Dissertation Purposal Format

1
CHAPTER I
INTRODUCTION
Background of the study
Banking system plays an important role in the economic development of the country.
Bank is an institution which provides financial services as well as also maintains the
confidence of the various parts of the society. It offers a large variety of financial services
to their customer according to their needs and preferences (Levine, 1997). The overall
development of the country depends upon the economics growth of that country. Bank
plays the pivotal role in the economic development especially in emerging countries,
because the crux of the economic growth lies in the development of well managed
banking system by creating and mobilizing capital, rendering other financial services to
the member of economy. The present human activities are not performing without the
assistance of banking sector (McKinnon, 1973).
Bank is the lifeblood of economic development of the country because bank acts as
catalyst in the process of economics growth of the country. A bank is a financial
institution, which can play a significant role in the up-lift economic situation of the
developing country like Nepal. Bank plays a vital role to encourage thrift and discourage
hoarding by mobilizing the resources and removing the habit of hoarding (Dhungana B.
R., 2011). The bank is a financial institution, which deals with money. It accepts deposits
from individuals and organizations and grants loans to them. It allows interest on the
deposits made and charges interest on the loans granted. Since, it accepts deposits and
grants loans, it is regarded as the trader of money.
Financial performance is a managerial activity which is concerned with planning, rising,

controlling and administrating of financial resources of an organization. It is also a
process of measuring the results of organization in terms of monetary value. It evaluates
the past performance of an organization and helps to make proper planning for future. A
single institution cannot fulfill all the services demanded by the customers. So, different
types of bank also emerged in the banking industry specializing in different functions
areas. There are different types of banks. Among them commercial bank is one.
Commercial banks represent a key financial intermediary because they serve all types of
surplus and deficit units. They offer deposit accounts with the size and maturity
2
characteristics desired by surplus units. They repackage the funds received from deposits
to provide loans of the size and maturity desired by deficit units. They have the ability to
assess the creditworthiness of deficit units that apply for loans; so that they can limit their
exposure to credit (default) risk on the loans they provide (Madura, Jeff, 1999)
Joint Venture bank is a general model of direct foreign direct investment. It is a mode of
trading through the partnership among nations and also a form of negotiation between the
various groups of traders, industrialists and mercantile to achieve mutual exchange of
goods and services for sharing comparative advantage in their contribution. The
introduction of joint venture banks infused modern banking and financial technology and
new financial instrument in the financial system. However, the spillover effect of their
efficient management and modern banking skills was less in the domestic banks, as per
expectation (Elyor, 2009). Domestic private banks are managed and owned by private
sector without foreign equity participation. Since they are relatively new banks, they have
the opportunity to start as ‘fresh banks’ without bad loans in their portfolios and with the
possibility of adopting recent banking technologies during their inception. Most of them
are relatively small in asset size as well as their networks.
The commercial bank has been a vital role for economic development. Banks are
intermediaries, which mobilize funds through the prudential combination of investment
portfolio in advanced countries. Now Nepal is underdevelopment country so that joint
venture Banks are still to be realize as an essential mechanism of mobilizing interval
saving through various Banking schemes in the economy they can accumulate and collect
the capital among other prerequisite (Bhattarai, 2017). Commercial banks are suppliers of
the finance for trade and industry as well as other sector, which plays the vital role for
economic and financial development of the country.
Financial performance of banks refers to the capacity in generating sustainable
profitability. Traditional method of applying financial ratios to evaluate banks state of
performance has been long practiced. It is also a process of measuring the results of
organization in terms of monetary value. It evaluates the past performance of an
organization and helps to make proper planning for future. Performance evaluation is the
important approach for enterprises to give incentive and restraint to their operators and it
is an important channel for enterprise stakeholders to get the performance information
(Sun, 2011). The performance evaluation of a commercial bank is usually related to how
well the bank can use its assets, shareholders’ equities and liabilities, revenues and
3
expenses. The performance evaluation of banks is important for all parties including
depositors, investors, bank managers and regulators.
Financial performance analysis is the process of interpret the different components of

balance sheet and income statement to find out the profitability of an organization.
Financial performance analysis assesses the overall firm’s performance, net income
performance and profitability performance. It is the summary of firm’s performance
which help the investors to diagnoses the strength and weakness of the firm and also help
to take investment decision. Financial analysis is process of determining and interpreting
relationships between the items of financial statements. Its purpose is to provide a
meaningful understanding of the performance and financial position of an enterprise.
Thus, it is a technique for analyzing the financial statements by computing ratios.
CAMEL approach is used to evaluate financial performances of banks because; it benefits

the banks management to evaluate their financial health and performance. CAMEL
approach is significant tool to assess the relative financial strength of a bank and to
suggest necessary measures to improve weaknesses of a bank. CAMEL rating is a
subjective model which indicates financial strength of a bank, whereas CAMEL ranking
indicates the banks relative position with reference to other banks.
Banks are performing essential and a significant part in economic and capital
development because of the inborn nature, in this way banks ought to be given more
consideration than whatever other kind of the monetary unit in an economy. Assessment
of financial performance of the banking sector is a powerful measure and pointer to check
the soundness of economic activities of an economy. The five parameters of the CAMEL
model used to evaluate the operating soundness, financial performance, financial
condition and regulatory compliance of the banking organization (Gupta, 2014). CAMEL
is a systematic methodology recommended by Moody’s to evaluate a bank’s general
security, solidness and soundness.
CAMEL model is essentially a proportion based model utilized for assessing the
performance of banks and is utilized for ranking or rating of the banks. CAMEL model is
the instrument which is utilized in the critical investigation of the statement of financial
position of banks and the presentation of such examination to provide the evaluation of
the strength of the banks. In the present examination work, CAMEL model has been
4
utilized as a measuring rod to gauge the Capital adequacy, Asset quality, Management
efficiency, Earnings and Liquidity of five nationalized banks.
The aim of the study is to evaluate the financial position of Joint venture bank and other
private owned bank in Nepal. Here, comparison banks are Nepal SBI Bank
Limited(NSBI), Standard Chartered Bank Limited (SCBL), Everest Bank Limited (EBL),
Laxmi Bank Limited (LBL), Sanima Bank Limited (SBL), Machhapuchchhre Bank
Limited (MBL) during the year from 2071/72 to 2076/77. Moreover, this research will
also assess the financial performance of these banks in terms of solvency, profitability,
liquidity position and earnings. This research also aims to analyze and compare the
financial strengths and weakness of both banks and give an appropriate suggestion for
improvement on the basis of findings.
Statement of the Problems
The overall performance of financial institutions may not reflect by financial statement,
so that major question emerges whether these are adequate to reflect the overall
performance of company. Hence, there is needed to identify the overall conditions
strengths, weakness, opportunity and threats of the banks. For these purpose, several
financial and statistical tools and techniques are developed by different experts and
financial institutions all over the world, one of them is CAMEL. A general belief is that a
firm’s financial performance depends on certain key financial factors i.e. turnover, profit
and the variables which are found in the balance sheet of a firm, have a direct and indirect
relation with each other. By establishing a close relationship between the variables, a firm
can analyze its financial performance in terms of liquidity, profitability and viability
(Bono, 2020). The dimension of capital adequacy is an important factor to help the bank
in understanding the shock attractive capability during risk. In this study, capital
adequacy is measure indicator of the financial health of a bank (Vong & Chan, 2006). It
indicates whether the bank has enough capital to absorb unexpected losses.
The dimension of asset quality is an important factor to help the bank in understanding
the risk on the exposure of the debtors. In this paper, this parameter is measured by the
provision for loan loss reserve to total asset ratio (Rostami, 2015). This ratio assures to
cover the bad and doubtful loans of the bank. This parameter will benefit the bank in
understanding the amount of funds that have been reserved by the banks in the event of
5
bad investments. Management quality reflects the management soundness of a bank. The
management acts as a safeguard to operate the bank in a smooth and decent manner and is
called excellence management or skillful management, whenever it controls its cost and
increases productivity, ultimately achieving higher profits. Here, this parameter is
measured by total cost to total income ratio. Earning is an important parameter to measure
the financial performance of an organization. Earning quality mainly measures the
profitability and productivity of the bank, explains the growth and sustainability of future
earnings capacity. In the same way, bank depends on its earning to perform the activities
like funding dividends, maintaining adequate capital levels, providing for opportunities
for investment for bank to grow, strategies for engaging in new activities and maintaining
the competitive outlook. Here two ratios are used to determining the profitability of banks
i.e., return on asset and return on equity. Liquidity ratio in a bank measures the ability to
pay its current obligations (Hazzi & Kilani, 2013). For having sound banking operations
it needs to have liquidity solvency. If any bank faces liquidity crisis, bank can’t meet up
its short-term obligations. Liquidity crisis seems to be a curse to the image of banks. So it
is a prime concern to banks. Cash and investments are the most liquid assets of a bank.
An adequate liquidity position means a situation, where institution can obtain sufficient
funds, either by rising liabilities or by converting its assets quickly at a reasonable cost.
Here liquidity performance is measured by net investment to total asset ratio. This ratio
can be defined as the amounts of assets have been engaged in investment.
In Nepal many banks and financial companies have opened up within a span of few years.
Although joint venture banks have managed to perform better than other private owned
commercial banks within the short period of time they have been facing a neck
competition against one another. 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 importers and exporters, merchant banking, inter banking market
for the money and securities (Jha & Hui, 2012). The problem of the study will ultimately
find out the reasons about difference in financial performance of joint venture banks and
other private owned commercial banks in Nepal. In this research comparative analysis of
financial data of joint venture banks is better than that of the other private owned
commercial banks. In addition, the perusal of indicators of different components of
CAMEL indicates that the financial health of joint venture banks is strong to manage the
6
possible large scale shocks to their balance sheet. The performance of joint venture banks
is better than the domestic banks reflected in their profitability position, uses of
equipments, development of new policy, different banking services, banks paid up capital
and liquidity position. This study aims to assess the financial conditions and overall
performance of sampled commercial banks in the framework of CAMEL. In such a
situation the study tries to analyze present performance of joint venture banks and other
private owned commercial banks in Nepal, which would give the answer of the following
queries:
 What is the Capital Adequacy Ratio, Assets Quality Ratio, Management

