sample project on lumbini bank
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DESTINY EDUCATIONAL MATERIAL
1
CHAPTER-I
INTRODUCTION
1.1 Background of the Study
1.1.1 Concept of Bank
A bank is the financial institution which deals with the money and credit.
Bank is most important financial institution in the economy and essential business in
any countries. Generally, it collects deposits from general people and provides loan by
charging a certain rate of interest. Thus, the accumulated money can be advancing
loan in different sectors such as business, foreign trades, agricultures, industries,
social works and individual also for different purpose with certain charges. Beside, a
bank also involves agency services like remitting and collecting cash on behalf of its
clients, opening bank draft and underwriting shares of newly established company etc.
Bank has a vital role to develop a country’s economic growth.
A bank can be defined as those organization which deals with deposits, credits
foreign exchanges. Bank gives all kind of financial services to all kind of persons
without differentiating with caste, religion, sex, economic condition, nationality etc.
According to oxford Dictionary Bank means “an establishment for keeping
money and valuable things safely, safety of the money being out on the customer
order by means of cheque”.
“A bank collects money from those who have it to spare or who are saving it
out of their incomes, and it lends this money to those who require it”.
- C.R. Crowther
“A commercial bank is a bank, which deals in exchanging currency, accepting
deposits giving loans and doing commercial transaction’.-The commercial Bank 2003
A bank is an institution established by law, which deals with money and
credit. Bank fulfills the investment requirement of saver with the end it needs of
investors. In this way bank plays on imperative role in our economy by providing
effective service efficiently towards the attainment of economic development.
Therefore, bank means a financial establishment for the deposit, loans exchanges
issue of money and for the transmission of funds.
1.1.2 History of Bank
The word “bank” is derived from the Italian word “banco” which means bench
the people who does transaction of the money by sitting in bench and carry out
exchange function. After the completion of transaction if they makes profit they
worships the bench and if they make loss they destroy the same bench. In this way
same word “banco” letter on turned to “bank”. The evaluation and development of
bank did not take place at once in all countries. The history of banking is not exactly
known but in 1157 A.D first public bank was established in the name of “Bank of
Venice” in Italy. Then after “Bank of Barcelona” of Spain was established in 1401
A.D. and “Bank of Genoce” in 1408 A.D. as public bank. In Netherlands the “Bank of
Amsterdam” was established in 1609 A.D. which famous batak at that time. But in
reality the modern bank was started only after the establishment of “Bank of England”
in 1694 A.D. Bank sector was rapidly developed due to adaptation of technology and
DESTINY EDUCATIONAL MATERIAL
2
development of transportation system in England. The banking business took its new
height so we can say that the modern banking was developed in 17th century.
In Nepal the system of granting loans was prevalent from ancient time. In 14th
century a class of people called “tankdhary” used to exchange money and provide
loans. The “tejarath adda” was established in 1876 A.D. which provide loans to
government employees and public against the bullion without collecting the deposit
from the public. However, Nepal Bank Limited (commercial bank) is the first bank
established in Nepal I 1937 A.D (1994 B.S.). Nepal Rastra Bank, the central bank of
Nepal was established in 1956 A.D. In 1959 A.D. one industrial bank namely “Nepal
Industrial Development Bank” was established. Likely Rastriya Banijaya Bank was
established in 1965 A.D. the 2nd commercial bank in Nepal. Though commercial
bank was raising 2but 90% of Nepalese populations were depended upon agriculture
with 0the traditional system of farming which made realize the importance of
2Agricultural Development Bank then Commercial Bank. Finally, “Agricultural
Development Bank” was established in 1968 A.D.
1.1.3 Historical Development of Commercial Bank in Nepal
In Nepal, “Tejarath Adda” was established in 1877 A.D by the government.
The main purpose of this institution was to provide credit facilities to the general
public at minimum interest rate of 5%. The establishment of this institution marked
the beginning of organized financial institution in Nepal. Nepal Bank Limited is the
real and 1st commercial bank in Nepal which was established in 1937A.D (1994B.S).
Nepal Rastra Bank(NRB) is the central bank of Nepal. It was established in 1956A.D
(2013B.S) to regulate issue of currency, securing country wide circulation of
Nepalese currency, achieving stable exchange rate and to mobilize capital for
economic development and for stimulation of trade development of banking sector.
