COMPARATIVE STUDY OF FINANCIAL PERFORMANCE ANALYSIS

BETWEEN KUMARI AND NMB BANK LIMITED

BY

JYOTI RAI

LUC Registration No. LC00023000302

A Graduate Research Report submitted in partial fulfillment of the

requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION

at the

Green Peace Lincoln College

Faculty of Business and Accountancy

Itahari, Sunsari

August, 2021
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1. Background of the study

The term bank was derived from the Italian word “banco” which implies “bench”. The
bench was erected in the market place to exchange commodities in ancient period.
Later, the term banco changed into bank. The history of organized modern banking
system begun with the establishment of ‘The Bank of Venice’ in 1157 AD to finance
the monarch in wars. ‘The Bank of England’ established as the first central bank 1694
AD and followed by many nations of the world. In case of Nepal, modern banking
history begun with the establishment of ‘Nepal Bank Limited’ in 1937 AD. Later Nepal
Rastra Bank was established in 2003 BS as the central bank of Nepal. Banking and
financial industries are the vast subjects where each and every factor and activities
undertaken by the financial market. Financial market comprises of different kinds of
financial institution in financial sectors is commercial bank. Commercial banks
perform different types of financial activities, but basically it deals with money, deposit
and credit. Commercial banks hold large share of economic activities of a country.
The function of the commercial banks has enhanced in Nepal to sustain the increasing
need of the service sector and the economy in general. The performance evaluation of
commercial bank is usually related to how well the bank can use its assets,
shareholder’s equity and liabilities, revenues and expenses. The performance
evaluation of the banks is important for all parties including depositors, investors, bank
managers and regulators.
The evaluation of financial analysis is based on financial ratio analysis method it
mainly focused on working capital analysis, financial structure analysis, activity
analysis and profitability analysis. It provides a description about the firm’s financial
position compared to others. This report will be based on the comparative study of
financial performance analysis between Kumari Bank and NMB Bank Limited

Kumari Bank Limited

Kumari Bank Limited, came into existence as the fifteenth commercial bank of Nepal
by staring its banking operation from Chitra 21,2057 B.S (April 03, 2001) with an
objective of providing comparative and modern banking services in the Nepalese
financial market. The bank has overall 9 lakh customers along with 203 branches and
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13 extension counters,22 branchless banking units and 138 atm location. The head
office is situated in Tangal, Kathmandu. The CEO of Kumari Bank is Mr. Surender
Bhandari. Customer banking, corporate banking, finance and insurance, investment
banking, mortgage loans, private banking, private equity, savings, securities, assets
management, wealth management and credit cards are the key products serving by
Kumari Bank Ltd. It has also its share trade called NEPSE:142

NMB Bank Limited

NMB Bank Limited licensed as “A” class financial institution by NRB in May 2008
serving over 20 years as one of the leading commercial banks in the banking industry.
With the vision is to build communities through responsible banking, preferred by all
stakeholders, enabling customers and clients achieving their financial goals thus
contributing towards prosperous Nepal. It is a joint venture with FOM entrepreneurial
development bank The Netherlands and act as the market leaser in managing
environmental and social risks and the leading player in renewable energy and Agri
business. It was awarded Bank of the year -2017,2018 and 2020 by the banker,
Financial Times, London. It possesses 181 branches along with 137 ATM. The
headquarter of NMB Bank is located in Babarmahal Kathmandu. NMB Bank
subsidiaries to NMB Capital Ltd, NMB Microfinance Bittya Sanatha Ltd, Manaslu
Bikas Bank, Ltd and NMB Bank Limited, Employees Provident Fund.

Financial institution and banking system makes a positive contribution to economic

growth. But even these institutions may be counteracted by several other factors such
as unfavorable situation like covid-19, government policies, inept government policies,
globalization, conglomeration etc. which have posed serious risk challenges but have
also offered productive opportunities.

2. Problem statement

Financial performance analysis can be a very useful tool for understanding a firm’s
performance and conditions. There are many problems in the search of information,
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collection and interpretation of required data to make compare of financial position of

Kumari Bank and NMB Bank for shareholders and stakeholders. Problems in financial
statement analysis are -
In the absence of an underlying theory, financial statement analysis appears to be ad
hoc informal and subjective. From a negative viewpoint, the most striking aspect of
ratio analysis is the absence of an explicit theoretical structure. As a result, the subject
of ratio analysis is replete with untested assertions about which ratios should be used
and what their proper levels should be.

Firm tries presents their favorable financial picture in very comfortable liquidity
position and a high turnover of inventories to attract investors and customers.

Business firms have some latitude in the accounting treatment of items like
depreciation, valuation of stocks, research and development, foreign exchange rate etc.
due to variation or diversity of accounting policies found in practice, comparative
financial statement analysis may be vital.

Ratio analysis is commonly used by firms to interpretation of results but sometimes

difficult to judge whether a certain ratio is good or bad. A high current ratio, for
example may indicate a strong liquidity position (something good) or excessive
inventories (something bad). Likewise, a high turnover of fixed asset may mean
efficient utilization of plant and machinery or continued flogging of more or less fully
depreciated worn, out and inefficient plant and machinery.

Decision-making is another problem in interpretation arises when a firm has some

favorable ratios and some unfavorable ratios and this is rather common. In such a
situation, it may be somewhat difficult to form an overall judgment about its financial
strength or weakness. Multiple discriminated analysis, a statistical tool, may be
employed to sort out the net effect of several ratios pointing in different directions.
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3. Purpose of the study

The major objectives of the comparative study of financial performance analysis

between Kumari and NMB Bank Limited are
• To evaluate the financial performance of Kumari Bank Ltd & NMB Bank Ltd in
terms of different ratios.
• To see the relationship among the various particulars of assets and capital.