Efficiency Ratio, Earning Ratio, and Liquidity Ratio of commercial bank in
Nepal?
 Is financial performance of joint venture banks in terms of Capital Adequacy
Ratio, Assets Quality Ratio, Management Efficiency Ratio, Earning Ratio, and
Liquidity Ratio better as compared to other private owned bank?
Objective of the study

The objective of this study is to compare the financial performance of selected
commercial bank based on their financial characteristics and identify the determinants of
performance exposed by the financial ratios, which were based on CAMEL Model.
 To analyze the financial performance of commercial banks by using the

parameters of (CAMEL) Capital Adequacy Ratio, Assets Quality Ratio,
Management Efficiency Ratio, Earning Ratio, and Liquidity Ratio.
 To compare the financial performance of joint venture and private owned banks.
7
Hypothesis
Based on the objectives, the present study seeks to test the following hypothesis:
 H1: There is a significant difference in Capital Adequacy Ratio between joint
venture and other private owned commercial banks.
 H2: There is a significant difference in Nonperforming Loan Ratio between joint
 H3: There is a significant difference in Loan Loss Coverage Ratio between joint
 H4: There is a significant difference in Loan Loss Provision Ratio between joint
 H5: There is a significant difference in Management Efficiency Ratio between
joint venture and other private owned commercial banks.
 H6: There is a significant difference in Earning per Share between joint venture
and other private owned commercial banks.
 H7: There is a significant difference in Return on Equity between joint venture
 H8: There is a significant difference in Return on Assets between joint venture
 H9: There is a significant difference in Loan to Deposit Ratio between joint
 H10: There is a significant difference in Cash and Equivalent to Total Assets
Ratio between joint venture and other private owned commercial banks.
 H11: There is a significant difference in Cash and Equivalent to Total Deposit
 H12: There is a significant difference in Cash Balance with NRB to Total Deposit
Rational of the study
The study will deals with different financial performance and its indicator as well as
financial viability of the banks. The study also significance lies mainly in identifying and
comparing the financial health of banks in the framework of CAMEL. This study also
provides necessary information of performance capability of their banks to the
8
management. It will provide the real picture of performance which is beneficial to

potential as existing shareholders, about risk return and utilizing fund. It will enhance
their knowledge beyond the typical information like financial statement and disclosure
which are made by banks in their annual statements. On the basis of information investors
will take a more valuable decision to invest in a certain Bank.
The findings of this research will contribute to the existing literature on bank performance
as well as bridge the knowledge gap currently exists related to bank performance
measures available. It will help the regulators in making appropriate rules and regulations,
mitigate the potential risk of failures and take corrective actions. It will also helpful to
formulate appropriate policies on how these can be improved upon. Moreover, it will be
beneficial for management to formulate a proactive strategy for survival and long term
growth of the organization. It will also helpful for the reader to know the specific details
of the model which in turn lead to identifying the strengths and weaknesses of the banks,
it will give a better understanding and knowledge about the performance of the banking
industry particularly in Nepal. The study will also useful for depositors, merchant bankers
as well as other stakeholders; they can identify the overall performance of the bank. It
will be helpful to those who want to conduct further study in this field. Mainly, the
purposed study will be significance for the researchers, research group and academicians
for the future in the view of review.
Limitation of the study
 Out of the twenty-seven commercial banks only six commercial banks are taken
as sample.
 Six fiscal years starting from fiscal year 2071/72 to 2076/77 for the comparative
analysis purpose.
 This study is based on the secondary data and information
9
CHAPTER-II
LITERATURE REVIEW
Literature review is a survey of scholarly sources on specific topics. It provides an

