuated in those years. It means the proportion of investment out of
deposited amount is not predictable.
➢ The ratio of LDR has been fluctuation by huge difference. In the fiscal year
2017/18 it was maintained at 9%, in 2018/19 by 9.32, in 2019/20 by 9.03
and in 2020/21 by 9.49 percentage. It has lower LDR ratio, means its
liquidity position is quite strong.

3.2Conclusion
➢ The saving deposit account is gradually increasing trend.

➢ Fixed deposit is fluctuated. The lowest amount is 21.03 billion and highest is
42.30. In fiscal year 2018/19 there is the lowest fixed deposit and in 2020/21
there is highest amount deposited in the form of fixed deposit.

➢ The cash and equivalent to total deposit ratio are fluctuating. But the ratio is
somehow satisfactory even though the ratio is higher than the central
prescription. The ratio is moving around between 0.07 to 0.910 times.

➢ The balance with NRB to fixed deposit ratio is fluctuating. It’s moving around
between 0.31 to 0.51 times.

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 ➢ The investment to total deposit ratio is fluctuating adversely. Since the ratio is
fluctuating the bank has unsatisfactory result. However, the investment from
source of deposit is higher. It will give a higher return without risk only if the
ratio is stabilized.

3.3 Recommendation
Based on above findings and conclusion the following suggestion and recommendations
are forwarded ahead:
➢ The overall results are satisfactory. But in some case the NMB bank should
take certain steps to improve the bank current financial condition. Therefore,
some recommendations are being put forward for it’s improving along with its
development of the country.

➢ The cash and bank balance in the NMB is satisfactory. It’s higher a bit though.
Bank should analyze the opportunities for short term investment too.

➢ Investment to deposit ratio is fluctuating adversely. It may harm the operation

of the bank. So, the investment from the deposit source should always be
aware of liquidity need and keep in mind to maintain the optimum liquidity.

➢ Bank should not spend too much in the fixed asset because it yields only a
nominal portion, almost no yield.

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