Camel Analysis of Nepalese Commercial Banks: Thesis

CAMEL ANALYSIS OF
NEPALESE COMMERCIAL BANKS

(Everest Bank Ltd, Kumari Bank Ltd, Himalayan Bank Ltd)
THESIS
SUBMITTED BY:
DEVIKA KARKI
SHANKER DEV CAMPUS
ROLL NO. 1895/064
T.U. REGISTRATION NO. 7-2-468-19-2003
SUBMITTED TO:
OFFICE OF THE DEAN
RESEARCH DEPARTMENT
FACULTY OF MANAGEMENT
TRIBHUVAN UNIVERSITY
KATHMANDU, NEPAL
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE

OF
MASTERS OF BUSSINESS STUDIES (MBS)
March 2014
RECOMMENDATION
This is to certify that the Thesis
Submitted by:
DEVIKA KARKI
Entitled
Camel Analysis of Nepalese Commercial Banks

(With reference to Everest Bank Ltd, Kumari Bank Limited, Himalayan Bank Ltd)
has been prepared as approved by this Department in the prescribed format of the Faculty of
Management. This Thesis is forwarded for examination.
--------------------------- ------------------------------------ -------------------------------------
Tri Ratna Manandhar Prof. Dr. Kamal deep Dhakal Associate Prof. Prakash Singh Pradhan
(Thesis Supervisor) (Head of Research Department) (Capmus Chief)
Property of Shanker Dev Campus Library 2

VIVA-VOCE SHEET
We have conducted the viva-voce of the Thesis presented By
Devika Karki
Entitled:
CAMEL ANALYSIS OF
NEPALESE COMMERCIAL BANKS
(With reference to Everest Bank Ltd, Kumari Bank Limited, Himalayan Bank Ltd)
and found the thesis to be the original work of the student and written according to the
prescribed format. We recommend the thesis to be accepted as partial fulfillment of the
requirement for
Master Degree of Business Studies (MBS)
Viva-Voce Committee
Head of Research Department (Member)

.....................................................................
Thesis Suervisor (Member)

......................................................................
External Expert (Member)

......................................................................
Date: ...................................

DECLARATION
I hearby declare that the work reported in this thesis entitled "CAMEL ANALYSIS OF
NEPALESE COMMERCIAL BANKS (REFERENCE TO EVEREST BANK
LIMITED, KUMARI BANK LIMITED, HIMALAYAN BANK LTD)" submitted to Office
of the Dean, Faculty of Management, Tribhuvan University, is my original work done in the
form of partical fulfilment of the requirement for the Master's degree in Business Studies
(MBS) under the close supervision of Lecturer Mr. Tri Ratna Manandhar.
Date: .............................
__________________________________
Devika Karki
Researcher
Shanker Dev Campus
T.U. Regd. No: 7-2-468-19-2003
Campus Roll No: 1895/064

ACKNOWLEDGEMENT
I would like to express my special gratitude to my thesis supervisor Lecturer Tri Tratna
Manandhar and Shanker Dev Campus for their precious help and guidace in the completion
the thesis writing. I want to express many thanks to Everest Bank Ltd, Kumari Bank Ltd,
Himalayan Bank Ltd and Nepal Rastra Bank for providing necessary materials, information
and kind co-operation. I want to extend my thanks to the Library staff of Shanker Dev
Campus as well. And last but not the least, countless thanks to all the friends, teachers and
my parents without the support of whom, I would not be able to complete the thesis.
I welcome any constructive criticism and will be greatful for any appraisal.
_________________
Devika Karki

Table of Contents
Page No.
Chapter 1 - Introduction
1.1 Background 1
1.2 Banking Development in Nepal 2
1.3 Overview of Commercial Bank 3
1.4 List of Commercial Banks in Neal 4
1.5 Introduction of the Commercial Banks 5
1.5.1 Kumari Bank Ltd. 5
1.5.2 Everest Bank Ltd. 6
1.5.3 Himalayan Bank Ltd. 6
1.6 Focus of the Study 7
1.7 Statement of the Problem 7
1.8 Significance of the study 8
1.9 Objective of the study 9
1.10 Limitations of the Study 9
1.11 Organization of the Study 10
Chapter 2 - Review of Literature

2. Conceptual Framework 11
2.1 Capital Adequacy Ratio 11
2.2 Assets Quality 14
2.3 Management Quality 16
2.4 Earning Quality 17
2.5 Liquidity 18
2.6 Review of Books and Articles 19
2.6.1 Capital Adequacy 19
2.7 Review of related research papers 20
2.8 Review of article 25
2.9 Research Gap 27
Chapter 3 - Research Methodology

3. Introduction 28
3.1 Research Design: 28
3.2 Nature and Sources of data 29
3.3 Data Processing Procedures: 30
3.4 Population and sample size 30
3.5 Period of the study 31
3.6 Method analysis 31
3.7 Ratio Analysis 32
Chapter 4 - Data Presentation and Analysis

4.1 Introduction 33
4.2 Data Presentation and Analysis 33
4.2.1 Capital Adequacy Ratio 33
4.2.2 Assets Quality 36
I. Non Performing Loan (NPL) Ratio 37
II. Loan Loss Coverage Ratio 38
III. Loan loss provision ratio 40
IV. Credit-Deposit Ratio (C/D Ratio) 41
PropertyCredit/Deposit
V.Local Currency of Shanker Dev Campus
Ratio Library
(LCY C/D Ratio)6 43
4.2.3. Management (M) 44
I. Management Efficiency Ratio (MER): 45
4.2.4. Earning (E) 47

I. Earnings Per share (EPS): 47
II. Return on Equity (ROE) 49
III. Return on Assets ( ROA) 50
4.2.5 LIQUIDITY 51
. I. Cash Reserve Ratio 52
II. Cash and Bank Balance Ratio 53
III. Investment in Government Securities 55
Chapter 5 - Summary, Recommendations and Conclusion 59

5.1 Summary 59
5.2 Conclusion 60
5.3 Recommendation 62
Bibliography 65
Annex 68

List of Tables
Table No. Discription Page No.
1 Name List of All the Commercial Licensed Banks in Nepal 30

2 Calculation of CAR 34
3 Calculation of Core Capital Ratio 35
4 Loan classification & corresponding loan loss
provision according to NRB directives 37
5 Calculation of NPL Ratios 37
6 Computation of Loan Loss Coverage Ratios 39
7 Computation of Loan Loss Provision Ratios 40
8 Computation of C/D Ratios 42
9 Computation of LCY CD-Ratio 43
10 Calculation of Management Efficiency Ratios 45
11 Earnings per Share 47
12 Computation of ROE 49
13 Computation of ROA 50
14 Computation of CRR 52
15 Computation of Cash and Bank Balance Ratios 54
16 Investment in Government Securities Ratios 55
17 Four years total calculation (F.Y. 2065/66 to F.Y. 2069/70) 57

List of Figures
Figure No. Discription Page No.
1 Capital Adequacy Ratio 35

2 Core Capital Ratio 36
3 NPL Ratios 38
4 Loan Loss Coverage Ratios 39
5 Loan Loss Provision Ratios 41
6 C/D Ratios 42
7 LCY CD-Ratio 44
8 Management Efficiency Ratios Earnings Per share (EPS) 46
9 Earning per share 48
10 ROE 49
11 ROA 51
12 CRR 53
13 Cash & Bank Balance Ratio 54
14 Investments in Government Securities Ratios 56

List of Annex
Annex No. Discription Page No.
1 Total Capital Fund 68

2 Core Capital Fund 68
3 Total Risk Weighted Assets 68
4 Non Performing Loan 69
5 Total Loan & Advance 69
6 Total Loan Loss Provision 70
7 Total Deposit 70
8 Total Local Currency (LCY) Credit 71
9 Net Profit after Tax 71
10 Number of Staff 72
11 Total Number of Shares 72
12 Total Assets 73
13 Cash & Bank Balance 73
14 Investment in government securities 74

Abbreviation
ABBS Any Banking System
ATM Automated Teller Machine

C&B Cash & Bank Balance
C/D Ratio Credit-Deposit Ratio
CAMEL C - Capital adequacy
A - Asset quality
M - Management quality
E - Earnings
L - Liquidity
CAR Capital Adequacy Ration
Core Capital Ratioo

CCR
EBL Everest Bank Ltd.
EPS Earning Per Share
FEDAN Foreign Exchange Dealers Association of Nepal
Fig. Figure
Gov. Government
HBL Himalayan Bank Ltd.
KBL Kumari Bank Ltd.
LCY Local Currency
LCY C/D Local Currency Credit/Deposit
LLCR Loan Loss Coverage Ratio
Ltd. Limited
MER Management Efficiency Ratio
MPS Market Value Per Share
No. Number Property of Shanker Dev Campus Library 11

NPAT Net Profit After Tax
% Percentage
NPL Non-Performing Loan
NRB Nepal Rastra Bank
ROA Return on Assets
ROE Return on Equity
RONW Return on Net Worth
T.U. Tribhuvan University

Chapter 1
Introduction
1.1 Background
The economic development is a way out to remove all ills for steeping up low income, living
standards and market for development. Banking sector plays a significant role in an overall
economic development of any country. So the role and importance of financial or banking
sector cannot be undermined. Thus, it is also said that banking sector mirrors the larger image
of economy. Bank is the financial institution, which deals with money. Banks provide loans for
the needed and collect money from those who have surplus. Banks charge and provide
interest for loan and deposit. Bank not only provide and collect money it provides many
services nowadays like -money transfer, foreign currency deposit, foreign exchange and
others. Every banks collects deposit from those who have surplus of money and invest them in
different profitable sector.
Banking sector plays vital role in collecting household saving and regulating them in different
sectors of the economy. The banking sector helps in the development of economy by the
formation of the capital. Banking sector has reached in the remote areas of the country and
has experienced good deal in the growth of the economy – in remote area collecting little
saving of the household and investing (lending) their resources to different sector under
incentive banking program has enhanced in the growth of the economy.
The word Bank was originated from the Italian word “Banco” which means bench. In the
earlier stage, bank was the place for keeping and lending money. But with the evolution of
transaction and globalization, the meaning and function of bank is changed. Now the word
'Bank' refers to those institutions, which are established under the law, for dealing with
monetary transactions. In short, banks are those institutions, which are established under
certain act to perform monetary and credit transactions. Since the bank cannot be defined
with the exact one meaning, it has been tried to define by using different definitions by
different scholars such as:
A bank is an organization whose principal operations are concerned with the accumulation of
the temporarily idle money of the general public for the purpose of advancing to other for
expenditure. (Kent)
An establishment of the custody of money which it pays out on customer’s order. (Concise
Oxford Dictionary)
Thus, we can say that a bank is an institution, which accept deposit and in turn lend it to
people who are in need of financial resources. These institutions make the flow of investment
easier, so we cannot deny that bank plays vital role in the development of an economy.
1.2 Banking Development in Nepal
In Nepalese history, Shankhadhar Shakhwa, a sudra merchant of Kantipur in around 880 AD,
introduced New era known as Nepal Sambat after having paid all the outstanding debts in the
country. This shows the system of granting loan was prevalent from ancient time. In 11th
century, during Malla regime there was an evidence of professional moneylenders and
bankers. It is further believed that money-lending business, particularly for financing the
foreign trade with Tibet, became quite popular during reign of Mallas. In 14th century, a class
of people called 'Tankadhari' used to exchange money and provide loans. During the year 1877
AD the 'Tejarath office' used to give loans to general public at very low rate of 5 percent. It
distributed loan to public especially on the collateral of gold and silver. The need of banking
institution was realized when situation caused by 1934 AD's earthquake where there was a
need of finance for the reconstruction of works. In 1937 AD "Nepal Bank Act" was formulated
and in the following year Nepal Bank Ltd. was established as the first commercial bank of
Nepal. Rastriya Banijya Bank, the second commercial bank, established in 1966, is a largest
commercial bank playing vital role in Nepalese economy. Hence, the modern banking in Nepal
has started in real sense with the establishment of Nepal Bank Ltd.

