17MBA1801 Internship Report

Profitability Analysis
SUMMER TRAINING PROJECT REPORT
Submitted in partial fulfilment of
MASTER of BUSINESS ADMINISTRATION
At
University School of Business
CHANDIGARH UNIVERSITY, GHARUAN
Supervised by Submitted by
Ms. Annu Pruthi Agya Ojha
Profitability analysis Page: 1

ACKNOWLEDGEMENT
writing represents the culmination of thoughts and ideas from a number of sources. “It is not
possible to prepare a project report without the assistance & encouragement of other people.
This one is certainly no exception.
On the very outset of this report, I would like to extend my sincere & heartfelt
obligation towards all the personages who have helped me in this endeavor. Without their
active guidance, help, cooperation & encouragement, I would not have made headway in the
project.
Firstly I wish to express my gratitude to CHANDIGARH UNIVERSITY for

including this project in Masters Degree. I m highly debited to Mr.Prakash Niroula for his
exemplary guidance, monitoring and constant encouragement throughout the course of this
report. And I m extremely greatful to our program coordinator, Ms. Annu Pruthi , who acted
surrounding board all the time.
I extend my gratitude towards NMB Bank, Nepal for providing me this opportunity.
And at last, my appreciation goes to my family member for their

encouragement, warm affection, moral & financial support in preparing and completing this
report. Any comment and suggestion are genuinely recognized.

TABLE OF CONTENTS page no
ACKNOWLEDGEMENT
DECLARATION
CHAPTER-I
1 .INTRODUCTION
5
Background 6
Industrial profile 12
Introduction to company 15
Product and services of NMB Bank 21
Network end extension 23
Share holding pattern 24
Competitors information 25
Work flow process 26
Swot analysis 27
PESTLE analysis 29
Account of weekly activity 30
Brief summary 31
Literature survey 32
Profitability 45
Profitability ratios 54
Result and conclusion 56
Statement / purpose 57

Needs and importance 58
Procedure 59
Methodology 60
Limitations 61
Recommendation 62
ANNEXURE 63
BIBLIOGRAPHY 66
APPENDIX 67

DECLARATION
.
PROJECT IS ORIGINAL WORK
I declare that this project titled ‘’Profitability Analysis’’ has been worked on, drafted and
finalised by me- Agya Ojha, UID: 17MBA1801 student of MBA 2ndsemester of the batch
2017-2019. This project is an original piece of work and not copied or plagiarised from any
other source of literature, review article or published reference in this regard. This is purely
my Summer Internship Report being submitted in partial fulfillment of the degree of Master
in Business Administration from University School of Business, Chandigarh University and
has not been submitted for the reward of any certificate, diploma, degree, fellowship with any
college / university nor educational institute before this.
In case any part of this work is reported as copied from any another source, I shall be solely
responsible for the same and will be answerable for any action taken in this regard.
Students’ Signature
Name: Agya Ojha
UID No: 17MBA1801
Date:

Chapter - I
1.Introduction
1.1 Background Of The Study
Project report is a collaborative enterprise, involving research or design that is carefully
planned by the student to achieve a particular aim. This project report is prepared for the
partial fulfilment for the degree of Master of Business Administration (MBA) based on the
study of profitability analysis of NMB Bank ltd. Nepal being a developing country, banking
sector plays vital role for the development of the Nepalese economic and financial system,
holding the deposit of millions of people government and house units. Nepalese financial
sector is being significantly proliferated NMB Bank Ltd.
1.2 Industry profile:

"Bank" originally derived from the word "Banco" meaning "Bench" is termed as a financial
institution which are established in order to provide financial services to its customers while
helping the investors at the same time. (De Alberquque, M., 1855) These are licensed by the
government so as to help in the monetary aspects of the country. A bank is a financial
institution that accepts deposits from the public and creates credit.] Lending activities can be
performed either directly or indirectly through capital markets. Due to their importance in the
financial stability of a country, banks are highly regulated in most countries. Most nations
have institutionalized a system known as fractional reserve banking under which banks hold
liquid assets equal to only a portion of their current liabilities. In addition to other regulations
intended to ensure liquidity, banks are generally subject to minimum capital
requirements based on an international set of capital standards, known as the Basel Accords.
Banking in its modern sense evolved in the 14th century in the prosperous cities
of Renaissance Italy but in many ways was a continuation of ideas and concepts
of credit and lending that had their roots in the ancient world. In the history of banking, a
number of banking dynasties – notably, the Medicis, the Fuggers, the Welsers,
the Berenbergs, and the Rothschilds – have played a central role over many centuries.
The oldest existing retail bank is Banca Monte dei Paschi di Siena, while the oldest
existing merchant bank is Berenberg Bank. Banking began with the first prototype banks
of merchants of the ancient world, which made grain loans to farmers and traders who carried
goods between cities and this system is known as a barter system.This began around 2000 BC
in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders
based in temples made loans and added two important innovations: they
accepted deposits and changed money. Archaeology from this period in ancient
China and India also shows evidence of money lending activity.
The origins of modern banking can be traced to medieval and early Renaissance Italy, to the
rich cities in the centre and north like Florence, Lucca, Siena, Venice and Genoa.

The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing
branches in many other parts of Europe. One of the most famous Italian banks was
the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397. The earliest known state
deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407
at Genoa, Italy.
Modern banking practices, including fractional reserve banking and the issue of banknotes,
emerged in the 17th and 18th centuries. Merchants started to store their gold with
the goldsmiths of London, who possessed private vaults, and charged a fee for that service. In
exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the
quantity and purity of the metal they held as a bailee; these receipts could not be assigned,
only the original depositor could collect the stored goods.
Sealing of the Bank of EnglandCharter (1694), by Lady Jane Lindsay, 1905.

Gradually the goldsmiths began to lend the money out on behalf of the depositor, which led
to the development of modern banking practices; promissory notes (which evolved into
banknotes) were issued for money deposited as a loan to the goldsmith.[5] The goldsmith paid
interest on these deposits. Since the promissory notes were payable on demand, and the
advances (loans) to the goldsmith's customers were repayable over a longer time period, this
was an early form of fractional reserve banking. The promissory notes developed into an
assignable instrument which could circulate as a safe and convenient form of money backed
by the goldsmith's promise to pay, allowing goldsmiths to advance loans with little risk
of default.] Thus, the goldsmiths of London became the forerunners of banking by creating
new money based on credit.
The Bank of England was the first to begin the permanent issue of banknotes, in
1695.The Royal Bank of Scotland established the first overdraft facility in 1728.[9] By the
beginning of the 19th century a bankers' clearing house was established in London to allow
multiple banks to clear transactions. The Rothschilds pioneered international finance on a
large scale, financing the purchase of the Suez canal for the British government.
In contrast to Nepal, Nepal Rastra Bank (NRB) regulates the national banking system and
also functions as the government’s central bank. As a regulator, NRB controls foreign
exchange; supervises, monitors, and governs operations of banking and non -banking

financial institutions; determines interest rates for commercial loans and deposits; and also
determines exchange rates of foreign currencies. As the government’s bank, NRB maintains
all government income and expenditure accounts, issues Nepali bills and treasury notes, as
well as loans to the government, and determines monetary policy.
Commercial lending in Nepal is governed under the Commercial Bank Act of 1974, the
Finance Company Act of 1985, and the Bank and Financial Institutions Act of 2006, which
authorizes the NRB to issue guidelines to all commercial banks and financial institutions on
interest rates, interest ceilings, and areas of investment.
Two large banks dominate the commercial banking sector: Nepal Bank Ltd., which is 40.5
percent government-owned, and Rastriya Banijya Bank (National Commercial Bank), which
is 100 percent government-owned. Together, Nepal Bank Ltd. and Rastriya Banijya Bank
account for 11.8 percent of the entire banking system’s deposits and 10.3 percent of loans, as
of January 2017. Both banks also have a large number of non-performing loans.
In the 1980s, Nepal opened the commercial banking sector to foreign participation. Since
then, several joint venture banks have been established including: Nabil Bank; Nepal
Investment Bank; Standard Chartered Bank; State Bank of India; Bank of Kathmandu;
Everest Bank; Nepal Sri Lanka Merchant Bank; Nepal Bangladesh Bank; and Nepal Bank of
Ceylon, now called Nepal Credit and Commerce Bank. As April 2017, there were 28
commercial banks in operation, including foreign joint-venture banks. A large number of
development banks and finance companies have also been established.
As of April 2017, there were 54 development banks and 50 finance companies in operation.
Existing banking laws do not allow branch operation by any foreign banks. All commercial
banks have correspondent banking arrangements with foreign commercial banks, which they
use for transfers and payments.
In 1994, the government expanded the role of t he Nepal Stock Exchange by allowing private
brokers to operate. The volume of trading subsequently increased dramatically, but has since
stabilized. In 1996, the GON announced that it would permit foreign institutional investors to
hold up to 25 percent of the shares of listed firms in certain sectors, such as tourism and
power. Generally Nepal Rastra Bank (NRB) the central Bank of Nepal has divided into
different groups and had licensed as per the limitations for the service. They are categorized
as Commercial bank into Group 'A', Development banks 'B' and similarly finance companies
and credit unions to Group 'C'.

Role of development bank in financial sector:
Financial institutions provide means and mechanism of transferring resources from those who
have an excess of income over expenditure to those who can make productive use of the
same. The commercial banks and investment institutions mobilize savings of people and
channel them into productive uses. Financial institutions provide all type of assistant required
infrastructural facilities Institutions e p economic persons who can take the development in
the following ways.
1. Providing Funds :
The underdeveloped countries have low levels of capital formation . due to low
incomes, people are not being able to save sufficient funds which are needed for
sensing up new units and also for expansion diversification and modernization of
existing units. The person who has the capacity of starting up a business but doesn’t
have requisites help approach to financial institution for help. These institution helps
large number of person for taking up some industrial activity. The addition of new
industrial units and increasing the activities of existing units will certainly help in
accelerating the pace of economic development. Financial institutions has large
inventible funds which are used for
purposes.
2. infrastructural facilities :
economic development of the country is linked to the availability of infrastructural

facilities. There is a need for roads , water , sewage , communication facilities ,
electricity etc. financial institution prepares their investment policies by keeping
national priorities in major and the institution invests in those aim is which can help in
increasing the development of the country. Indian industry and agriculture is facing
acute shortage of electricity. All nepali institutes are giving priority to invest funds in
project generating electricity. To solve the limited budget problem to entrepreneur the
banks provides them loan in installment which is essential for the development of the
country.
3. Promotional Activities
An entrepreneur faces many problems while setting up a new unit. One has to undertake a
feasibility report, prepare project report, complete registration formalities, seek approval from
various agencies etc. All these things require time, money and energy. Some people are not

able to undertake this exercise or some do not even take initiative. Financial institutions are
the expense and manpower resources for undertaking the exercise of starting a new unit. So
these institutions take up this work on behalf of entrepreneurs. Some units may be set up
jointly with some financial institutions and in that case the formalities are completed
collectively. Some units may not have come up had they not received promotional help from
financial institutions. The promotional role of financial institutions is helpful in increasing the
development of a country.
4. Development of Backward Areas
Some areas remain neglected because facilities needed for setting up new units are not
available here. The entrepreneurs set up new units at those places which are already
developed. It causes imbalance in economic development of some areas. In order to help the
development of backward areas, financial institutions provide special assistance to
entrepreneurs for setting up new units in these areas. IDBI, IFCI, ICICI give priority in giving
assistance to units set up in backward areas and even charge lower interest rates on lending.
Such efforts certainly encourage entrepreneurs to set up new units in backward areas. The
industrial units in these areas improve basic amenities and create employment opportunities.
These measures will certainly help in increasing the economic development of backward
areas.
5. Planned Development
Financial institutions help in planned development of the economy. Different institutions

earmark their spheres of activities so that every business activity is helped. Some institutions
like SIDBI, SFCI’s especially help small scale sector while IFCI and SIDC’s finance large
scale sector or extend loans above a certain limit. Some institutions help different segments
like foreign trade, tourism etc. In this way financial institutions devise their roles and help the
development in their own way. Financial institutions also follow the development priorities
set by central and state governments. They give preference to those industrial activities which
have been specified in industrial policy statements and in five year plans. Financial
institutions help in the overall development of the country.
6. Accelerating Industrialization
Economic development of a country is linked to the level of industrialization there. The

setting up of more industrial units will generate direct and indirect employment, make
available goods and services in the country and help in increasing the standard of living.
Financial institutions provide requisite financial, managerial, technical help for setting up
new units. In some areas private entrepreneurs do not want to risk their funds or gestation
period His long but the industries are needed for the development of the area. Financial
institutions provide sufficient funds for their development. Since 1947, financial institutions
have played a key role in accelerating the pace of industrialization. The country has
progressed in almost all areas of economic development.
7. Employment Generation