overview of current knowledge, allowing identifying relevant theories, methods, and gaps
in the existing research. Review of literature is the most important part of the study.
Without clear concept on the subject matter the study might not be conducted within its
periphery. This section provides current stage of the research work and guidelines or
further study and help to avoid unnecessary duplication of research work. This chapter is
focused on brief discussion about the abstract regarding the CAMEL analysis. In order to
accomplish the objectives of the study, the chapter includes review of relevant concepts,
assumption, books and journals as well as major findings of previous studies of the
relevant field are included in precise manner.
The purpose of review of the literature is to develop some expertise in one's area, to see
what new contribution can be made and to receive some ideas for developing a research
design. Thus, the previous studies cannot be ignored, because they provide the foundation
to the present study. In other words, these have to be continuity in research. This
continuity in research is ensured by linking the present study with the past research
studies. From this, it is clear that the purpose of literature review is to find out what
researcher studies have been conducted in one's chosen field of study and what remains to
be done. For review study, the researcher uses different books, reports, journals and
research studies published by various institutions, unpublished dissertations submitted by
master level students have been reviewed.
Theoretical Review
Review of CAMEL Model Study
CAMEL model of rating was first developed in the 1970 by the three federal banking
supervisors of the US the Federal Reserve, the Office of the Comptroller of the Currency,
the National Credit Union Administration, and the Federal Deposit Insurance Corporation
as part of the regulators’ “Uniform Financial Institutions Rating System”, to provide a
convenient summary of bank condition at the time of its on-site examination. The banks
were judged on five different components under the acronym C-A-M-E-L where Capital
adequacy, Assets quality, Management efficiency, Earnings and Liquidity. The banks
10
received a score of ‘1’ through ‘5’ for each component of CAMEL and a final CAMEL
rating representing the composite total of the component CAMEL scores as a measure of
the bank’s overall condition. The system of CAMEL was revised in 1996, when agencies
added an additional parameter ‘S’ for assessing “sensitivity to market risk”, thus making
it ‘CAMELS’ that is in vogue today.
Valuated the impact of CAMEL rating changes on the parent holding company's stock
price. They separated stock price changes into two component a 'private information'
effect (which identified the public's awareness of new information discovered by
examiners), and a 'regulatory discipline' effect which valued a regulators' presumed
ability to force a bank to changes its behavior) (Berger & Davies, 2011). This results
provided only weak evidence of a regulatory discipline effect, but they found a strong
private information effect. However, the information effect applied only to CAMEL
downgrades, which tend to precede stock prices declines. Berger and Davies found no
movement in the stock price following a CAMEL upgrade.
(Dhungana, 2014) Argues CAMEL rating system plays key role for bank supervision.
According to him, The NRB as a central bank has the important task of regulating &
supervising the banking system of Nepal. NRB assess the overall strength of the banking
system as well as the safety and soundness of each individual bank and financial
institution, In order to discharge this role. To help in this endeavor, a uniform rating
system for all banks and financial institution has been used. Under this modality,
supervisors assign individual numerical rating to the key areas of Capital, Assets,
Management, Earnings, liquidity and sensitivity to the market risk (CAMELS) as well as
assigning an overall composite rating to each banking institution. In this way, the NRB
has been able to categorized banks and financial institutions into group based on their
overall strength, quality and operating soundness. The rating system known as CAMEL
has served as a supervisory tool to help identify those banks that are having problems and
require increased supervision. To date, early warning signals are drawn are drawn &
monitored from the CAMEL rating through on-site inspection and CAMEL rating
through offsite supervision.
Hirtle & Lope (1999) examine the usefulness of the past CAMEL rating in assessing
banks current conditions. They find that, condition on current public information, the
private supervisory information contained in the past CAMEL rating provides further
insight into bank current conditions as summarized by current CAMEL ratings. The
11
authors find that, over the period from 1989 to 1995 the private supervisory information
during the last onsite exam remains useful with respect to the current condition of the
bank for up to 6 to 12 quarters. The overall conclusion drawn from academic studies is
that private supervisory information, as summarized by CAMELS ratings, is clearly
useful in the supervisory monitoring of bank conditions.
Hays (2009) have utilized CAMEL model to examine the performance of low efficiency
vs. high efficiency community banks in conjunction with the logistical regression
analysis. The analysis used data which are based on quarterly reports by commercial
banks. The discriminate model derived from the CAMEL parameters is tested among data
for 2006, 2007, 2008. Its results concluded that the model accuracy floats from
approximately 88% to 96% for both original and cross-validations data sets.
The CAMEL rating system is subjective beach marks for each component are provided,
but they are guidelines only and presents essential foundations upon which the composite
rating is based. They do not eliminate consideration of the other patient's factors by the
examinant. The uniform rating system provides the ground work for necessary
supervisory response and helps institutions supervised by all three us supervisors to be
reasonably compared and evaluated. Rating is assigned for each component in addition to
the overall rating of a bank's financial condition. The ratings are assigned on a scale from
1 to 5. The camel ratings are commonly viewed as a summary measures of the private
bank supervisory information gathered by examiners regarding banks overall financial
conditions, although they also reflect available public information. In Nepal, the NRB
plays the supervisory role for evaluating banks financial condition through rating the
banks in accordance to CAMELS is still a myth. CAMELS are basically a ratio-based
model for evaluating the performance of banks. Various ratios forming this model are
explained below:
Components of CAMEL Rating System
Components of CAMEL rating system which are explain below:
A .Capital Adequacy Ratio
CAMEL framework system looks at six major aspects of an financial institution: capital
adequacy, asset quality, management soundness, earnings, liquidity, and sensitivity to
market risk (Hilbers, Krueger, & Moretti, 2000). The first component, capital adequacy
ultimately determines how well financial institutions can manage with shocks to their
balance sheets. Thus, it tracks capital adequacy ratios that take into account the most
important financial risks-foreign exchange, credit, and interest rate risks by assigning risk
12
weightings to the institution's assets. For the purpose of capital adequacy measurement,
bank capital is divided into Tier I and Tier II. Tier I capital is primary capital and Tier II
capital is supplementary capital. In Nepalese context, Tier I (core/primary) capital
includes paid-up capital, share premium, non-redeemable preference share, general
reserve fund, accumulated profit, capital redemption reserve, capital adjustment fund, and
other free reserve. Amount of the goodwill, fictitious assets, investment in the financial
instruments issued by an organized organization in excess to the limit specified by NRB,
and investment in the financial instruments issued by the organizations having the own
financial interest is deducted from the sum of all elements of the primary capital to arrive
at the core capital. Similarly, Tier II (supplementary) capital comprises of general loan
loss provision, assets revaluation reserve, hybrid capital instruments, subordinated term
loan, exchange equalization reserve, excess loan loss provision, and investment
adjustment reserve. Thus, the total capital of commercial banks is the sum of core capital
and supplementary capital.
A financial institution is expected to maintain capital commensurate with the nature and
extents of risks to the institution and the ability of management to identify, measure,
monitor and control these risks. The effect of credit, market and other risks on the
institution's financial conditions should be considered when evaluating the adequacy of
capital. The types and quantity of risk inherent in institution's activities will determine the
extent to which it may be necessary to maintain capital at levels above required regulatory
minimums to properly reflect the potentially adverse consequences that these risks may
have on the institution's capital. The following ratios measure capital adequacy:
1. Capital Adequacy Ratio
B. Assets Quality Ratio
Asset quality determines the healthiness of financial institutions against loss of value in
the assets. The weakening value of assets, being prime source of banking problems,
directly pour into other areas, as losses are eventually written-off against capital, which
ultimately expose the earning capacity of the institution. With this backdrop, the asset
quality is gauged in relation to the level and severity of non-performing assets, adequacy
of provisions, recoveries, distribution of assets etc. Popular indicators include
nonperforming loans to advances, loan default to total advances, and recoveries to loan
default ratios.
13
Commercial banks collect funds in the form of capital, deposit etc. It mobilizes these
funds to generate certain returns by giving loans to the users of money to invest in various
alternatives. A significant part of the banks income is through its lending activities. One
of the indicators for asset quality is the ratio of non-performing loans to total loans.
1. Nonperforming Loan Ratio.
2. Loan Loss Coverage Ratio.
3. Loan Loss Provision Ratio
C. Management Efficiency Ratio

The success of any institution depends on the competency of its management. In fact, the
management not only makes suitable policy and the business plans but also implements
them for the short term and the long term interests, which helps to achieve aimed
objectives of bank and financial institution's. It is evaluated by checking the effectiveness
of the board of directors, the management, manpower and the officials, operating
expenditure, customer's relation with the officials and institution, management
information system, organization and working method, internal control system, power
concentration, monitoring, decision making process, policies.
The proportion in this section includes subjective analysis to measure the productivity and
effectiveness of administration (Zeinab, 2006). It refers to the proportion of non-
premium users like are done by bank higher rate of such use suggests that bank
administration is bad at controlling the unnecessary costs. Management of financial
institution is usually evaluated in terms of, asset quality, earnings and profitability,
liquidity, capital adequacy. In addition, performance evaluation consists of the ability to
plan and react to changing circumstances, technical competence, leadership, compliance
with set norms and administrative ability. Basically, administration rating is simply a
blend of execution in the aforementioned areas.
Sound management is key to bank performance but is difficult to measure. It is primarily
a qualitative factor applicable to individual institutions. Several indicators, however, can
jointly serve as an indicator of management soundness. Expenses ratio, earning per
employee, cost per loan, average loan size and cost per unit of money lent can be used as
a proxy of the management quality. The ratios used to evaluate management efficiency
are as under:
1. Management Efficiency Ratio
14
D. Earning Performance Ratio