After this, NRB diverted its attention towards development of banking system by
formulating relevant policies and procedures.
Rastriya Banijya Bank (RBB) was established in 2022 B.S. (1965A.D) under
the RBB act 2021. The establishment of commercial bank was total stopped for
almost two decades after declaration of free economy and privatization policy the
foreign joint Venture Bank and Nepalese promoter setup banks in the country.
Currently there are more than 32 commercial banks performing their functions in
Nepal. The lists of banks are listed below with ranking their establishment date.
Table No.1.1
List of Banks in Nepal
S.No Banks Name Est. Date(A.D.)
1 Nepal Bank Ltd. 1937/11/15
2 Rastriya Banijya Bank Ltd. 1966/01/23
3 Agriculture Development Bank Ltd. 1968/01/02
4 Nabil Bank Ltd. 1984/07/16
5 Nepal Investment Bank Ltd. 1986/02/27
6 Standard Chartered Bank Nepal Ltd.. 1987/01/30
7 Himalayan Bank Ltd. 1993/01/18
8 Nepal SBI Bank Ltd. 1993/07/07
9 Nepal Bangladesh Bank Ltd. 1994/06/05
DESTINY EDUCATIONAL MATERIAL
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10 Everest Bank Ltd. 1994/10/18
11 Bank of Kathmandu Ltd. 1995/03/12
12 Nepal Credit and Commerce Bank Ltd. 1996/10/14
13 Lumbini Bank Ltd. 1998/07/17
14 Nepal Industrial & Commercial Bank Ltd. 1998/07/21
15 Machhapuchhre Bank Ltd. 2000/10/03
16 Kumari Bank Ltd. 2001/04/03
17 Laxmi Bank Ltd. 2002/04/03
18 Siddhartha Bank Ltd. 2002/12/24
19 Global Bank Ltd. 2007/01/02
20 Citizens Bank International Ltd. 2007/06/21
21 Prime Commercial Bank Ltd 2007/09/24
22 Sunrise Bank Ltd. 2007/10/12
23 Bank of Asia Nepal Ltd. 2007/10/12
24 DCBL Bank Ltd. 2008/05/25
25 NMB Bank Ltd. 2008/06/05
26 Kist Bank Ltd. 2009/05/07
27 Janata Bank Nepal Ltd. 2010/04/05
28 Mega Bank Nepal Ltd. 2010/07/23
29 Commerz & Trust Bank Nepal Ltd. 2010/09/20
30 Civil Bank Litd. 2010/11/26
31 Century Commercial Bank Ltd. 2011/03/10
32 Sanima Bank 2012/02/22
(Source: www.nrb.org.np)
1.1.4 Role of Commercial Banks in Economic Development
A well developed banking system is necessary pre-condition for economic
development in a modern economy. Besides providing financial resources for the
growth of industrialization, banks can also influence the direction in which these
resources are to be utilized. In a modern economy, banks are to be considered not
merely as dealers in money but also the leaders in development. They are not only the
store house of the country’s wealth but also utilize the resources necessary for
economic development. It is the growth of commercial banking in 18th and 19th
centuries that facilitated the occurrence industrial revolution.
The main objective of commercial banks is to mobilize idle resources for
productive use after collecting them from different places. It brings about greater
mobility of resources to meet the emerging necessity of the economy. There are
various roles played by a commercial bank for the development of an economy, which
are capital formulation, encouragement to entrepreneurial innovation, influencing
economic activity, promotion of trade and industry, development of agriculture and
other neglected sectors.
The major problem in almost all under developed countries like Nepal is lack
of capital formulation and their proper mobilization. In such countries, commercial
banks should act as a development bank. Nepal is a small and poor country but it has
sufficient natural resources. To utilize those resources capital is required. Commercial
bank gather monetary resources from different areas the form of deposits and provide
loan to investing areas like industry, agriculture etc.
DESTINY EDUCATIONAL MATERIAL
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Therefore, the fate of the country is greatly determined by the active role of
commercial bank. Bank provides facilities to their customers by providing loans,
remitting funds, purchase and sale of bills and other market information. These
services help to run the business and other economic activities rapidly well as
smoothly which ultimately helps in economic development.