Financial institutions have helped both direct and indirect employment generation. They have
employed many persons to man their offices. Besides office staff, institutions need the
services of experts which help them in finalizing lending proposals. These institutions help in
creating employment by financing new and existing industrial units. They also help in
creating employment opportunities in backward areas by encouraging the setting up of units
in those areas, Thus financial institutions have helped in creating new and better job
opportunities.
Present banking scenario in Nepal:

Nepal has ample opportunities for investments. Hydroelectricity, tourism and service are
three prominent sectors the investors are willing to make their investments in recent times.
Not only these sectors, other categories like mega infrastructure developmental projects
specially, construction of bridges, dams, trolleys, roads, tunnel highway, railways, monorails,
airport, link road; manufacturing projects like cement, steel and other production units;
extraction and exploration of minerals, mines and natural resources, etc are priority sector
investments for investors. These mega projects require considerable amount of capital
investment and the gestation period of return on investment is long. There are 28 commercial
banks in Nepal along with 40 development banks and 32 finance companies having paid up
capital of not less than Rs. 8 billion, Rs. 2.5 billion and Rs. 800 million, respectively. The
total core capital of commercial banks is 288 billion rupees. Total deposits and loans of all
commercial banks of Nepal is 2,093 billion rupees and 1,736 billion rupees, respectively (as
of mid-July 2017). Out of the total loan of 1,736 billion rupees, local currency loan is 1,710
billion rupees.
The Central Bank of Nepal is shrinking the number of banks and financial institutions (BFIs)
and insisting on the BFIs to merge and for acquisition. Small development banks and
financial institutions either go for mergers or are being taken over by commercial banks. No
new license is being issued to banks and financial institutions by the central bank.
Mega investments, no doubt, call for huge amount of funds. Funds can be arranged either
from local banks and financial institutions or through international markets. The appetite of
existing commercials banks and other financial institutions is limited to medium and small
projects, except for some consortium financing. Borrowing from international market is
subject to many factors like interest rates risk, credit risk, market rate risk, foreign exchange
risk, country risk etc. But it does not mean that local borrowing is not subject to these factors.
The Banks and Financial Institution Act (BAFIA), 2074 (2017) opens establishment of
Infrastructure Development Banks (IDB) though it is reluctant to issue new licenses to
commercial banks and other financial institutions. Section 107 of the same Act provides that
the central bank can formulate the policy with respect to Infrastructure Development Banks.

As per the Licensing Policy, a minimum paid up capital of IDB has to be 20 billion rupees. If
IDB is established from local investment only, and promoters group shall hold a minimum
51% of the shares and 30% shares would be allocated to the public. If IDB is established with
foreign investment, foreign investors can own 20% to 85% of the shares but it has to allocate
at least 15% shares to the public. If foreign shareholding is 20% or more but less than 50%,
the public shall be allocated, at least, 30% of shares. Local promoters group cannot invest in
shares using capital borrowed from any bank or financial institution.
An application is recently registered on August 30, 2017 with NRB for the establishment of
IDB in the name of Nepal Infrastructure Development Bank Limited with the shareholding of
60% promoters’ shares inclusive of 10% government stake and 40% public holding. The
Investment Board of Nepal (IBN) is established to promote economic development in Nepal
by creating an investment friendly environment. The board handles hydropower projects
having capacity of more than 500 MW and other mega projects. If the size of investment is
greater than USD 100 million it needs to be approved by IBN.
Recently, IBN and Hongshi-Shivam Cement Pvt Ltd, signed a Project Investment Agreement
(PIA) on September 3, 2017 worth USD 359.18 to set up a mega cement factory in
Nawalparasi. Sixty percent of the investment will be financed by Chinese financial
institutions and also a consortium of banks in Nepal. The Asian Infrastructure Investment
Bank is a new multilateral financial institution founded to bring countries together to address
the daunting infrastructure needs across Asia. By furthering inter-connectivity and economic
development in the region through advancements in infrastructure and other productive
sectors, it can help stimulate growth and improve access to basic services.
AIIB offers sovereign and non-sovereign financing for sound and sustainable projects in
energy and power, transportation and telecommunications, rural infrastructure and agriculture
development, water supply and sanitation, environmental protection, and urban development
and logistics.
There are 16 approved projects financed/co-financed by AIIB in energy, six in transportation,

two in multi-sector and two in urban sectors in different states.
With a view to promoting economic prospect and sustainable development, larger

infrastructural projects are of utmost importance. Nepal is a small country with a lot of
opportunities. Larger projects require considerable amount of investment and it can be
achieved only by financing from mega infrastructural banks. This gives rise to better prospect
for Nepal with the accessibility of basic requisites to the general people.

1.3 Company profile:
NMB Bank Limited, licensed as an “A” class financial institution by Nepal Rastra Bank in
May 2008, has been operating in the Nepalese financial market for over twenty years and is
one of the leading commercial banks in the banking industry. NMB Bank was awarded
the 'Bank of the Year - 2017' by The Banker, Financial Times, London.
The bank has a joint venture agreement with Nederland’s Financierings-Maatschappij voor
Ontwikkelingslanden (FMO), wherein FMO holds 20% of the bank’s shares and is the largest
shareholder of the bank. In September 2016, the bank signed a joint venture agreement with
Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden (FMO), the Dutch
development bank following which FMO became the single largest shareholder of the bank.
The alliance with FMO positions the NMB Bank in becoming the market leader in managing
environmental and social risks and the leading player in renewable energy and agribusiness.
The bank has been forward looking in terms of adapting to the changes in the financial sector
both locally and internationally. Over the years NMB has aligned its business structure for the
financial inclusion of the deprived sectors through alliances with international agencies. The
bank has opened a representative office in Malaysia to promote bilateral trade between the
two countries. NMB Bank also has plans to open representative offices in other countries to
promote trade and banking transactions.
The bank made history by merging with four financial institutions in 2015. The merger with
Clean Energy Development Bank, Bhrikutee Development Bank, Pathibara Bikas Bank and
Prudential Finance attracted media attention because it was the first time that five financial
institutions joined to become a single entity, commencing fully-fledged operations the very
next day. The bank’s footprint will more than double to reach a wider distribution of the
unbanked population; creating increased financial inclusion. The alliance with FMO is in line
with the bank’s strategy to strengthen its portfolio in the energy sector, which holds immense
potential for the growth of Nepal’s economy.
NMB Bank is on track to achieving the NRB specified capital base of NPR. 8 Billion within
the stipulated time. The bank has already submitted its detailed plan of achieving this target
to Nepal Rastra Bank. With a plan in place, and strong capital base, NMB Bank aims to

establish itself as one of the top five commercial banks in the Nepalese financial market
within a short period of time.
Structure
NMB Bank merged with four financial intuitions in 2015 (Clean Energy Development Bank,
Bhrikutee Development Bank, Pathibara Bikas Bank and Prudential Finance). The merger
strategically incorporates regional representation of the two biggest regional development
banks, which strengthens NMB Bank’s retail base as well as increasing its footprint at a Pan-
Nepal level. This unprecedented strategic move gives NMB Bank balanced distribution of the
network across the country.
Market Focus, Products and Services

NMB Bank has been focused on providing tailor-made solutions to meet customers’
requirements, from individual savings to business financing.
The bank’s diverse portfolio of customers, ranging from corporate houses, mid-market firms
to small and medium enterprises and micro finance customers, are provided with a range of
financing options from working capital by way of overdraft/short term loans, to trade finance
products structured to meet customers’ needs and their risk profile, either as part of a
consortium or as a sole-banker.
It has been a perogative of NMB Bank to provide financing that creates change in the lives of
people in the deprived sector. The bank’s micro finance unit has entered into agreements with
several Micro Finance Institutions (MFIs), national and international non – profit
organsations, for ‘access to finance programs’ in rural and semi-urban regions of the country.
Remittance services assist in managing the influx of funds generated by foreign employment,
which is a major contributor to the economy.
Retail financing deposit and loan products have been designed to address the requirement of
the bank’s retail customers who are a prime focus for NMB Bank. Besides Home and Auto
Loan, products like Professional Loan, Medical Emergency Loan, DEMAT, Consumer
Durable Loan, dollar/debit/credit cards and mobile and internet banking (including insurance
facilities of both life and non- life), have enabled customers to benefit from the bank’s
services.
The country’s immense potential in hydro power holds the key to economic growth and the
bank has been consistently providing financing to large and small scale hydro projects and
has launched NMB Bank Solar Karja; financing for the installation of solar power equipment
in residences and offices. NMB Bank is among a limited number of banks enlisted by
Alternative Energy Promotion Center (AEPC) to support the financial needs of individuals
and organisations under its Urban Solar Program.
With ‘customer delight’ at the core of its values, the bank will continue to direct its efforts
and resources to constantly develop products and services that meet these needs.

Nature of business carried:
 Treasury and investment
 Credit Management
 Retail Banking Segment :
 NPA management
 Risk Management
 Internet Banking
 Core Banking Solution
Vision and mission:
Vision:
Building communities through responsible banking, preferred by all stakeholders, enabling

customers and clients achieve their financial goals thus contributing towards prosperous
Nepal.
Mission:
· Helping clients and customers to achieve financial security

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

FIRST IN CUSTOMER SATISFACTION
Area of operation
The Bank has presence in 31 districts of the country through a network of 56 branches, 6
extension counters, 3 regional offices and 75 ATMs. They have been extending their services
to all sectors of the economy with an aim to improve the financial health of these sectors and
the population dependent on the sectors. Through a widespread branch network in almost all
major cities, towns and other areas coupled with alternative v delivery channels, they aim to
cater to all the banking needs of their customers.
Product and services provided by NMB Bank Ltd
 Deposit mobilization activity

The Bank shows significant move away from high cost bulk deposits by consistent focus on
CASA (Current Account & Saving Account) and retail deposits. CASA mobilization on
campaign was launched to shed the high cost bulk deposits and replenish them with CA &
SB deposits. Campaign was also launched for popularizing their technology products like
mobile wallet, mobile banking and internet banking etc. with an aim to provide the
customers with alternative delivery channel for 24x7 access to their banking services.
 Deposit products
The Bank values the expectations and needs of its customers and has adequate product line
up to cater to their specific requirements. The savings bank account is normally the first on-
board facility availed by a customer and the referral point for all future services from the
Bank. Several variants of savings bank account are available to meet the specific needs of
individual customers, prominent amongst them are:
 Normal Savings Account

This scheme is designed to facilitate easy and regular deposit of funds as and when required
at zero balance. The account becomes eligible for earning interest income when balance in
the account reaches a threshold minimum balance.
 Indreni Bachat Khata

Under this scheme, customer gets the benefits of higher interest rate for maintaining higher
balance in the account. The scheme offers free internet banking, any branch banking,
concession on remittance facilities etc.
 Saral Bachat Khata

The product with low minimum balance requirement is a popular deposit scheme having
customer base of 2.89 lacks. This scheme is targeted towards mid to low income group of
people. Under this scheme, customer gets the benefits of higher interest rate for maintaining
higher balance in the account. The scheme offers free internet banking, any branch banking,
concession on remittance facilities etc.
 Vishesh Bachat
Vishesh Bachat Scheme is offered with attractive interest rate and high balance requirement
targeted at High Net worth Individuals. The scheme offers bundle of additional benefits like
free internet banking, Visa debit card, any branch banking, concession on
Remittance facilities and locker rental charge etc.
 Varistha Nagarik Bachat

Individuals of 50 years and above are eligible to open account this scheme. Customers are
provided with added benefits like free any branch banking service, Visa debit card, discount
on locker rental charge and at the same higher rate of interest. Customers who open Fixed
Deposit under Varistha Nagarik Scheme are paid interest at monthly interval.
 Karmachari Bachat Khata

This product is aimed at salaried employees from government and non-government
organizations including security personnel.
Under the scheme, salaried employees can open savings account with bank and enjoy
concessional benefits on various services.
 Nepal Army, Nepal Police and Armed Police Force Scheme

This account is designed for serving personnel of Nepal Army, Nepal Police or Armed Police
Force. It has features like; Free Visa Debit Card, free ABBS, free Stop payment of cheques,
free registration of Standing Instructions etc.
 Students Savings Account

This scheme has been introduced with an objective to inculcate saving habits in the students.
Under this Scheme any student can open savings account with zero minimum balance.
 Shareholders’ Account
Shareholders of NMB Bank are eligible to open account under this scheme. The account not
have minimum balance requirement. Dividends paid by the bank is credited to the account

directly. Apart from the savings schemes, the Bank offers Business Current Account and
Personal Current Account. Term deposits facilities like Recurring Deposit and Fixed Deposit
offer comparative interest rate. Provident fund account facility for permanent staff of
Organizations is also available wherein the interest rate is higher compared to savings
account. Call deposit account facility is available with attractive interest rates and unlimited
withdrawal facility.
 DMAT Account
DMAT account is an account opened by any investor with Depository Participant
(DP) who wishes to invest in various securities like share, debenture etc. With DMAT
account the certificates are held electronically in the dematerialized form rather than
investors taking physical possession of their share certificates.
LOANS AND ADVANCES
To cater to the credit requirements of the bank large and diversified clientele base, it have
wide range of loan products. Working capital loan, term loan, personal loan, mortgage loan,
trade finance
solutions etc. are available to fulfill the varied needs of the customers. Some of the bank’s
key loan products are:
 Corporate and Business Loans