1.3 Overview of Commercial Bank
A commercial bank is a type of financial intermediary and a type of bank. Commercial

banking is also known as business banking. Commercial banks are organized on a joint
stock company system, primarily for the purpose of earning a profit. Commercial bank
is the oldest type of bank. In general, the term bank is used to mean a commercial bank.
This type of bank was initially established to provide short-term loans to the traders.
Hence, this bank is called commercial bank. Commercial banks are those banks, which
perform all kinds of banking functions such as accepting deposits, advancing loans,
credit creation and agency function. They are also called joint stock banks because they
are organized in the same manner as joint stock companies. Commercial banking may
also be seen as distinct from retail banking, which involves the provision of financial
services direct to consumers. Many banks offer both commercial and retail banking
services.
According to the World Bank - "Banks are the financial institutions that accept funds in the
form of deposits repayable on demand or in short notice". Thus, banks that collect deposits
and advances loans are called commercial banks and profit maximization is the main
objectives of this bank.
Nepal Bank Ltd, the first commercial bank of Nepal was established in 1937. Today, there are
32 commercial banks in Nepal. These banks provide loan not only to traders but also
agriculture, industry and services. Commercial banks pool together the saving of community
and arrange for their productive use. They finance the short-term needs of funds of trade and
industry i.e. working capital financing. They grant loan in the form of cash, credit and
overdraft. Apart from financing, they also render services like collection of bills, keeping of
valuable assets safely to their customers. These are really targeted to earn profit and also
concerned to accelerate common people’s economic welfare.
Functions of Commercial Banks
• Current, savings, call and fixed deposit accounts in local & Foreign currency
• Auto loan, home loan, personal loan, educational loan, working capital loan
• Fund transfer services-local & international-drafts
• Foreign Exchange Services
• Safe deposit lockers
• 24 hour ATM services, debit card, Master card
• Credit card services-Issuing & Acquiring
• Extra banking-365 days banking
• Priority Banking, Home banking
• SMS Banking
• Electronic banking
• Bank overdraft, cash credit & discounting of bills
• Corporate employee accounts
• Letter of credit-Issuance & acceptance
• Guarantees- Issuance & acceptance
• Work as referee
• Cheque writer
• Cash Management
• Forward exchange rates
• Economic information & statistics
1.4 List of Commercial Banks in Nepal
1. Nepal Bank Limited

2. Rastriya Banijya Bank
3. Nabil Bank Limited
4. Nepal Investment Bank Limited
5. Standard Chartered Bank limited
6. Himalayan Bank Limited
7. Nepal SBI Bank limited
8. Nepal Bangladesh Bank
9. Everest Bank Limited Limited
10. Bank of Kathmandu limited
11. Nepal Credit and Commerce Bank Limited
12. Lumbini Bank Limited
13. Nepal Industrial and Commercial Bank Limited(NIC)
Property
14. Machhapuchhre of Shanker Dev Campus Library 16
Bank Limited
15. Kumari Bank Limited
16. Laxmi Bank Limited
17. Siddartha Bank Limited
18. Agriculture Development Bank Limited
19. Global Bank Limited
20. Citizens Bank Limited
21. Prime commercial Bank Limited
22. Bank of Asia Nepal Limited
23. Sunrise Bank Limited
24. NMB Bank Limited
25. Grand Bank Nepal Limited(renamed from 1st Baisakh 2069)
26. KIST Bank Limited
27. Janata Bank Nepal Limited
28. Mega Bank Nepal limited
29. Commerz and Trust Bank Nepal Ltd.
30. Civil Bank limited
31. Century Commercial Bank limited
32.Sanima Bank Limited
1.5 Introduction of the Concerned Banks
1.5.1 Kumari Bank Ltd.
Kumari Bank was established in the year 2001 with the objective of providing full
range of financial services, including deposits, consumer finance, commercial banking
and corporate investment banking. The bank believes in good corporate governance
with transparency in all dealings and conduct. Bank’s priority stands in providing
world class services to the customers at higher satisfaction level. Practicing total
quality management by embracing good governance to optimize assets in order to
achieve sound business growth is the vision of this bank. It aims to position itself as a
provider of "Complete Banking" solutions by providing a wide range of traditional
and innovative banking products and services to all segments of the Nepalese
economy.
1.5.2 Everest Bank Ltd.
Founded in 1994, with a objective of extending professionalized and efficient banking

services, the bank has been catering its services to various segments of the society
since then. With clients from all walks of life, the bank has helped develop the nation
corporately, agriculturally and industrially. With an aim to help Nepalese citizens
working abroad, the bank has arrangements with banks and finance companies in
different countries, which enable quick remittance of funds in countries like UAE,
Kuwait, Bahrain, Qatar, Saudi Arabia, Malaysia, Singapore and U.K. Bank has
representative offices at New Delhi (India) to support Nepalese citizen remitting
money and advising banking related services. EBL was one of the first banks to
introduce Any Branch Banking System (ABBS) in Nepal. EBL has introduced Mobile
vehicle banking system to serve the segment deprived of proper banking facilities
through its Birtamod Branch, which is the first of its kind. It also introduced
branchless banking system to cover unbanked sector in Nepal. Today, EBL is
Catering to more than 4 lacks customers.
1.5.3 Himalayan Bank Ltd.

Himalayan Bank was established in 1993 in joint venture with Habib Bank Limited of
Pakistan. Despite the cut-throat competition in the Nepalese Banking sector,
Himalayan Bank has been able to maintain a lead in the primary banking activities-
Loans and Deposits. HBL is known throughout Nepal for its innovative approaches to
merchandising and customer service. Products such as Premium Savings Account,
HBL Proprietary Card and Millionaire Deposit Scheme besides services such as
ATMs and Tele-banking were first introduced by HBL. It stands for the innovations
that it brings about in this country to help Customers. Living up to the expectations
and aspirations of the Customers and other stakeholders, HBL very ecently has
introduced several new products and services like Millionaire Deposit Scheme, Small
Business Enterprises Loan, Pre-paid Visa Card, International Travel Quota Credit
Card, Consumer Finance through Credit Card and online TOEFL, SAT, IELTS, etc.
fee payment facility. All Branches of HBL are integrated into the single Banking
software, Globus. HBL is the biggest inward remittance handling Bank in Nepal. HBL
is also the committed corporate citizen, committed towards Corporate Social
Property
Responsibility (CSR). of Shanker
HBL Dev
holds of a Campus
vision toLibrary
become18a Leading Bank of the
country and to become the Bank of first choice is the main objective of the Bank. The
most recent rating of HBL by Bankers’ Almanac as country’s number 1 Bank
1.6 Focus of the study
This study is focused on comparing the financial soundness and performance of Kumari Bank
Limited, Everest Bank Limited and Himalayan Bank Limited in the framework of CAMEL by
using descriptive and analytical research design.
NRB has become very critical on requirements to maintenance of capital adequacy ratios,
liquidity ratios in the banks’ deposit collection and lending activities. As long as the banks are
able to maintain the requirements on these aspects they are allowed to carry out their full
fledge banking activities. Similarly banks’ profitability and efficiency have impacts on the
investors.
Here, we assess the bank’s efficiency, effectiveness and soundness through CAMEL.CAMEL
focuses on Capital adequacy, Assets, Management, Earning capability and Liquidity of the
bank.
1.7 Statement of the problem
The country is in a backward position on the ground of socio-economic development. But

Financial Institutions are continuously booming faster resulting tough competition on this
area. In such situation, it is quite tough for general public or investors to perfectly analyze
and decide which financial institution to select or which to shy away. Often investors invest
in single equity rather than investing in diverse equity by applying portfolio concept and bear
high risk with huge losses. Therefore, this thesis makes an attempt to supply proper
information and guidance to the investors so that it would be helpful to take proper
investment decision.
Because of the lacking constitution of the nation, increasing uncertainty, political instability
and soaring inflation, economy is being affected. Basically, the adverse effect is being
visualized in banking sector which plays a vital role in the advancement of the economy. In
this rundown situation, banks are one of the most powerful tools for maintaining the
consistency in the economy but they are also facing problems in respect to the directives
laid by the central banks of the Nepal, Nepal Rastra Bank. The commercial banks of Nepal
have to follow the rules and regulation set by the Nepal Rastra Bank. Here this research
work is being conducted to find out the answers of the following questions:
• Are banks maintaining adequate capital as per the directive of Nepal Rastra Bank?
• Are banks managing the assets properly for the smooth functioning of their business?
• Is banks' management competent enough to handle the contemporary pressure and

problems of the business and take their organization to a new height?
• Are banks earning enough revenue and profit to satisfy their depositors & shareholders?
• Are banks maintaining enough liquidity to run their business smoothly?
1.8 Significance of the study
The study benefits to lots of potential groups like share holders, merchant bankers,
management teams of banks, depositors, stakeholders and policy makers of the concerned
banks. The general public will find them easy to categorize the commercial banks on their
performance standards and can invest accordingly. Shareholders and stakeholders find it
easy to get information about the risk and return of concerned banks. On the other hand,
the management can do their bank's SWOT analysis on the basis of this CAMEL rating and
can plan accordingly. With the help of this rating, Nepal Rastra Bank can easily set standards
for the banks and can advise them to improve accordingly. Apart from this, the study adds
new to the existing literature which definitely benefits researchers for their future research
work.

1.9 Objective of the study
The purpose of this work is to measure the financial performance and soundness of the
banks. In another word, the objective of the project is to know the financial backbone of
banks or financial institutions. The main objective of the study lies on the role of profit
planning process that considerably contributes to improve not only the profitability of the
banks but also to improve overall financial performance. The main aim of the CAMEL is to
forecast further events and to overcome or reduce the risk from uncertainty.
The CAMEL framework helps to evaluate the overall financial and general conditions of a
banking institution. CAMEL is the acronym for “capital adequacy, asset quality, management
quality, earnings and liquidity position”. Bank supervisory authorities assign each bank a
score on a scale of 1 (best) to 5 (worst).
The specific objectives of the study are:-
• To evaluate and analyze capital adequacy of the bank which shows the adequacy of
capital in the contingent situation.
• To evaluate and study the assets quality of overall banks.
• To evaluate the management quality and to study the impact in respect to the market
scenario.
• To analyze and evaluate the persistent earnings of the banks.
• To analyze and evaluate the liquidity condition of the banks so that in future the safety
liquidity position can be made accordingly.
• To provide suggestions and recommendations to the concerned banks for future
improvement.
1.10 Limitations of the study
1. This study onlyProperty

covers theofperiod
Shanker Devlast
for the Campus
5 years,Library 21 to 2069/70
i.e. 2065/66
2. This study only focuses on financial performance and soundness of the three different
banks focusing on five factors i.e. CAMEL study.
3. Data is dependent on the accuracy of the website used and the publications (Annual
Reports).
4. Time and resources constraints may limit the areas covered by the study.
5. Only three firms are taken as sample for the study.
1.11 Organization of the study
The whole study has been divided into five chapters as follows:
Chapter I: Introduction
This Chapter deals with the introductory part of the study which includes background of the
study, focus of the study, statement of the problem, objectives of the study, limitations of
the study, significance of the study and organization of the study.
Chapter II: Review of Literature
This Chapter includes theoretical analysis and brief review of related and pertinent literature
assailable. It includes a discussion on the conceptual teamwork of the major studies.
Chapter III: Research Methodology
This Chapter deals with research methodology used to carry out the research. It includes
research design, nature and sources of data, population and sample, data analysis tools and
limitation of the methodology.
Chapter IV: Data presentation and analysis
This Chapter is the main part of the study, which deals with analysis and Interpretation of
data using Accounting and Statistical tool, which is described in Chapter III. This chapter also
includes the majorProperty
findings of
ofthe study. Dev Campus Library 22
Shanker
Chapter V: Summary, Conclusion and Recommendation
This Chapter covers the summary, conclusion, recommendation and possible suggestions of
the entire study.

Chapter – 2
Review of Literature
2. Conceptual Framework
Different models are in use to rate the commercial banks. CAMEL is one of the best tools used to
rate the quality of commercial banks. The method has even been adopted by Nepal Rastra Bank and
publishes it time to time. "CAMEL" is an international bank rating system under which bank
supervisory authorities rate institutions according to five factors. The five areas examined are
represented by the acronym "CAMEL."
The five factors examined are as follows:
C - Capital adequacy
A - Asset quality
M - Management quality
E - Earnings
L – Liquidity
2.1 Capital Adequacy Ratio
The Basel capital adequacy ratio was adopted in 1988 by the Basel Committee on Banking
Supervision as a benchmark to evaluate whether banks operating in the G-10 countries have
adequate capital to survive likely economic shocks. The ratio calls for minimum levels of capital to
(i) provide a cushion against losses due to default arising from both on- and off-balance sheet
exposures;
(ii) demonstrate that bank owners are willing to put their own funds at risk;
(iii) provide quickly available resources free of transactions and liquidation costs;
(iv) provide for normal expansion and business finance;
(v) level the playing field by requiring universal application of the standard to internationally active
banks;
(vi)Encourage less risky lending.
Banks should have sufficient capital in relation to the volume and risky of their business to absorb
losses without using depositors' funds. This capital investment gives owners and managers a
powerful incentive to run the bank safely and soundly. Conventionally, the adequacy of the amount
of capital available to buffer against losses is measured by a so-called capital adequacy ratio.
However, capital is simply the difference between the value of a bank's assets and its liabilities to
third parties. Its calculation depends fundamentally, therefore, on the value attributed to its assets.
There are two main types of capital adequacy ratios: the "risk assets" method as used in the Basle
Capital Accord, and the simpler "gearing" or "leverage" ratio, which is the ratio between share
holders' funds and total assets or liabilities. Both types of ratios tend to address credit risk: the risk
of non re-payment of a credit granted by the bank. Some countries, including the United States,
apply both systems in parallel. The Basle capital standard calls for a ratio between capital and risk-
weighted assets of at least 8 percent. This ratio, designed to establish minimum levels of capital for
internationally active banks is now applied in the G-10 countries, as well as in the European
Economic Area, 90 and in some 80 other countries worldwide. However, even in the industrialized
countries, with relatively well-managed and highly diversified banks operating in an established
financial environment, an 8 percent ratio is generally seen as an absolute floor, and the banking
systems in most of these countries have ratios that are considerably higher. In developing and
transition economies, proper account needs to be taken of the higher risk environment in those
countries when determining how the numerator and denominator of the capital adequacy ratio are
to be calculated. For instance, the risk weights attached to particular categories of assets could be
set at a higher level, to reflect higher risk. For example, if a government has a history of not meeting
promptly interest payments on its obligations, the usual zero percent risk weighting may not
adequately reflect the risk. Also, the quantitative standard could be set at higher than 8 percent, or
the calculation of capital made more limited, thus requiring more capital. This mechanism imposes a
natural restraint on the expansion of a bank's risk assets, since more capital will have to be raised to
support those assets. It is sometimes argued that higher capital requirements place banks in such
countries at a competitive disadvantage relative to banks operating in G-10 countries. However, the
counter argument is that a higher ratio basically reflects higher risk, for which the bank needs an
adequate buffer. Therefore, the basic issue when a country describes itself as using the "Basle"
model is not whether the appropriate adaptations have been made to reflect local conditions.
Unless the proper loan provisioning and interest suspension rules have been applied, capital may be
overstated to the point where any ratio analysis becomes meaningless. Moreover, ratio analysis
needs to be complemented by a qualitative assessment of the bank's ability to manage its risks. The
traditional capital adequacy ratios were developed to address the credit risks in banks' portfolios.
But banks also carry other significant risks for which a capital buffer is required, notably market risk-
that is, the risk of a change in the market value of an asset or commitment. This type of risk is
inherent in banks' holdings of trading portfolio securities, financial derivatives, and open foreign
exchange positions. Banks are also vulnerable to interest rate risk when there is a substantial
difference between the effective maturities, or pricing intervals, between liabilities and assets.
Adequacy standards against such market risks are now being introduced.
THE BASLE CAPITAL ACCORD:
The Basle Capital Accord of 1988 defined capital, the numerator in the risk asset ratio, as follows:
Tier I capital includes issued and paid-up share capital, non-cumulative preferred stock, and
disclosed reserves from post tax retained earnings. It is the highest quality capital, and should form
no less than 50 percent of total regulatory capital.
Tier II capital can include a range of other items, including undisclosed reserves that have passed
through the profit and loss account; conservatively valued revaluation reserves; revaluation of
equities held at historical cost can be included at a discount; general loan loss reserves, up to 1.25
percent of risk-weighted assets; hybrid debt instruments available to support losses without
triggering liquidation; and subordinated term debt, up to a maximum of 50 percent of Tier I capital.
Goodwill and investments in other banks and financial institutions should normally be deducted. For
most banks the use made to Tier II capital is much less than 50 percent.
The bank's assets are divided into four or more categories of risk, for instance,
1. Commercial loans,
2. Mortgage lending,
3. Inter-bank debt, and
4. Government debt.
For each risk category, a risk weighting is established. This weighting, or coefficient, is applied to the
total amount of assets in each category. Normal credit risks are assigned a 100 percent rating, while
the other risk categories carry a lower weighting, based on the risk of that category relative to
normal credit risks. The amounts obtained for each of the categories are added to obtain the total of
"risk weighted assets," which is the denominator of the risk-weighted ratio. Off-balance sheet items
are also included in the ratio, converted into credit equivalents by applying conversion factors
reflecting the degree to which an off-balance sheet items reflect expected on-balance sheet credit
commitments of the bank. The Basle Committee considers that the risk-weighted ratio has three
advantages over the gearing ratio.
• First, it does not penalize banks for holding relatively low-risk assets such as government
securities;
• Second, it allows for incorporation of off-balance sheet items; and
• Third, it allows for better international comparisons of banks with different balance sheet
structures.
2.2 Assets Quality
EVALUATION OF ASSET QUALITY
The asset quality rating reflects the quantity of existing and potential credit risk associated with the
loan and investment portfolios, other real estate owned, and other assets, as well as off balance
sheet transactions. The ability of management to identify, measure, monitor, and control credit risk
is also reflected here. The evaluation of asset quality should consider the adequacy of the Allowance
for Loan and Lease Losses (ALLL) and weigh the exposure to counter-party, issuer, or borrower
default under actual or implied contractual agreements. All other risks that may affect the value or
marketability of an institution's assets, including, but not limited to, operating, market, reputation,
strategic, or compliance risks, should also be considered. Prior to assigning an asset quality rating,
several factors should be considered. The factors should be reviewed within the context of any local
and regional conditions that might impact bank performance. Also, any systemic weaknesses, as
opposed to isolated problems, should be given appropriate consideration. The following is not a
complete list of all possible factors that may influence an examiner’s assessment; however, all
assessments should consider the following:
1. The adequacy of underwriting standards, soundness of credit administration practices, and

