comparative study of banks in nepal
TRANSCRIPT
Presented by: Manzil Bhattarai
A Comparative Study between
Commercial Banks of the Nepal
Introduction
Banking in Nepal started in 8th century in the
reign of Guna Kama Dev.
Nepal bank ltd. Was the first bank in Nepal estd in
1937.
Nabil bank was first joint venture bank of Nepal,
with 50% share of UAE, 20% financial institution
and rest by general public.
Liberalization of financial sector begin at 80’s and
speeded at 90’s.
Number of Banks & Financial InstitutionsLicensed by NRB
Nepalese Financial System
At a glance
BFIs Regulated by
Nepal Rastra Bank
Other Financial
Institutions regulated by GoN
Commercial
Banks
32other
Insurance
BoardSEBON
Insurance
Co.
25
NEPSE
Financial
Institutions
Finance
Companies
76
Development
Bank
89
Cooperatives
16
4
Objective: To compare the financial performance of different
ownership structured commercial banks in Nepal
based on their financial characteristics
Identify the determinants of performance exposed by
the financial ratios
Econometric model (multivariate regression analysis)
by formulating two regression models was used to
estimate the impact of capital adequacy ratio
Non-performing loan ratio, interest expenses to total
loan, net interest margin ratio and credit to deposit
ratio on the financial profitability namely return on
assets and return on equity of banks
Methodology and variables:
Out of 220 listed companies in Nepal Stock
Exchange (NEPSE) the sample of the study
considers five ‘A’ class commercial banks
The study has used Ms Excel for the calculation
of regression analysis, correlation coefficient and
descriptive statistics
Used5 banks and 5-year data each making total
observations of 25
The seven selected ‘A’ class
Commercial Banks are:
BOK (Bank of Kathmandu)
DCBL (Grand Bank)
Himalayan Bank
Kumari Bank
Nabil Bank
:
Data analysis (Finding):
Descriptive statistics
The mean value of liquidity risk is 0.0193 these ratios
show the ability of the firm to converts its total assets
into cash.
The mean value of ROE is 0.2105, which shows the
ability of the firm to utilize its money.
The CD ratio of banks is 0.7792, which show out of
the total deposit how much amount distributed as loan
to its customer.
The standard error of banks in case of liquidity risk,
size of the firm, return on equity, and CD ratio is
0.0018, 0.0324, 0.0171 and 0.1753 respectively,
which is the estimation of that standard deviation,
derived from a particular sample used to compute.
The deviation Minimum and Maximum value is higher
for size of the firm in compare to another variable.
Cont… Mean of size of the firm is 23.3712. This has been
quite seen in the banks that the assets size of thebanks is quite huge so the logarithm has been used toreduce the big figures to 10 powers. Such assets thatbanks holds are large which may include cash,debtors, loans physical assets or even investments.
ROE of the overall banking sector is at 21.05%, whichis an ideal position for banks. This means that 21.05%of Share Holder Equity are actually equal to the Netincomes of Banks.
CD ratio has an average of 77.92%. This is again acomfortable position, as the ideal place is 75-80%.The CD ratio of banks shows the relationship betweenthe loans and the deposits. It states what proportionof the deposits made as loans.
Return on Equity:
0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 0.3000
BOK
DCBL
HBL
KUMARI
Return on Equity
Return on Equity
Liquidity Risk:
0.0000 0.0050 0.0100 0.0150 0.0200 0.0250 0.0300
BOK
DCBL
HBL
KUMARI
Liquidity Risk
Liuidity Risk
Size of the Firm:
21.0000 21.5000 22.0000 22.5000 23.0000 23.5000 24.0000 24.5000
BOK
DCBL
HBL
KUMARI
Size of the firm
Size of the firm
CD ratio:
0.000% 20.000% 40.000% 60.000% 80.000% 100.000% 120.000%
BOK
DCBL
HBL
KUMARI
NABIL
CD ratio
CD ratio
Non-performing loan
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
BOK
DCBL
HBL
KUMARI
NABIL
NPL
NPL
Profitability:
BOK DCBL HBL KUMARI NABIL
Earning Per Share(EPS) 44.67011654 10.90386497 52.98064428 19.2031357 110.95881
Dividend Per Share(DPS) 15.0198777 2.835700771 16.45980204 2.003613521 66.075158
Return on Assets (ROA) 1.968% 1.327% 1.501% 1.294% 2.485%
Return on Equity(ROE) 24.721% 9.181% 22.173% 14.243% 31.882%
Cont…
0.000% 5.000% 10.000% 15.000% 20.000% 25.000% 30.000% 35.000%
BOK
DCBL
HBL
KUMARI
NABIL
Return on Equity(ROE)
Return on Assets (ROA)
Correlation coefficient:
ROE and liquidity risk share a small share of
relationship and not significant.