The Bank offers loans to large corporate and institutional customers including public sector
entries to meet funding requirements ranging from service related to strategic expansions,
project finance etc.
 SME Convenient Loan

Small & medium Enterprises (SME) is vital to the economic growth of the country. The
sector not only generates employment but also stands auxiliary to big industrial/corporate
projects. SME Convenient loan is a customized loan product designed to meet the
financing needs of manufacturing, trading, business enterprise and self employed
professionals in Small and Medium Enterprise (SME) sector.
 Mortgage and Mortgage Plus
These products offer personal credit on easy terms to individuals on the basis of their income
level and value of mortgaged property. Simplified loan processes and quick turn-around to
me ensures
smooth delivery to the customer.
 Other Retail Loans

Other retail loans largely comprise of auto finance, home loan, education loan, credit for
consumer durables, loan for re� red Nepalese SME Convenient Loan small& medium
Enterprises (SME) is vital to the economic growth of the country. The sector not only
generates employment but also stands auxiliary to big industrial/corporate projects. SME

Convenient loan is a customized loan product designed by bank to meet the financing needs
of manufacturing, trading, business enterprise and self employed professionals in Small and
Medium Enterprise (SME) sector.
REMITTANCE
The Bank offers easy, convenient and safe international and domestic money transfer
facilities. The bank have wide reach in the country through the extensive branch network and
more than 3500 instant payout local on of Prabhu Money Transfer (NNB remittance partner),
which ensure delivery of remittance proceeds to beneficiary in quick time and hassle-free
manner. Some remittance products NSBI is proving to its customers are:
 NMB Express Remit

Remittance through Electronic Fund Transfer (EFT) mechanism provides money transfer
facility minimal cost to Nepali migrant population residing and working in India. Remittance
can be originated through more than 17,500 branches of State Bank of India located in
various parts of India. NMB receive more than 450 remittances on an average per working
day.
 Indo-Nepal Remit
The product was introduced by Reserve Bank of India in consultation with Nepal Rastra
Bank on Electronic Fund Transfer (EFT) platform for smooth and speedy remittance from
India to Nepal. Remittance can be originated through more than 117,000 NEFT enabled
branches of various Banks in India.
 Nepal NMB Remit

This is an online inward international remittance service which offers a formal channel for
Nepali community residing abroad to send money to Nepal.
 NMB Express Remit Gulf-Nepal (GLS)

The bank has introduce new remittance scheme for providing easy, convenient and safe
international money transfer service from Exchange Houses in gulf countries to the country
customer’s account on Straight Through Process(STP) enabled model.
 RTGS

Real Time Gross Settlement is a product from which customers can send Remittance to India
at a real time. This new remittance scheme has been introduced in more than 75,000 branches
of 106
banks in India.
 Domestic Remittance Service

Bank started domestic remittance service in partnership with Prabhu Money Transfer. This
product allows customers to send and receive
money to and from any part within the country.
CARD
 NMB Debit Card

This is ATM cum Debit card which can be used for cash withdrawal as well as for
merchandise payments at more than 6,00,000 merchant outlets in Nepal and India. Presently,
there are over 4.18 lakhs users of NMB Card.
 Bharat Yatra Card

Popularly known as BYC, this is a Nepalese Rupees denominated pre-paid card suited for
Nepalese population visiting India for medical treatment, education, tours etc. The card can
be used for cash withdrawal at all Sate Bank ATMs and VISA enabled ATMs in India. BYC
was launched in November 2008 and is able to attract substantial number of customers.
 Vishwa Yatra Card

Vishwa Yatra Card, a CHIP based EMV compliant card, is a USD denominated international
prepaid card which the customers can use for cash withdrawal in all the ATM terminals under
VISA network in any part of the world (except Nepal and India) and also for merchandise
payments. It provides safety, security and convenience to overseas travelers.
ALTERNATIVE DELIVERY CHANNELS
 Mobile Wallet
NMB Bank is the first leading Bank in Nepal to have received NRB’s approval for Mobile
Wallet service. It is premium mobile banking service that can be operated through mobile
phone.
The service is instrumental not only in bringing previously unbanked population into the
formal banking channel but also to add convenience to serving existing.
 Mobile Sakha
NMBI has launched mobile Sakha which is mobile based banking service delivery
channel which allows customers access to various banking services like fund transfer, balance
enquiry, bill payments, statement request, alert services etc.
 Internet Banking

Internet Banking is available through www.nepalsbi.com.np for both retail and corporate
customer of the Bank. This online banking channel provides access to banking services 24x7
from anywhere. Fund transfer, utility bill payments, ticket booking, Internet bill paymet etc.
are available on the internet banking platform.
 IRCTC Ticket Online Booking Utility

NSBI launched this product in February 2014 with a view to facilitate hassle-free booking of
tickets of Indian Railways. NMB is the first and the only Bank outside India to offer this
facility. With this utility, NSBI Internet Banking users can book tickets through IRCTC’s
Online Passenger Reservation System and can make payment through Nepal SBI Internet
Banking.
 Automated Teller Machine

Nepal SBI Bank has one of the largest network of ATM terminals. Presently, the bank has 75
ATM terminals around the country. NMB Bank ATMs can also be used by holders of various
International Cards.
AUXILIARY SERVICES
 Safe deposit Locker Services
Customers can deposit their valuable items in their Safe deposit lockers. This service is
available at 41 Branches of NMB Bank Ltd. Bank does not pay any return to the locker
holder in case of bank robbed. Customer only gets their locker loss back if the insurance for
the particular accessory is being done.
 Utility Bill Payment

customes—both accountholders and non accountholders—
of the bank can pay their telephone and electricity bills, at the bank’s branches free of charge.

NMB Bank network
Branches/extension counters
Inside Kathmandu valley
1. Chabahil
2. Bhaktapur
3. Boudha
4. Commercial branch , Linchaur
5. Dallu
6. Durbar Marg Main Branch
7. EOI Ext. Counter, Lazimpat, Ktm
8. Gaushala
9. Gongabu
10. Gwarko, Lalitpur
11. NSC , Lazimpat, Ktm
12. Kalanki
13. Kuleshwor
14. Maharajgunj
15. New Baneshwor
16. New Road
17. Pashupatinath Ext. Counter, Pashupati
18. Patan
19. Sinamangal
20. Teku
21. Thamel
Outside Kathmandu Valley
22. Abu Khaireni, Tanahu

23. Baglung
24. Bardibas, Mahottari
25. Bargachhi, Morang
26. Beshisahar, Lamjung
27. Bhairahawa, Rupanderhi
28. Biratnagar, Morang

29. CGI Ext. Counter, Birjung
30. Birjung, Parsa
31. Birtamod, Jhapa
32. Butwal, Rupandehi
33. CGI, Ext. Counter, Birjung
34. Chandranigahpur, Rautahat
35. Damak, Jhapa
36. Damauli, Tanahu
37. Dang, Ghorahi
38. Dhangadhi, kailali
39. Dharan, Sunsari
40. Gulmi, Tamghas
41. Hetauda, Makwanpur
42. Ilam
43. IThari, Sunsari
44. Janakpur, Dhanusha
45. Lahan, Siraha
46. Mahendranagar, Kanchanpur
47. Myanglung, Terahthum
48. Narayangarh, Chitwan
49. Nepalgunj, Banke
50. Palpa, Tansen
51. Parasi, Nawalparasi
52. Pension Paying office, Dharan
53. Pension Paying Ofiice , Pokhara
54. Phidim, Panchthar
55. Pokhara, Newroad
56. Rampur, Persa
57. Ratnanagar, Chitwan
58. Sandhikharka, Arghakanchi
59. Shishuwa, Pokhara
60. Srijana chowk, Pokhara
61. Tikapur, Kailali
62. Waling, Syangja

Share holding Pattern of NMB bank
Name of share holders Percentage %
FMO, Netherlands 55%

Employee Provident Fund 15%
General Public 30%
Fig: Sharing Holding Pattern of NMBBank
Percentage (%)
FMO Netherland employee provident fund general public

fig: share holding pattern of NMB Bank
Competitors’ information :
The joint venture banks in Nepal have been largely responsible for the introduction of the
new banking technique such as computerization, hypothecation, consortium finance, fee
based activities and syndicating under the foreign exchange transaction by import and
exports, merchant banking, internet banking market for the money and securities, arranging
foreign currency loans etc. the introduction of joint venture banks also brings the benefits of
the healthy completion of which the main beneficiaries are bank customers and the economy.
NMB Bank being a joint venture bank has its competitors having the same joint venture
profile. Some the biggest competitors NMB Bank is dealing with are :
1) Himalayan Bank limited, Nepal

2) Everest bank limited, Nepal
3) NABIL Bank limited, Nepal
4) Standard Chartered Bank Nepal LTD
5) Nepal Bangladesh Bank Limited.
Joint venture banks are successful to bring healthy competition among banks, increase in
foreign investment, promoted and expended import export trade introduce new techniques
and technologies. The increasing competition is bringing great thread to NSBI to be the
number one among all those banks. The banks to improve the qualities of service by
simplifying procedures providing training and motivation to their staff to respond to the new
challenges to be go through the completion on the market.

Work flow model of NMB Bank

Opens the
new account
Loan
department
If no If yes loan procedure
Approval by
Remit cash B.M
Fig : work flow model of NMB Bank Ltd.
SWOT analysis of NMB Bank

Internal / controllable environment
Strength Weekness
 High profitability and revenue  Cost structure

 Domestic market  Future profitability
 Skilled workforce  Tax structure
 Monetary assistance provided  Small business unit
 Barriers of market entry
 High growth rate.
External / uncontrollable environment
Opportunities Threats
 New acquisitions  Increasing rate of interest

 New product and services  Tax changes
 Growth rates and profitability  Financial capacity
 Growing demand  Increase in labour cost
 Income level is at a constant increase  Technological problems
 Growing economy  External business risks
 New markets
PESTLE analysis of NMB Bank

The PESTLE analysis determines the political, economic, socio-cultural, technological, legal
and environmental aspects which gives a clear picture of the external environment of the
company.

Political factors:
Nepal is a country where political factors play a vital role in each and every industry. Because
of the regular strikes, riots in the country many more industries are very much affected. In
context to NMB Bank, because of the political factors, the company is suffering a lot as they
can't operate efficiently during strikes, riots and because of the regular change of the
government, various rules and regulations are modified which hence creates a various
problems in to the banking sector of the country.
Economic factors:
The economic situation of Nepal is always fluctuating. Because of it, the exchange rates of
various currencies are changing on rapid basis. Also, because of the development of various
banks in Nepal, customers have a high bargaining power in between the banks. This has
affected NMB Bank severely as the customers who are only on NMB Bank are now diverted
on to the other companies. Because of the economy of Nepal, most of the people don't wish
to invest money in to any projects which results in the decrease in the ratios of consumer
loans and the interest rates and the economy.
Socio-cultural factors:
NMB Bank possess certain social responsibilities and are maintaining good as they are much
more into providing good services to the customers. Also, the company invests certain
amounts in to education for children's and various governmental and nongovernmental
activities. It has been a trend in Nepalese banking sector of investing funds into various
programs for child welfare, transportation and various educational activities. Also, the
company has various schemes for different age groups and also contributes for their personal
growth.
Technological factors:
The banking sector of Nepal is following advanced technology in to serving new services to
the customers. Various advanced programs are being organized in to gather new innovations
in terms of banking of the company. NMB Bank adopts advanced technology in to serve
effective and accurate services to the customers. Also, the company invests funds into its
research and development department so as to launch new services in considering the needs
of the current market.
Legal factors:
The banking of Nepal is regulated by Central Bank of Nepal (i.e. Nepal Rastra Bank) The
central bank regulates various rules and regulations in order to constitute the proper banking
services to the customers. The central bank regularly changes rules and regulations which

hence make a vast confusions and time in order to adopt the new rules and regulations. Also,
the legal factors of Nepal affect the proper functioning of the banking services in Nepal. Not
only in context of NMB Bank but overall banking sector of Nepal.
Environmental factors:
The environmental factors play a vital role in each and every organization. In terms of NMB
Bank, the environmental factors generally deals with attitudes of consumers, media and the
government towards the bank. As NMB Bank beholds quite good goodwill in the market , it
is succeeding in earning trust of the thousands of customers which is hence helping the
company to achieve its estimated goal.
Account of weekly activities:

Week 1: firstly was being placed to customer care department .

 Customer handling, identification of the account opening forms. ( eg; For current
account there is different form to be field , for saving account different, for DMAT
account different and so on.
 Arranging of the documents / forms according to different schemes.
Week 2:
 Detailed dealing with customer, answering their queries and forwarding it to higher
department.
 Telephone handling and voucher processes.
Week 3: Was being shifted to cash department.