1.1.5 Introduction of Lumbini Bank Ltd.
After the economic liberalization policy of HMG/N & financial sector reforms in late
eighties, the joint venture commercial banks comes into existence. Lumbini Bank
Limited is a national level commercial bank offering a wide range of banking
solutions and services meticulously customized to the needs of the customers. LBL
was established in 2055 B.S. 1st Shrawan (1998 A.D.) according to the Nepal
Commercial Bank Act 2031, the proportional rating of the Bank’s promoters holds
66% & General Nepalese people hold 34% share of the Bank. This is the first regional
commercial bank in Nepal, which started its operation from Narayangadh spreading
its wings to further four more places at Hetauda, Butwal, Durbarmarg and Biratnagar.
Lumbini Bank Limited is highly committed to assure of the standard and excellence
in the services it offers. Our team is guided towards obtaining new challenges and
opportunities.
Backed by state-of-the-art technology and experienced professionals adept in modern
banking management, we strive to make banking simple, fast and customer friendly.
Just the way you like it.
Lumbini Bank Limited has restructured various products, as a part of an ongoing
process, to cater to the retail segment. The newly structured products cover Personal
Loan, Home Loan, Vehicle Loan, Mortgage Loan, Educational Loan, Time Loan etc.
After controlled the management by NRB the Bank increased total interest income is
Rs.247, 000,000. Total operating profit is Rs.331.100, 000 and improved the Reserve
loss to Rs.702, 016,312 in 2064/65.
The Bank’s authorized capital amount to Rs.1,600,000,000 & issued capital to
Rs.1,000,000,000 while the paid up capital amount to Rs.1,000,000,000. There are 8
members in the Board of directors of the Bank.
Up to 31st Ashad, 2065, the Bank deposit accepted amount to Rs. 5, 703,733,802
whereas on the same date the loan & Bills purchased of Bank amount to Rs 4,
489,493,956. The reserve fund of the bank is negative (i.e.Rs.702, 016,312).
DESTINY EDUCATIONAL MATERIAL
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1.1.6. Objectives of LBL
The objectives of LBL are listed below:
a. To provide Personal Loan, Home Loan, Vehicle Loan, Mortgage Loan,
Educational Loan, Time Loan etc.
b. To assure of the standard and excellence in the services it offers
c. To develop the team that is guided towards obtaining new challenges and
opportunities.
1.1.7. Organizational Structure of LBL
Figure No. 1.1
Organizational Structure of LBL
Board of Director
Chief Executive Officer
Deputy Chief Executive Officer
Head Central
Operating/General
Administration
Head Marketing Head Finance/HRD
Head Legal/
Company Secretary Head Information
Technology
Head Retail Banking Head Internal Audit
Branch
Manager
Branch
Manager
Branch
Manager
Branch
Manager
Branch
Manager
DESTINY EDUCATIONAL MATERIAL
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1.2. Objectives of the Study
Based on this aspect, this study tries to deal with the study of ratio analysis of
Lumbini Bank Limited.
The objectives of the study are as follows:
a. To analyze the liquidity of the Lumbini Bank Ltd. to meet its current
obligation.
b. To show the level of current asset relative to current liabilities of the bank.
c. To evaluate the relation between cash/marketable securities & the current
liabilities.
d. To suggest & recommend for further improvement.
1.3. Needs and Significances of the Study
The following are the few points, which throw light on the importance of the study
report:
a. This study report may be useful for those who are willing to know something
about the Liquidity analysis of Lumbini Bank Ltd.
b. This study assignment report has been prepared as internship report for
acquiring the degree of BBS under the curriculum of TU.
c. This report can be used as a guideline while preparing a small project report.
d. This study report may be useful for the library purpose so that any student
willing to prepare a report can have some ideas about it.
e. This report contains the description of various Liquidity and their uses
1.4. Research Methodology
The research basically is the outcome of the various sort of secondary data provided
the Lumbini Bank Ltd. Various consults other book, articles, literature, & published
data in related with the topic. The finding in this report is the major outcome of the
annual report of the Lumbini Bank Ltd. from year 2064/65 to 2068/69. The annual
report is dissected in various parts for the analysis. Especially the Liquidity analysis is
done on the base of B/S, & other annexure related to it. The required figure from B/S
is extracted & the analysis is done of various years. All the ratios are calculated from
yare 2064/64 to 2068/69 B.S. The various tables and figures are presented where
required to give the bird’s eye view to the liquidity position of the bank since it is the
analysis based upon the single bank the ratio are compare among the different years
but not the industry average. All the data on which the finding is based totally on
secondary data. The study is not subjected to any of primary data.