Earning capacity or profitability keeps up the sound health of a financial institution.
Chronically unprofitable financial institution risks insolvency on one hand and on the
others, unusually high profitability can reflect excessive risk taking of an financial
institution. There are different indicators of profitability. Return on assets, return on
equity, interest-spread ratio, earning-spread ratio, gross margin, operating profit margin
and net profit margin are commonly used profitability indicators. NRB uses return on
total assets as an indicator of profitability of a commercial bank.
Earnings and profitability are the main source of the increase in capital base, is inspected
with respects to interest rate policies and the adequacy of provisioning. Likewise, it
additionally serves to help present and future operations of the Institutions. Indicators of
earnings and profitability are ROA, ROE and Interest Income to Total Assets Ratio. The
single best indicator used to measure earning is the Return on Assets (ROA), which is net
income after taxes to total asset ratio. According to the (Reddy, 2011) High returns on
asset means greater returns earned on assets deployed by the bank.
Earnings are the ultimate result of any business. Generally, if the earnings are good then
business is running well. Similarly the aggregate performance of the bank reflects from its
earnings. An analysis of the earnings ratio helps the management, investors and creditors
to know the performance of the bank. They can get information regarding their interest.
The following ratios help the management and other stakeholders to know about the
earning policy of the respective banks:
1. Return on Equity
2. Return on Assets
3. Earnings Per Share
E. Liquidity Position Ratio
Bank should have ready access to immediately spendable funds at reasonable cost at
precisely the time those funds are needed. Lack of adequate liquidity is often one of the
first signs that a bank is in serious financial trouble (Rose, 1999). Bank should have
adequate liquidity to minimize both asset side liquidity risk and liability side liquidity risk
of a commercial bank. Both liquidity deficit and much more liquidity surplus indicate the
problem in the financial health of a commercial bank. Much more liquidity surplus hurts
the profitability of the commercial bank by reducing the return on assets. Similarly, liquid
deficit also costs much to the commercial banks in term of the higher purchasing price of
15
liquidity and hurt in the reputation of the banks. Therefore, commercial banks should
strike the trade-off between the profitability and liquidity risk.
Liquidity shows the ability of the banks to discharge their liabilities as and when they
mature. Or, it is the ability of the banks to convert non-cash assets into cash as and when
needed. In order to examine the liquidity position of banks, there are four ratios used by
different authors. Liquid Assets to demand deposits ratio measures the ability of a bank to
meet the demand for withdrawal of cash from demand deposits in a particular year. It is
calculated by dividing liquid assets by total demand deposits. Liquid assets include cash
in hand, balances with banks in country and outside the country and money at call on
short notice (Nandi, 2012).
Liquid assets to total deposits ratio indicate the ability of the bank to meet its deposit
obligations with available liquid funds. Total deposits include demand deposits, savings
deposits, term deposits and other deposits. Liquid assets to total assets measure of
liquidity indicate the percentage of a bank's total assets in liquid form. Higher the
percentage better is the liquidity and vice versa. Term deposit to total deposit ratio
indicates that total proportion of term deposit in the total deposit. If the proportion of term
deposit is more in total deposit that is not good for long term survival of any bank.
Lowest ratio of term deposit to total deposit is favorable one (Gupta A. , 2015). The ratios
used to evaluate liquidity ratio are as under:
1. Loan to Deposit Ratio
2. Cash and Equivalent to Total Assets
3. Cash and Equivalent to Total Deposit
4. Cash Balance with NRB to Total Deposit
Empirical Review
The health of the economy is closely related to the soundness of its banking system. Baral
(2005) used publicly available financial data to examine the financial health of joint
venture banks with the help of CAMEL framework. The study concludes that the health
of joint venture banks is better than other commercial banks but not strong enough to
manage the large possible shocks to their balance sheet. As discussed earlier that the
banks play a vital role in the economic development. This study aims to assess the
existing gaps in performance of public and private sector banks and to suggest some
pragmatic solution for the same. The results of present study indicate that the private
sector banks perform better than the public banks on all other parameters of CAMEL
Model except Management Efficiency (Sharma & Chopra, 2018). Public sector banks
16
display low soundness in comparison. This implies that the Government needs to focus on
improving the financial performance of Public Sector Banks by adopting pragmatic
strategies focused on each parameter of financial performance evaluated through CAMEL
Model. The low performing banks have to improve their capital adequacy ratio by
augmenting capital through equity/debt route and government / budgetary Support.
Bothra and Purohit (2018) in their study identified that in term of Capital adequacy ratio
parameter SBI is ahead than of ICICI bank. The possible reason for this was the poor
performance of ICICI in advance to assets, debt to equity and government securities to
total Investments ratios. In terms of Asset quality parameter also, SBI is ahead than of
ICICI bank. The possible reason for this was the poor performance of ICICI in total
investments to total assets and Net NPAs to total assets. Under Management efficiency
parameter, ICICI bank is ahead than of SBI bank. The possible reason for this was the
poor performance of SBI in total advances to total deposits, business per employee, profit
per employee and return on equity ratios. In terms of Earnings quality parameter, ICICI
bank is ahead than of SBI bank. The possible reason for this was the poor performance of
SBI in operating profit to total assets and net interest Margin to total assets ratios .Under
the Liquidity Parameter, ICICI bank is head than of SBI bank. The possible reason for
this was the poor performance of SBI in liquid assets to demand deposits and liquid assets
to total deposits and Approved securities to Total Assets ratios.
Kumar (2014) measured the efficiency, profitability and overall performance of banks
and bank groups in public and private sector banks during the study period 2007-08 to
2012-13. CAMEL method is used to measure the performance of banks. Financial
performance analysis of public and private sector banks using CAMEL approach revealed
that average private sector banks are much ahead of public sector banks. It was concluded
that CAR is considered ICICI Bank, Axis Bank,and Yes Bank are much stronger than
other banks. On the basis of asset quality, new private sector banks are performing better
than other banks. From the business per employee point of view, public sector banks are
performing well then new private sector bank. When profit per employee is considered
new private sector banks are earning more than private sector banks. Again from the
earning present of view, new private sector banks are abettor performer in comparison to
other banks which shows that new private sector banks are giving importance to their
17
earning capacity and efficiently utilizing their asset. When liquidity is considered most of
the new private sector banks are in better position in comparison to public sector banks.
Bhandari (2006) conduct a study on "Financial performance Analysis of Himalayan Bank

Limited in the Framework of CAMEL". The basic objective of the study was to analyze
the financial performance of Himalayan Bank Limited through CAMEL framework. He
had used secondary data for the period of six years from 1999 to 2004. The study
revealed the adequate capital of the bank. The non-performing loan was in decreasing
trend, which shows the improvement of the bank. The bank is still with better return
which is proved by its better ROE; however it is in decreasing trend. The decreasing trend
of net interest margin shows management slack monitoring over the banks earning assets.
The liquid fund to total deposit ratio is above the industrial average ratio. NRB balance
and cash in vault to total deposit ratios are below the industrial average ratio during the
study period.
(Rahman & Islam, 2018) in their study found that on an average the Capital Adequacy ratio
of all banks is much higher than the benchmark of 10% as mandated by Bangladesh
Bank. The average CAR of City Bank is the highest (12.90%) among all the banks. As
the NPLs of City Bank (6.94%) is much higher than other banks, Bangladesh Bank
should look after the bank and suggest corrective measures to overcome potential losses
due to increase in NPLs. The profit per employee (PPE) of Eastern Bank is the highest
and it can be inferred that the efficiency of EBL is much higher as compared to other
banks. Estimating the profitability ratios it can be observed that for long-term period, One
Bank’s profitability is outstanding on an average as compared to other banks. Jamuna
Bank has maintained comfortable liquidity position although excessive liquidity may
affect profitability. However, the findings from the study can be helpful for the
management of these selected banks to improve their financial performance and
formulate policies that will improve their overall performance.
Sharma (2007) performed a study on "Financial Performance Analysis of Nepal SBI
Bank Ltd., In the Frame work of CAMEL." The main objective of the study is to analyze
the financial performance of Nepal SBI bank Ltd. Through CAMEL framework, the study
was based on secondary data covering the six years from 2001 to 2006. The researcher
conducts the financial tools to analyze the six years data. He concluded That Nepal SBI
bank Ltd. was well capitalized and complying with directives of NRB. The bank has
maintained satisfactory level of past due loan on total loan except 2001. Earning per
18
employees of the bank was found quite high. Net interest margin of the bank was found
satisfactory. Further the liquidity position of the bank was found sound.
Poudel (2007) carried out “A study on comparative analysis of financial performance
between Himalayan Bank and Standard Charted Bank” the basic objectives of that study
was provided comparative financial performance of SBCNL and HBL. Only five fiscal
years financial performance beginning from 1995/96 through 2000/2001 were analyzed.
In this study financial and statistical tools were used to evaluate the performance of
banks. In financial tools liquidity, activity, profitability, structural and income and
expenditures ratios. Further, the research used the method of least square to find out the
trend of different financial indicators he found that the performance of SCBNL is better
than that of HBL.
Rai (2005) conducted "Financial Performance Analysis (CAMEL - Test) of Selected CBs
(Nabil, NIBL &SCBL)" the main objective of the study is comparative analysis of
commercial banks through the frame work of CAMEL. He did her study covering five FY
(2001 to 2005) on the basis primary as well as secondary data. Some financial and
statistical tools and techniques are applied to evaluate the performance of selected joint
venture banks. On his study, except 2001, SCBL had highest CAR among these selected
CBs where Nabil is moderate in all time. In the case of NIBL in 2001 it had highest CAR
among them and then after it went behind and getting second and some year third position
in CAR. Here Chand gave first rank to SCBL for maintain highest CAR. In case of Assets
quality in average study show the Nabil performance is much better than other and SCBL
and NIBL follows Nabil respectively. Chand study shows the factors affecting the
management efficiency and effectiveness. Bank management quality model was also
presented in his study. As per earning concern SCBL leads other two banks and tough
fight between Nabil and NIBL. For comparative analysis of liquidity part which compare,
it is found that NIBL secures first position for percentage of cash balance and percentage
of balance with bank and SCBL scores first position for investment in government
securities. Nabil is a little bit take risk and invest less in government securities as compare
to other two banks. All banks are maintaining the benchmark of the NRB on case of CRR.
Khanal (2015) carried out a research study on " Financial Performance Analysis of
Commercial Banks in Nepal the Frame Work of CAMEL (A Comparative Study of
Kumari Bank and Machhapuchre Bank", with the fundamental objective to analyze and
compare the financial performance of KBL and MBL in the frame work of CAMEL from
19
FY 2068/69 to 2071/72. with the help of both secondary as well as primary data, she
conducted her study by applying Some financial and statistical tools and techniques. Her
study shows both banks are maintaining CAR as per rule of NRB and the trend of CAR is
decreasing. Both banks are in much satisfactory level in the case of assets management.
Increasing profit of both banks shows the good sign but it is not enough to compete with
other established banks. According to her study, Profits are also not enough to meet
benchmark set by the World Bank. In the case of liquidly both banks are not properly
maintaining the rule of NRB. In her overall analysis there is tough competition between
KBL and MBL and both are in the phase of improvement.
(Shing, 2008) conducted "A Study of CAMEL Analysis of Commercial Banks" i.e.
SCBNL, HBL & Nabil Bank. The objective of that study was to evaluate the capital
adequacy ratio, to analyze assets quality and to absorb the liquidity position of these
banks. He used ration analysis and statistical tools to covered five years analysis. On the
basis of Mr. Singh's analysis, SCBNL is on the top and NABIL followed by HBL.
20
CHAPTER III
RESEARCH METHODOLOGY
Research methodology is the specific procedures or technique used to identify select,