 Learned about account opening entry made on system.
 Cheque clearance entry and processes through central bank of Nepal (NRB).
 Learnt how cheque and new ATM is being issued and new cheques are printed.
Week 4:
 E banking and mobile banking data entry, rectifying phone number and signatures.
 Counting of cash using machine and their systematic arrangements.
 Learned how signature is uploaded on bank’s system for future verification.
 Signature verification on withdrawal process.
 How cash is uploaded on ATM machine and its internal entries.
Week 5: Remittance department was being introduced.
 Remmiting of money nationally and internationally.
 Demand draft processes and print.
 E-Banking
Week 6 :
 Was handled with loan documents and files to have a brief view and study. Was made
aware about how education and home loan is being provided and documents required
for it.
Brief summary of project carried out :

As the topic suggest the project report is made on profitability analysis of Nepal Merchant
Bank (NMB Bank ltd) Nepal. Starting with the introduction of the banking industry and
company profile of NMB bank the project has been prepared with information of different
competitors, SWOT and PESTLE analysis of the company and the shareholders information.
Coming to main portion, Two years data has been taken i.e of year 2015-16 and 2016-17
and the profit of the company over the year has been calculated with the help of different
profitability ratios. With each findings, comparison has been made and the overall result has
been displayed. After being done with the calculations. Problems has been rectified and
solution has been given by me myself. Methods, Recommendations and findings has been
genuinely listed .
Literature Survey

Profitability is the ability to earn of return on the owner investment. It is the final conclusion
or result of commercial banks. The profit earned by the firm is the main financial
performance indicator of business management. As we know it is the part of financial
analysis , Financial statement is “content summarize information of the firm’s financial
situation to the user”.
Risk associated with adverse movement in exchange rate, interest rate.
Liquidity and investment in equity are covered under market risk management.
The risk is continuously monitored by the treasury department under direct supervision of the
Executive Final Officer And General Manager.
“It is also considered as engine which drives the enterprise. The profit is important to
preserve the existence of business as well as strength and expansion.
In the literature, bank profitability is usually expressed as a function of internal and external
determinants. The internal determinants originate from bank accounts (balance sheets and/or
profit and loss accounts) and therefore could be termed micro or bank-specific determinants
of profitability. The external determinants are variables that are not related to bank
management but reflect the economic and legal environment that affects the operation and
performance of financial institutions. A number of explanatory variables have been proposed
for both categories, according to the nature and purpose of each study. The main conclusion
emerging from these studies is that internal factors explain a large proportion of banks
profitability; nevertheless external factors have also had an impact on their performance.
Some recent studies also focus on the impact of regulations on banks performance and
profitability (e.g. Barth et al., 2003, 2004), and report only weak evidence to support that
bank supervisory structure and regulations affect bank profits.
Empirical studies on the bank profitability literature have focused mainly on a specific
country, including the US (Berger, 1995; Angbazo, 1997), Greece (Mamatzakis and
Remoundos, 2003; Kosmidou, 2006), Australia (Pasiouras et al. 2006), Malaysia (Guru et al.,
1999), Colombia (Barajas et al., 1999), Brazil (Afanasieff et al., 2002) and Tunisia (Ben
Naceur, 2003). Molyneux and Thorton (1992) were the first to investigate a multi-country
setting by examining the determinants of bank profitability for a panel of European countries,
followed by Abreu and Mendes (2001), Staikouras and Wood (2003), and Pasiouras and
Kosmidou (2006). Other multi-country studies include Hassan and Bashir (2003), who
examine profitability for a sample of Islamic banks from 21 countries; and Demirguc-Kunt
and Huizinga (1999) who consider a comprehensive set of bank specific characteristics, as
well as macroeconomic conditions, taxation, regulations, financial structure and legal
indicators to examine the determinants of bank net interest margins in over 80 countries. This
group of studies also includes Haslem (1968), Short (1979), Bourke (1989). A more recent
study in this group is Bikker and Hu (2002), though it is different in scope; its emphasis is on
the bank profitability-business cycle relationship. Studies in the first group mainly concern
the banking system in the US (e.g. Berger et al., 1987 and Neely and Wheelock, 1997) or the
emerging market economies (e.g. Barajas et al., 1999). All of the above studies examine
combinations of internal and external determinants of bank profitability. The empirical results

vary significantly, since both datasets and environments differ. There exist, however, some
common elements that allow a further categorization of the determinants.
The literature concentrating on regulatory framework suggests that the emerging economies
have significantly increased the attractiveness of its banking system for foreign investors.
Foreign ownership may have an impact on bank profitability due to a number of reasons.
First, the capital brought in by foreign investors decrease fiscal cost of banks' restructuring
(Tang et al., 2000). Second, foreign banks may bring expertise in risk management and a
better culture of corporate governance, rendering banks more efficient (Bonin et al., 2005).
Third, foreign bank presence increases competition, driving domestic banks to cut costs and
improve efficiency (Claessens et al., 2001). Finally, domestic banks have benefitted from
technological spillovers brought about by their foreign competitors. The literature on effect of
deregulation on bank performance lacks formal verification. However, the contestable market
theory and regulation theory in general, point out the importance of entry barriers in
enhancing profitability, while some other regulatory interventions may have an opposite
effect. Mamatzaky et al. (2005) provide evidence that a non-collusive behavior among banks
is in operation in banking industry, suggesting the existence of a contestable market. In
contrast, other studies on transition countries have highlighted the fact that the financial
reform process positively affect banks' profitability and that banking sector reform is a
necessary condition for the development and deepening of the sector (Fries and Taci, 2002).
Internal Determinants of Profitability
Studies dealing with internal determinants employ variables such as size, capital, risk
management and expenses management. Size is introduced to account for existing economies
or diseconomies of scale in the market. Akhavein et al. (1997) and Smirlock (1985) find a
positive and significant relationship between size and bank profitability. Demirguc-Kunt and
Maksimovic (1998) suggest that the extent to which various financial, legal and other factors
(e.g. corruption) affect bank profitability is closely linked to firm size. In addition, as Short
(1979) argues, size is closely related to the capital adequacy of a bank since relatively large
banks tend to raise less expensive capital and, hence, appear more profitable. Using similar
arguments, Haslem (1968), Short (1979), Bourke (1989), Molyneux and Thornton (1992)
Bikker which and Hu (2002) and Goddard et al. (2004), all link bank size to capital ratios,
they claim to be positively related to size, meaning that as size increases – especially in the
case of small to medium-sized banks – profitability rises. However, many other researchers
suggest that little cost saving can be achieved by increasing the size of a banking firm (Berger
et al., 1987), which suggests that eventually very large banks could face scale inefficiencies.
The need for risk management in the banking sector is inherent in the nature of the banking
business. Poor asset quality and low levels of liquidity are the two major causes of bank
failures. During periods of increased uncertainty, financial institutions may decide to
diversify their portfolios and/or raise their liquid holdings in order to reduce their risk. In this
respect, risk can be divided into credit and liquidity risk. Molyneux and Thornton (1992),
among others, find a negative and significant relationship between the level of liquidity and
profitability. In contrast, Bourke (1989) reports an opposite result; while the effect of credit
risk on profitability appears clearly negative (Miller and Noulas, 1997). This result may be
explained by taking into account the fact that the more financial institutions are exposed to
high-risk loans, the higher is the accumulation of unpaid loans, implying that these loan
losses have produced lower returns to many commercial banks. Bank expenses are also a

very important determinant of profitability, closely related to the notion of efficient
management. There has been an extensive literature based on the idea that an expenses-
related variable should be included in the cost part of a standard microeconomic profit
function. For example, Bourke (1989) and Molyneux and Thornton (1992) find a positive
relationship between better-quality management and profitability.
External determinants of profitability
Turning to the external determinants of bank profitability, it should be noted that we can
further distinguish between control variables that describe the macroeconomic environment,
such as inflation, interest rates and cyclical output, and variables that represent market
characteristics. The latter refer to market concentration, industry size and ownership status. A
whole new trend about structural effects on bank profitability started with the application of
the Market-Power (MP) and the Efficient-Structure (ES) hypotheses. The MP hypothesis,
which is sometimes also referred to as the Structure-Conduct-Performance (SCP) hypothesis,
asserts that increased market power yields monopoly profits. A special case of the MP
hypothesis is the Relative-Market-Power (RMP) hypothesis, which suggests that only firms
with large market shares and well-differentiated products are able to exercise market power
and earn non-competitive profits (see Berger, 1995a). Likewise, the X-efficiency version of
the ES (ESX) hypothesis suggests that increased managerial and scale efficiency leads to
higher concentration and, hence, higher profits.
Interest rate & profitability
Interest rate fluctuations play a huge role in the profitability of a bank. Loan rates can be
separated into two major components – the interest rate paid to depositors and the rate added
on by banks. That difference between the deposit rate and the loan rate is commonly referred
to as the spread. The size of banking spreads serves as an indicator of efficiency in the
financial sector because it reflects the costs of intermediation that banks incur (including
normal profits). Some of these costs and are imposed by the macroeconomic, regulatory and
institutional environment in which banks operate while others are attributable to the internal
characteristics of the banks themselves. Cost management efficiency is the single most
important indicator in bank profitability. Therefore, banks can improve their profitability
indicators by paying more attention on interest rates.
As financial intermediaries, banks play a crucial role in the operation of most economies. The
primary reason why interest rates are important is because they are a source of banks' interest
rate risk exposure. Changes in interest rates may “narrow the interest spread between assets
and liabilities” because due to differences in the maturity of banks' instruments (banks
borrow short term (long term) to fund long-term (short-term) assets) there are mismatches in
the re-pricing of bank assets, liabilities, and off-balance sheet instruments (Wright and Houpt
1996, 115). Research, as surveyed by Levine (1996), has shown that the efficacy of financial
intermediation can also affect economic growth. Crucially, financial intermediation affects
the net return to savings, and the gross return for investment. The spread between these two
returns mirrors the bank interest margins, in addition to transaction costs and taxes borne
directly by savers and investors. This suggests that bank interest spreads can be interpreted as
an indicator of the efficiency of the banking system.

An increase in market interest rates means an increase in the price of banking products, which
automatically leads to an increase in costs for businesses outside of the banking sector and is
a source of inflation (Brockway 1989, 53). The increase in the costs of running business
potentially increases default risks of borrowers. This is an important example of how interest
rates indirectly affect “default risk of loans, securities, and real estate holdings” (Madura and
Zarruk 1995, 5).
Interest rate is an important macroeconomic determinant of bank performance. A
comprehensive review of determinants of interest spreads is offered by Hansonand Rocha
(1986). That paper summarizes the role that implicit and explicit taxes play in raising spreads
and goes on to discuss some of the determinants of bank cost and profits, such as inflation,
scale economies, and market structure. Using aggregate interest data for29 countries in the
years 1975-1983, the authors find a positive correlation between interest margins and
inflation. Recently, several studies have examined the impact of international differences in
bank regulation using cross-country data. Analyzing interest rates in 13 OECD countries in
the years 1985-1990, Bartholdy, Boyle, and Stover (1997) find that the existence of explicit
deposit insurance lowers the deposit interest rate by 25 basis points. Using data from 19
developed countries in 1993, Barth, Nolle and Rice (1997) further examine the impact of
banking powers on bank return on equity -controlling for a variety of bank and market
characteristics. Variation in banking powers, bank concentration and the existence of explicit
deposit insurance do not significantly affect the return on bank equity.
Ogunleye (2001: 61) argues that when interest rates rise or fall, it exerts an impact on banks'
profits through adjustment to revenues; and this comes about in two ways. First, an increase
in market rates raises the amount of income a bank can earn on new assets it acquires.
However, the speed with which revenues adjust to new market conditions depends on how
long it takes for the average asset's interest rate to adjust to current market rates (Flannery,
1980). Secondly, the effect could come through impact on the bank's decisions about which
loans and securities to purchase and how much to hold in cash reserves (apart from regulatory
requirement). In time of rising rates, rates on loans are usually higher than rates on
marketable securities; hence banks are likely to book more loans to earn higher incomes than
buying securities. In the same vein, banks' holdings of cash reserves and non-earning assets
would be at the lowest level, since these groups of assets yield little or nothing. Therefore,
total income during periods of rising rates increase even more than the proportion of increase
in rates. Empirical evidence from Molyneux and Thornton (1992) and Demirgüç-Kunt and
Huizinga (1999) indicate that high interest rate is significantly associated with higher bank
profitability, i.e. a significant positive relationship. Demirgüç-Kunt and Huizinga (1999)
emphasize that this relationship is more so in developing countries. But, conversely, Naceur
(2003) highlights a negative relationship between interest rates and bank profitability. The
contradiction between these researchers generates a need for further empirical analyses of the
relationship between interest rates and bank profitability.
Among other macro-factors that could influence banks' performance, Beckmann (2007, 9)
highlighted the ambiguous effect of real interest rates on performance of banking
organizations due to the initial “dampening effect of a rise in real interest rates on credit
demand and accompanying deterioration in credit quality” that could contribute to negative
association of interest rates with ROA. Beckmann (2007) also found a very strong impact of
real interest rate on the return on assets.