appropriateness of risk identification practices.
2. The level, distribution, severity, and trend of problem, classified, non-accrual, restructured,
delinquent, and nonperforming assets for both on- and off balance sheet transactions.
3. The adequacy of the allowance for loan and lease losses and other asset valuation reserves.
4. The credit risk arising from or reduced by off-balance sheet transactions, such as unfunded
commitments, credit derivatives, commercial and standby letters of credit, and lines of credit.
5. The diversification and quality of the loan and investment portfolios.
6. The extent of securities underwriting activities and exposure to counter-parties in trading

activities.
7. The existence of asset concentrations.
8. The adequacy of loan and investment policies, procedures, and practices.
9. The ability of management to properly administer its assets, including the timely identification
and collection of problem assets.
10. The adequacy of internal controls and management information systems.
11. The volume and nature of credit documentation exceptions.
As with the evaluation of other component ratings, the above factors, among others, should be
evaluated not only according to the current level but also considering any ongoing trends. The same
level might be looked on more or less favorably depending on any improving or deteriorating trends
in one or more factors. The examiner should never look at things in a vacuum, instead, noting how
the current level or status of each factor relates to previous and expected future performance and
the performance of other similar institutions. Asset quality is one of the most critical areas in
determining the overall condition of a bank. The primary factor effecting overall asset quality is the
quality of the loan portfolio and the credit administration program. Loans are usually the largest of
the asset items and can also carry the greatest amount of potential risk to the bank’s capital
account. Securities can often be a large portion of the assets and also have identifiable risks. Other
items which impact a comprehensive review of asset quality are other real estate, other assets, off-
balance sheet items and, to a lesser extent, cash and due from accounts, and premises and fixed
assets. This is one of the most critical factors in determining overall condition of any bank. Primary
factors that can be considered are the quality of loan portfolio, mix of risk assets and credit
administration system. The assets quality helps to maintain the smoothness of the organization.
Under assets quality following parameter can be analyzed:
1. Non-Performing assets (NPA) to Total Credit: Nonperforming assets are the doubtful to
return the principal and/or interest due to the near future. This result in huge losses to a
bank, therefore, low profit with low NPA is preferable rather than high profit with high NPA.
2. Loan Loss Coverage Ratio: It is mandatory for every bank to keep some provision. It indicates
the provision made by bank for exposure of loan losses in terms of non-performing loans.
Higher the LLCR, safer are the depositors and vice versa.
3. Total Loan Loss Provision to Total Credit: Total loan loss provision to total credit shows the
aggressiveness of loan flow and the quality of loan to the customer.
4. Credit-Deposit Ratio (C/D Ratio) : The C/D Ratio shows the relationship between total credit
and total deposit. The total credit is the summation of the performing and non-performing
loans and the total deposit consists of the interest bearing and non-interest bearing
deposits.
5. Local Currency Credit/Deposit Ratio (LCY C/D Ratio) : This ratio shows the relationship
between the credit outflow in local currency and the deposit in local currency.
2.3 Management Quality

Since management quality is inextricably tied to a bank’s success or failure, it is important to develop
and improve methods for grading management efficiency. These efficiency scores suggest that
significant differences in performance and soundness exist between the most efficient and least
efficient institutions and point to the hump in the CAMELS rating as an important indicator of a
bank’s ability to survive. Sound management is key to bank performance but is difficult to measure.
It is primarily a qualitative factor applicable to individual institutions. Several indicators, however,
can jointly serve—as, for instance, efficiency measures do—as an indicator of management
soundness. This parameter evaluates management quality so as to assign premium to better quality
banks and discount poorly managed ones. As management quality is a subjective measure, it is very
difficult to prescribe any specific rating method for this parameter, leaving this parameter open to
subjective judgments. Under management quality following parameter can be analyzed:
1. Management Efficiency Ratio (MER): This ratio shows contribution of each staff in
generating total net income after tax. It shows the overall efficiency of the bank’s staff. The
higher ratio indicates existence of the efficient management and lower ratio indicates the
inefficient management.
2. Comparative analyses of selected banks: The subjective analysis helps to know which banks
provide the better service to the customers and which banks has a better brand positioning.
However, the data is based on a few branches and no scientific sampling was done to select
the branches to visit.
2.4 Earning Quality
Chronically unprofitable financial institutions risk insolvency. Compared with most other indicators,
trends in profitability can be more difficult to interpret—for instance, unusually high profitability can
reflect excessive risk taking. This parameter lays importance on how a bank earns its profit. This also
explains the sustainability and growth in earnings in the future. Under Earning quality following
parameters can be analyzed:
1. Earnings per share (EPS): It measures the shareholders’ gain from each share held. It shows
the earning power of the bank. The higher ratio of EPS shows higher amount return for the
shareholders.

2. Return on Equity (ROE): Return on Equity is the benefit that a shareholder receives from the
investment in an organization. ROE is the bank’s net income after tax to total shareholder’s
fund or net worth.
3. Return on Assets (ROA): ROA shows the productivity of the assets held by an organization.
This ratio judges the effectiveness in using the total fund supplied by the owners and
creditors. The higher ratio shows the effective utilization of the assets and vice versa.
2.5. LIQUIDITY
Banks are in a business where liquidity is of prime importance. Banks must be able to manage
demand and supply of funds. Cash balance, bank balance, investment in government bonds are the
most liquid form of assets. Liquidity is the degree to which an asset or security can be bought or sold
in the market without affecting the asset's price. This ability to convert an asset to cash quickly is
also known as "marketability". It is safer to invest in liquid assets than illiquid ones because it is
easier for you to get your money out of the investment. Examples of assets that are easily converted
into cash include blue chip and money market securities. The term liquidity is used in various ways,
all relating to availability of, access to, or convertibility into cash.
• An institution is said to have liquidity if it can easily meet its needs for cash either because it
has cash on hand or can otherwise raise or borrow cash.
• A market is said to be liquid if the instruments it trades can easily be bought or sold in quantity
with little impact on market prices.
• An asset is said to be liquid if the market for that asset is liquid. The common theme in all three
contexts is cash. A corporation is liquid if it has ready access to cash. A market is liquid if
participants can easily convert positions into cash. An asset is liquid if it can easily be converted
to cash. The liquidity of an institution depends on:
• The institution's short-term need for cash;
• Cash on hand;
• Available lines of credit;
• The liquidity of the institution's

Property ofassets;
Shanker Dev Campus Library 31
• The institution's reputation in the marketplace—how willing will counterparty is to transact
trades with or lend to the institution?
Liquidity can be measured in the following ways:
1. Cash Reserve Ratio (CRR): This is the amount of money that the banks have to necessarily
park with Nepal
2. Cash and Bank Balance Ratio: Cash and bank has the highest liquidity and safety among all
assets. The C & B Ratio shows the percent of deposit maintained as liquid assets as
compared to the total deposits.
3. Investment in Government Securities: Investment in government securities are the second

most liquid asset of any bank. Banks invest their idle funds in risk free and highly liquid
government securities. This makes it possible to meet any immediate liquidity obligation
while at the same time earn some returns.
2.6 Review of Books and Articles
2.6.1 Capital Adequacy
As an international standard, capital adequacy has been developed to ensure banks to absorb a
reasonable level of losses before becoming bankrupt. Since it was launched in 1988, the Basel
Capital Accord has become the global standard by which the financial soundness of banks is
assessed. The outcome of an agreement among the members of the Basel Committee on Banking
Supervision, comprising bank regulators from the Group of 10 countries, the Accord was originally
intended to apply only to internationally active banks headquartered in those countries. It is now
applied, however, in most countries-industrial, emerging, and developing—and to most banks,
including many that operate only domestically. The Accord's original aims were to stem the decline
in bank capital observed for much of the twentieth century. To achieve these objectives, the Basel
Committee developed a simple risk-measurement framework that assigned all bank assets to one of
four risk weighting categories, ranging from zero to 100 percent, depending on the credit risk of the
borrower. Inter-bank lending generally attracts a 20 percent risk weighting. The Basel methodology
requires banks to maintain a minimum ratio of capital to total risk-adjusted assets—that is, the total
for all of a bank's assets, after the amount of each asset has been multiplied by the relevant risk
weighting—of 8 percent. The Basel Committee has decided to revise the Accord now for a number of
Property
reasons. Many leading banks haveofargued
Shanker Dev
that Campus
their Library
internal 32
risk-management systems provide
better evaluations of risk than the Basel Committee's framework, which, they argue, provides
insufficient differentiation of bank assets by broad risk categories. Although the Accord initially
forced banks from the Group of 10 countries to raise additional capital, more than a decade of
financial innovation has created risks that are not encompassed by its measurement framework. This
document introduced three
pillars—
1. Improving the framework for calculating capital adequacy,
2. Developing a process of supervisory review, and
3. Strengthening market discipline.
2.7 Review of related research papers
In this chapter, different previous studies have been reviewed so that the chances of duplication will
be avoided from the present study and some newness can be created in this field of study. Since this
is my new field of study, I have taken information from the most related thesis so that any new
information can be value added for my thesis work.
Shrestha, Sanjay (2012) conducted a research study entitled "Evaluation & Comparision of the
Financial Position of the sample banks using Camel Rating System", an unpublished Master's Degree
Thesis, T.U September 2012, has taken five sample banks – Kumari Bank, Siddhartha Bank,
Machhapuchhre Bank, NIC Bank and Laxmi Bank. His studies show that NIC Bank is in better position
with respect to Core Capital whereas, Machhapuchhre Bank for Capital Adequacy Ratio. Likewise,
Laxmi bank seems well efficient in handling loan as it has least Loan loss provision ratio while all
others have high provision and has excess liquidity indicates less investment portfolio. So they are
suggested to maintain balance between their investment and reserve cash. CRR of KBL & SBL is
below prescribed standard set by NRB. So, these two banks are suggested to focus on CAR and CRR
just above the NRB Standard so they may not face the liquidity crisis. It is equally important for
banks to make fund available for investment and maintain the minimum level of liquidity as well.
Thus, Banks are encouraged to take risks & make investment in other sector for high return.