1.4.1. Research Design
The descriptive and analytical in research design have been used to achieve the
objective of this study. Accounting and statistical tools, formula, technique has also
been applied to examine facts and descriptive technique to show result.
DESTINY EDUCATIONAL MATERIAL
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1.4.2 Sources of Data
This report has been prepared on the basis of primary as well as secondary data of the
bank.
A. Primary data
The data that are originally collected by an investigator or researcher for the first time
for the purpose of statistical enquiry are known as primary data. Primary data had
been collected from oral interview and questionnaire method with related personnel of
the office for the study.
B. Secondary data
Data which are originally collected but acquired from some published or unpublished
sources by the researcher himself is called secondary data. Secondary data are the
brochures, annual reports, published reports and statements, published official
documents, etc. This study is mainly based on secondary data.
1.4.3. Data Collection Procedures
The required data for the study have been collected from secondary data & annual
report of concern bank. Then concern people; concern teachers & concern friends
have been selected.
1.4.4. Tools for Analysis
In this report liquidity ratio, statistical techniques and charts are used. To achieve
objective of this study various tools and techniques are used. Main tools of ratio used
and their calculation are as following.
A. Liquidity Ratio
Liquidity ratio measures the ability of the firm to meet its current obligations. It is one
of the first concerns of most financial analysts. It is extremely essential for a firm to
be liquid or to meet its obligation as they become due. A firm should ensure that it
does not suffer from lack of liquidity, & also that is not too much liquid. The failure
of a result in bad credit image, lots of creditor’s confidence or even in law suits
resulting in the closure of the company.
The various liquidity ratios selected for the ratio analysis of the Lumbini Bank Ltd are
namely:
a. Current Ratio
b. Quick or Acid Test Ratio
c. Cash Ratio or Cash to Current Liabilities Ratio
d. Net Working Capital Ratio
DESTINY EDUCATIONAL MATERIAL
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a) Current Ratio
The current ratio is computed by dividing current assets by current liabilities. Current
assets normally include cash and those assets, which can be converted into cash
within a year such as marketable security, debtors, inventories & prepaid expenses.
Current assets of Lumbini Bank Ltd. include cash in hand, cash at bank, call at short-
notice receivables, overdraft & loan, bills purchase, other current assets (inventories,
prepaid expenses). Current liabilities are the obligation maturing within a year.
Current liabilities generally include creditors, bills payable, accrued expenses, short-
term bank loan, income tax liabilities etc. Current liabilities of the Lumbini Bank Ltd.
includes deposit (current & saving), payable at call, bill payable, other current
liabilities (income tax, dividend, employees welfare fund etc).
Current Ratio = Current Assets
Current Liabilities
b) Quick or Acid-test Ratio
It is ratio between quick or liquid asset & current liabilities. An asset is liquid if it can
be converted cash immediately on reasonably soon without a loss of value. So
inventories and prepaid expenses are deducted from current assets to arrive at quick or
liquid assets.
Quick or Acid-test Ratio = Quick Assets
Current Liabilities
c) Cash Ratio or Cash to Current Liabilities Ratio
Cash ratio is the ratio between very liquid assets & cash & marketable security (call at
short notice receivable) to current liabilities.
Cash Ratio = Cash + Marketable Securities
Current Liabilities
d) Net Working Capital Ratio
The difference between current asset & current liabilities is called Net Working
Capital. Net Working Capital is also used as a measure of firm’s liquidity. Net
Working Capital measures the firm’s potential reservoir of funds. It is computed by
dividing net working capital by net assets.
Net Working Capital Ratio = Net Working Capital
Net Assets
DESTINY EDUCATIONAL MATERIAL
9
1.4.5. Standards of Comparison
The ratio of a firm by themselves does not reveal anything. It should be compared
with some standards. For meaningful interpretation, the ratio of a firm should be
compared with the ratio of similar firms and industry. The comparison will ultimately
force the firm to take necessary steps, whether to maintain the firm at current position
or to take necessary corrective action to maintain the firm in strong position in
competition with its competitors.
The analysis done in this report is the trend analysis of liquidity ratio of Lumbini
Bank Ltd. The various liquidity ratios of past five years is analyzed & presented to
show the performance of the bank of past five years regarding the liquidity position.