Performance tends to be influenced by interest rates, which influence composition of banks'
portfolio, in the following way. According to Brechling and Clayton (1965), an increase in
interest rates tends to induce FIs to restructure portfolios through decrease in the amount of
liquid assets (cash, money at call, Treasury bills) and corresponding increase in the amount of
investments into interest-bearing securities and advances, This strategy leads to changes in
the relative earning power of various assets in the portfolio. In particular, it leads to an
increase in the earning power of interest-bearing securities.
In essence, changes in interest rates should not significantly affect short-term assets and
liabilities as they are re-priced more frequently than long-term ones. The latter are more
sensitive to changes in interest rates (Ghazanfari, Rogers, and Sarmas 2007, 349-350), which
may result in squeezing of interest margins and, as a result, in a decrease in banks'
profitability.
Yap and Kader (2008) assessed the impact of changes in interest rates on performance of
conventional and Islamic banking organizations running in parallel in Malaysia (where
Islamic banking was introduced in 1983) over the period of 1999-2007, which was
characterized by falling interest rates in Malaysia. They found that depositors at Islamic
banks did not react to changes in interest rates suggesting that “there is no shifting effect
between the Islamic and conventional deposits in response to changes in conventional interest
rates,” which could be explained by moving rates of return on deposits in Islamic banks very
closely with interest rates offered by conventional banks during time period under
investigation (Yap and Kader 2008, 129-130). In terms of financing, the authors concluded
that customers of Islamic banks are profit oriented and suggested that during a decrease in
discount rates/basis rates BBA (bai bathamin ajil – fixed rate asset) financing offered by
Islamic banks (fixed rate assets financing is collateralized) is less popular than getting loans
from conventional banks due to the fixed rate of BBA financing and vice verse if there is a
reverse situation. They noted that, in essence, divergence of rates (on deposits or loans)
between Islamic and conventional banks due to changes in market interest rates would lead to
switching banks by customers. In this respect, one must bear in mind that profitability of
banks in dual banking systems will be influenced not only by micro and environmental
factors (the impact of latter is going to be assessed in this study), but also by type of bank
(Islamic or conventional).
Despite significant regulatory concern paid to the interest-rate risk that banks face (OCC
[2004]; Basel Committee on Banking Supervision [2004]), research on a key component of
earnings that may be most sensitive to interest shocks—namely, bank net interest margins—
has been limited thus far, particularly for U.S. banks. With a few exceptions discussed in this
section, there has been little published research on the effects of interest-rate risk on bank
performance since the late 1980s.
Al-Haschimi (2007) studies the determinants of bank net interest rate margins in 10 SSA
countries. He finds that credit risk and operating inefficiencies (which signal market power)
explain most of the variation in net interest margins across the region. Macroeconomic risk
has only limited effects on net interest margins in the study. Using bank level data for 80
countries in the 1988–95 period, Demirgüç-Kunt and Huizinga (1998) analyze how bank
characteristics and the overall banking environment affect both interest rate margins and bank
returns. In considering both measures, this study provides a decomposition of the income

effects of a number of determinants that affect depositor and borrower behavior, as opposed
to that of shareholders. Results suggest that macroeconomic and regulatory conditions have a
pronounced impact on margins and profitability. Lower market concentration ratios lead to
lower margins and profits, while the effect of foreign ownership varies between industrialized
and developing countries. In particular, foreign banks have higher margins and profits
compared to domestic banks in developing countries, while the opposite holds in developed
countries. Gelos (2006) studies the determinants of bank interest margins in Latin America
using bank and country level data. He finds that spreads are large because of relatively high
interest rates (which in the study is a proxy for high macroeconomic risk, including from
inflation), less efficient banks, and higher reserve requirements. In a study of United States
banks for the period 1989–93, Angbazo (1997) finds that net interest margins reflect
primarily credit and macroeconomic risk premia. In addition, there is evidence that net
interest margins are positively related to core capital, non-interest bearing reserves, and
management quality, but negatively related to liquidity risk. Saunders and Schumacher
(2000) apply the model of Ho and Saunders (1981) to analyze the determinants of interest
margins in six countries of the European Union and the US during the period 1988–95. They
find that macroeconomic volatility and regulations have a significant impact on bank interest
rate margins. Their results also suggest an important trade-off between ensuring bank
solvency, as defined by high capital to asset ratios, and lowering the cost of financial services
to consumers, as measured by low interest rate margins.
Theoretical models of net interest margins have typically derived an optimal margin for a
bank, given the uncertainty, the competitive structure of the market in which it operates, and
the degree of its management's risk aversion. The fundamental assumption of bank behavior
in these models is that the net interest margin is an objective to be maximized. In the dealer
model developed by Ho and Saunders (1981), bank uncertainty results from an asynchronous
and random arrival of loans and deposits. A banking firm that maximizes the utility of
shareholder wealth selects an optimal markup (markdown) for loans (deposits) that
minimizes the risks of surplus in the demand for deposits or in the supply of loans. Ho and
Saunders control for idiosyncratic factors that influence the net interest margins of an
individual bank, and derive a “pure interest margin,” which is assumed to be universal across
banks. They find that this “pure interest margin” depends on the degree of management risk
aversion, the size of bank transactions, the banking market structure, and interest-rate
volatility, with the rate volatility dominating the change in the pure interest margin over time.
Allen (1988) extends the single-product model of Ho and Saunders to include heterogeneous
loans and deposits, and posits that pure interest spreads may be reduced as a result of product
diversification. Saunders and Schumacher (2000) apply the dealer model to six European
countries and the United States, using data for 614 banks for the period from 1988 to 1995,
and find that regulatory requirements and interest-rate volatility have significant effects on
bank interest-rate margins across these countries. Angbazo (1997) develops an empirical
model, using Call Report data for different size classes of banks for the period between 1989
and 1993, incorporating credit risk into the basic NIM model, and finds that the net interest
margins of commercial banks reflect both default and interest-rate risk premia and that banks
of different sizes are sensitive to different types of risk. Angbazo finds that among
commercial banks with assets greater than $1 billion, net interest margins of money-center
banks are sensitive to credit risk but not to interest-rate risk, whereas the NIM of regional

banks are sensitive to interest-rate risk but not to credit risk. In addition, Angbazo finds that
off-balance-sheet items do affect net interest margins for all bank types except regional
banks. Individual off-balance-sheet items such as loan commitments, letters of credit, and net
securities lent, net acceptances acquired, swaps, and options have varying degrees of
statistical significance across bank types.
Zarruk (1989) presents an alternative theoretical model of net interest margins for a banking
firm that maximizes an expected utility of profits that relies on the “cost of goods sold”
approach. Uncertainty is introduced to the model through the deposit supply function that
contains a random element. Zarruk posits that under a reasonable assumption of decreasing
absolute risk aversion, the bank's spread increases with the amount of equity capital and
decreases with deposit variability. Risk-averse firms lower the risk of profit variability by
increasing the deposit rate. Zarruk and Madura (1992) show that when uncertainty arises
from loan losses, deposit insurance, and capital regulations, a higher uncertainty of loan
losses will have a negative effect on net interest margins. Madura and Zarruk (1995) find that
bank interest-rate risk varies among countries, a finding that supports the need to capture
interest-rate risk
However, Wong (1997) introduces multiple differentials in the risk-based capital
requirements. sources of uncertainty to the model and finds that size-preserving increases in
the bank's market power, an increase in the marginal administrative cost of loans, and mean-
preserving increases in credit risk and interest-rate risk have positive effects on the bank
spread.
Both the dealer and cost-of-goods models of net interest margins have two important
limitations. First, these models are single-horizon, static models in which homogenous assets
and liabilities are priced at prevailing loan and deposit rates on the basis of the same
reference rate. In reality, bank portfolios are characterized by heterogeneous assets and
liabilities that have different security, maturity, and repricing structures that often extend far
beyond a single horizon. As a result, assuming that bankers do not have perfect foresight,
decisions regarding loans and deposits made in one period affect net interest margins in
subsequent periods as banks face changes in interest-rate volatility, the yield curve, and credit
risk. Banks' ability to respond to these shocks in the period t is constrained by the ex ante
composition of their assets and liabilities and their capacity to price changes in risks
effectively. In addition, the credit cycle and the strength of new loan demand determine the
magnitude of the effect of interest-rate shocks on banks' earnings. In this regard, Hasan and
Sarkar (2002) show that banks with a larger lending slack, or a greater amount of “loans-in-
process,” are less vulnerable to interest-rate risk than banks with a smaller amount of loans in
process. Empirical evidence, using aggregate bank loan and time deposit (CD) data from
1985 to 1996, indicates that low-slack banks indeed have significantly more interest-rate risk
than high-slack banks. The model also makes predictions regarding the effect of deposit and
lending rate parameters on bank credit availability that were not empirically tested with
aggregate data. The second important limitation of both the dealer and cost-of-goods models
of net interest margins is that they treat the banking industry either as being homogenous or
as having limited heterogeneous traits based only on their asset size. However, banks with
distinct production-line specializations usually differ in terms of their business models,
pricing power, to these shocks in the period t is constrained by the ex ante composition of
their assets and liabilities and their capacity to price changes in risks effectively. In addition,

the credit cycle and the strength of new loan demand determine the magnitude of the effect of
interest-rate shocks on banks' earnings. In this regard, Hasan and Sarkar (2002) show that
banks with a larger lending slack, or a greater amount of “loans-in-process,” are less
vulnerable to interest-rate risk than banks with a smaller amount of loans in process.
Empirical evidence, using aggregate bank loan and time deposit (CD) data from 1985 to
1996, indicates that low-slack banks indeed have significantly more interest-rate risk than
high-slack banks. The model also makes predictions regarding the effect of deposit and
lending rate parameters on bank credit availability that were not empirically tested with
aggregate data. The second important limitation of both the dealer and cost-of-goods models
of net interest margins is that they treat the banking industry either as being homogenous or
as having limited heterogeneous traits based only on their asset size. However, banks with
distinct production-line specializations usually differ in terms of their business models,
pricing power, their assets and liabilities, and they are therefore more likely to be sensitive to
changes in the yield curve.
Exchange rate & profitability
Exchange rates represent the number of units of a given currency of one country that can be
exchanged for unit of another currency (Van Horne, 1986). Today foreign exchange has been
the talk of the town, and this is because foreign exchange plays a very crucial role in the
overall performance of the national economy. The practice of managing foreign exchange
resources has therefore evolved broadly in line with the globalization and liberalization of
economies and financial market. This has planed over such areas as risk management and
active portfolio management. Broadly speaking foreign exchange is held and managed to
facilitate international transactions. (Anifowoshe, 1997).
If there were a single international currency there would be no need for a foreign exchange
market. The purpose of foreign exchange market is to enhance transfer of purchasing power
dominated in one currency for another currency. The foreign exchange market is not a
physical place rather it is an electronically linked network of banks, foreign exchange brokers
and dealers whose function is to bring together buyers and sellers of foreign exchange. So,
Bank profitability could be affected by the nature of a country's exchange rate regime.
Ogunleye (1995: 56) has asserted that bank profitability is largely constrained by a fixed
exchange rate regime; whereas, in a regime of partial / outright liberalization of the foreign
exchange (forex) market, banks are given enough latitude to trade in forex and hence improve
the overall profitability.
Due to very intensive involvement of banking organizations in foreign currency trading
activities, the issue of risks associated with it deserves some attention. In the literature, a
large number of empirical works have been carried out to examine the foreign exchange
exposure of banks. However, past studies mainly focused on banking markets which are well
developed, including the US (Grammatikos et al. (1986), Choi et al. (1992), Choi and
Elyasiani (1997), and Martin and Mauer (2003, 2005)), Japan (Chamberlain et al. (1997)),
Canada (Atindéhou and Gueyie (2001)), and Australia (Chi et al. (2007)), or large banking
institutions (Martin (2000)). By comparison, studies focusing on less developed banking
markets are relatively scant.