Manandhar, Bina (2011) conducted a research study entitled "A case study on Camel Analysis of
Commercial Banks", an unpublished Master's Degree Thesis, T.U May 2011 has taken four sample
banks – Siddhartha Bank, Everest Bank, Laxmi Bank and Bank of Kathmandu. Her findings shows that
Everest Bank has performed well and Laxmi has performed badly among the selected banks. It also
shows that Everest bank has lowest while Laxmi bank has highest Capital Adequacy Ratio and Core
Capital Ratio as compare to other banks. Laxmi Bank is better in NPL Ratio and seems more efficient
in handling loan as it has least Loan loss provision ratio and also shows sound credit management
policy as compare to other banks. SBL has the highest and EBL has the lowest C/D Ratio. BOK has the
highest and LXBL has the lowest MER. EBL has the highest and LXBL has the lowest EPS. BOK has the
highest and the EBL has the lowest CRR. EBL has maintained highest & SBL has maintain lowest C&B
Ratio. All other banks have high provision and have excess liquidity which indicates that their
investment portfolio is less. So they are suggested to maintain balance between their investment
and reserve cash. CRR of KBL & SBL is below standard set by NRB. So, these two banks are suggested
to manage CAVR and CRR just above the NRB Standard so they may not face the liquidity crisis. It is
equally important for banks to make fund available for investment and maintain the minimum level
of liquidity as well. Banks are encouraged to take calculated risks & invest capital in other sectors
where returns are higher.
Esha Rai (2010), conducted a research study entitled, ‘A Study of Camel Analysis of Commercial
Banks, with reference to Everest Bank Limited, Bank of Kathmandu and Nepal Industrial and
Commercial Bank Ltd., an unpublished Master Degree Thesis, T.U, 2010. Research was conducted
within the framework of descriptive and analytical research design. The analysis shows the mixed
results. If one indicator indicates one bank to be better than another might shows differently. All the
banks undertaken for study have maintained the standard of NRB with respect to CAR and CCR.
Hence, NIC having least CCR of 10.60% and Machhapuchhre Bank having least CAR of 12.82% can be
considered good. It shows Laxmi bank to have least non performing loan as compared to other
samples bank. Most of the indicators show that NIC and are better than their rivals. While EIR and
CMLR result shows that there is only slight difference in the in these ratios of NIC and Siddhartha
which indicates that their management is better in comparison with other banks under study.NIC
leads all other banks in earning quality indicator and LADR and CRR ratios while Siddhartha is slightly
back in some while is also leading in CAVR and LDR and ROA too. Overall, her studies show that NIC
is better among 5 sampled banks.

Bhandari (2006) used descriptive analysis in his research work of evaluating financial performance of
Himalayan Bank in the Framework of Camel during 1999 to 2004 A.D. The analysis revealed
adequate capital of the bank. The non performing loans though are in decreasing trend is still a
matter of concern. The bank is still with better ROE however it is in decreasing trend. The decreasing
trend of net interest margin shows management slack monitoring over the bank’s earning assets.
The liquid funds of total deposit ratio is above industrial average ratio. The NRB balance and cash in
vault to total deposit ratios is below the industrial average ratio during the study period.
Dhungel, Preetam (2006), conducted a research study on “Credit Management In Nepalese

Commercial Banks (Nabil bank limited and Everest Bank) an unpublished Master's Degree Thesis, T.U
July 2006 has attempted to examine the norm of credit management in Nepalese Commercial Banks.
The study was undertaken to find out whether the credit management by financial institutions are
quality or quantity. The effort reveals there was a significant impact of credit in Nepalese banking
sector in terms of performance. The analysis of Non Performing Loan (NPA) is directly related with
the credit management of the banks. The study has shown that the good credit management has
lower NPA whereas the aggressive credit policy has higher NPA.
Though the research has covered the handful quality part of credit, it has ignored the standard credit
deposit ratio evaluate the performance criteria. The impact of aggressive credit management and
liquidity aspect has totally ignored in the study
Tiwari, Din Nath (2006) has conducted a research study on “Credit Management of Himalayan bank”
an unpublished Master's Degree Thesis; T.U July 2006 has attempted the good effort in analyzing the
credit management. Here the attempt was shown on the basis of liquidity position, current ratio and
loan and advances to total assets with respect to the credit management of the bank. The study was
undertaken to show the relation among good credit management and liquidity management, total
assets etc. Though the research is one of the good finding in the area of credit management, it has
also failed to show the credit deposits ratio of the bank in relation with the credit management. The
risk of having high credit deposit management in relation to NPA and bad loans has totally ignored in
the study.

Neupane, Hari Prasad (2006) has conducted the research study on : A study of cash flow analysis of
commercial banks in Nepal” an unpublished Master's Degree Thesis, T.U July 2006 has attempted to
examine liquidity aspect of the commercial banks. Here he has focused more on the cash flow aspect
of the commercial banks to meet the day to day operation cash flow. The relation between good
liquidity and soundness of the banks has been highlighted more in the study. Though the study was a
good concern relating to the liquidity of the banks, it has ignored the direct impact between the
liquidity and profitability of the banks. As we know any beyond the sufficient liquidity hampers the
profitability of the bank, the study is silent in the aspect of showing the standard liquidity to be
maintained in the bank. The analysis is mainly hovering around the analysis of balance sheet,
liquidity position of the bank and operating cash flow only. The analysis of liquidity to other aspect is
still found to be silent.
Baral (2005), using the annual reports data set of joint venture banks and NRB supervision reports,
published his paper abstract in the Journal of Nepalese Business Studies (Volume II No.1 December
2005). The paper examined the financial health of joint venture banks in the CAMEL framework for
the period ranging from FY 2001to FY 2004. The health checkup which was conducted on the basis of
publicly available financial data concludes that the financial health of joint venture banks is better
than that of the other commercial banks. The study further indicates that the CAMEL component
indicators of the joint venture banks are not much encouraging for managing the possible shocks.
Bhattarai, Shama (2004) had conducted another research study entitled "Implementation of
directives issued by Nepal Rastra Bank, a comparative study of Nepal SBI Bank and Nepal Bangladesh
Bank limited with respect to capital adequacy, loan classification and provisioning", an unpublished
Master's Degree Thesis, T.U July 2004 has attempted to examine the norm and standard laid down
by Nepal Rastra Bank relating to capital adequacy, loan classification and provisioning by making a
comparative study between Nepal Bangladesh Bank and Nepal SBI Bank. The study was undertaken
to find out the impact of the changes in Nepal Rastra Bank's directives on the performance of the
commercial banks. An effort was also made to find out whether the directives were implemented
and that Nepal Rastra Bank was taking enough steps to monitor the implementation. The study
reveals that there was a significant impact of the directives on the various aspects of the commercial
banks. For instance, the increased provisioning amount would decrease the overall profitability of
the commercial banks. It was also found that both the banks would fall short in supplementary
capital, however, maintained its total capital according to new directives relating to capital adequacy
norms. Though the research had covered major part, it has only gyrated around the directives and
limitation outside the directives has totally ignored as per the international standard like Basel II. It
did not clearly mentioned about the quality of the commercial bank expect the capital adequacy,
loan standard laid down by Nepal Rastra bank.
Similarly Joshi, Deepak (2002) conducted another research study entitled, " A study on commercial
banks of Nepal with special reference to financial analysis of Rastriya Banijya Bank" an unpublished
Master Degree Thesis, T.U concluded that liquidity position is important factors and may causes
serious problem if the bank has maintained low liquidity than required. Gradual increase in the
amount of funded debt and highly geared capital structure seems to be negative performance for
the bank. On the other hand, return on assets and equity is also less than satisfactory level. In the
view of Mr. Deepak Joshi, the bank should invest its resources in more productive sectors and equity
financing should be emphasized. The research is only revolving around the liquidity aspect of the
banks but has totally ignored the earning and assets quality of the bank.
Rajbhandari, Prerana Laxmi (2001) conducted a study on dividend policy. She has taken the data
from three commercial banks and three insurance companies for five years covering the period of
1994/95 to 1998/99. The main objectives of her study are as follows:
• To examine the relationship between and market price of the stock.
• To identify the appropriate dividend policy followed by the banks and insurance companies.
• To analyze the relationship between dividend policy decision of banks and insurance companies.
After the analysis, Mrs Rajbhandari found out and concluded that the average DPS & EPS of all
sample forms seem satisfactory; the analysis of coefficient of variation shows that there is the
largest fluctuation in EPS and DPS; the analysis of dividend payout ratio shows, none of the banks or
insurance companies have constant payout ratio each year. It is fluctuating from year to year.

2.8 Review of article
The article on "Role of Foreign Banks in Nepal", on Nepal Rastra Bank Samachar, Nepal Rastra Bank
Baishak 2049, pp 1-2, by Sunil Chopra unquestionably conducted that joint venture banks are playing
an increasingly dynamic and fundamental role in the economic development of the country which in
return increase with time. The article entitled "Capital adequacy of bank, The Nepalese Context" by
R.L Shrestha in NRB Samachar, 34th Anniversary 2046, pp 24-27 has suggested the banks that deal in
highly risky transaction to maintain strong capital base. He concluded that the capital base should
neither be too much leading to inefficient allocation of scares resources nor too weak to expose to
extreme risk. The study accepts that the operations of the banks and the degree of risk associated
with them are subject to changes country wise, bank wise and time period wise. The another article
entitled "Banijya Bank Haru ko Star Nirdharan" by Nepal Rastra Bank, Bank Regulation and
Supervision Department on kantipur daily dated 27th Ashad 2062 had published 15 commercial
banks' ranking (excluding Nepal Bank and Rastriya Banijya Bank). The ranking was done on the basis
CAELS rating system. The five areas examined are represented by the acronym "CAELS."
C - Capital adequacy
A - Asset quality
E - Earnings
L - Liquidity
S - Sensitivity to Market Risk.
This was the one of the international standard used by Nepal Rastra Bank for ranking the commercial
banks and published to public ever. Nepal Rastra Bank, however, ignored the management quality
for analysis and in return for ranking of commercial banks. With this step of publicizing the banks
ranking, Nepal Rastra Bank had helped public directly and indirectly for monitoring and evaluating
the commercial banks. The total point for this rating was 13,480 where Nepal Industrial &
commercial bank had scored 1,250 points out of 13,480 and saved the position of 1st among the
other commercial banks. Previously, this bank was on 11th position. With the better performance
and remarkably change in Capital standard and the profit earned resulted this bank as in 1st position
while rating. Another related article entitled, "Ranking of Commercial Banks: the M Factor", by
Brinda Shrestha – a treasury dealer of
Property in Shanker
Laxmi Bank
Devpublished
CampusanLibrary
article in38Business Age, August 2005
issue emphasizing the importance of M factor in CAELS rating system. In the article, the focuses were
merely on the management quality. She had tried to conclude that CAELS is incomplete without
management factor, thus focused on CAMEL rating. The article shows that the management quality
shouldn’t be ignore while ranking the commercial banks. She tried to show us how management
quality play the vital role and how it exists consistent relationship between efficiency and
independent measures of performance and reveals relationship between efficiency and soundness
.She summarized that any bank's success or failure also depends upon management quality no
matter what is the size of the bank nor does profitability of the bank. For rating this missing M
factor, she had taken the parameter like board member, promoters,, market perception and pro-
activeness of management. As Nepal Rastra bank excluded the management factor, Mrs. Brinda
Shrestha had exclude "S" factor due to the lack of information on portfolios of individual banks. Even
though, the article shows the criticism against the article published by Nepal Rastra Bank, she is also
suggesting and awaking Nepal Rastra Bank and general people to consider M factor while making
any decision. Anyways, she had also welcomed this kind of rating used by Nepal Rastra Bank
generalizing this is the right track direction where transparency will not only open up the possibility
for the general public to evaluate performance of banks, it will also positively impose an ever
essential sense of flaxen competition among the banks to earn integrity based on their performance.
The following table clearly shows –
How important "M" factor is for this rating? &
How "M" factor remarkably changes the ranking of the bank?
Here "CAMEL" puts Nepal Industrial and commercial bank in 5th position while Nepal Rastra Bank
had declared 1st position by using "CAMELS" rating standard. The variance of this position clearly
shows the role of the management in developing the credibility of the bank and side by side suggest
us the impact of sensitivity of market risk – the "S" factor. Because in her article she had also ignored
the "S" factor due to the lack of information on portfolios of individual banks. Following is the table
reflecting the ranking presented by Mrs. Brinda Shrestha – the treasury dealer of Laxmi Bank using
the "CAMEL" rating standard: Banks
2.9 Research Gap

During my research period I found that many studies by different people have either focuses on
comparative study of a particular banks in specific area or have done the research work in analyzing
the feasibility or profitability part of the bank. Though, they have tried their best to explain the area
but unable to address all the aspect for analyzing the bank as a whole. Different studies show the
particular area’s pros and cons of the bank. The whole studies revolve around the specific area and
ignored the other essential part of banking industry business to be a good bank. In my study, I have
tried my best to my knowledge to cover all the aspects and elements to identify the good bank. For
this purpose I have identify the tool to rate the bank performance and its quality as a whole. The tool
being CAMEL rating which has successfully elaborate Capital aspects, Assets Quality, Management
Quality, Earning Quality and Liquidity Quality. This is the model by which we can gain ample
knowledge of the bank as a whole. It has touched every aspect of the bank element to become a
sound banking industry.