By the comparison, it gives us indication of the direction of change & reflects;
whether the bank’s financial performance has improved, deteriorated or remained
constant over time.
Although the analysis is the trend analysis of past five years, the ratios are compared
to the conventional standards of current ratio is 2:1 & quick ratio is 1:1.
1.5. Limitation of the Study
Some limitations of this study report are as follows:
a. The study period only covers five-income year from 2064/65 to 2068/69.
b. Since the study is based upon the secondary data provided by the bank, the
findings are more or less the approximate. The finding should not be
considered the exact figure.
c. Due to lack of detail information (data), the assumption is made whenever
required.
d. Due to time constraint & lack of the data the Liquidity analyzed in the report
is on 5 years of the same bank. The Liquidity are not compared and analyzed
with the Liquidity of the industry & the organization of the same type.
e. The Liquidity analyzed should not be taken as the authorized ratios of the
bank.
1.6. Chapter Scheme
This field report has been derived into three sequential chapters along with by
bibliography & appendices.
The first chapter includes Background of the study, list of commercial bank in Nepal,
statement of problem, objectives of the study, needs of the study, limitation of the
study. It also includes Research Methodology, Sources of data, data collection
procedure, data processing, liquidity analysis.
The second chapter contains data analysis & interpretation using various ratios.
The third chapter implies summary, conclusion & recommendations.
DESTINY EDUCATIONAL MATERIAL
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DESTINY EDUCATIONAL MATERIAL
11
CHAPTER II
PRESENTATION AND ANALYSIS OF DATA
2.1. Presentation and Analysis of Data
2.1.1. Liquidity Ratio Analysis of Lumbini Bank Ltd.
The current ratio, quick assets ratio, cash ratio and networking capital ratio is
presented and analyzed in brief.
a. Current Ratio
A relation between current assets and current liabilities is called current ratio. It
measures the ability of current assets to pay the current liabilities. Higher the current
ratio, better the liquidity position & vice versa. Formula to calculate the current ratio
is given below:
Table No. 2.1
Current Ratio of LBL
(Rs in millions)
Fiscal Year Current Assets Current Liabilities Ratios
2064/65 3765.94 2014.19 1.86
2065/66 3734.48 2114.83 1.77
2066/67 3494.23 2588.19 1.35
2067/68 4724.85 3098.88 1.53
2068/69 5256.96 3005.92 1.75
(Source: Annual Report of LBL of 2068/69)
In the above table, current assets, current liabilities and current ratio of five fiscal
years 2064/65 to 2068/69 are presented. The current ratio is calculated by dividing
current assets by current liabilities of bank. It has been ascertained that the current
ratio of bank is higher (1.86) in year 2064/65 & minimum (1.35) in year 2066/67. The
current ratio of LBL is below the standard current ratio 2:1 in all fiscal years.
DESTINY EDUCATIONAL MATERIAL
12
Figure No. 2.1
Current Assets and Current Liabilities of LBL
In the above figure, x-axis represents fiscal years and y-axis represents amount (in Rs.
millions). The current assets decrease from FY 2064/65 to FY 2066/67 and then
increases to 4724.85 and 5256.96 millions in FY 2067/68 and 2068/69 respectively.
The current liabilities continuously increase from FY 2064/65 to FY 2067/68 and
decrease to 3005.92 millions in FY 2068/69.
Figure No. 2.2
Current Ratio of LBL
In the above figure, fiscal years and ratio are represents by x-axis and y-axis
respectively. The solid line represents actual current ratio and the dotted line
represents standard current ratio. The maximum current ratio of the bank is 1.86:1 in
the year 2064/65 B.S. and the minimum is 1.35:1 in the year 2066/67 B.S. The current
ratio does not seem to be uniform for 5 years. The current ratio is in declining trend
up to 3rd
year but the current ratio rising from 4th
year. The current ratio is below the
0
1000
2000
3000
4000
5000
6000
2064/652065/66 2066/672067/68
2068/69
Am
ou
nt
(in
Rs.
mil
lion
s)
Fiscal Years
Current Assets
Current Liabilities
0
0.5
1
1.5
2
2.5
2064/65 2065/66 2066/67 2067/68 2068/69
Rat
io
Fiscal Years
Standard
Current Ratio
DESTINY EDUCATIONAL MATERIAL
13
standard in all fiscal years. Therefore the bank is in worst liquidity position. It means
the bank is not able to pay the current liabilities with its current assets.
b. Quick/Acid Test Ratio
A relation between liquid assets & current liabilities is called quick ratio. It shows a
firm’s ability to meet current liabilities which is most liquid (quick) asset. Current
assets except inventory & prepaid expenses is called liquid (quick or acid-test) ratio.