Grammatikos, Saunders, and Swary (1986, 671) stated that there are two types of risk related
to foreign currency trading activities, namely exchange rate risk, which comes from
unexpected change in exchange rates in the presence of “a positive (or negative) net asset
position [in terms of size] in a particular foreign currency”, and foreign interest risk, which
occurs from changes in interest rates in the presence of mismatched maturities of banks'
“foreign currency assets and liabilities.”
If foreign currency assets are greater (smaller) than liabilities, an appreciation

(depreciation) in the foreign currency vis-à-vis the dollar generates capital gains (losses)
either on paper or realized. …. If the average duration of its foreign currency assets is greater
(smaller) than its liabilities, then an unexpected upward parallel shift in the term structure of
foreign interest rates will reduce (increase) the bank's net interest earnings (Grammatikos,
Saunders, and Swary 1986, 671).
The authors analyzed the overall performance and risks of banks associated with foreign
currency trading activities in the US from December, 1975 to November, 1981, and noted that
there is a possibility that “diversification by the bank into many currencies” might “reduce
the overall risk exposure” even in the presence of mismatch in the maturities (durations) of its
foreign currency assets and liabilities (Grammatikos, Saunders, and Swary 1986, 675).
As emerging markets become more integrated into global capital markets, the choice of
exchange rate arrangement by those countries is receiving more attention because it is
regarded as one of the sources of main economic crises like “the Mexican peso crisis in
1994–95, and the Asian crisis in 1997–98” as a result of which the “hollowing-out
hypothesis” or the “bipolar view” is becoming more popular, even though it is still not well-
accepted. This hypothesis explains that
…in a world of increasing international capital mobility, only the two extreme exchange rate
regimes are likely to be sustainable - either a permanently fixed exchange rate regime (i.e., a
“hard fix”) such as a currency board or monetary union, or a freely floating exchange rate
regime (Bailliu and Murray 2003, 17).
As shown by Chamberlain et al. (1997), to the extent that banks' direct exposure generally
provides a significant explanation for banks' foreign exchange exposure, it only measures
banks' foreign exchange risk partially. Using a bank's loan to an exporter as an example,
Chamberlain et al. (1997) demonstrate that banks that perfectly hedge their accounting
exposure could still be exposed to significant foreign exchange risk if exchange rate
movements affect cash flows, competitiveness, and credit risk of banks' customers
significantly (i.e. indirect or economic exposures).This indicates that the sources of foreign
exchange risk of banks are far more than just their holdings of net foreign assets.
The bankers business has been and continues to be that of taking risks; which he does through
maturity transformation – borrowing short and lending long. One can infer that the basis for
doing this is the probability that he will not be called upon at any one time to redeem all his
obligations provided he managed his affairs prudently. This implies having adequate capital
and earnings and adequate liquidity to honor his obligation as and when they fall due. In
congruous, it also means avoiding excessive risks. Risks that are taken must be compatible
with profitability, liquidity are prudence (Nwankwo, 1991). Thus if profitability is the

foundation of banking then confidence is its cornerstone. If confidence collapses or is
shattered, the whole edifice collapses and so will the bankers business. Managing risks, just
like managing capital and liquidity is therefore a core function of banking and this has been
increasingly so in the banking business for decades. The risk inherent in foreign exchange
transactions is part of the risks a banker faces, in the 1950's attention was focused on
techniques for the management of bank assets, while the 1960's and 1970's emphasized
liability management. However, banking in the 1980's and 1990's shifted attention to risk,
how to measure risk and how to control it for the betterment of the industry and its customers
(Yahaya, 1997). Essentially the over-riding consideration of bank management is the
necessity to minimize risks and maximize returns, consistent with the prudential constraints
and regulations. In reality the cardinal objective of a risk manager is to ensure that at the end
of the day, he tries as much as possible to minimize his loss and maximize profit through
efficient and effective management. Nwankwo (1991) posits that foreign exchange risk is
probably the most involved of the banking risks. The risks involved are frequently not limited
to losses due to unanticipated exchange rate changes. As each bank has to be in a position to
meet its own foreign currency demand on time, there are liquidity risks and there are also
interest rate risks; for dealings in the forward foreign exchange market. Since exchange rate
movements correlate with movements in relative interest rate, a mismatched currency
position and a mismatched inherent position may frequently not be independent. Accordingly,
most of the instruments and techniques for addressing these other risks particularly the
interest rate risk are frequently used for managing foreign currency exposure risks (CBN
Review, 1991). With the expansion of treasurer's business activities, the need to adequately
manage the associated exposure is becoming increasingly important. Some treasury functions
today have introduced and others are planning to introduce an overall exposure monitoring
and management system, able to integrate balance sheet and off- balance sheet business
activities. This is done by consolidating all information elements relevant to risk and
exposure offering a comprehensive view that facilitates control.
Inflation & Profitability

The importance of inflation on the performance of banks was heavily discussed in the
literature, primarily due to the influence of inflation on the sources and users of banks'
financial resources. In particular, inflation affects companies' pricing behavior. The effect of
inflation on bank profitability was first discussed by Revell (1980). He believed that inflation
could be a factor in the variations in a bank's profitability. He notes that the effect of inflation
on bank profitability depends on whether banks' wages and other operating expenses increase
at a faster rate than inflation. The question is how mature an economy is so that future
inflation can be accurately forecasted and thus banks can accordingly manage their operating
costs. In this vein, Perry (1992) states that the extent to which inflation affects bank

profitability depends on whether inflation expectations are fully anticipated. An inflation rate
fully anticipated by the bank's management implies that banks can appropriately adjust
interest rates in order to increase their revenues faster than their costs and thus acquire higher
economic profits. If companies expect general inflation to be higher in the future, they may
believe that they can increase their prices without suffering a drop in demand for their output.
(Driver and Windram 2007, 209). In this scenario, upon the condition that expected inflation
will be equal to actual inflation, there will be no decrease in business activities and no
negative effect on banks' performance. Most studies (including those by Bourke (1989) and
Molyneux and Thornton (1992)) have shown a positive relationship between either inflation
or long-term interest rate and profitability. Some of these studies used consumer price index
(CPI) as a proxy for inflation. Although the first empirical testing on inflation was done by
Bourke (1989), Heggested (1977) in his study had tried to measure the effect of inflation on
profitability indirectly. He used per capita income as an independent variable instead of using
the CPI. Heggested's finding, however, did not indicate any relationship between per capita
income and a bank's profitability.
Empirical evidence from cross-country studies by Demirgüç-Kunt and Huizinga (1999) and
Demirgüç-Kunt and Huizinga (2001) suggest that inflation enhances bank profitability. They
opine that the positive relationship between inflation and bank profitability implies that bank
income increases more with inflation than bank costs. High inflation rates are also generally
associated with high loan interest rates, and therefore, high incomes. Banks also obtain higher
earnings from float or delays in crediting customer accounts in an inflationary environment.
However, if inflation is unanticipated and banks are sluggish in adjusting their interest rates,
then there is a possibility that bank costs may increase faster than bank revenues and hence
adversely affect bank profitability. Reporting the results of Demirgüc-Kunt and Huizinga's
1999 study, Beckmann (2007, 6) also noted a significant positive effect of inflation on
profitability of banks expressed as ROA. Adopting a non-empirical negative stance on the
relationship between inflation and bank profitability, Uche (1996) and Ogowewo and Uche
(2006: 164-165) argue that, by their nature, banks are seriously constrained by high inflation.
Under high inflation regimes, banks are extremely vulnerable and this has been a major cause
of distress in these financial institutions. To them, it is trite that high inflation leads to macro-
economic instability; and the absence of a stable macro-economic environment materially
increases banks' risks, lessening banks' profits. The empirical evidence from Naceur (2003)
contradicts all the aforementioned evidences and arguments by indicating that inflation has
no significant impact on bank profitability specifically in Tunisia. The evidence suggests that
banks in Tunisia neither significantly profit nor significantly lose due to inflation. This
contradiction of the win or lose stances adopted by other researchers generates a need for
further empirical analyses of the relationship between inflation and bank profitability.
Boyd and Champ & Abreu and Mendes (2002) contradicted with the view that inflation has a
positive relationship with the profit of banks. Abreu and Mendes (2002), studied data from
Portugal, Germany, Spain and France for the 1986-1999 period and concluded that inflation
and unemployment rates affect both profitability ratios negatively. According to Boyd and
Champ, inflation has a dramatic negative impact on the profitability of banks. Various
measures of bank profitability—net interest margins, net profits, rate of return on equity, and
value added by the banking sector—all decline in real terms as inflation rises, after
controlling for other variables. They argued that, countries with high inflation rates have

inefficiently small banking sectors and equity markets. This effect suggests that inflation
reduces bank lending to the private sector, which is consistent with the view that a
sufficiently high rate of inflation induces banks to ration credit.
Boyd and Champ (2006, 1) stated that the real rate of return on assets can be decreased with
inflation which will result in depressing savings and pushing borrowings while new
borrowers are “likely to be of lesser quality and are more likely to default on their loans”
which together with decreased real rate of return on assets may force banks to ration the
credit especially if banks fail to distinguish borrowers of good and bad quality. They stressed
that the situation can be worsened by imposing higher nominal interest rates because banks
can lose good quality but risk averse borrowers. However, regardless of the underlying
reasons, putting limitations on the amount of credit to be given to the private and corporate
sector will lead to a decrease in investments to be brought into the economy leading to a
lowering of real economic activity.
In regard to the direct effect of inflation on financial sector, Boyd and Champ (2006, 1-2)
stressed that there is some inflation threshold below which there will be no credit rationing
and “higher inflation might actually lead to increased real economic activity,” contingent
upon low nominal interest rates because in economies with increasing inflation, but beneath
some threshold, and low interest rates, banking organizations can raise nominal interest rate
so that the “real return on loans dominates the return on currency, encouraging banks to lend
more” which in turn stimulates investments and economic growth.
Boyd and Champ (2006) tested whether an increase in inflation beyond some threshold
would result in a decrease in bank lending and found, surprisingly, that even small increase in
inflation negatively affects bank lending, suggesting that size of the banking sector is
negatively associated with inflation. Furthermore, they found a very negative impact of
inflation on profitability of banks. This is in line with previous findings of Boyd, Levine, and
Smith (2000, 17), which suggested a negative relationship between inflation and financial
sector performance regardless of the “time period considered, the empirical procedure
employed … inclusion or exclusion of countries that have experienced extraordinarily high
rates of inflation.”
The most interesting issue put forward by Boyd and Champ (2006, 3) is “the question of the
exact rate at which inflation becomes destructive” while their findings suggest that “the
critical point lies at a fairly modest inflation rate, somewhere around 5 percent.”
Alhadeff (1976, 14) stressed that, depending on inflationary expectations, banks can think of
various “ways of managing their affairs,” implying that more investments should be made
directed at the development of financial intermediaries. In particular, Alhadeff (1976, 14-15)
pointed out that inflationary expectations can lead to changes in the competitiveness of banks
in different fund markets, primarily due to pressure on interest rates. In turn, this may result
in high pressure on the liability side of banking organizations which eventually serves as a
trigger factor in occurrence of liquidity problems. The lack of public confidence in the
banking system under inflation is jeopardized due to high uncertainty, which can accentuate
liquidity problems of banks in such environments.

Analyzing the impact of inflation on the performance of English commercial banks
(expressed as return on assets and return on capital) from 1920 to 1968, Capie and Billings
(2001, 385-386) noted that if capital is not subject to continuous revaluation due to inflation,
returns on capital have a tendency to be inflated (as a result of inflation) by lifting profits
relative to capital. They emphasized that returns on assets, in turn, are not affected by
inflation in the same way as returns on capital because returns and assets capture the effect of
changes in prices caused by changes in inflation. Because of this, return on assets could be
considered as “a more straightforward measure” of banking organizations' profitability.
With respect to effect of inflation on return on capital, however, “while inflation distorts
comparisons over time, comparisons between banks in the same time period are not
invalidated” (Capie and Billings 2001, 386).
Profitability Determinant of Bangladeshi Banks
There has been a little study on the profitability determinants of Bangladeshi Banks. To the
best of our knowledge, only a single study has been conducted to determine the profitability
determinants of Bangladeshi Banking industry. In their study Jahangir, Shubhankar & Alamin
investigated Bank's Return on Equity, Market Size, Market Concentration Index, and Bank
Risk Measure. They concluded that, Loans are the riskiest asset of a bank, but these loans
play a pivotal role in banks' profitability. The analysis finds that market concentration and
bank's risk do little to explain bank's return on equity, whereas bank's market size is the only
variable providing an explanation for banks return on equity in the context of Bangladesh.
Profitability Analysis:
Every firm is most concerned with its profitability. One of the most frequently used tools of
financial ratio analysis is profitability ratios, which are used to determine the company's
bottom line and its return to its investors. Profitability ratios show a company's overall
efficiency and performance. In order to perform a profitability analysis, all costs of an
organisation have to be allocated to output units by using intermediate allocation steps and
drivers. This process is called costing. When the costs have been allocated, they can be
deducted from the revenues per output unit. The remainder shows the unit margin of a
product, client, location, channel or transaction.
After calculating the profit per unit, managers or decision makers can use the outcome to
substantiate management decisions. Managers can decide to stop selling loss making
products, to reduce costs for loss making customers or to increase sales in profitable
locations.