They share a positive relationship, which means
that rise in ROE would lead to a rise in cash/total
assets and vice versa
The size of the firm and the ROE share a high
positive significant relationship as ROE and Size
of firms are quite very much related.
A significant negative relationship being
established between ROE and CD ratio.
Therefore, when the ROE is high CD ratio is low.
Cont..
The liquidity risks to the size of the firms share a
low significance positive relationship at o.293
There is not much relationship shown between
the Liquidity risks and size of firms.
Kumari Bank being one of the smallest banks has
a very good liquidity position.
Regression analysis:
liquidity risk = dependent variables and ROE, size
of firms,CD ratio are independent variables.
Multiple R = 0.5010
R Square = 0.2510
Adjusted R Square = 0.1439
Standard Error = 0.0082
Observations = 25
Cont.. The regression analysis done where ROE considered
as the dependent variables and liquidity risk, size, CD
ratio as independent variables.
The overall change in liquidity risks explained by
independent variables would cause 25.1% of change
in the dependent variable Liquidity risks
The standard error of the Liquidity risk is a low at
0.0082, which means other factors have about 0.82%
effect on liquidity risks
The coefficient of Size is 0.0094, which means a unit
change in size would result to 0.0094 units of positive
change in liquidity risks.
Regression analysis:
ROE (dependent variables) and other independent
variables are Liquidity risks, SIZE, Leverage.
Multiple R = 0.7593
R Square = 0.5765
Adjusted R Square = 0.5160
Standard Error = 0.0595
Observations = 25
Cont..
The regression analysis done where liquidity risk
considered as the dependent variables and ROE,
size, CD ratio as independent variables.
The overall change in liquidity risks explained by
independent variables would cause 57.65% of
change in the dependent variable Liquidity risks
The standard error of the Liquidity risk is a low at
0.0595, which means other factors have about
5.95% effect on liquidity risks.
Major Findings: While comparing banks DCBL banks seems to have
the highest risks in terms of liquidity, leverage and
least assets as well.
BOK, Himalayan Bank, Nabil Bank is really
performing well.
Current ratios of the banks are more than required
CD ratio of all the banks average around 70 to 80%,
which is an ideal position to be at.
Liquidity position of Kumari Bank found to be the
safest.
Nabil Bank is the best bank and has high ROE in
comparison to other banks.
Kumari bank is liquid, and it can convert its assets
quickly into cash.
Cont.. Kumari bank to be the best bank in compare to CD
ratio as it in between 80-85% DCBL bank's CD ratio isalmost100% which implies the that all the depositscollected are sanctioned as loan.
Himalayan bank is the largest bank of all amongthose seven banks, where as DCBL which is relativelynew among all and is the smallest bank in terms ofsize.
Nabil Bank has the highest EPS at Rs.110.95 andother banks such as BOK and Himalayan banksshare a high EPS at the same time as DCBL has thelowest and it is the same with kumara Bank.
In case of DPS Nabil Bank has given the highestdividends and kumara having paid the lowest and it’sthe same with DCBL bank as well.
Cont.. The ROA of Kumari is the least. This could be
because of fewer earnings or because of huge assets
in comparison to earnings.
The current assets of all the banks is more than
required at high double digits but Nabil bank has the
lowest at around 4 %.Such high CR would mean high
CA over CL and lesser profits but high liquidity.
Liquid assets/total deposits all banks are at around
10%, which is good for the banks.
Nabil bank has a PE ratio of 0.8120, which means
that it holds a good position in terms of stocks
performance. Such happens because of good profits
and dividends.
Conclusion:
Looking at the profitability ratios Nabil bank
seems to be best because it has highest ROE
and ROA.
In an average, both ROA and ROE of Nabil bank
is higher than other banks. This shows that on
average, in overall profitability analysis, Nabil
bank is doing better than other is and is best.
As per the above liquidity, risk analysis one can
conclude that Kumari bank is liquid and it can
converts its assets quickly into cash followed by
Bank of Kathmandu.
Cont.. DCBL bank and Himalayan bank has lowest cash
to total asset ratio, which means that it is leastliquid than other banks. In terms of size of totalassets Himalayan bank is the largest bank of allamong the five banks followed by Nabil Bank.DCBL, which is relatively new among all, is thesmallest bank in terms of size.
The average CD ratio of DCBL bank is highestamong all and that of Himalayan bank ltd is thelowest. Therefore, we can conclude that DCBLBank was the most risky of all the banks.
DCBL bank seems to have the highest risky interms of liquidity, leverage and least assets aswell.
Thank you