Acid-test ratio also measures the availability of highly liquid or immediate fund to
meet the banks anticipated calls on the types of liabilities. Formula to calculate quick
ratio:
Table No.2.2
Quick Ratio of LBL
(Rs. in millions)
Fiscal Year Quick Assets Current Liabilities Ratios
2064/65 3765.94 2014.19 1.86
2065/66 3734.48 2114.83 1.77
2066/67 3494.23 2588.19 1.35
2067/68 4724.85 3098.88 1.53
2068/69 5256.96 3005.92 1.75
(Source: Annual Report of LBL of 2068/69)
In the above table, quick assets, current liabilities and acid-test ratio of five fiscal
years 2064/65 to 2068/69 is presented. When the quick assets is divided by current
liabilities, the quick ratio is obtained. It has been ascertained that the quick ratio of
bank is higher (1.86) in year 2064/65 & minimum (1.35) in year 2066/67. The quick
ratio of LBL is below the standard quick ratio 1:1 in all fiscal years.
DESTINY EDUCATIONAL MATERIAL
14
Figure No. 2.3
Quick Assets and Current Liabilities of LBL
In the above figure, x-axis represents fiscal years and y-axis represents amount (in Rs.
millions). The quick assets decrease from FY 2064/65 to FY 2066/67 and then
increases to 4724.85 and 5256.96 millions in FY 2067/68 and 2068/69 respectively.
The current liabilities continuously increase from FY 2064/65 to FY 2067/68 and
decrease to 3005.92 millions in FY 2067/68.
Figure No. 2.4
Quick Ratio of LBL
In the above figure, fiscal years and ratio are represents by x-axis and y-axis
respectively. The dotted line represents standard quick ratio and the solid line
represents actual quick ratio. The maximum quick ratio of the bank is 1.86:1 in the
year 2064/65 B.S. and the minimum is 1.35:1 in the year 2066/67 B.S. The quick ratio
does not seem to be uniform for 5 years. The quick ratio is in declining trend up to 3rd
year but the quick ratio rising from 4th year. The quick ratio is above the standard in
all fiscal years.
0
1000
2000
3000
4000
5000
6000
2064/652065/66 2066/672067/68
2068/69
Am
ou
nt
(in
Rs.
mil
lion
s)
Fiscal Years
Quick Assets
Current Liabilities
0
0.5
1
1.5
2
2.5
2064/65 2065/66 2066/67 2067/68 2068/69
Rat
io
Fiscal Years
Standard
Quick Ratio
DESTINY EDUCATIONAL MATERIAL
15
c. Cash Ratio or Cash to Current Liabilities Ratio
Cash ratio is the ratio between very liquid assets & cash & marketable security
(call at short notice receivable) to current liabilities.
Table No.2.3
Cash Ratio of LBL
(Rs. in millions)
Fiscal Year Cash Current Liabilities Ratios
2064/65 561.13 2014.19 0.28
2065/66 419.01 2114.83 0.198
2066/67 542.13 2588.19 0.21
2067/68 796.41 3098.88 0.26
2068/69 710.32 3005.92 0.24
(Source: Annual Report of LBL)
In the above table, it presents total cash & current liabilities of five fiscal years. It also
shows the cash ratio of the bank which is higher (0.28) in 2064/65 & lower (0.198) in
2065/66.
Figure No. 2.5
Cash and Current Liabilities of LBL
In the above figure, x-axis represents fiscal years and y-axis represents amount (in Rs.
millions). The cash of the bank fluctuates in different fiscal years. There is
continuous increase in current liabilities from FY 2064/65 to FY 2067/68 and
decrease to 3005.92 millions in FY 2068/69.