Profitability analysis is the process of comparing income to output and determining how
much profit was made during a specific time period. This activity can help business owners
determine the effectiveness of a marketing campaign, identify expenditure areas that may
need to be re-evaluated and decide the viability of the business as a whole. A whole-business
profitability analysis may be required to secure new funding, either through loans or the
attraction of investors.
A class of financial metrics that help investors assess a business's ability to

generate earnings compared with its expenses and other relevant costs incurred during a
specific period. When these ratios are higher than a competitor's ratio or than the company's
ratio from a previous period, this is a sign that the company is doing good with its
profitability. Profitability is the ability of a business to earn a profit. A profit is what is left
of the revenue a business generates after it pays all expenses directly related to the generation
of the revenue, such as producing a product, and other expenses related to the conduct of the
business activities.
There are many different ways for you to analyze profitability. This lesson will focus
on profitability ratios, which are a measure of the business' ability to generate revenue
compared to the amount of expenses it incurs. Let's look at a few of the primary analytical
approaches.
NMB Bank two year comparative income Statement. Amt in (00000) in NRs.
Particulars 2016-17 2015-16
Interest income 39766.47 41105.14

Interest expenses 22316.04 24869.78
Net interest income 17450.43 16235.35
Commission and discount 3204.25 3136.96
Other operating income 2172.67 1577.55
Exchange fluctuation income 1078.06 1019.15

Total operating income 23905.42 21969.02
staff expenses 4430.77 4165.60
Other operating expenses 5060.28 4772.46
Exchange fluctuation loss - -
Operating income before provision of possible 11414.36 13030.95

loss
Provision for possible looses 829.66 1280.40
Operating profit 1358.46 1750.54
Non-operating income (expense) 87.28 (28.7)

Provision for Possible Loss Written Back 718.10 438.61
Profit from Regular Operations 14390.07 12186.28

Profit/(Loss) from extra-ordinary Activities 41.31 23.26
Net profit after considering all activities 14431.39 12209.54

Provision for staff bonus 1311.94 1109.96
Provision for income tax 3889.60 3384.87

 Current year 4060.83 3635.60
 Previous year - 56.54
Deferred tax income expenses (171.22) (256.08)

Net profit / loss 9229.84 7714.71
Two years balance sheet as on year 2014-15and 2015-16. (amount in 00000)

in nepali rupee
Liabilities and capital 2015-16 2016-17
Share capital 304908.3 26502.05

Reserve and funds 14867.15 11487.51
Debentures and bonds 100000.00 80000.00
Barrowings - -
Deposits 544929.93 591257.29
Bills payable 1563.66 1653.54

Proposal dividend 1861.42 1766.80
Income tax liabilities - -
Other liabilities 7116.70 7294.30
Total capital and liabilities 610829.72 647961.52
Assets
Cash balance 15270.28 12394.53

Balance with Nepal Rasta Bank 38909.89 49570.64
Balance with bank financial institution 12369.53 15168.85
Money at call at short notice - 1389.25
Investment 177223.95 259061.19
Loans advance and bills payable 352795.83 287881.46
Non banking assets Fixed assets 6074.46 6615.89
- -
Other assets 8185.75 15879.68
Total assets 610829.72 647961.52
Profitability analysis and Profitability Ratio:

Following ratio are used to measure the profitability.
1. Profit Margin Ratio:

Profit margin ratio is the process of finding relationship between net incomes and
operating income. Net profit margin is mostly used to compare company's results over
time.
Calculated as:
net income
Profit margin =
operating profit

Where net profit is revenue minus cost.
Table : amt
Particulars Fiscal year
on 00000 in
nepali
2015-16 2016-17
rupees.
Operating income 21969 23905
Net income p/L 7714 9229

Profit margin 35% 38%
Diagram
presentation:
39.00%
37.50%
Profit margin ratio
36.00%
34.50%
33.00%
2015-16 2016-17
Fig : profit margin ratio
Interpretation:
The above calculation of profit margin shows that each year the company i.e NSBI is
utilizing its funds in a proper and productive manner. Since Net profit margin acts as an
indicator of how efficient a company is and how well it controls its costs. The resulted higher

margin of the above study shows, the more effective the company is, in converting revenue
into actual profit.
2.Net interest Margin : .

Net interest margin is a performance metric that examines how successful a firm's investment
decisions are compared to its debt situation.
net interest income

Calculated as: Net interest margin =
interest earning assets
Whereas : Interest paying assets =investment + loans and advances
Table: amt in 00000 in nepali rupee.
2015-16 2016-17
Net interest income 16235 17450

Diagram
Interest earning assets 3137875 2125034
Net interest margin 0.5 1% 0.82%

presentation :
Net interest margin
0.75% net interest margin

0.50%
0.25%
0.00%
2015-16 2016-17

fig: interest spread margin
Interpretation:
The net interest margin is used to track the profitability of the bank’s investing and lending
activities over a time period. Usually expressed as a percentage of what the financial
institution earns on loans in a time period and other assets minus the interest paid on
borrowed funds divided by the average amount of the assets on which it earned income in
that time period (the average earning assets). Analyzing two year of net interest margin we
can find it in increasing trend, which shows each year bank is in a increment process and is
in a better position.
3.Interest spread :
Net interest rate spread is the difference between interest earned on loans, securities, and
other interest-earning assets and the interest paid on deposits and other interest-bearing
liabilities. In further simple terms, it can also be defined as the difference between coverage
rate of return on interest earning assets and interest paying liabilities.
interest income
Calculated as :- Interest spread = –
interest earning assets
interest expenses
interest payingliabilities
Table : amt in 00000 in nepali rupees
fiscal year
Particulars 2015-16 2016-17
Interest income 41105 39766
Interest expenses 24869 22316
Interest earning assets 3137875 2125034
Interest paying liabilities 9653 11563
Interest spread 2.55 % 1.91%

Whereas : Interest paying assets =investment + loans and advances
interest paying liabilities = debenture and bonds +borrowings + bills
payables.
Diagram presentation :
Interest spread
3.00%
Interest spread
2.00%
1.00%
0.00%
2015-16 2016-17
Fig : net interest spread
Interpretation :
Net interest spread is the nominal average difference between the borrowing and the lending
rates, without compensating for the fact that the earning assets and the borrowed funds may
be different instruments and differ in volume. The net interest margin can therefore be higher
(or occasionally lower) than the net interest spread. It shows the difference between coverage
rate of return on interest earning assets and interest paying liabilities. Degrading position on
it does not indicate the better result. It shows bank is not being able to utilize their asset and
earn interest on it properly.
4.Return on assets :
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as
to how efficient management is at using its assets to generate earnings. Calculated by
dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
Sometimes this is referred to as "return on investment”
net income
calculated as : ROA =
total assets

Table : amt on 00000 in nepali rupees.

2012-13 2013-14
Net income P/L 7714 9229
Total assets 690829 647961
Return on assets 1.12% 1.43%
Return on assets
1.50%
Return on assets
1.00%
0.50%
0.00%
2012-13 2013-14

Fig : return on assets
Interpretation:
Higher return on assets each year shown by the study shows the percentage of profit a
company earns in relation to its overall resources.Increasing return on assets considered the
company is earning revenue and profit on the return of the available assets. It does shows the
increasing liquidity for the company.
5.Return on equity (ROE) :
Return on equity measures a corporation's profitability by revealing how much profit a

company generates with the money shareholders have invested.
Net income
Calculated as: ROE =
Shareholder ' s equity
Table : amt on 00000 in nepali rupee

2015-16 2016-17
Net income P/L 7714 9229
Shareholder’s equity 37989 40389
Return on equity 20.3% 22.8%

return on equity
24.00%
return on equity
22.00%
20.00%
18.00%
2012-13 2013-14
Fig : return on equity
Interpretation :
The above analysis shows that the rate of ROE is increasing each year. Because it measures
the rate of return on common shareholder’s investment, share issue activity is managed with
the sound decision by the corporation to asset their investors. It also indicates the company
has increasing investors.
6.Earnings per share :
The portion of a company's profit allocated to each outstanding share of common stock.
Earnings per share serves as an indicator of a company's profitability. It is the relationship
between the net income and number of share capital.
Net income
Calculated as : EPS =
Number of share capital
Table : amt on 00000 in nepali rupees

2015-16 2016-17
Net income 7714 9229
Share capital 26502 30490
Par value 100 100
No of share capital 265 305
Earnings per share 29.10 30.35

Diagram presentation:
Earning per share
30.5
earning per share
30
29.5
29
28.5
2012-13 2013-14
Fig : Earning per share
Interpretation :
Increasing EPS shows that the company's distributable profit which is allocated to each
outstanding equity share (common share). is operating in a increasing and profit earning
state. The bank is being able to establish its good impact on share market and has is being
able to increase the profit on per share basis.
7.Operating efficiency ratio :
Operating ratio is the ratio between the input to run a business operation and the output
gained from the business. When improving operational efficiency, the output to
input ratio improves.
The ratio shows the relationship between total operating revenue and total operating
expenses.
total oprating expenese

Calculated as: OER =
total operating revenue

Table : amt on 00000 in nepali rupees
2015-16 2016-17
Total operating expenses 8937 9490
Total operating revenue 23905 21969
Operating efficiency ratio 37.38% 43.19%
Whereas :
Total operating expenses = staff expenses + other expenses
Diagram presentation
operating efficiency ratio
45.00%
operating efficiency ratio
40.00%
35.00%
30.00%
2012-13 2013-14
Fig: operating efficiency ratio
Interpretation :
Higher the efficiency ratio, lower is the profit of the bank. Since the above analysis shows
the efficiency ratio on increasing rate, the bank is costing more on the efficiency. Which
shows the decreasing revenue because of the increasing operating cost.
The study of the result and its conclusion :

After calculating all the components regarding to profitability position of NMB Bank Ltd in
this project work report, I have tried my best to show major finding of the report. The result
from this project work report concerning the analysis of the data are :
Fiscal year
Particulars
2015-16 2016-17
Profit margin 35% 38%
Net interest margin 0.51% 0.82%
Interest spread 2.557% 1.919%
Return on assets 1.1% 1.4%
Return on equity 20.3% 22.8%
Earnings per share 29.10% 30.35%
Operating efficiency ratio 37.38% 43.19%
Study Conclusion :
 The bank study shows the good condition of the profit earning in approx.
 The profitability of the NMB Bank can be considered sound enough.

 Profit margin is an indicator of how efficient a company is and how well it controls its
costs. The study shows the increasing higher margin which indicates, company is more
effectively converting its revenue into actual profit.
 Interest rate spreads, indicates the difference between the interest rate charged to
borrowers and the rate paid to depositors. This is predicated on the understanding that
liberalization enhances competition and efficiency in the financial sector. The study
shows Interest spread is in decreasing trend, which indicates the bank is not doing better
in returning the investment money to the depositors.
 Return on Assets ratio gives an idea of how efficient management is at using its assets
to generate profit. The study shows bank is earning high on assets . it do proves the
increasing liquidity of the company.
 As ROE is the indicator of company's profitability by measuring how much profit the
company generates with the money invested by common stock owner . The study shows
the bank’s ROE is in increasing trend which results the bank has the increasing earning
on shareholder investment.
 The Study indicates the EPS of the bank is in increasing trend that means each year
much profit was generated on a per share basis.
 However , operating efficiency analyze how well a company uses its assets and
liabilities internally. When improving operational efficiency, the output to
input ratio improves. Inputs would typically be money (cost), people (headcount) or
time/effort. The study shows it in a increasing trend, which indicates increasing costs or
decreasing revenues of the bank.
According to the study made in this report, profitability of the can be considered in
satisfactory position however the bank has to work effectively and in more convenient
manner to achieve the desire goal of satisfying the customer and get maximum earning on
investment. Even in today’s dynamic and competitive world, where staying ahead is a
constant challenge, NMB Bank has succeed to have its steady growth and development. And
have become capable enough to play the role of significant contributor towards overall
economic development of the country.
Statement of problem :
There are various obstacles which are faced by NSBI. This study attempt to analyze the
profitability of NMB Bank and specifically study deals with the following issues :

 The financial position of NMB Bank.
 The decisions regarding financial position of the bank aren’t properly interpreted.
 Because of no sound financial position of the Nepalese people , banking transactions
and dealings are not that wide.
 The bank is being facing the problem of limited market as the industry for banking is
in under growing stage in Nepal.
 The is lack of knowledge regarding banking sector on large population over there.
PURPOSE OF STUDY :
NMB bank has played great and important role in the sector of national
economy. An analytical financial statement is used by decision makers of
management, shareholders, customers, general public parties to form judgments
about the smoothness of the operating efficiency and financial position of the
firm. The primary objective of the project work study are to analyze and
identify the nature and relationship between risk and return of NMB Bank .
The main purposes of this project work report are summarized below :
 To evaluate the profitability of NMB bank in terms of different ratio.
 To compare the statement of two years data.
 To suggest recommend for the development and improvement of

financial statement / performance of NMB Bank.
 To help the shareholders to know how properly their funds are utilized
and to what extent they are getting their return on investment.
 To give benefit to policy makers in formulating the policy regarding

commercial bank.
 To make management aware about the areas they are lacking and the
steps for improvement.