process and analyze information about a research topic. In other words, research
methodology is a systematic process to approach any research problem and explore it
objectively. It is a way to systematic solve the research problem it may be understood as a
science of studying how search is done scientifically . Hence, this chapter includes
research design, population and sample, sampling method, nature and source of data, data
collection procedure and tools for data presentation and analysis.
Research Design
The study is based on descriptive research design. Descriptive research design is
appropriate for the purpose of describing the phenomenon it use the scientific method of
collecting, classifying and analyzing financial data, ratio, and facts and figures. In this
study banks financial performance were compared and analyzed by using CAMEL
framework. For the comparison of financial performance of joint venture bank and other
private owned commercial bank descriptive statistical tools like; mean standard deviation
and independent t-test has been applied.
Population and Sample

The total number of commercial bank represent as the total population of this study.
According to Nepal Rastra Bank annual report of NRB 2020 there are twenty seven
commercial banks in Nepal. Out of them seven are joint venture banks and seventeen are
other private owned commercial banks. Out of the total population three joint venture
banks Nepal SBI Bank Limited (NSBI), Standard Chartered Bank Limited (SCBL),
Everest Bank Limited (EBL) and three private owned commercial banks (Laxmi Bank
Limited (LBL), Sanima Bank Limited (SBL), Machhapuchchhre Bank Limited (MBL)
are choosen as samples. From each category of joint venture and private owned banks,
randomly three banks were chosen.
21
Table 1
Joint Venture Bank and Other Private Owned Commercial Bank in Nepal
S.N Name of Bank Remark
1 Nepal SBI Bank Limited Joint Venture
2 Standard Chartered Bank Limited Joint Venture
3 Everest Bank Limited Joint Venture
4 Nabil Bank Limited Joint Venture
5 Himilayan bank Limited Joint Venture
6 Nepal Bangladesh Bank Limited Joint Venture
7 NMB Bank Limited Joint Venture
8 Laxmi Bank Limited Other Private Owned
9 Sanima Bank Limited Other Private Owned
10 Machhapuchchhre Bank Limited Other Private Owned
11 Kumari Bank Limited Other Private Owned
12 Nepal Investment Bank limited Other Private Owned
13 Bank of Kathmandu Limited Other Private Owned
14 Nepal Credit and Commerce Bank Limited Other Private Owned
15 Prabhu Bank Limited Other Private Owned
16 Global IME Bank Limited Other Private Owned
17 Citizen Bank Limited Other Private Owned
18 Prime Commercial Bank Limited Other Private Owned
19 Sunrise Bank Limited Other Private Owned
20 NIC Asia Bank Limited Other Private Owned
21 Siddhartha Bank Limited Other Private Owned
22 Megha Bank Limited Other Private Owned
23 Civil Bank Limited Other Private Owned
24 Century Bank Limited Other Private Owned
22
Sampling Method
Simple random sampling is used when sampling frame can be developed and researcher
needs to generalize the finding of the research in population. All the commercial banks
were categories in different category of joint venture bank, other private owned
commercial banks and government owned commercial banks. Among them six
commercial bank were randomly choose. Stratified random sampling techniques were
used to choose sample bank. Disproportionate stratified sampling technique was followed
to select the sample bank from each category.
Nature and Sources of Data
This quantitative study is basically based on secondary data. The required data for the
study collected in following ways:
 Library research study
 Internet, home pages and related links visit.
 Directives of NRB
 Annual reports of the Nepal SBI Bank Limited(NSBI), Standard Chartered Bank
Limited (SCBL), Everest Bank Limited (EBL), Laxmi Bank Limited (LBL),
Sanima Bank Limited (SBL), Machhapuchchhre Bank Limited (MBL)
 The other sources will be articles, previous study on related topics, published
articles of different authors and journals.
Although present study is on secondary data however, necessary suggestion are also taken
from various experts both inside the bank whenever required the necessary data is
obtained from the official website such as, published balance sheet, profit and loss
account and other related statement of accounts as well as the annual reports of the
respectively banks.
Data Collection Procedure
The required information was collected by conducting visit to the consulting library of
Lumbini Banijya Campus, internet surfing and related text books. The annual reports of
each bank for the study period were obtained from banks official website. NRB
regulatory directives, statistics of the commercial banks of Nepal and other related
publication were obtained through internet surfing to NRB's official website and
periodicals. Existing literature on the subject matter was collected from various research
papers place in library of Lumbini Banijya Campous. Likewise, the review of working
23
papers conducted by various international scholars on the related matter was done through
internet surfing to various websites.
Tools for Data Presentation and Analysis
Financial tools and statistical techniques are used for the analysis and interpretation of
financial data. Financial tools use framework of CAMEL components and statistical
technique use descriptive statistics for analysis of the data. Descriptive statistical tools
which are used to explain the activities of data. Descriptive statistical tools are given
below:
 Mean
 Minimum Value
 Maximum Value
 Standard Deviation
 Independent t -test
Here, statistical technique also uses the parametric test for testing hypothesis. An
independent sample t-test used while using the testing of hypothesis. T-test is used when
two sample are inter-related and show the significant difference between mean of these
two sample.
Research Framework and Definition of Variables
Theoretical Framework consists of concept, together with their definitions, and existing
theory that are used for our particular study. The theoretical framework must demonstrate
an understanding of theories and concepts that are relevant to the topic of research paper
and that will relate it to the broader fields of knowledge in the class we are taking. Here,
using the CAMELS framework for the comparative analysis of the financial performance
of sampling commercial bank in Nepal. Which are shown below:
24
Research Framework
Capital Adequacy Ratio
Assets Quality Ratio
 NPLR
 LLCR
 LLPR
Management Efficiency Ratio Financial Performance
Earning and Profitability

Ratio
 EPS
 ROE
 ROA
Liquidity Ratio
 LDR
 CETAR
 CETDR
 CBNRBTDR
25
A. Capital Adequacy Ratio
Capital Adequacy Ratios take into account the most important financial risk-foreign
exchange, credit and interest rate risks, by assigning risk weightings to the institution's
assets. Capital adequacy ratio is a measure of the amount of a bank's capital as a
percentage of its risk weighted credit exposure. Nepal Rastra Bank (NRB) which
recommends minimum CAR of 10% and 6% of Core Capital Ratio (CCR).
Total Capital Fund