CHAPTER – 3
RESERCH METHODOLOGY
3. Introduction
In order to start any activities, pre planning of way to perform that activity is not only necessary but
is also very important. It is important in the sense that it not only makes us easy to act and perform
but also helps us to obtain our desired results and objectives within the specified time period. For
analyzing the profitability in the context of commercial banks in Nepal we do have to determine the
systematic process that we are going to use. An introduction relating to this thesis work is made in
the first chapter and relevant literatures are reviewed in the second chapter. The 'research
methodology', which is used to analyze to collected data, are mentioned in this chapter. Research
methodology is the way to solve systematically about the research problem. This chapter highlights
about the methodology adopted in the process of present study. It also focuses about sources and
limitations of the data, which are used in the present study. 'Research Methodology' is a way for
systematically solving the research problem. In other words, research methodology indicates the
methods and processes employed in the entire aspects of the study. "Research methodology" refers
to the various sequential steps (along with a rationale, of each such step) to be adopted by a
researcher in studying a problem with certain object/objects. This chapter incorporates Research
design, Nature and Sources of Data, Population and Sample, Data collection procedure and lastly,
methods of Analysis. This chapter offers the methods of investigation followed by the objective of
the case study, also states the sources and limitations of the data used in the study. So, it is the
methods, steps, and guidelines, which are to be followed in analysis, and it is a way presenting the
collected data with meaningful analysis.
3.1 Research Design:

The word “Research” is derived from French word “Researcher” which means to seek again.
Therefore to seek and compare the concerned banks for the case study, the research is designed as
per objectives of the study. According to Kerlinger “Research design is the plan, structure, and
strategy of investigation conceived so as to obtain answers to research questions and to control
variance. The plan is the overall scheme or program of the research. It includes an outline of what
the investigator will do from writing the hypothesis and their operational implications to the final
analysis of data. The structure of the research is more specific. It is the outline, the scheme, the
paradigm of the operation of the variables. When we draw diagrams that outline the variables and
their relation and juxtaposition, we build structural schemes for accomplishing operational research
purposes. Strategy, as used here, is also more specific than plan. In other words, strategy implies
how the research objectives will be reached and how the problems encountered in the research will
be tackled. But if we are to describe in one sentence it is purely and simply the framework or plan
for a study that guides the collection and analysis of the data. The research design is of both
descriptive and prescriptive nature. Descriptive research is used to compare and to assess the
opinions, behaviors of the firms and to describe the situation and events occurring during the study
period where analytical research is used to find out the result employing financial as well as
statistical tools. For the analytical purpose, the annual reports published by the relative banks and
other publications of the related banks published by the banks respectively and Nepal Rastra Bank,
Nepal Stock Exchange Ltd. & other related agencies, were collected for the year fiscal year 2061/62
to 2065/66. In this study both descriptive and analytical research design is used.
3.2 Nature and Sources of data
Though the study will mainly be based on the secondary data provided by concerned banks, primary
data in relation to the subject matter will also be collected. The primary data will be collected in the
form of interview, questionnaire and in other forms while secondary data will be collected from
annual reports, profit and loss accounts, balance sheets, brochures, journals and articles published in
various magazines, newspapers and other internal banking reports and publications. Besides it other
necessary information that is concerned to the topic will also be gathered from different websites,
related banks and related agencies like Nepal Rastra Bank, Nepal Stock Exchange Limited, Ministry of
Finance, National Planning Commission etc.

3.3 Data Processing Procedures:
For the purpose of this study, the different data are obtained from different sources, which are
scanned and tabulated under different heads. After tabulation, they are analyzed by applying both
financial and statistical tools.
3.4 Population and sample size
Currently there are 32 commercial banks operating under the approval of Nepal Rastra Bank.
Table 1
Name list of All The Commercial Licensed Banks in Nepal
Year of
S. establishment
N. Name of Commercial Bank A.D. Head office Links to Related bank
1 Nepal Bank Limited 1957 Kathmandu www.nepalbank.com.np
2 Rastriya Banijya Bank Limited 1966 Kathmandu www.rbb.com.np
3 Nabil Bank Limited 1984 Kathmandu www.nabilbank.com
Nepal Investment Bank

Limited(previously Nepal Indosuez
4 Bank) 1986 Kathmandu www.nibl.com.np
Standard Chartered Bank

Limited(previously Nepal Grindlays www.standardchartered.c
5 Bank Limited) 1987 Kathmandu om.np
6 Himalayan Bank Limited 1993 Kathmandu www.himalayanbank.com
7 Property of Shanker
Nepal SBI Bank Limited Dev Campus Kathmandu
1993 Library 43 nsblco@nsbl.com.np
8 Nepal Bangladesh Bank Limited 1993 Kathmandu www.nbbl.com.np
9 Everest Bank Limited 1994 Kathmandu www.everestbankltd.com
10 Bank of Kathmandu Limited 1995 Kathmandu www.bokltd.com
Nepal Credit and Commerce Bank

Limited(Previously Nepal Bank of
11 Ceylon Limited) 1996 Bhairawa Nccbank.com.np
Narayangra
12 Lumbini Bank Limited 1998 h www.lumbanibank.com
Nepal Industrial and Commercial

13 Bank Limited 1998 Biratnagar www.nicbank.com.np
14 Machhapuchre Bank Limited 2000 Phokara Machbank.com
15 Kumari Bank Limited 2001 Kathmandu www.kumaribank.com
16 Laxmi Bank Limited 2002 Birjung www.laxmibank.com
17 Siddharth Bank Limited 2002 Kathmandu www.siddharthabank.com
18 Global IME Bank Limited 2013 Birjung Globalimebank.com
19 Citizens Bank International Limited 2007 Kathmandu Ctznbank.com
20 Prime Commercial Bank Limited 2007 Kathmandu Eprimebank.com
21 NIC Asia Nepal Limited 2013 Kathmandu nicasiabank.com
22 Grand Bank Nepal limited 2008 Kathmandu www.dcbl.com.np
23 NMB Bank Limited 2009 Kathmandu Nmb.com.np
24 Kist Bank Limited 2009 Kathmandu Kistbank.com
25 Mega Bank Limited 2009 Kathmandu Megabanknepal.com
26 Sunrise bank limited 2009 Kathmandu Sunrisebank.com.np
27 Janata Bank limited 2009 Kathmandu Janatabank.com.np
28 Commerz and Trust bank limited 2010 Kathmandu Ctbanknepal.com
29 Civil Bank limited 2010 Kathmandu Civilbank.com.np
30 Century commercial bank limited 2011 Kathmandu Centurybank.com.np
31 Sanima Bank limited 2011 Kathmandu Sanimabank.com

Nepal Agricultural Develeopment
32 Bank 2013 Kathmandu adbl.gov.np
3.5 Period of the study
The whole study is based on the financial figure from FY 2065/66 to FY 2069/70
3.6 Method analysis
Financial tools and empirical models will be tried to be used in the process of research and study.
Main focus will be given to ratio analysis as it is taken as the powerful tool of financial analysis to
point out the economic and financial position of business unit through which it can be x-rayed
3.7 Ratio Analysis
Ratio analysis is one of the most powerful tools for analyzing the financial performance of any firm.
Since many diverse groups of people are interested in analyzing the financial information to indicate
the operating and financial efficiency and growth of the firm. These people use ratio to determine
those financial characteristics of the firm in which they are interested. Utility of ratio analysis can
hardly be neglected. With the help of ratios, one can determine
• The ability of the firm to meet its current obligations
• The extent to which the firm has used its long- term solvency by borrowing funds
• The efficiency with which the firm is utilizing its assets in generating sales revenue and
• The overall operating efficiency and performance of the firm

In this ratio analysis we mainly focus on the following ratios of the sample institutions.
1. Capital Adequacy Ratio:
2. Assets Quality Ratio:
3. Management Quality Ratio:
4. Earning Quality Ratio:
5. Liquidity Ratio
With above analysis, detail analysis on return, expense, income and market related ratios have been
made in order to find out the true picture of profitability of the sample banks. Profitability analysis
would be incomplete if these above aspects are not taken into considerations.

CHAPTER 4
DATA PRESENTATION AND ANALYSIS
4.1 Introduction
This chapter deals with the presentation and analysis of data collected from different sources
with the focus on the CAMEL components. As stated in the theoretical prescription the financial
performance analysis of Everest Bank Limited, Kumari Bank Limited and Himalayan Bank Limited
are concentrated in the five components of camel i.e. Capital Adequacy, Assets Quality,
Management Quality, Earning and Liquidity. The data collected from the annual report of the
respective banks have been analyzed with the application of camel.
4.2 Data Presentation and Analysis
The data collected from different sources have been defined, documented and tabulated in
excel spreadsheet which are further processed to analyze and derive findings on the financial
conditions of above mentioned banks in terms of Camel Analysis. The major findings of the study
on financial performance of EBL, KBL and HBL have been described on each section and part of
CAMEL Analysis.
4.2.1 Capital Adequacy Ratio (CAR)
Capital Adequacy Ratio (CAR) is the parameter to analyze the bank capital whether a
particular bank has enough capital to over any unexpected loss in the future. It is
maintained as a percentage of its risk weighted assets. Under Basel-1, commercial banks
were required to maintain 11% CAR and CCR 5.5%.
According to the new capital adequacy framework 2007, Minimum capital requirements
for Commercial Banks are;
Tier I capital = 6% of RWE

Total Capital= 10% of RWE
These ratios are already higher than the global standard for capital adequacy prescribed by Basel
II. Under Basel III, minimum Tier I capital should be 6% of RWE and there will not be necessity of
any change in total capital requirements
These ratios are the base of public confidence towards the banks as they lower the risk for the
depositors. However, maintaining too much capital adequacy is a good option as it results in
decreased mobilization of the funds in the market, hence lower profit.
Formula:-
Capital Adequacy Ratio (CAR) = (Total Capital Fund / Total Risk Weighted Assets)*100
Table 2
Calculation of CAR
Year/Bank EBL KBL HBL
2065/66 10.55% 11.56% 11.02%
2066/67 10.77% 12.34% 10.72%
2067/68 10.43% 13.76% 10.68%
2068/69 11.02% 12.20% 11.02%
069/70 11.59% 12.23% 11.55%

Figure 1
Capital Adequacy Ratio
The above table and figure shows that the capital adequacy of all the three banks is higher
than the minimum capital requirement
requirement prescribed by NRB. Thus, it’s satisfactory and also the
depositors of these banks can feel safe here about their deposits in these banks.
CAR of EBL increased in F.Y. 2066/67, decreased in F.Y. 2067/68 and again slightly increased in
the two followingg years i.e. F.Y. 2068/69 and 2069/70. The data above shows slightly
fluctuating trend in the first four years of the study period. Likewise, Kumari Bank shows
increasing trend over the period except F.Y. 2068/69. Again, CAR of Himalayan Bank shows
falling trend from F. Y. 2065/66 to 2067/68 i.e. from 11.2% to10.68% and then following slight
increase it reaches 11.02% as of first FY 2065/66.

Table 3
Calculation of Core Capital Ratio
2065/66 7.73% 9.09% 8.81%
2066/67 8.39% 10.29% 8.68%
2067/68 8.46% 12.35% 8.88%
2068/69 9.61% 11.30% 9.60%
2069/70 9.31% 11.42% 8.96%
Figure 2
Core Capital Ratio
The above table and figure show that all the three banks above have maintained adequate CCR,
well above the 6% as prescribed by NRB up to F.Y. 2065/66.
2065/66. The core capital of the banks is
enough to meet any contingent losses and the depositors can feel safe. But, the ratios are very
high, which means the coree ca
capital is high in proportion of the supplementary
tary capital. This
scenario points to the banks’ tendency of offering limited plain vanilla products with low risks,
hence lower profits for the shareholders. Among three banks, CCR of KBL in FY 2067/68 is
highest i.e.12.35% which is not so good but CCR of EBL in FY 2065/66 is lowest i.e. 7.35% but
above the prescription limit of NRB which is the most appreciable.
4.2.2 Assets quality (A)
An asset is the very critical factor or the great strength of any bank. The major assets for a bank
are its loan, advances, bill purchase and investments etc. Assets quality means the capacity of
assets to generate income as well as the recoverability of the principal amount. Bank-assets
quality depends on its Performing and Non-performing loans.
Loan classification according to the duration of it not being serviced and the corresponding loan
loss provision as per NRB directive has been tabulated below:
Table 4
Loan classification & corresponding loan loss provision according to NRB directives
Classification of loan Categories Duration Loan loss provision
1. Performing loan good/pass/ Standard loan 1-3months 1%
2. Non-performing loan Sub-standard loan 3-6months 25%
Doubtful loan 6-12months 50%
Bad debts loan 12 and more 100%
To determine the quality of assets the following ratio can be used:-
a) Non-Performing loan (NPL) ratio,

b) Loan loss Coverage ratio, and
c) Loan loss provision ratio.
I. Non-Performing loan (NPL) ratio:

Non-performing loans consist of sub-standard, doubtful and bad loans. Higher NPL ratio shows
bad management of assets. If ratio s low, it indicates a favorable credit management practice
and vice versa.
It is calculated as:
Non-Performing loan (NPL) Ratio = (Total Non-Performing loan (NPL)/ Total loan and advances
Table 5
Calculation of NPL Ratios
2065/66 0.48 0.44% 2.16
2066/67 0.16% 0.50% 3.52%
2067/68 0.34% 1.12% 4.22%
2068/69 0.84% 2.21% 2.09%
2069/70 0.62% 3.88% 2.89%

Figure 3
NPL Ratios
The above table and figure show the increasing trend of NPL Ratios of above three banks i.e.
EBL, KBL and HBL as well which reflect poor credit management policy. The NPL Ratios of EBL
has decreased in 2066/67, increased in the two following years and again decreased slightly
in last FY 2069/70. On the other hand, NPL of Kumari Bank is increasing significantly from
0.44% to 3.88%, over the five years study period. Similarly, HBL shows significantly
increasing trend from 2065/66 to 2067/68 i.e. from 2.16% to 4.22%. and falls to 2.09% in FY
2068/69 and rise slightly in FY 2069/70. This shows their increase in non-performing
non performing loan
proportion and deteriorating credit management practice.
HBL shows the highest NPL Ratio and KBL shows the second highest NPL Ratio which reflects
the bad performance of these banks thus their focus should be on decreasing its NPL Ratio
forr maintaining favorable credit management.
II. Loan Loss Coverage Ratio:
It is mandatory for every bank to keep some provision. It indicates the provision made by bank
for exposure of loan losses in terms of non-performing
non performing loans. Higher the LLCR, safer are the
th
depositors and vice versa.
It is calculated as follows:
Loan Loss Coverage Ratio = (Total loan loss provision/ Total non-performing
non performing loan)*100
Table 6
Computation of Loan Loss Coverage Ratios
2065/66 495.72 312.84 131.75
2066/67 1372.91 265.09 111.54
2067/68 556.76 178.78 100.69
2068/69 229.55 121.76 133.53
069/70 291.30 34.68 112.43
Figure 4
Loan Loss Coverage Ratios