Needs and importance of study :
The study of any of the financial statement of the bank is very useful in every sector. NSBI
being a commercial bank with a joint venture with that of state bank India has a maximum
share holding by the Nepalese private sector too. The study definitely results useful for
various parties as mentioned below :
 To management :
This study will be helpful for the deeply analyze of various matters as to why
the performance of other joint venture banks. Management will be able to scan
their weak area and the gaps and can take possibally correct action for its
improvement in near future.
 To the shareholders:
Shareholders are always eager to know how their fund is being utilized and to
what extent they are going to get the return on their investment. This study
will help the shareholder to decide how much and where to invest on near
future for possible return on investment.
 To outsiders :
The out interested groups except the management and the shareholder’s such
as depositors debtors, investors, competitors, stock broker, merchant,
investment bankers are considered as the outsiders. This group of people
always seems interested in the available information of the related banks to
decide for weather to invest or not? Weather the deposits are going to benefit
them or not? And weather to finance or not? Therefore, this and such types of
study seems beneficial for this type of group.

Project Work Procedure:
Report is simply a statement of description of things that have already occurred.
It is a concise clear communication of the important findings of the project work
report. Thus, it conveys in information to the investigator about the activities that
had been undertaken. Project work report is written for some particular purpose,
and a systematic procedure is being applied for the collection of data and
information.
The procedures for this project report are as follows:
 Project work begins with orientation class.
 Selection of the organization.
 Selection of the topic for the preparation of the report.
 Direct personal interview in the company with the related materials or

through indirect sources such as magazines, newspapers, internet etc.
 Communication with the branch manager and the bank staffs.
 Descriptive study and secondary data collection being done.
 Presenting the report on the prescribed form.
 Copies are submitted to the head of department for final approval.
 Submission of the report to the required authority.

Methodology of the study :
Data are collected by two of the sources :
Primary data collection:
The data has been collected by the investigator and agent directly from the
place. In this method, the researcher i.e i have directly gone to the company &
interviews & observes several companies’ activities & person related to it. This
method included:
1.Direct Observation
2.Direct Interview
It takes a lot of time, labour & expenses in primary data collection. Due to this
reason many organization & researcher doesn’t follow primary data collection
technique. But intact primary data is perfect & reliable because there at least
errors during the preparation of primary data collection. This type of primary
data collection has clear vision, accuracy & most simple to understand. this
report preparation has itself used the primary data collection method to some
extent.
Secondary data collection:
Other sources or say readymade sources, Such as magazines, annual report,

journals and related websites etc. are used for secondary data collection.
The data used to this study are basically secondary in nature. For this study
more than two years balance sheet, P/L account, related appendix and auditor’s
reports have been collected from annual report of Nepal SBI Bank, which is
issued for the shareholders each year by bank .
All the collected data and information have been properly collected, arranged
and tabulated to arrive at the realistic analytical steps as much as possible.

Limitation of the study :
Every types of conceptual work have its certain assumption and limitations
behind it and that is what is in my study too. The following limitations have
come along and the assumptions are made in this study:
 The study is made only for a period of two years, i.e fiscal year 2015-
16 and 2016-17 A.D.
 It is based on historical data, so no forecast and assumptions are made

for future financial position .
 This study is limited to the profitability and ratio analysis of NMB Bank,
Nepal.
 This study is not free from some assumptions of the analysis of the study.
 Here most of the data are collected from the secondary source, which is
not sufficient to make report fully reliable.
 It is assumed that the entire figures available from NMB Bank Ltd. In
published forms are to be correct .

Recommendation :
After studying the above data following are the recommendation and suggestion I would
like to give to the Nepal SBI Bank.
 This bank should mobilize its fund in more productive manner.
 The bank should focus on social responsibility aspects, which will help bank to earn a
high goodwill trust of customers.The bank should try to keep liquid enough to face
short-term financing rather than the long-term financing, as the ratios are not good
enough for long-term financing.
 This bank is centralized only on urban areas, so it must open its branches in rural
areas of Nepal also for the social fulfilment as well as for expanding its service and
operation.
 The bank should go for innovation and creativity in expanding their new generation
business.
 The bank should work on controlling the increasing operating cost and focus on
increasing revenue.
 Communication should be made more better on both level of management so that
new ideas can be generated and implemented from new and existing financial
workers.
 Bank should focus on launching the new service and schemes and new banking
system such as mutual fund and credit card service for its further growth to serve
more and more number of customers.
 The bank should have to focus on maintain more good goodwill for the better debt
market and investment earnings.

ANNEXURE for the year 2015-16 and 2016-17
Cash flow statement
For the period 16 July 2016 to 16 July 2017

Particular 2016 2017
a. Cash Flow from Operating (1,207,953,976) 2,060,734,242
1. cash received 554.509,048
4,087,296,304
1.1 Interest Income 4,854,337,254 3,516,708,507
1.2 Commission and Discount Income 320,425,412 313,696,555
1.3 Income from Foreign Exchange 13,092,746 , 101,915,128
transaction
1.4 Recovery of loan written off 649,465 2,326,357
1.5 Other Incomes 296,004,166 152,649,799
2. Cash Payment 3,648,076,504 3,671,509,128
2.1 Interest Expenses 2,206,380,761 2,470,114,436
2.2 Staff Expenses 402,263,543 330,010,367
2.3 Office Operating Expenses 398,222,896 366,114,793
2.4 Income Tax Paid 427,048,139 396,600,000
2.5 Other Expenses 214,161,165 108,669,532
Cash Flow before changes in Working Capital 1,926,432,539 415,787,218
(Increase) /Decrease of Current 1,760,144,207 (4,016,612,361)
1.(Increase)/Decrease in Money at Call and 138,925,434 39,324,566
Short Notice

2.(Increase)/Decrease in short term 8,195,303,103 (1,430,828,398)
Investment
3. (Increase)/Decrease in Loans, Advances (6,492,295,942) (2,730,231,958)

and Bills Purchase
4. (Increase)/Decrease in Other Assets (81,788,388) 105,123,429

Increase /(Decrease) of Current Liabilities (4,894,530,722) 5,661,559,385
1. Increase/(Decrease) in Deposits (4,632,735,847) 5,583,191,463
2. Increase/(Decrease) in Certificates of - -
Deposits
3. Increase/(Decrease) in Short Term - -
Borrowings
4. Increase/(Decrease) in Other Liabilities (261,794,875) 78,367,922
(b) Cash Flow from Investment Activities (55,192,460) (60,247,554)
1. (Increase)/Decrease in Long-Term - -
Investment
2. (Increase)/Decrease in Fixed Assets (60,943,179) (58,173,262)
3. Interest income from Long Term - -
Investment
3,328,073 (2,074,292)
2422646 -
(c) Cash Flow from Financing Activities 200,000,000
200,000,000
1. Increase/(Decrease) in Long Term 200,000,000
Borrowings 200,000,000
2. Increase/(Decrease) in Share Capital - -
3. Increase/(Decrease) in Other Liabilities - -
4. Increase/(Decrease) in Facilities / ---
Refinance received from NRB
(d) Income/Expenses from change in 4,714,221

exchange rate in Cash & bank balances 4,534,151
(e) Current Year’s Cash Flow from All (1,058,432,215) 2,205,020,839
Activities
(f) Opening Balance of Cash and Bank 7,713,403,335 5,508,382,496
Balances
(g) Closing Balance of Cash and Bank 6,654,971,120 7,713,403,335
Balances

Income Statement annexure for the year 2015-16 and 2016-17
Particulars Schedule 2015-16 2016-17
Interest income 18 3976647583 4110514126

Interest expenses 19 2231604253 2486978979
Net interest income 1745043330 1623535147
Commission and discount 20 320425412 313696555
Other operating income 21 217267151 157755684
Exchange fluctuation income 22 107806967 101915128
Total operating income 2390542860 2196902514

Staff expenses 23 443077803 416560412
Other operating expenses 24 506028826 477246891
Exchange fluctuation loss 22 - -
Operating income before provision of 1141436231 1303095211

possible loss
Provision for possible looses 25 82966699 128040596
Operating profit 1358469532 175054615
Non-operating income (expense) 26 8728276 (287266)

Provision for possible looses 27 71810082 43861090
Profit from regular operation 1439007890 1218628919
Profit / loss from extra ordinary activities 28 4131237 2326357
Net profit after considering all activities 1443139127 1220954776
Provision for staff bonus 131194466 110995889
provision for income tax 388960654 338487758

 Current year 406083233 363530553
 Previous year - 565456
Deferred Tax (Income)/Expenses (17,122,579) (25,608,251)

Net Profit/(Loss) 922,984,007 771,471,129
Balance sheet annexure for year 2014-15 and 2016-17

Liabilities and capital 2015-16 2016-17
Share capital 1 3049083104 2650205804

Reserve and funds 2 1486715566 1148751613
Debentures and bonds 3 10000000000 8000000000
Barrowings 4 - -
Deposits 5 54492993606 59125729453
Bills payable 6 156366610 165354686
Proposal dividend 186142754 176680388
Income tax liabilities - -
Other liabilities 7 711670715 729430878
Total capital and liabilities 61082972355 64796152822
Assets
Cash balance 8 1527028783 1239453119
Balance with Nepal Rasta Bank 9 3890989164 4957064493

Balance with bank financial institution 10 1236953173 1516885723
Money at call at short notice 11 - 138925434
Investment 12 17722395654 25906119814
Loans advance and bills purchase 13 35279583339 28788146625
Fixed assets 14 607446572 661589203
Non banking assets 15 - -
Other assets 16 818575670 1587968411
Total assets 61082972355 64796152822
BIBLIOGRAPHY
Books
 Bhandari, Dilli Raj; “ Banking and institution principle and practice’’,

Aayush publication, Kathmandu, Edition January 2003.
 Dahal, Bhuwan & Sarita Dahal “ A handbook of Banking’’,
 Garg , k, N, Money Trade & commerce, 1997, New Delhi
 Oxford Dictionary, Oxford University press, 12th edition 1986
 Pandey I.M “ Financial Management’’, Vikas publishing, India, 2002
 Rana Surya, “ Financial Management’’, Ratna Pustak Bhandar,

Kathmandu, Edition 2nd December,2000.
 S.Garewal “ Commercial Banking & Economic Development”, pointer

publishers,Jaipur,1993.
 Sayers R.S “ Modern Banking” , Oxford University press, New Delhi,

1967

 Vaidya Shakespeare “ Banking & Insurance Management’’ , Taleju
Prakashan, Bhotahity, Kathmandu, Edition First 1989, December.
 Weston J.F Brigham “ Essential of Managerial Finance’’ , Dryden press

Chicago 1996, 11th Edition.
Journal and Websites
 Annual Report of NMB Bank Limited.2008-2014
www.NMBbanknep .com
 Ministry of Law, HMG/Nepal “Commercial Bank Act 2031 BS” Nepal.

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Profitability Analysis

SUMMER TRAINING PROJECT REPORT

Submitted in partial fulfilment of

MASTER of BUSINESS ADMINISTRATION

University School of Business

CHANDIGARH UNIVERSITY, GHARUAN

Profitability analysis Page: 1

Firstly I wish to express my gratitude to CHANDIGARH UNIVERSITY for

And at last, my appreciation goes to my family member for their

Profitability analysis Page: 2

Product and services of NMB Bank 21

Network end extension 23

Share holding pattern 24

Work flow process 26

Account of weekly activity 30

Result and conclusion 56

Profitability analysis Page: 3

Profitability analysis Page: 4

PROJECT IS ORIGINAL WORK

Profitability analysis Page: 5

1.2 Industry profile:

Profitability analysis Page: 6

Sealing of the Bank of EnglandCharter (1694), by Lady Jane Lindsay, 1905.

Profitability analysis Page: 7

Profitability analysis Page: 8

economic development of the country is linked to the availability of infrastructural

Profitability analysis Page: 9

4. Development of Backward Areas

Financial institutions help in planned development of the economy. Different institutions

Economic development of a country is linked to the level of industrialization there. The

Profitability analysis Page: 10

Present banking scenario in Nepal:

Profitability analysis Page: 11

There are 16 approved projects financed/co-financed by AIIB in energy, six in transportation,

With a view to promoting economic prospect and sustainable development, larger

Profitability analysis Page: 12

Profitability analysis Page: 13

Market Focus, Products and Services

Profitability analysis Page: 14

Vision and mission:

Building communities through responsible banking, preferred by all stakeholders, enabling

· Helping clients and customers to achieve financial security

Profitability analysis Page: 15

Product and services provided by NMB Bank Ltd

 Deposit mobilization activity

 Normal Savings Account

Profitability analysis Page: 16

 Indreni Bachat Khata

 Saral Bachat Khata

 Varistha Nagarik Bachat

 Karmachari Bachat Khata

 Nepal Army, Nepal Police and Armed Police Force Scheme

 Students Savings Account

Profitability analysis Page: 17

LOANS AND ADVANCES

 Corporate and Business Loans

 SME Convenient Loan

 Mortgage and Mortgage Plus

 Other Retail Loans

Profitability analysis Page: 18

 NMB Express Remit

 Nepal NMB Remit

 NMB Express Remit Gulf-Nepal (GLS)