Capital Adequacy Ratio = ˟ 100%
Total Risk Weighted Assets
Where,
Total Capital Fund = Tier I Capital + Tier II Capital
Total Risk Weighted Assets = On Balance Sheet Risk Weighted Item + Off Balance
Sheet Risk Weighted Item
B. Assets Quality Ratio
Commercial banks collect funds in the form of capital, deposit etc. It mobilizes these
funds to generate certain returns by giving loans to the users of money to invest in various
alternatives. A significant part of the banks income is through its lending activities. There
are basically two types of loans and advances.
1. Performing Loan
Performing loan is any loan is any loan in which interest and principal payments are less
than 90 days overdue less than 90 days worth of interest has been refinanced, capitalized
or delayed by agreement and continued payment is anticipated. All condition must be
present for a loan to be performing.
2. Non-performing Loan
A non-performing loan is a debt on which the borrower is late on making payments or is
in danger of missing payments. Loans where the borrower is 90 days late on payments are
considered non-performing, but any loan in default or near default may also be called
non-performing. Lenders take a variety of steps to avoid and mitigate the impact of non-
26
performing loans, such as denying loans to especially risky borrowers and charging
higher interest rates to borrowers with lower credit scores.
Total Non−Performing Loan

Non-performing Loan Ratio = Total Loan∧ Advance ˟100%
Where,
Total Non-Performing Loan (NPL) = Sub Standard Loan + Doubtful Loan + Bad loan
Total Loan and Advance = Total Performing Loan + Total Non Performing Loan
Total Loan Loss Provision(LLP)

Loan Loss Coverage Ratio = ˟100%
Where,
Total Loan Loss Provision (LLP) = Provision on (Pass Loan + Restructured Loan + Sub
Standard Loan + Doubtful Loan + Bad Loan)

Loan Loss Provision Ratio = ˟100%
Total Loan∧ Advance
Where,
C. Management Efficiency Ratio

Management is a systematic arrangement of various thins is a systematic manner for the
achievement of organization goals. An institution can take desired goals only when the
management is capable, which is of strong and long term vision. For the achievement of
the goals of the bank certain period of the time proper and efficient management is
required, for which the bank should have the following qualities:
 Qualitative human resources management
 Adequate management expenses
 Perfect Structure of management team
27
 Fair decision making capacity

 Perfect working environment
Net Profit After Tax

Management Efficiency Ratio = Total number of Staff
E. Earnings Ratio
Earning means excess of revenue over cost, so excess revenue earned by any organization
in the course of operation is known as profit. It is the ultimate result of any business.
Generally, if the earnings are good then that the business is running well. Similarly the
aggregate performance of the bank reflects from its earning. Earning is the ultimate result
of any business. Generally higher earnings reflect better financial position. Similarly the
aggregate performance of the bank reflects from its earning.
Earnings Per Share (EPS) =
No of Outstanding Shares
Net Income After Tax

Return on Equity (ROE) =
Total Equity
˟100%

Return on Assets (ROA) = ˟100%
Total Assets
F. Liquidity Ratio
A measure of the extent to which a person or organization has cash to meet immediate
and short-term obligations, or assets that can be quickly converted to do this. Liquidity is
the term which denotes the ability of the organization to meet its financial obligation or
debts in cash in time. Liquidity refers to the short term financial position of the bank.
Bank does not provide all its deposits at loans and advances, but certain percentage is
kept as a liquidity in the bank itself or elsewhere. Basically bank measures liquidity
through three methods. They are as follows

Loan to Deposit Ratio = ˟100
Total Deposit
Cash∧Equivalent
Cash and Equivalent to Total Assets Ratio = ˟100%
Total Assets
28
Cash∧Equivalent
Cash and Equivalent to Total Deposit Ratio = ˟100%
Total Deposit
Cash Balance with NRB

Cash Balance with NRB to Total Deposit Ratio = ˟100%
Total Deposit
Descriptive Statistical Tools
A descriptive statistic is a summary statistic that quantitatively describes or summarizes

features from a collection of information, while descriptive statistics the process of using
and analyzing those statistics. Descriptive statistics is distinguished from inferential
statistics by its aim to summarize a sample, rather than use the data to learn about
the population that the sample of data is thought to represent . Some measures that are
commonly used to describe a data set are measures of central tendency and measures of
variability or dispersion. Measures of central tendency include
the mean, median and mode, while measures of variability include the standard
deviation (or variance), the minimum and maximum values of the variables. Descriptive
statistical tools which use for the analysis are given below:
Arithmetic Mean: - Arithmetic Mean of a given set of observations is the sum of the
observation divided by the number of observations. In such a case all the items are
equally important. Simple Arithmetic Mean is used in this study as per necessary for
analysis. The arithmetic mean is the most commonly used and readily understood
measure of central tendency in a data set. In statistics, the term average refers to any of
the measures of central tendency. The arithmetic mean of a set of observed data is defined
as being equal to the sum of the numerical values of each and every observation, divided
by the total number of observations.
We have,
ƩX
Mean ( X ) =
N
Where,
ƩX = Sum of all values of observation
N = Number of observation
29
X = Value of variables
Standard Deviation: - The standard deviation usually denoted by the letter Sigma. Karl
Pearson suggested it as a widely used measure of dispersion and is defined as the given
observations from their arithmetic mean of a set of value. It is also known as root mean
square deviation. Standard deviation, in this study h as been used to measure the degree of
fluctuation of interest rate and that of other variables as per the necessity of the analysis.
We have,
Standard Deviation ( σx) =

√ Ʃ[ X 1 – X 1]2
n−1
Where,
X1 = Expected return of the historical data
n = Number of observation
Independent Sample T-test
The Independent Samples T-test compares the means of two independent groups in order
to determine whether there is statistical evidence that the associated population means are
significantly different. The Independent Samples T-test is a parametric test. The
independent sample T-test commonly used to statistical differences between the means of
two groups. Recall that the Independent Samples T-Test requires the assumption
of homogeneity of variance i.e. both groups have the same variance. SPSS conveniently
includes a test for the homogeneity of variance, called Levene's Test, whenever run an
independent samples T- test.
30
CHAPTER IV
RESULT AND DISCUSSION
Introduction
This chapter deals with the presentation and analysis of data collected from different
sources with the focus on the CAMEL components. As stated in the theoretical
prescription, the financial performance analysis of Joint venture and private owned
commercial bank they are Nepal SBI Bank Limited(NSBI), Standard Chartered Bank
Limited (SCBL), Everest Bank Limited (EBL), Laxmi Bank Limited (LBL), Sanima
Bank Limited (SBL), Machhapuchchhre Bank Limited (MBL) are concentrated in the
five components of CAMEL i.e. Capital Adequacy, Assets Quality, Management Quality,
Earning Quality and Liquidity. The data collected from annual reports of respective banks
and documented in Excel table and SPSS software have been analyzed and arrived at the
findings on the financial conditions of above mentioned banks in terms of CAMEL
analysis. Specifically, the chapter includes analysis and interpretation of Ratio Analysis,
Descriptive Analysis and Independent T Test.
Ratio Analysis
Capital Adequacy Ratio
Capital Adequacy is one of the eminent demonstrators that reflect the inner strength of a
bank. Capital adequacy ratio (CAR) is also known as capital-to-risk weighted assets ratio.
This ratio is used to protect depositors from potential losses and promote the stability and
efficiency of financial systems around the world. It measures the percentage of bank's
capital to risk-weighted credit exposures. For computation of the capital adequacy ratio,
capital is classified as Tier-1 and Tier-2 capitals. Tier-1 capital comprises the equity
capital and free reserves, while Tier-2 capital consists of unsecured subordinated debt
with an original maturity of at least five years. The higher the capital adequacy ratio, the
stronger the bank although a very high CAR indicates that the bank is conservative and
has not utilized the full potential of its capital. Realizing the importance of capital
adequacy, Nepal Rastra Bank (the central bank of Nepal) has directed each of the banks
in Nepal to meet the capital adequacy standard of 10% according to the norm fixed on the
basis of the recommendations of Basel Committee. As a result of this direction, almost all
31
banks in Nepal try to adhere to this norm thus compute the ratios of capital adequacy. It is
calculated as following formula:
Total Capital Fund