0
1000
2000
3000
4000
2064/65 2065/66 2066/67 2067/68 2068/69
Am
ou
nt
(in
Rs.
mil
lion
s)
Fiscal Years
Cash
Current Liabilities
DESTINY EDUCATIONAL MATERIAL
16
Figure No. 2.6
Cash Ratio of LBL
The fiscal years and ratio are represents by x-axis and y-axis respectively in the above
figure. In the figure, the solid line represents actual cash ratio which is more or less
stable for 5 fiscal years. The cash ratio presents the ability of the firm to meet current
obligation by cash only. The maximum cash ratio of the bank is 0.28 in the year
2064/65 B.S. and the minimum is 0.198 in the year 2065/66 B.S. The cash ratio
fluctuates for 5 years.
d. Net Working Capital Ratio
The difference between current assets and current liabilities is called net working
capital. Net working capital is also used as a measure of a firm’s liquidity. Net
working capital measures the firm’s potential reservoir of funds. It is computed by
dividing net working capital by net assets. Net assets are the summation of working
capital and net fixed assets.
Table No.2.4
Net working capital ratio of LBL
(Rs. in millions)
Fiscal Year Net Working Capital Net Assets Ratios
2064/65 1751.75 3806.02 0.46
2065/66 1619.07 3782.82 0.42
2066/67 906.03 3536.22 0.26
2067/68 1625.97 4767.55 0.34
2068/69 2251.04 5298.25 0.42
(Source: Annual Report of LBL of 2068/69)
In the above table, it shows the net working capital & net assets of five fiscal years. It
also shows that the net working capital ratio of bank is 0.46 in FY 2064/65, the
highest and 0.26 in FY 2066/67, the lowest among all fiscal years.
0
0.2
0.4
0.6
0.8
1
2064/65 2065/66 2066/67 2067/68 2068/69
Rat
io
Fiscal Years
Trend Line showing Cash Ratio of LBL
Cash Ratio
DESTINY EDUCATIONAL MATERIAL
17
Figure No. 2.7
Net Working Capital and Net Assets of LBL
The x-axis and y-axis denotes fiscal years and amount (in Rs. millions) respectively in
the above figure. As shown in above figure, the net working capital fall up to FY
2066/67 then rise in FY 2067/68 and 2068/69. The net assets also fall slightly up to
FY 2066/67 and rise in FY 2067/68 and 2068/69 to 4767.55 and 5298.25 millions.
Figure No. 2.8
Net Working Capital Ratio
The above figure presents the trends of net working capital ratios, which is more or
less stable for last 5 years. In Figure No. 2.8, the x-axis represents fiscal years and y-
axis measures ratios. There is minimum ratio of 0.26 and the maximum ratio of 0.46
in the years 2064/65 & 2066/67 B.S. respectively.
0
1000
2000
3000
4000
5000
6000
2064/65 2065/66 2066/67 2067/68 2068/69
Am
ou
nt
(in
Rs.
mil
lion
s)
Fiscal Years
Net Working Capital
Net Assets
0
0.2
0.4
0.6
0.8
1
2064/65 2065/66 2066/67 2067/68 2068/69
Ra
tio
Fiscal Years
Net Working Capital Ratio
DESTINY EDUCATIONAL MATERIAL
18
2.2. Major Findings
The major findings are listed as follows:
a) The maximum current ratio is 1.86:1 in fiscal year 2064/65. The bank is not in
better financial position as its current ratio is below the standard 2:1.
b) There is satisfactory regarding quick ratio as it is above the standard 1:1 in
every fiscal year. However, it cannot be better financial position.
c) The cash to current liabilities ratio around 0.2 in every fiscal years. It
decreases in FY 2065/66 than FY 2064/65 and FY 2066/67 than FY 2065/66.
d) There is decreasing trends in net working capital ratio from FY 2064/65 to FY
2066/67 and then after rising trends.
e) There is minimum ratio of net working capital 0.26 and the maximum ratio of
net working capital 0.46 in the years 2064/65 & 2066/67 B.S. respectively
f) The net assets also fall slightly up to FY 2066/67 and rise in FY 2067/68 and
2068/69 to 4767.55 and 5298.25 millions.
g) The cash of the bank fluctuates in different fiscal years. There is continuous
increase in current liabilities from FY 2064/65 to FY 2067/68 and decrease to
3005.92 millions in FY 2068/69.
h) The maximum cash ratio of the bank is 0.28 in the year 2064/65 B.S. and the
minimum is 0.198 in the year 2065/66 B.S. The cash ratio fluctuates for 5
years.