The Loan Loss Coverage Ratios of EBL has significantly increased in F.Y 2066/67 and then
following the decreasing trend in the two following years with slight recovery in last FY
2069/70. Whereas, KBL shows the decreasing trend throughout the period and reach 34.64
from 312.84. Similarly, HBL is also following the decreasing trend over the period except in FY
2068/69.
LLCR of EBL in 2066/67 depict the very contrast picture as compared to KBL and HBL over the
period, covering more non-performing loans by the total loan loss provision providing a thick
cushion for the depositors’ safety. This maximum amount of growth in 2066/67 is appreciable
but in the following year EBL itself seen as not able to maintain this scenario and falling rapidly.
Similarly, KBL and EBL show the decreasing trend with high fall in loan loss coverage ratio
though they are still enough to cover the non-performing loans. However, HBL may face
problems if even a small portion of its performing loans degrade.
III. Loan loss provision ratio: It indicates the percentage of loan loss provision in terms of
the total loan value. Lower the ratio, better the financial position as depicted by the lower
proportion of non-performing loans.
Loan Loss Provision Ratio (LLPR) = (Total Loan Loss Provision/ Total Loan)*100
Table 7
Computation of Loan Loss Provision Ratios
2065/66 2.39% 1.36% 2.85%
2066/67 2.13% 1.34% 3.93%
2067/68 1.91% 2.01% 4.25%
2068/69 1.93% 2.69% 2.79%
069/70 1.82% 1.35% 3.25%

Figure 5
Loan Loss Provision Ratios
The LLPR of EBL shows decreasing trend from 2.39% to 1.82% over the period except
2068/69, reflecting an improvement or better performance but in the
the F.Y. 2068/69 it is
slightly increased. Similarly, LLPR of KBL falls to 1.34% depicting a slight betterment but then
after in the following two years KBL is not able to maintain its consistency and incline till
2068/69. On the other hand, though HBL has improved in the fourth fiscal year i.e. 2068/69,
it is significantly increased in the first three years from FY 2065/66 to 2066/67 and in last FY
2069/70.
IV. Credit-Deposit
Deposit Ratio (C/D Ratio)
The C/D Ratio shows the relationship between total credit and total deposit. The total credit
is the summation of the performing and non-performing
non performing loans and the total deposit consists
of the interest bearing and non-interest
non bearing deposits.
The higher C/D ratio reflects a better mobilization of the deposits, hence a better prospect
of higher earnings.

The C/D Ratio is calculated as:
C/D Ratio = (Total Credit/Total deposit)*100
Table 8
Computation of C/D Ratios
2065/66 73.43% 94.17% 73.58%
2066/67 76.24% 85.85% 73.58%
2067/68 76.98% 87.87% 80.57%
2068/69 73.22% 82.33% 75.36%
2069/70 76.57% 79.47% 77.36%

Figure 6
C/D Ratios
The above table and figure shows the increasing trend of C/D ratio of EBL except in fourth year
i.e. 2068/69.This increasing C/D ratio of EBL reflects
reflects increasing mobilization of its deposits in the
form of loans. Whereas, except in the FY 2067/68, the ratio of KBL is decreasing due to its
preference of safety as depicted by its increase in the investments in government securities. On
the other hand, C/D ratio of HBL is constant in the first two years following the fluctuation as it
rise in the third year, fall and rise again in the last FY 2069/70.
However, KBL has higher C/D ratio in FY 2065/66 i.e. 94.17% as compared to other banks Hence,
KBL has well
ell mobilized its deposits in the form of credit. EBL and KBL have not been well efficient
to flow its funds in the market and seems to prefer a better liquidity position, which is a laggard
of its profits.
V. Local Currency Credit/Deposit

t/Deposit Ratio (LCY C/D Ratio)
This ratio shows the relationship between the credit outflow in local currency and the deposit in
local currency. It is calculated as follows:
LCY C/D Ratio = (Total LCY Credit / Total LCY Deposit)*10
Table 9
Computation of LCY CD-Ratio
.
065/66 74.91 95.10 85.04
066/67 77.98 88.33 86.98
067/68 77.80 92.37 84.56
068/69 75.74 85.48 75.60
069/70 79.05 83.32 80.33

Figure 7
LCY CD-Ratio
The LCY C/D Ratio of KBL is higher than EBL and HBL, reflecting the good financial position, which
shows the good mobilization of its deposits and earning prospect. On the other hand EBL has
lower LCY C/D Ratio, showing its preference for liquidity. EBL has maintained a considerable
amount of cash in hand, increased its balance with other banks, and money at call and short
notice in foreign currencies. Whereas, HBL has maintained moderate LCY C/D ratio which is
increased in the F.Y. 2066/67 following the decreasing trend then after and again increased to
80.33 from 75.60% in FY 2069/70. Though KBL is in good position here as compared to remaining
two other banks, it has decreasingly fluctuating trend.
4.2.3. Management (M)
The entire success of any organization highly depends on the “Human Resources”, hence the
maxim- “good management can make and poor management can break an entire organization”.
A good management practice includes proper planning, organizing, leading,
leading, staffing, and
controlling practices with the aim of achieving the organizational goals effectively and efficiently.

Therefore, for efficient and effective management, the bank should have following qualities:-
• Proper structure of management
• Healthy relationship between customers and the organization
• Qualitative human resources management and practices
• Efficient and qualitative human resource
• Use of modern information technology
• Proper communication and decision making systems
• Internal control system
I. Management Efficiency Ratio (MER):
This ratio shows contribution of each staff in generating total net income after tax. It shows the
overall efficiency of the bank’s staff. The higher ratio indicates existence of the efficient
management and lower ratio indicates the inefficient management.
It can be calculated as follows:
Management Efficiency Ratio = (Net Profit after Tax / Total number of Staff) *100
Table No. 10
Calculation of Management Efficiency Ratios
2065/66 1196128.76 993766.12 1273832.04
2066/67 1464376.11 869621.82 881799.29
2067/68 1589255.34 724025.85 1380394.35
2068/69 1744902.76 842521.93 1208875.49
2069/70 2287896.25 891584.10 1136985.53

Figure 8
Management Efficiency Ratios
The above table and figure show the Management Efficiency Ratio of EBL to be more efficient
and productive as compared to KBL and HBL. The Management
Management Efficiency Ratios of EBL reflects
that banks have been able to generate more profit per staff. It means staffs of EBL are more
productive and this trend is increasing significantly over the study period. Thus, it indicates
that its management is more efficient.
ef

MER Ratio of HBL is fluctuating over the period, decreased in FY 2066/67 then increased in FY
2067/68 and again decreased in the following two years. Whereas, MER Ratio of Kumari Bank
is declining until FY 2067/68 and has improved on the following last two years i.e. FY 2068/69
and 2069/70 with some increment in staff productivity reaching 891584.10 from 724025.85.
The decreasing MER shows that staff motivation and management efficiency of KBL was
deteriorating in the first three years.
Overall, EBL have been showing better efficiency and productivity of staff over the five years
study period. MER of KBL and HBL is lagging.
4.2.4. Earning (E)
Earning is the ultimate result on any business. Earnings show that how efficiently the bank is
working in each and every sector by the proper use of the available funds, as well as the
picture of the recovery of the capital and interest on loans, profitability of investment etc.
An analysis of the earnings ratio helps the management, investors and creditors to know the
performance of the bank and can get information regarding their profitability.
There are various indicators that can be used to measure the profitability of the banks. They
are as follows:-
I. Earnings per share (EPS)

II. Return on Equity (ROE)
III. Return on Assets (ROA)
I. Earnings Per share (EPS):
It measures the shareholders’ gain from each share held. It shows the earning power of the
bank. The higher ratio of EPS shows higher amount return for the shareholders.
It can be calculated as:
Earnings Per share (EPS) = Net Profit after Tax (NPAT)/Total no. of shares.

Table 11
Earnings per Share
2065/66 99.99 21.78 61.90
2066/67 100.16 24.24 31.80
2067/68 83.18 15.67 44.66
2068/69 88.55 17.18 39.94
2069/70 91.88 18.00 34.19
Figure 9
Earning per share
The above table and figure shows that the EPS of all three banks are declining as well as
fluctuating over the period. Among three banks EBL has maintained
maintained higher EPS compared to
KBL and HBL. In year 2066/67
/67 its EPS increased to 100.16 but then after in the
he following
f year
significantly declined and again inclined to 91.88 from 83.18 in FY 2069/70. Similarly, KBL is
following the same trend as of EBL over the period but it's EPS is very low almost one fourth
times EBL and is lowest among the three banks. In FY 2066/67 EPS of HBL dramatically falls to
31.80 by almost half of its previous year amount and then following the decreasing trend in
the remaining period.
Here, among three banks EBL is better option for prospective investors. Whereas, lower EPS of
KBL can easily distract the investors. Similarly, HBL can make a negative impact in the mind of
the investors, making it difficult for future IPOs.
II. Return on Equity (ROE)
Return on Equity is the benefit that a shareholder receives from the investment in an
organization. ROE is the bank’s net income after tax to total shareholder’s fund or net worth.
ROE = (Net Profit after Tax / Total shareholder’s fund)*100
Table 12
Computation of ROE
2065/66 23.62% 12.60% 19.58%
2066/67 25.54% 14.90% 12.06%
2067/68 25.83% 10.23% 18.96%
2068/69 23.84% 10.79% 18.14%
2069/70 25.46% 10.19% 14.71%

Figure 10
ROE
The ROE of EBL shows increasing trend in the first three years from 2065/66 to 2067/68 and
then falls dramatically in FY 2068/69 following the increase
increase again in last FY. While considering
the ROE of above mentioned three banks, EBL has the highest ROE in the year 2067/68 i.e.
25.83%, following the slight fall and then rise again in the following consecutive year.
Whereas, there is fluctuation in ROE of KBL and HBL over the period. The shareholders of EBL
in the first three years were getting lucrative return than the shareholders of others. Here, KBL
and HBL have not been able to utilize the shareholders’ fund profitably. The ROE of KBL is
lower as compared
mpared to HBL and its performance is not very satisfying but it is slightly increased
in the last year indicating a sign of progress in utilization of the shareholder’s fund but again
decline slightly in FY 2069/70.
III. Return on Assets ( ROA)
ROA shows the productivity

oductivity of the assets held by an organization. This ratio judges the
effectiveness in using the total fund supplied by the owners and creditors. The higher ratio
shows the effective utilization of the assets and vice versa.
Property
ROA = (Net Profit after of Shanker
Tax / Total Dev Campus Library 66
Assets)*100
Table 13
Computation of ROA
2065/66 1.73% 1.39% 1.91%
2066/67 2.01% 1.54% 1.19%
2067/68 2.01% 1.23% 1.91%
2068/69 1.95% 1.10% 1.76%
2069/70 2.24% 1.01% 1.54%
Figure 11
ROA
Above table and graph show the comparative data of ROA of EBL, KBL and HBL. Among these
three banks EBL has highest ROA of 2.24% in FY 2069/70, ROA remains same at 2.01% in the
two following yearsProperty of Shanker
i.e. 2066/67 Dev Campus
and 2067/68 and thenLibrary 67 in the the fourth year
falls to 1.95%
following the significant increase. The lowest ROA over the period is 1.01% of KBL in 2069/70
which is after continuous fall over the five years period. HBL's performance is better than KBL
but it has been fluctuating over the period. Thus, the decreasing trend of ROA of these banks
shows the unprofitable use of their assets. Among all, EBL is comparatively efficient in using
the assets or owner's or creditor fund productively.
4.2.5 LIQUIDITY
Liquidity refers to the speed and ease with which an asset can be converted to cash without
significant loss of value. In banking terms, liquidity means ability of the bank to satisfy one’s
liability on demand of customer. To invest in profitable venture prevalent in the market and at
the same time maintain confidence among the customers, they should have a standby position
of liquid funds, sufficient to cover the likely demand of cash from the depositors.
However, maintaining liquidity incurs cost. When the bank maintains more liquidity, it has to
bear the opportunity cost of the fund which could be invested in profitable ventures. But,
maintaining too low a liquidity position may welcome liquidity crisis. Hence, an adequate
liquidity to balance these costs and benefits should be ascertained.
Liquidity can be measured in the following ways:
I. Cash Reserve Ratio (CRR)

II. Cash and Bank Balance Ratio
III. Investment in Government Securities
I. Cash Reserve Ratio
CRR is the minimum reserve of deposits that commercial banks must hold. According to NRB
directives, all commercial banks are required to maintain a minimum of 5.5% of their
deposits in their NOSTRO accounts maintained with NRB, so that the banks do not face
unexpected liquidity risk.
With the banking sector facing a protracted liquidity crunch, the upcoming monetary policy
is likely to reduce Property
the CRR byof0.5%
Shanker
to 5%.Dev Campus Library 68
CRR = NRB LCY Balance / ( Liquid deposits- Margin deposits)*100
Table 14
Computation of CRR
2065/66 14.26% 7.13% 6.76%
2066/67 15.53% 8.02% 6.76%
2067/68 9.55% 5.74% 5.75%
2068/69 17.22% 13.52% 8.72%
2069/70 15.19% 13.52% 8.72%

Figure 12
CRR
The above table and figure shows that the CRR of all three banks are above prescribed
requirement of NRB which shows that EBL, KBL and HBL have sound liquid position if any
contingency occurs. HBL shows stable CRR in the first two years and falls in the third FY
2067/68 and inclined significantly in 2068/69 and remains stable in FY 2069/70. KBL appears
to have better liquid position as compared to HBL. Whereas, EBL has highest CRR of 17.22%
in the last FY 2068/69. It has been following the increasing trend over the study period
except 2067/68 and 2069/70. KBL shows very good performance by proper maintenance
mainte of
CRR not so high and not so low. EBL should lower its CRR so that it can do proper use of
reserve cash in investment sector
II. Cash and Bank Balance Ratio
The C & B Ratio shows the percent of deposit maintained as liquid assets as compared to the
total deposits.
C & B Ratio = (Cash & Bank Balance / Total Deposit)*100

