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1.1 Background of the study

According to Wikipedia “Nepal is an officially called the Federal Democratic Republic of
Nepal is a landlocked central Himalayan country in South Asia. It has 33.4 million since last
census 2001 A.D and is the 93rd largest country by area. Bordering China in the north and India
in the south, east, and west, it is the largest sovereign Himalayan state.” The progression of
economic development of this country depends upon various factors. Financial institutions
among others are viewed as vehicle in the process of economic improvement and enlargement.
They play significant responsibility in mobilizing saving, and put them into productive use.
Commercial banks are most essential financial institution, occupying vital place in the economy
of a country because the deposits collected by them provide much needed capital for the
development of industry, trade and commerce and other sectors, thereby contributing to the
economic intensification of the nation. However, investment actions are not without risks. They
have to follow sound Principles of investment policy, the rules and regulations, directives issued
by the Central Bank. The performance evaluation of a commercial bank is usually related to how
well the bank can use its assets, shareholders’ equities and liabilities, revenues expenses. The
performance evaluation of banks is important for all parties including depositors, investors, bank
managers and regulators. The evaluation of a firm’s performance usually employs the financial
ratio method, because it provides a simple description about the firm’s financial performance in
comparison with previous periods and helps to improve its performance of management (Lin et
al., 2005). Moreover, the ratio analysis assists in determining the financial position of the bank
compared to other banks.
1.2 Profile of the organization.
NABIL Bank Limited
NABIL Bank Ltd, the first commercial bank was incorporated in 1984. Dubai Bank Ltd. Was the
initial joint venture partner with 50% equity investment. The shares owned by Dubai Bank Ltd.
(DBL) were transferred to Emirates Bank International Ltd. (EBIL) Dubai. Later on EBIL sold
its entire stock to national Bank Ltd, Bangladesh (NBLB). The present configuration consists of
50% share capital by National Bank Ltd, Bangladesh. 10% NIDC, 9.66% Rastriya Beema
Sansthan, 0.34% Nepal Stock Exchange and 30% Nepalese public. At present 40 branches of this
bank are operating in different parts of the country. Authorized capital and paid up capital of
NABIL Bank Ltd are Rs. 1600 million and Rs. 965.74 million.
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Nepal State Bank of India (SBI)

Nepal State Bank of India (SBI) Ltd, was established in 1993, under the company Act 1964. This
is the joint venture of State Bank of India and Nepalese promoters. This Bank has 34 branches
and 3 – extension counter in operation. The authorized capital and paid up capital of the bank is
Rs. 1600 million and Rs. 875.28 million respectively.
1.3 Research Objectives
The main objective of this research is to scan the investment policy of two JVBs, namely NABIL
and Nepal SBI Bank are:
a) To evaluate the liquidity and profitability of NABIL’s in comparison to SBI bank.
b) To analyzing the data for concrete decision making improvement for future reference
for this bank.
c) To providing suggestions on the basis of the major findings of this study.
1.4 Rationale of this study
Following are the rationale of this study.
i) This study will help stakeholders to take decision regarding liquidity and profitability
of the concerned bank.
ii) This study will help to understand the liquidity position of the bank

1.5 Literature Review

Conceptual Review
B.N. Ahuja (1998), “Financial Performance analysis is a study or relationship among the various
financial factor in business a disclosed by a single set of statement and a study of the trend of
these fact as shown in a series of statements. By establishing a strategic relationship between the
item of a balance sheet and income statements and other operative data, the financial analysis
unveils the meaning and signification of such items.”
According to R.W. Metcalf and P.H. Tatar (1996), “Financial Performance analysis is a process
of evaluating the relationship between components parts of a financial statement to obtain a
better understanding of a firm’s position and performance.”
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Similarly, Khan and Jain have defined that (1990) “The ratio analysis is defined as the systematic
use of ratio to interpret the financial performance so that the strength and weakness of firm as
well as its historical performance and current financial condition can be determined.”
In the word of Van Horne (1994) “Financial ratio can be derived from the balance sheet and the
income statement. They must be analyzed on a comparative basis. Ratio may also be judged in
comparison with those of similar firms in the same line of business and when appropriate, with
an industry average and we can look to future progress in this regard.”
A comparative study of financial performance is a basic process, which provides information on
profitability, liquidity position, earning capacity, efficiency in operation, sources and use of
capital, financial achievement and status of the companies. These information will help to
determine the extent of efficiency and effectiveness of the company in respect of deploying
financial resources in the profitable manner.
Review of Empirical Research
Prior to this study, the several researchers have found various studies regarding financial
performance of commercial and joint venture banks. In this study, only relevant subject maters
are reviewed which are as follows: -
A thesis conduct by Shakya , Suman (2010) in “Financial Performance Of Nepal SBI Bank
Limited And Everest Bank Limited.” analyzed different ratio of NSBIBL and EBL for the period
of five years till fiscal year 2008. Here, in some cases the liquidity position of EBL is slightly
stronger where as in some cases the ratio of NSBIBL is higher. It concludes that liquidity
position of these two banks is sound. NBBL has better utilization of resource in income
generating activity than EBL. They are on decreasing trends while interest earned to total assets
and return or net worth ratio of EBL is better than NSBIBL. It seems overall profitability
position of EBL is better than NSBIBL and both banks are highly leveraged.”