DESTINY EDUCATIONAL MATERIAL
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CHAPTER III
SUMMARY, CONCLUSION AND RECOMMENDATIONS
3.1. Summary
Liquidity is defined as bank’s capacity to pay cash in exchange of deposits. Liquidity
position of the bank is the key factor of sound operating position. The banks have to
maintain a sufficient amount of liquidity because there will be large proportions of
deposits payable on demand, inability of banks to repay deposits on demand damages
the credit worthiness of the bank. This, in turn, may lead to runs in the bank balance,
money at call & short notice (placement) and investment in government securities.
Cash & bank balance are idle assets placements & investment earns some interest.
Inadequate liquidity may lead to collapse of the bank while excess liquidity is
detrimental to bank profitability.
“A bank is an institution which acts like the bridge between the depositors &
borrowers and maximizes the earning mainly through the interest spread. If depositors
lose their confidence in the bank, in other words, the absence of endangers even the
existence of the bank. In other words the absence of liquidity for its depositors
advances make banks run at loss and ultimately closure of the suffer.” Hence the
liquidity of the bank determines the profitability of that bank. So the whole existence
of the bank centers around the liquidity positions.
In the context of Nepal financial reforms are critical for ensuring that Nepal’s
financial system will be able to intermediate efficiently in mobilizing domestic
savings & providing financial resources & services for private investment &
activities. The financial sector is currently facing serious problems. As a result of
ongoing liquidity problems of government-owned banks, the new lending of that
banks has been curtailed. This has significantly affected the availability of credit to
the private sectors. Such a situation normally creates new opportunities for joint
venture banks. Hence, to take advantage of such opportunities the banks must be
tough in its liquidity position. To fulfill the need, the main criteria could be the large
capital base.
3.2. Conclusion
From the analysis presented in Chapter II, we have rough idea about the liquidity
positions trend of Lumbini Bank Ltd since 2064/65 B.S to 2065/66 B.S. The liquidity
of the bank is not stable for the period of time. The minimum current ratio is 1.35,
quick ratio is 1.35:1, cash ratio is 0.198 and net working capital ratio is 0.26 of the
Lumbini Bank Ltd. Similarly, the maximum current ratio is 1.86, quick ratio is 1.86,
cash ratio is 0.28 and net working capital ratio is 0.46. The bank’s main character is
the cash, so the liquidity position of the bank should not be quoted badly in sake of
current ratio.
DESTINY EDUCATIONAL MATERIAL
20
The criteria of liquidity position are not only the liquidity ratio analysis. This report
focuses mainly on the Nepal Rastra Bank (NRB’s) mandatory SLR & CRR. For the
purpose of SLR, NRB had included government bond, treasury bills, NRB bonds and
other reserves whereas CRR includes cash in hand & balance with NRB.
Lumbini Bank Ltd seems to overcome the mandatory SLR criteria & CRR criteria.
The CRR mandatory of the NRB effective from B.S. 2056-12-12 as under:
Balance to maintain with NRB: 80% of current & saving deposit
Liabilities: 60% of fixed deposit liabilities
Cash in hand: 3% of total deposit liabilities
According to the balance sheet figure of Lumbini Bank Ltd, the cash in hand position
of the bank are 3.04% of total deposit liabilities in 2064/65 B.S., 2.56% in 2065/66
B.S., 2.79% in 2066/67 B.S., 2.03% in 2067/68 B.S. and 2.57% in 2067/68 B.S.
Reviewing this condition the bank seems to be unable to meet the CRR criteria of
NRB. Hence the overall liquidity position of Lumbini Bank Ltd seems to be not
satisfactory and is in worse position.
3.3. Recommendations
The analysis of the liquidity position of Lumbini Bank Ltd reveals some problems &
inabilities of the bank. This part of the reports measures the following
recommendation for improving the liquidity position of the bank.
a) The bank’s current ratio is lower than 2:1 criteria in all fiscal year. So the bank
should try to increase its current assets.
b) The bank should avoid manual techniques and should adopt modern
computerized banking system to provide quick & easy service to the customer.
c) The bank should provide more & more improved new services & facilities to
attract more customers in the competitive banking industry.
d) The bank should find out the new sector to invest the money which is sate &
productive.
e) The bank should have to increase its investment because the ratio of bank is
high.
f) Branches of the bank should be extended even up to remote areas of the
country.
g) As the present situation calms the bank should have to research in new
location of the country & research should be made on productive sector.
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