Table 15
Computation of Cash and Bank Balance Ratios
2065/66 18.50% 11.31% 8.79%
2066/67 18.19% 15.63% 10.28%
2067/68 14.89% 6.88% 7.24%
2068/69 20.72% 16.93% 13.33%
2069/70 19.43% 13.46% 6.87%
Figure 13
Cash & Bank Balance Ratio
As shown in the table 15 and figure 13, the Cash & Bank Balance Ratio of EBL i.e. 20.72% is
the highest in FY 2068/69 whereas 6.87% of KBL is the lowest in the following year. C & B
ratio of EBL has been decreasing in the first three years and rise significantly to 20.72% from
14.89% and then again declines slightly in the following
following last year. KBL and HBL are following
the trend of fluctuation as it is increased in 2066/67 then decreased and then again increase
in the year 2068/69 with fallofinShanker
Property last yearDev
again. The above
Campus graph71shows KBL has maintained
Library
more liquidity than of HBL. Thus, EBL and secondly KBL have maintained a better liquidity
position by holding more cash and bank balances as compare to other banks. The liquidity
preferences of these five banks are different.
The trend shows that both the KBL and HBL have improved their C & B Ratio then their
previous FY while EBL is dropped slightly, in the year 2066/67. Then after in FY 2067/68, EBL,
KBL and HBL fall significantly to 14.89%, 6.88% & 7.24% respectively. Whereas, all these
banks dramatically improved in maintaining liquidity in the following FY 2068/69 to 20.72%,
16.93% & 12.33% and again decreased significantly in FY 2069/70. Thus, the trend of these
three banks is not stable or consistent over the five years study period but it has been
following the trend of fluctuation.
III. Investment in Government Securities
Banks invest their idle funds in risk free and highly liquid government securities. This makes it
possible to meet any immediate liquidity obligation while at the same time earn some returns.
Investment in Government Securities Ratio = (Investment in Government Securities / Total LCY

deposits)*100
Table 16
Investment in Government Securities Ratios
2065/66 15.76% 6.96% 14.12%
2066/67 12.06% 10.23% 13.40%
2067/68 17.66% 17.39% 17.31%
2068/69 12.73% 12.17% 20.69%
2069/70 12.11% 14.19% 18.63%

Figure 14
Investment in Government Securities Ratios
The above table and figure show that 20.69% of HBL is the highest investment among three
different banks over the five years period of study. HBL has
has maintained high investment in
government securities which is decreased to 13.40% in FY 2066/67, then increased in the
following two years and again slightly dropped down in the last FY 2069/70. On the other hand,
EBL increased its investment in FY 2067/68
2067/68 to 17.66% but then after declined to 12.73% and
12.11% in the following respective years. Whereas, KBL is following increasing trend except in FY
2068/69.
However, the graph shows EBL, KBL and HBL, all the three banks followed the increasing trend
in FY 2067/68 and this ratio is quiet similar i.e. 17.66%, 17.39% and 17.31% respectively. HBL has
maintained highest investment ratio in government securities as compared to other banks in
terms of Investment in government securities ratio.

4.3 FINDINGS OF THE STUDY
Table No. 17
Four years total calculation (F.Y. 2065/66 to F.Y. 2069/70)
Parameters\Banks EBL KBL HBL
CAR 54.36 62.08 54.99
CCR 43.51 54.45 44.91
NPL Ratio 2.44 8.16 14.88
LLC Ratio 2946.25 913.15 589.94
LLP Ratio 10.18 8.75 17.06
C/D Ratio 376.45 429.70 484.30
Lcy C/D Ratio 385.49 444.59 412.52
MER 8282559.22 4321519.81 5881886.70
EPS 463.75 96.86 212.49
ROE 124.29 58.70 83.45
ROA 9.95 6.27 8.32
CRR 71.75 47.93 36.71
C & B Ratio 91.73 64.20 46.52
Investment in Govt. Secu. Ratio 70.31 60.93 84.16
Shown from the above table considering overall four years data:-

1. All the banks have maintained the required CAR are above that prescribed by NRB, hence
satisfactory. KBL has maintained highest CAR and EBL has maintained the lowest CAR as compared to
five years data.
2. All the three banks have maintained adequate CCR, well above the 6% prescription of NRB. The
core capital of the banks is enough to meet any contingent losses and the depositors can feel safe. Here
KBL has highest CCR whereas EBL has the lowest percent of CCR as compared to five years data.
3. In NPL we have got the lowest NPL for EBL than other banks. EBL is in a better position in terms of its
NPL Ratio than the other two banks, hence has a better financial position and sound credit management
policy. KBL has also maintained second lowest NPL Ratio and HBL shows the highest NPL Ratio which is
bad performance by HBL and should focus on decreasing its NPL Ratio for maintaining favorable credit
management.
4. EBL has maintained highest LLC ratio whereas and HBL has maintained lowest LLC ratio in considering
overall five years data.
5. LLP ratio of HBL is very high whereas the lowest value is of KBL.
6. HBL has maintained highest ratio and EBL maintained lowest ratio in both C/D Ratio.
7. On the contest of MER (Management Efficiency Ratio), EBL has maintained the highest and KBL has
lowest MER in considering overall five years data.
8. EPS of EBL is highest and KBL is lowest in considering overall five years data.
9. ROE and ROA are higher for EBL and lower for KBL in considering overall five years data.
10. Among all bank, EBL maintained the highest CRR and HBL maintained the lowest CRR.
11. EBL has maintained highest C&B ratio where as HBL has maintained lowest C&B ratio.
12. In investment in government securities, HBL has highest ratio whereas KBL has maintained lowest ratio.
13. By considering overall performance, here EBL has performed best and KBL has poor performance. HBL
has secured second position. EBL is best in Adequate Capital Ratio, Non-performing Loan and Earning per
Share. KBL is worst in Earning per Share and Investment in Government Securities. Whereas HBL is best in
Investment in Government Securities and worst in Non-performing Loan.

Chapter – 5
Summary, Recommendations and Conclusion
5.1 Summary
"CAMEL" is an international bank-rating system with which bank supervisory authorities rate institutions
according to five factors. The five areas examined are represented by the acronym "CAMEL."
C - Capital Adequacy
A - Asset Quality
M - Management Quality
E – Earnings Quality
L – Liquidity Quality
The CAMEL analysis helps the supervisory authority identify banks that are in need of attention. By using
this CAMEL rating, anyone can make the framework about the performance of the bank. The rating here
shows the attempt of evaluating the commercial banks as a whole in terms of Capital Adequacy, Assets
Quality, Management Quality, Earnings Quality and Liquidity Quality. A bank's CAMELS rating are directly
known only by the bank's senior management and the appropriate supervisory staff. "CAMELS" ratings
are never released by supervisory agencies, even on a lagged basis. While exam results are confidential,
the public may infer such supervisory information on bank conditions based on subsequent bank actions
or specific disclosures. Overall, the private supervisory information gathered during a bank exam is not
disclosed to the public by supervisors, although studies show that it does filter into the financial markets.
In my research work, after compiling all the data (assuming only 3 banks in Nepal) from F.Y. 2065/66 to
F.Y. 2069/70, EBL seems good in overall performance whereas KBL is the least in the performance among
the sample banks. The overall criteria to evaluate the banks rating consider the banking performance as
a whole. It does not only consider the best part of the performance but it assumes what is the best to be
the best in all criteria and evaluates the banking performance in terms of quality as a whole. So no loop
holes in the performance are oversees by any good performance. Though different banks are good in
different aspect in different years, more consistent bank is seemed as EBL which occupied the first
position and KBL performance is worst among all. This is one of the good models to see if banks are
giving their best effort. Anyone using this benchmark can develop the basic framework to judge the bank
as a whole instead of judging the particular banks in term of only one aspect. This model covers all the
aspect of banking to be a quality, safe and sustainable bank.
5.2 Conclusion
Banking has become highly sophisticated. Changes are taking place in the banking environment around
us each and every day. These changes have brought about risks and opportunities, which have direct
bearing on the operation of the banks. Banks play an important role in the economic upliftment of the
country. Central bank, as the sole monetary authority of the country, is responsible for the total financial
stability of the country. It undoubtedly needs to be capable of supervising the banks and other financial
institutions. Thus it will ensure their sound financial health and help towards checking any undesirable
financial crisis. As can be seen, some banks in Nepal are going downhill, not to forget the global banking
crisis. This is due to volatility of the banking business, wherein they are subjected to market failures
arising from asymmetries of information. The mismanagement of credit operations, imprudent
investment and lack of transparency in operation followed by inefficient supervision are the factors that
may have lead to the declining health of the financial institutions. The turmoil in the financial system of
the Southeast Asian region that led to the failure of a number of financial institutions, had pointed out
the urgency of enhancing the capability of the supervising authorities. This has lead the Nepal central
bank, the Rastra Bank to take some prudential regulation to safeguard the banks from its collapses, and
some of the methods have been, the requirement of maintaining an adequate CAR and making
provisions for bad loans. Besides the internal management of the banks, the external environments also
equally affect the health of the bank. One of them is competition. With the opening up of new banks and
non-bank finance institutions competition in the financial services industry is getting very intense with
margins decreasing by the day. With industrial growth maintaining very intense with margins decreasing
Property
day by day. With the industrial of Shanker
growth Dev Campus
maintaining Library
a slow pace 77 quality incremental assets
and good
difficult to come by, some banks and finance companies appear to be lowering their standards in pursuit
of sustenance of growth and profitability. This could have a negative repercussion in the long run as
assets are not being priced for the risk- a basic tenet of the risk-reward principle. There is an alarming
tendency among banks and financial institutions to lower credit standards. This can only be detrimental
to the industry and the economy as a whole. The recent and long awaited commitment of the
government and the central bank to push through focused financial sector reform is very welcome
move. If implemented in the spirit in which it is intended can only do well for the country. As of last year,
while the economic indicators were on an improving trend, it did not reflect in improved investor’s
confidence. The infighting in the ruling party, the deteriorating law and order situation and the frequent
‘Bundhs’ and strikes whether due to political reasons or on account of industrial action made the
matters worse. Foreign investment has reduced to a trickle and domestic businesses have become very
shy of new capital investments. In the mean time the government should also be equally concerned
about the two nationalized banks, which takes a major chunk of the economy. For an economy to
develop there should be free competition allowing the foreign banks to open in Nepal. But due to the
very bad state of these banks it is not possible. If free competition is allowed in banking sector then
those sick banks won’t be able to sustain and might collapse, which might have a devastating impact on
the economy of the country. So, first step should be towards restructuring and recovering these banks.
Therefore for the overall enhancement of the financial sector of Nepal, a well-designed strategy should
be build covering the different aspects of the sector. Reforms have to be made in different aspects of
banking sector.
All the three commercial banks i.e. EBL, KBL and HBL are leading financial institutions in today’s Nepal.
They have been successful in both attracting deposit and mobilizing it in the right sectors. KBL has
maintained the highest value of CAR whereas EBL has the lowest value. It shows that although
depositors of KBL are in safe side but the bank has failed to mobilize its capital effectively and efficiently.
By maintaining high CCR, KBL has safeguarded the interest of depositors whereas shareholders are on
batter side of EBL as it has the lowest value. EBL has lower NPL ratio which indicates the better financial
position and sound credit management policy & KBL has higher NPL ratio which indicates worst
management of assets. EBL has higher EPS as it has utilized optimum equity. Hence, if we were to rank
these banks on overall performance of five years data on the basis of CAMEL analysis, it would be EBL on
be top followed by HBL and KBL has the last position.
5.3 Recommendation
As per the study conducted, I have come to find that there are several factors that can be implemented
by financial institutions especially the banking sector. They are as follows:
• Since lots of the banks are having problem with regards to loan turning bad. Therefore the banks
should carry out feasible study of the project by employing its own professionals before granting the
loan: Loans and advances falls under high risk, high return category. EBL has significantly decreased its
NPL Ratio, reflecting a better credit management policy. Comparatively, KBL has secured the second
position in terms of NPL Ratio, hence has a better financial position and sound credit management
policy. HBL shows the highest NPL Ratio which is bad performance by HBL and should focus on
decreasing its NPL Ratio for maintaining favorable credit management. In order to decrease NPA, the
banks should carry out a feasible study about the project before granting a loan to an individual. This will
help them to maintain quality loans.
•EPS of EBL is very high as compared to other banks. Moreover, the EPS of EBL is in an increasing trend.
Hence, EBL is a very attractive option for prospective investors. The low EPS of KBL can make a negative
impact in the mind of the investors, making it difficult for future IPOs. EPS of HBL is also good in
comparison.
•The Management Efficiency Ratios of EBL and HBL are good than KBL showing that EBL and HBL have
been able to generate more profit per staff as compare to KBL. It means that these banks staffs are more
productive and the trend is increasing.
• Excess fund should be invested on risk free securities instead of giving to any project without feasible
study.
• Looking at HBL, it was found that they employ low profits-low risk strategy. Excess fund of HBL is being
invested on risk free investment like government securities. This is one of the reasons why NPA is least in
this bank thereby adding more to its profitability. Currently as explained earlier high credit deposit ratio
indicate high-risk strategy of other banks. So other banks should also change its strategy by changing its
credit deposit attitude.
• The increasing trend of C/D ratio of EBL except in fourth year i.e. 2068/69 reflects increasing
mobilization of its deposits in the form of loans. Whereas, except in the F.Y. 2067/68, the ratio of KBL is
decreasing due to it's preference of safety as depicted by its increase in the investments in government
securities. On the other hand, C/D ratio of HBL is constant in the first two years following the rise, fall
and rise again in the last FYProperty
2069/70.of Shanker Dev Campus Library 79
•HBL has maintained a very high investment in government securities and KBL has maintained the
lowest value.
•The CAR of these three banks when compared takes us to the question of what are the business models
of these banks. HBL seems to be playing safe while EBL has offered various consumer products to the
market.
• In order to fulfill the NRB guidelines with regard to the investment to be made in the priority sector, the
bank should invest indirectly into it. Indirectly means the bank should invest in agriculture development
bank. This is allowed as per NRB guidelines. This way, the bank will have reduced their chances of
generating NPA as well as fulfill the statutory requirements.
• Should come up with some new product looking at the global scenario.
• The bank should venture out in new and innovative product and services, which may have already been
implemented in a similar economy market abroad. Introducing new concepts with adequate exposure will
increase the brands positive visibility as well as ultimately increase its deposit base.
• Reduce its cost of deposit. Some banks seem to have a higher cost of deposit compare to other
profitable bank. Considering this as one of the factor that reduces the profitability of the bank, these
banks should try to reduce it. To achieve this, bank should look into the possibility of gathering more non
interest bearing deposits like using the current account. One way of achieving this is by inducing deposit
in current accounts. In order to reduce the cost of deposit, the bank should discourage deposit in savings
and fixed accounts. This can be done by reducing the interest rate of these accounts. Moreover, by
improving services as mention above they should try to increase its cliental base in current account. This
will reduce the interest liabilities of saving and fixed deposit. To encourage the people to deposit in
current account bank can provide attractive interest on this account.
• Banks should follow standard norms for feasible study. Before granting loans banks should see if the
project is feasible or not.