Kishor Poudel (2002)., in his thesis paper “Liquidity and investment position of Joint Venture
Commercial Banks in Nepal” has made an attempt to evaluate liquidity and investment of joint
venture banks special reference to Everest Bank Ltd and NABIL Bank Ltd. He has concluded
that liquidity position of EBL is better than that of NABIL’s. Growth rate of investment is higher
in EBL than NABIL. He further found that the banks do not have constant and consistent
liquidity and investment policy. There is no standard and uniform rate or ratio for maintaining
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liquid assets by the commercial banks. A commercial bank at its own judgment may decide to
maintain an appropriate level of liquid assets. So he has recommended exploring such investment
and to increase its investment on share and debenture and the bank should have laid down policy
for timely review of portfolio and to maintain risk and return.

Mr. Pragun Shrestha (2002) in his study, “A comparative Analysis of Financial performance

of the Selected commercial Banks”, Concluded that many of the banks are of the view that
political instability in the country is mainly responsible for the decline of the lending
opportunities. Few banks ascribed it to the economic crisis that occurred in Asia pacific
region .No one felt that higher rates on interest on lending to be a major factor. At the some time
it should target not only the urban sector, it should go to the rural sector also. They have to
explore all the potential sectors like tourism etc. in order to generate high rate of profits.
Mr. Gurung’s ( 2003) Study on “ A Financial Study of Joint Venture Banks in Nepal”. A Comparative Study of 
NGBL and  NIBL. In this study, he has analyzed financial position of the banks measuring various ratios to
elaborate the financial performance. The liquidity, profitability and dividend payout ratio of two banks are on
favourable position. But NIBL seems to be slightly better position in terms of liquidity, profitability and capital
structure compared to the NGBL. In this evidence he has concluded that the NIBL promises a better future than
NGBL .

1.6 Research Methodology

The rationale behind the study is to evaluate and assess the financial position or performance of
the two newly operated joint venture banks viz. NABIL Bank and Nepal SBI Bank Limited.
Thus, this chapter includes those methods and techniques used for finding out a fore said
purpose.
Research methodology refers to the various sequential steps (along with the rationale of each
step) to he adopted by a researcher in studying a problem with certain objective in view. It is a
way to systematic solve the research problem it may be understood as a science of studying how
search is done scientifically. Includes the various steps that are generally adopted by a researcher
studying his/ her research problem along with the logic behind them, it would be appropriate to
mention here that research project are not meaningful to any one unless they are in sequential
order which will be determined by the particular problem at hand therefore, this study aims at
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analyzing and interpreting the purpose of comparative financial performance or appraisal of two
JVBs.

Data Analysis Tools

The financial, accounting and statistical tools will be used to make the analysis more effective,
convenience, reliable and authentic. The analysis of data is will be done according to the pattern
of data available because of limited time and resources. Simple analytical statistical tools.
Similarly, some accounting tools such as ratio analysis will also be used for financial analysis.
The various tools applied in this study have been briefly presented as under:
Financial Tools
Financial tools are those which are used for the analysis and interpretation of financial data.
These tools can be used to get the precise knowledge of a business which in turn are fruitful in
exploring the strengths and weaknesses of the financial policies and strategies. For the sake of
analysis following various financial tools have been used in order to meet the purpose of the
study.
(i) Profitability ratios
(ii) Liquidity ratios
1.7 Limitation of the Study
Every research has more or less limitation. Lack of experiences, time, financial resources and
accurate information are some of limitation of the study. For the completion of this study, some
facts are to be considered as the limitation.
i. Only two bank comparison has been deemed.
ii. Secondary data has been used.
iii. Limited time frame has been considered.