• To evaluate non-performing loan status of Kumari Bank Ltd & NMB Bank Ltd.

• To provide the appropriate suggestions on the basis of the findings of the study.

4. Research questions

From this report we can analyze the summary of the financial performance of a
company that reports the financial health of the company helping various investors and
stakeholders to make their investment decision. It can also use to compare similar firms
across the same industry. This study tries to solve following research question
• What is the liquidity position of Kumari Bank and NMB Bank?

• How the capital structure of Kumari Bank and NMB Bank are maintained ?

• What is the turnover ratio of Kumri Bank and NMB Bank?

• What is the profitability position of Kumari and NMB Bank?

5. Rationale of the study

Every study has its own importance and significance. Therefore, this study has also
some multidimensional significance to the concerned parties for decision - making.
This study can be of great significance to the external parties of the bank. Trade
creditors can examine the firm’s liquidity position. They are interested in bank’s ability
to meet their claims over a very short period. Suppliers of long-term debt are concerned
with the bank’s long-term solvency and survival. They can analyze the profitability of
the bank. Investors, who have invested their money in the bank’s shares, are most
concerned about the firm’s earnings. It will also provide some insights to the policy
makers of different banks to make effective assets structure. Therefore, this study can
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provide them with the bank’s earnings ability. It will be helpful to the management to
analyze its strength and weaknesses. It is their overall responsibility to see that the
resources of the bank are used most effectively and efficiently, and that the bank’s
financial condition is sound. Apart from them; it will be helpful to government,
stockbrokers, academicians, general public, policy formulators, labor leaders etc.

6. Literature review

Review of literature means “reviewing research studies or other relevant propositions

in the related area of the study so that all the past studies their conclusions and
deficiencies may be known & further research can be conducted”. (P.R. Pant).

Bhattarai, in his article "Something is Rotten with the State of Commercial

Banking in Nepal” stated with words like NPA, conflict of interest, offshore ownership,
well connected defaulter, loan swapping and political obstruction to describe the
commercial banks in Nepal. Mr. Bhattarai quoted the words of the Governor to describe
the state of banking sector as 'terrible'. Also, he quoted one of the donor representatives
involved in financial reform as "Nepal has the weakest central bank in the developing
world." As per the author, bankers with patronage could get away with getting anything
they wanted approved by the regulator. He quotes Mr. Himalaya SJB Rana, the first
governor of NRB, "only 3 out of 12 governors actually completed their 5 years terms
in its entire history because they were sacked for undefined exigencies. (Bhattarai,
2010)

Shrestha, in his thesis entitled “Profitability Analysis of Standard Chartered Bank

Nepal Limited and NABIL Bank Limited” presents the SCBNL had more consistent
operating efficiency ratio than NABIL bank limited during the study period. Both of
the bank’s data showed that more than 90% of their total liabilities paid interest. These
banks showed that smaller portion of their interest-bearing liabilities paid as interest
expenses. And the weighted average cost of deposit ratio was found to be at decreasing
rate. NABIL bank had lower EPS than SCBNL, which indicated that the performance
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of SCBNL was better than NABIL. SCBNL was paying more dividend than NABIL
bank limited during the study period. (Shrestha, 2013)

Tamang, in his study entitle with profitability analysis of commercial banks with
reference to Rastriya Banijya Bank & Nepal Bank Ltd. The main objective of the study
was to analyze the profit and loss trend and growth of bank over the period and to
evaluate the profitability and operating financial efficiency of RBB and NBL. Based
on findings the recommendations were both banks should take necessary steps
immediately to manage its assets for its existence in this competitive market. (Tamang,
2017)

7. Research methods

Research Methodology is a way to systematically solve the research problem or the

way of collecting, analyzing and evaluating of data and information. “Research is the
process of systematic and in-depth collection, presentation and interpretation of
relevant detail or data”. (Michael,1985:57).

It is based on descriptive and analytical research methods. Financial tool has been used
to analyze and interpret the balance sheet, income statement and other accounting
information to make report informative to the reader.

The prime objective of this study is to evaluate the financial performance of Kumari
and NMB in terms of different ratios. The study will be mainly based on secondary
data. Data are collected from concern banks, NRB, NEPSE, SEBON and various
libraries. Furthermore, several data and information regarding the profile of sample
banks and other related documents are collected from internet websites, previous
research papers, articles, journals, NRB magazines & newspapers and informal
interview with the authorities of related institutions. At last, it is determined by
financial analysis tool.
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8. Reference

Aryal & Pathak (2018). Bank entrance preparation book (3rd revision edition) Kriti
Publication
Dangol, R. (2067). Accounting for financial analysis and planning (1st Edition)
Kathmandu: Taleju Prakashan.
Shrestha, (2013) in his thesis entitled “Profitability Analysis of Standard Chartered
Bank Nepal Limited and NABIL Bank Limited”
Subedi, (2013) entitled “A Comparative Study of Financial Performance between
Himalayan Bank limited and Kumari Bank Limited” of the period from 2000 to 2005
Van Horne, J. C. & Wachowicz, J. (2001). Fundamental of financial management. New
Delhi: Pearson Education Inc.
https://www.citeman.com/4144-problems-in-financial-statement-analysis.html
(August 12, 2021)
https://www.imnepal.com/banking-in-nepal-a-history-of-banking-system-in-nepal/
(August 9, 2021)
https://www.sharesansar.com/company/nmb (August 9, 2021)
https://www.sharesansar.com/company/Kumari bank ltd (August 9, 2021)
https://www.linkedin.com/company/nmb-bank-ltd. (August 9, 2021)