BIBLOGRAPHY
BOOKS
Agrawal, Govinda Ram (Dr.) (2012), Dynamic of Human Resource Management (4th Edition),
Kathmandu, M.K Publishers & Distributors.
Bhandari, Dila Ram & Kharel, Khom Raj (2002), Reference Book on Research Methodology & Statistical
Methods for MBS. Kathmandu, Dhaulagiri Books and Stationery.
Francis, Jack Clark (1986), Investment Analysis and Management (7th edition), New York, MC Graw-
Hill Publication.
Frank , J. Fabozzi Series, Financial Management and Policy Analysis (Second Edition)
Gupta, S.P (Dr.) (1984), Statistical Methods, New Delhi, Sultan Chandra & Sons.
Joshi, P.R (2003), Research Methodology, (3rd Edition), Kathmandu, Buddha Academic Publishers
& Distributiors.
Weston, J.F and Brigham, E.F (1972), Managerial Finance, New York, The Dryden Press
Weston, J. F and Copeland, Thomas E (1972). Managerial Finance (9th edition), Chicago: The Dryden
Press

THESIS
Bhattarai, Shama (2004) "Implementation of directives issued by Nepal Rastra Bank, a
comparative study of Nepal SBI Bank and Nepal Bangladesh Bank limited with respect to capital
adequacy, loan classification and provisioning", an unpublished Master's Degree Thesis, T.U July
2004, submitted to Shanker Dev Campus, Tribhuvan University.
Bhandari (2006), “research work of evaluating financial performance of Himalayan Bank in
the Framework of Camel during 1999 to 2004 A.D.
Dhungel, Preetam (2006),“Credit Management In Nepalese Commercial Banks (Nabil bank
limited and Everest Bank) an unpublished Master's Degree Thesis, T.U July 2006, submitted to
Shanker Dev Campus, Tribhuvan University.
Rai, Esha (2010), ‘A Study of Camel Analysis of Commercial Banks, with reference to
Everest Bank Limited, Bank of Kathmandu and Nepal Industrial and Commercial Bank Ltd”,
submitted to Shanker Dev Campus, Tribhuvan University.
Joshi, Deepak (2002), " A study on commercial banks of Nepal with special reference to
financial analysis of Rastriya Banijya Bank" an unpublished Master Degree Thesis, T.U, submitted to
Shanker Dev Campus, Tribhuvan University.
Manandhar, Bina (2011) , "A case study on Camel Analysis of Commercial Banks", an
unpublished Master's Degree Thesis, T.U May 2011, submitted to Shanker Dev Campus, Tribhuvan
University.
Neupane, Hari Prasad (2006) , ” A study of cash flow analysis of commercial banks in
Nepal” an unpublished Master's Degree Thesis, T.U July 2006, submitted to Shanker Dev Campus,
Tribhuvan University.
Shrestha, Sanjay (2012), "Evaluation & Comparison of the Financial Position of the sample
banks using Camel Rating System", an unpublished Master's Degree Thesis, T.U September 2012,
submitted to Shanker Dev Campus, Tribhuvan University.
Tiwari, Din Nath (2006), “Credit Management of Himalayan bank” an unpublished Master's
Degree Thesis; T.U July 2006, submitted to Shanker Dev Campus, Tribhuvan University.
JOURNALS, NEWSPAPERS AND ARTICLES
Business Age, August 2012 Issue
Kathmandu Post 13th March 2014Kathmandu Post 13th March 2014
Bank Supervision Report 2013
Economic Review February 2014
Nepal Rastra Bank Directives and Circular
Baral, Keshar J (2005), Health Checkups of Commercial Banks in the Framework of CAMEL, A case study
of Joint Venture Banks in Nepal, Journal of Business Studies, Vol 2, No. 1
Baral (2005) abstract in the Journal of Nepalese Business Studies (Volume II No.1 December 2005).

Barker, D and D. Holdsworth (1993), The causes of Bank Failure in 1990s, Federal Reserve Bank of New
Work, Research Paper No.9325.
ANNUAL REPORTS
Annual Reports, 2065/66 – 2069/70, Everest Bank Limited
Annual Reports, 2065/66 – 2069/70, Kumari Bank Limited
Annual Reports, 2065/66 – 2069/70, Himalayan Bank Limited
WEBSITES
http://www.everestbankltd.com
http://www.kumaribank.com/
http://www.himalayanbank.com/
www.nrb.org.np
www.ekantipur.com
www.google.com
www.fncci.org
www.encyclopedia.com
www.nepalstock.com
www.wikipedia.com

ANNEX 1
Total Capital Fund
065/66 2,703,870,000 2,050,908,000 3,845,211,300
066/67 3,257,141,000 2,124,625,420 4,218,361,500
067/68 3,605,840,000 2,456,420,000 4,711,243,495
068/69 4,574,753,000 2,554,089,000 5,283,900,074
069/70 5,777,682,000 2,862,010,000 6,414,437,452
ANNEX 2
Core Capital Fund
065/66 1,981,579,000 1,612,799,000 3,074,436,960
066/67 2,537,092,000 1,772,135,000 3,414,638,614
067/68 2,927,168,000 2,204,905,000 3,916,970,800
068/69 3,990,926,000 2,365,249,000 4,600,146,030
069/70 4,639,762,000 2,673,170,000 4,972,173,697

ANNEX 3
Total Risk Weighted Assets
065/66 25,619,753,000 17,743,239,000 34,905,889,843
066/67 30,240,428,000 17,220,685,000 39,357,055,251
067/68 34,583,547,000 17,856,397,370 44,124,521,593
068/69 41,525,347,000 20,936,998,000 47,934,898,606
069/70 49,834,045,000 23,401,550,000 55,520,649,287
ANNEX 4
Non Performing Loan
065/66 117,985,232 6,45,42,683 551,309,634
066/67 43,705,982 7,55,10,176 1,024,831,962
067/68 108,512,928 167,895,925 1,391,747,983
068/69 307,492,696 399,960,499 751,164,917
069/70 276,198,772 781,060,000 1,186,189,950

ANNEX 5
Total Loan & Advance
065/66 24,469,555,526 14,79,52,61,241 25,519,519,081
066/67 28,156,399,843 14,966,080,024 29,123,754,889
067/68 31,661,842,757 14,926,233,040 32,968,270,298
068/69 36,616,831,527 18,101,337,031 35,968,472,801
069/70 44,197,762,941 20,119,790,000 41,057,397,533
ANNEX 6
Total Loan Loss Provision
065/66 584,881,910 20,19,14,411 726,363,812
066/67 600,043,812 200,167,544 1,143,126,129
067/68 604,151,295 300,159,481 1,401,293,543
068/69 705,856,854 486,988,042 1,003,038,939
069/70 804,575,876 270,900,000 1,333,591,967

ANNEX 7
Total Deposit
065/66 33,322,946,246 15,710,395,844 34,682,306,863
066/67 36,932,310,008 17,432,253,032 37,611,202,274
067/68 41,127,914,339 16,986,279,457 40,920,627,030
068/69 50,006,100,272 21,985,198,276 47,730,993,909
069/70 57,720,464,632 25,318,600,000 53,072,319,487
ANNEX 8
Total Local Currency (LCY) Credit
065/66 24,466,102,212 14,753,789,501 25,363,369,575
066/67 28,148,167,145 14,933,871,157 28,976,572,366
067/68 31,486,683,384 14,908,930,964 31,302,456,179
068/69 36,107,574,126 18,085,472,349 33,474,288,174
069/70 42,869,283,089 20,081,190,000 38,988,096,596

ANNEX 9
Net Profit after Tax
065/66 638,732,757 25,83,79,191 752,834,735
066/67 831,765,632 316,542,342 508,798,193
067/68 931,303,628 251,236,970 893,115,143
068/69 1,090,564,222 275,504,670 958,638,260
069/70 1,471,117,291 291,548,000 943,697,990
ANNEX 10
Number of Staff
065/66 534 260 591
066/67 568 364 577
067/68 586 347 647
068/69 625 327 793
069/70 643 327 830

ANNEX 11
Total Number of Shares
065/66 6,388,210 11,860,992 12,162,150
066/67 8,304,673 13,060,159 16,000,000
067/68 11,196,095 16,038,000 20,000,000
068/69 12,316,357 16,038,000 24,000,000
069/70 16,011,264 16,200,000 27,600,000
ANNEX 12
Total Assets
065/66 36,916,848,654 18,538,565,109 39,330,131,823
066/67 41,382,760,711 20,52,24,74,688 42,717,124,613
067/68 46,236,212,262 20,491,785,309 46,736,203,884
068/69 55,813,129,057 25,131,400,971 54,364,427,882
069/70 65,741,150,457 28,942,684,000 61,152,965,353

ANNEX 13
Cash & Bank Balance

065/66 6,164,371,163 1,776,298,800 3,048,526,788
066/67 6,716,614,256 2,723,829,299 3,866,490,684
067/68 6,122,862,952 1,168,524,334 2,964,651,321
068/69 10,363,306,307 3,722,627,593 6,362,296,158
069/70 11,215,793,963 3,406,883,000 3,648,198,652

ANNEX 14
Investment in government securities
065/66 5,146,045,773 1,080,094,990 4,212,300,379
066/67 4,354,353,089 1,729,916,633 4,465,372,409
067/68 7,145,017,521 2,806,105,608 6,407,362,541
068/69 6,068,876,365 2,574,618,509 9,162,223,297
069/70 6,988,309,619 3,591,800,000 9,886,760,481
ANNEX 15
Total Local Currency (LCY) Deposit

Year/Bank Everest Bank Kumari HBL
065/66 32,659,406,692 15,514,007,055 29,823,551,156
066/67 36,094,658,751 16,907,384,256 33,314,565,096
067/68 40,469,541,615 16,140,683,684 37,018,771,681
068/69 47,671,248,646 21,157,724,713 44,276,179,520
069/70 54,233,551,497 24,102,313,000 48,533,284,186

Camel Analysis of Nepalese Commercial Banks: Thesis

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Camel Analysis of Nepalese Commercial Banks: Thesis

Uploaded by

Copyright:

Available Formats

CAMEL ANALYSIS OF

NEPALESE COMMERCIAL BANKS

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE

Camel Analysis of Nepalese Commercial Banks

--------------------------- ------------------------------------ -------------------------------------

(Thesis Supervisor) (Head of Research Department) (Capmus Chief)

Property of Shanker Dev Campus Library 2

We have conducted the viva-voce of the Thesis presented By

Master Degree of Business Studies (MBS)

Head of Research Department (Member)

Thesis Suervisor (Member)

External Expert (Member)

Property of Shanker Dev Campus Library 3

NEPALESE COMMERCIAL BANKS (REFERENCE TO EVEREST BANK

LIMITED, KUMARI BANK LIMITED, HIMALAYAN BANK LTD)" submitted to Office

Property of Shanker Dev Campus Library 4

Property of Shanker Dev Campus Library 5

Chapter 2 - Review of Literature

Chapter 3 - Research Methodology

Chapter 4 - Data Presentation and Analysis

4.2.4. Earning (E) 47

Chapter 5 - Summary, Recommendations and Conclusion 59

Property of Shanker Dev Campus Library 7

Table No. Discription Page No.

1 Name List of All the Commercial Licensed Banks in Nepal 30

Property of Shanker Dev Campus Library 8

Figure No. Discription Page No.

1 Capital Adequacy Ratio 35

Property of Shanker Dev Campus Library 9

Annex No. Discription Page No.

1 Total Capital Fund 68

Property of Shanker Dev Campus Library 10

ABBS Any Banking System

ATM Automated Teller Machine

CAMEL C - Capital adequacy

CAR Capital Adequacy Ration

Core Capital Ratioo

EPS Earning Per Share

FEDAN Foreign Exchange Dealers Association of Nepal

HBL Himalayan Bank Ltd.

KBL Kumari Bank Ltd.

LCY Local Currency

LCY C/D Local Currency Credit/Deposit

LLCR Loan Loss Coverage Ratio

MER Management Efficiency Ratio

MPS Market Value Per Share

No. Number Property of Shanker Dev Campus Library 11

NPL Non-Performing Loan

NRB Nepal Rastra Bank

ROA Return on Assets

ROE Return on Equity

RONW Return on Net Worth

T.U. Tribhuvan University

Property of Shanker Dev Campus Library 12

1.2 Banking Development in Nepal

Property of Shanker Dev Campus Library 14

A commercial bank is a type of financial intermediary and a type of bank. Commercial

Functions of Commercial Banks

1.4 List of Commercial Banks in Nepal

1. Nepal Bank Limited

1.5 Introduction of the Concerned Banks

1.5.1 Kumari Bank Ltd.