Capital Adequacy Ratio = ˟ 100%
Total Risk Weighted Assets
Where,
Total Capital Fund = Tier I Capital + Tier II Capital
Total Risk Weighted Assets = On Balance Sheet Risk Weighted Item + Off Balance
Sheet Risk Weighted Item
Table 2.
Capital Adequacy Ratio (CAR) (in%)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 14.03 13.49 15.71 15.15 14.12 15.55
SCBL 13.1 16.38 21.08 22.99 19.69 18.51
EBL 13.33 12.66 14.54 14.2 13.74 13.38
LBL 10.81 11.51 13.58 12.43 11.83 13.02
SBL 11.08 12.36 15.57 12.41 13.49 13
MBL 12.24 12.36 16.82 15.36 12.79 13.02

Sources : Annual report of Banks complied by MS-Excel
As shown in the table 2. Capital Adequacy Ratio of Standard Charter Bank Limited
(SCBL) is highest as compare to the all sample bank. Laxmi Bank Limited (LBL) has
lowest Capital Adequacy Ratio as compare to the all sample banks. 22.99% is the highest
Capital Adequacy Ratio of SCBL in FY 2074/75 and 10.81% is the lowest Capital
Adequacy Ratio of LBL in FY 2071/72. Higher the Capital Adequacy Ratio shows the
stronger bank. In the above table 2 shown Joint venture commercial bank has higher
Capital Adequacy Ratio rather than private owned commercial bank.
Assets Quality Ratio
Commercial bank holds their assets in the form of liquid assets like cash and bank
balance and short term investment etc. Through this lending bank generated interest.
32
Assets quality ratio is also known as activity ratio as well as turnover ratio be converted
in to cash and equivalent to cash. This is only profit if the bank is efficient enough to earn
profit. For identifying the assets quality we need to calculate three ratios. They are:
Non-Performing Loan Ratio
Non-Performing loan refers to those loans which are not paying its Principle + Interest in
time or overdue more than three months. So, it consists of Sub-standard loan, Doubtful
loan and Bad Loan. The non-performing loan ratio indicated the relationship between
non-performing loan and total loan; it measures the proportion of non-performing loan in
total loan and advance. Higher non-performing loan ratio indicates that the bank's assets
are not doing well or the loan department is not so conscious while passing loan. So,
lower ratio will be preferred regarding Non-performing Loan Ratio. Non-Performing
Loan Ratio of six banks during the study period in numerical terms which is presented
below:
Non-performing Loan Ratio = Total Loan∧ Advance ˟100%
Where,
Table 3.
Non-Performing Loan Ratio (NPLR) (in %)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 0.19 0.14 0.1 0.2 0.2 0.23
SCB 0.34 0.32 0.19 0.18 0.15 0.44
EBL 0.66 0.38 0.25 0.2 0.16 0.22
LBL 1.3 0.8 0.93 1.29 1.11 1.04
SBL 0.07 0.019 0.01 0.03 0.08 0.45
MBL 0.64 0.55 0.38 0.44 0.37 0.52

33
Table no.3 represents the ratio of six different commercial bank from fiscal year 2071/72
to 2076/77. Non performing Loan Ratio of Nepal SBI Bank Limited has not more
fluctuated as compare to the other banks. Nonperforming Loan Ratio of NSBI is in
decreasing way which is good sign of bank. Laxmi Bank Limited (LBL) Non performing
Loan Ratio is fluctuating not in a constant way of 0.34%, 0.32%, 0.19%, 0.18%, 0.15%
and 0.44% which is not good for the bank performance. In the above table shown FY
2071/72 to FY 2075/76 Non performing Loan Ratio is in decreasing way but FY 2076/77
Non performing Loan Ratio is increase as compare to last FY due to Covid-19.
Nonperforming Loan Ratio of joint venture banks is at satisfactory level as compare the
private owned commercial bank.
Loan Loss Coverage Ratio
Loan Loss Coverage Ratio is the relationship between Total Loan Loss Provision and
Total Non Performing Loan. It measures the proportion of Total Loan Loss Provision in
relation to Total Non Performing Loan. Out of the Total non Performing if some loans
becomes bad or default then that loss to the bank is covered from the Loan Loss Provision
Fund. So, from that point of view, higher the loan loss coverage ratio is better for the
banks. Loan Loss Coverage Ratio of six banks during the study period in numerical terms
which is presented below:

Loan Loss Coverage Ratio = ˟100%
Where,
34
Table 4
Loan Loss Coverage Ratio (LLCR) (in %)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 657.59 860 1132.97 858.31 628 989
SCB 371.1 336 514 634 737.1 430.2
EBL 239.96 361.7 501.2 548.2 589 682.7
LBL 142.8 223.4 173.98 55.04 55.68 59.04
SBL 1556.98 5809.73 11594.74 4082.1 47 58.54
MBL 251.2 247.6 356.9 68.71 60.31 75.44

The Table shows total loan loss coverage ratio of Nepal SBI Bank Limited(NSBI),
Standard Chartered Bank Limited (SCBL), Everest Bank Limited (EBL), Laxmi Bank
Limited (LBL), Sanima Bank Limited (SBL), Machhapuchchhre Bank Limited (MBL)
over the time period of 2071/72 to 2076/77. It gives clear picture of the total Loan Loss
Coverage Ratio of both Joint venture banks and private owned banks respective in years.
We can easily see here, that the loan loss coverage ratio of NSBI bank started from FY
2071/72 is 657.59 % and it is rise FY 2076/77 989% which is good sign for the bank.
Here, Loan Loss Coverage Ratio of SCB in FY 2071/72 is 371.1% and this is continually
raise until FY 2075/76 is 737.1% then FY 2076/77 fall 430.2% and this is also good for
the bank performance. EBL Loan Loss Coverage Ratio is best as compare to the other
banks because ratio is continually increased in every fiscal year. LBL Loan Loss
Coverage Ratio increased from FY 2071/72 to FY 2073/74 then this is decreased from FY
2074/75 to FY 2076/77. Again SBL and MBL Loan Loss Coverage Ratio also increased
from FY 2071/72 to 2073/74 then decreased from FY 2074/75 to FY 2076/77. As
35
compare to these six bank joint venture commercial bank performance is good as
compare the private owned commercial banks.
Loans Loss Provision Ratio
Loan loss provision is the sum of amount that banks are required to set or kept for
potential loan loss. Loan loss provision is deductible expenses. It is deducted from
interest income. It is a provision set by a bank to cover unpredictable loss caused due to
default of the loan amount. This ratio shows how much the bank needs to set the
provision to cover the loss of default loan in the future from the loan released by the bank.
Lower the loan loss provision significant that the bank has higher volume of good loan
and higher non-performing loan. Loan loss provision is the whole amount of provision set
aside to cover the loss then Loan Loss Provision to Nonperforming Loan as
Nonperforming Loan is lower we can say that quality of loan is better. But if Loan Loss
Provision to Total Loan is higher hen we can say that the quality of loan is good but at
least we are in safe position as it has more provision for losses from loan. Loan Loss
Provision Ratio of six commercial banks during the study period in numerical terms
which is presented below:

Loan Loss Provision Ratio = ˟100%
Where,
36
Table 5
Loan Loss Provision Ratio (LLPR)%
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 1.22 1.19 1.14 1.15 1.39 2.12
SCB 0.01 0.011 0.009 0.012 0.011 1.87
EBL 1.6 1.38 1.27 1.37 1.4 1.5
LBL 1.86 1.8 1.61 0.72 0.062 5.28
SBL 1.13 1.08 1.12 2.011 0.038 0.26
MBL 1.6 1.32 1.34 0.306 0.226 0.39

Table no. 5 represents the ratio of six different commercial bank from FY 2071/72 to FY
2076/77. Loan Loss Provision Ratio is the amount set aside for potential loss of the total
lend amount or loan and advances. Higher provision banks maintains here lower fund it
has to utilize as these also includes provision for good loan which is just hold and
unutilized. So lower loan loss provision is preferred in financial institutions. Here, Loan
Loss Provision Ratio of NSBI bank from FY 2071/72 to 2075/76 is in decreasing stage
and FY 2076/77 is slightly increased. SCB Loan Loss Provision Ratio from FY 2071/72
to FY 2076/77 is 0.01%, 0.011%, 0.009%, 0.012%, 0.011% and 1.87%.
Again, EBL Loan Loss Provision Ratio is continually increase from FY 2071/72 to FY
2076/77 which is not a good sign for the bank performance. Laxmi Bnak Limited Loan
Loss Provision Ratio set at 5.28% in FY 2076/77 is highest, and FY 2075/76 is 0.062%
which is lowest ratio. Sanima Bank Limited and Machhapuchhare Bank Limited Loan
Loss Provision Ratio is also slightly decreased from FY 2071/72 to FY 2076/77.
Management Efficiency Ratio
The success of any institution depends on the competency of its management. In fact, the
management not only makes suitable policy and the business plans but also implements
37
them for the short term and the long term interests, which helps to achieve aimed
objectives of bank and financial institution's. It is evaluated by checking the effectiveness
of the board of directors, the management, manpower and the officials, operating
expenditure, customer's relation with the officials and institution, management
information system, organization and working method, internal control system, power
concentration, monitoring, decision making process, policies. Management includes the
activities of setting the strategy of an organization and coordinating the efforts of its
employees or volunteers to accomplish its objectives through the application of available
resources, such as financial, natural, technological, and human resources. The term
"management" may also refer to the people who manage an organization.
Management Efficiency Ratio can be done by using the following formula:

Management Efficiency Ratio = Total number of Staff
Table 6
Management Efficiency Ratio (In Rs.)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 1787645 1961697 2003712 2323205 2227915 1537199
SCB 2979274 2971252 2871912 4515254 4585056 3708273
EBL 2262000 2341282 2682150 3088136 3450985 2898898
LBL 924479 1374822 1560478 1574788 1561959 1282062
SBL 1503955 2128572 2217767 1969262 2347264 1656964
MBL 1032451 1354786 1755369 1311321 1420158 851380

In the above table shown six commercial banks over the six year study period. As shown
in the above table Management Efficiency Ratio calculated by the total net profit after tax
is divided by total no of staff. Management Efficiency Ratio of Nepal SBI Bank started
with Rs. 1787645 in FY 2071/72 then increases till FY 2074/75 after that decreases FY
2076/77 Rs. 1537199. Overall Management Efficiency Ratio of NSBI is increases.
38
Similarly, Management Efficiency Ratio of Standard Charter Bank continuously increase

from FY 2071/72 to 2075/76 then it decrease in FY 2076/77. Everest Bank Management
Efficiency Ratio is started with Rs. 2262000 in FY 2071/72 then increases till 2075/76
after that decreases in Fy 2076/77 Rs. 2898898. Likewise, Management Efficiency Ratio
of Laxmi Bank Limited have same line of ratio which is continuously increase from FY
2071/72 to FY 2075/76 then after decreases FY 2076/77. Again, SBL and MBL
Management Efficiency Ratio are continuously increase from FY 2071/72 to 2073/74
then decrease in FY 2074/75 and again increase in FY 2075/76 then after decreases in FY
2076/77. These shown the Management Efficiency Ratio of joint venture bank is in
highly increasing stage as compare to the private owned commercial banks.
Earnings and Profitability Ratio
Earnings are the net benefits of a corporation's operation. Earnings are the amount of
profit that a company produces during a specific period, which is usually defined as a
quarter (three calendar months) or a year. Earnings are also the amount on which
corporate tax is due. For an analysis of specific aspects of corporate operations several
more specific terms are used as EBIT - earnings before interest and taxes, EBITDA -
earnings before interest, taxes, depreciation, and amortization. Many alternative terms for
earnings are in common use, such as income and profit. These terms in turn have a variety
of definitions, depending on their context and the objectives of the authors. Every quarter,
analysts wait for the earnings of the companies they follow to be released. Earnings are
studied because they represent a direct link to company performance.
Earnings Per Share
Earnings per share are a commonly cited ratio used to show the company's profitability
on a per-share basis. It is also commonly used in relative valuation measures such as the
price-to-earnings ratio. The price-to-earnings ratio, calculated as price divided by
earnings per share, is primarily used to find relative values for the earnings of companies
in the same industry. A company with a high price compared to the earnings it makes is
considered overvalued. Likewise, a company with a low price compared to the earnings it
makes is undervalued. It is calculated as follows:

Earnings Per Share (EPS) =
No of Outstanding Shares
39
Table 7
Earnings per Share(EPS) (Rs.)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 34.48 36.78 33.46 25.16 27.13 17.23
SCB 57.38 45.96 35.49 27.33 30.39 24.81
EBL 78.04 40.33 32.48 32.78 38.05 29.71
LBL 19.42 27.15 21.77 14.37 17.82 14.39
SBL 24.47 32.55 26.31 21.22 28.22 20.18
MBL 22.2 25.04 24 15.81 21.07 14.36

The above table presented of the Earning per Share Ratio over the period of time. The
total net profit after tax is divided by total no of shares to get the Earning Per Share Ratio.
As shown in the above table, we can easily see here, Earning Per Share Ratio of NSBI
bank stared Rs. 34.48, 36.78, 33.46, 25.16, 27.13 and 17.23. Earnings Per Share Ratio of
SCB continuously decreasing stage. In FY 2071/72 EPS is Rs 57.38 and FY 2076/77 is
Rs. 24.81 and this is not a good performance of Standard Charter Bank.
Similarly, Earning Per Share Ratio of EBL started in FY 2071/72 is Rs.78.04 then this is
continuously decreases Rs 40.33, 32.48, 32.78, 38.05 and 29.71. Again, Laxmi Bank
Limited Earning Per Share Ratio in FY 2071/72 Rs. 19.42, FY 2072/73 is 27.15, FY
2073/74 is 21.77, FY 2074/75 is 14.37, FY 2075/76 is 17.82 and FY 2076/77 is 14.39.
Here, SBL and MBL Earning Per Share Ratio are increases in FY 2071/72 then increase
and decrease in every fiscal year.
Return on Equity
Return on equity (ROE) is the amount of net income returned as a percentage of

shareholders equity. Return on equity measures a corporation's profitability by revealing
how much profit a company generates with the money shareholders have invested. This
ratio denotes how much of the shareholders' fund is mobilized towards earning profit. The
40
higher the ratio the better it is for the bank. Return on equity (ROE) is a measure of
financial performance calculated by dividing net income by shareholders' equity. Because
shareholders' equity is equal to a company’s assets minus its debt, ROE is considered the
return on net assets. ROE is considered a measure of a corporation's profitability in
relation to stockholders’ equity. It is calculated as follows:

Return on Equity (ROE) =
Total Equity
˟100%
Table 8
Return on Equity (ROE) (In %)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 17.08 17.46 14.85 15.81 16.2 10.44
SCB 21.69 17.18 11.98 18.66 19.49 15.15
EBL 22.84 18.37 16.03 16 17.32 13.5
LBL 10.38 12.92 11.28 10.57 12.57 10.1
SBL 18.19 22.69 14.39 18.67 23.2 16.09
MBL 16.15 16.8 15.86 12.07 15.1 10.92

As shown in the above table, Return on Equity of Nepal SBI Bank started in FY 2071/72
is 17.08% then increase in FY 2072/73 is 17.46%, unlikely decrease in FY 2073/74 is
14.85%, again increase in FY 2074/75 and FY 2075/76, at last decreases in FY 2076/77 is
10.44%. As shown increase the Return on Equity overall year which is good sign for the
bank performance. Here, Return on Equity of Standard Charter Bank from FY 2071/72 to
2076/77 is 21.69%, 17.18%, 11.98%, 18.66%, 19.49% and 15.15% and the ratio is in
fluctuating each year.
41
Similarly, Return on Equity of EBL started in FY 2071/72 is 22.84%, unlikely ratio is

continuously decrease from FY 2072/73 to 2076/77 is 18.37%, 16.03%, 16%, 17.32% and
13.5%. Again Laxmi Bank Limited Return on Equity is also in increasing stage from FY
2071/72 to 2076/77. Here, Return on Equity of SBL and MBL fluctuating not a constant
way From FY 2071/72 to FY 2076/77.
Return on Assets
The term ROA is return on total assets. Major assets of banks are loan and advances,
Return on Assets reveals how efficiently the total recourses have been utilized and
measured the return on assets productive sectors that can generate profit for the banks.
Higher Return on Assets shows the better utilization and management on the assets and
extend profit level. This ratio depicts how efficiently a bank is utilizing and mobilizing its
assets to generate profit. Return on Assets 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, Return on Assets is displayed as a percentage. Sometimes this
is referred to as "return on investment". It is calculated as follows:

Return on Assets (ROA) = ˟100
Total Assets
Table 9
Return on Assets (ROA) (in %)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 1.64 1.59 1.57 1.97 1.94 1.17
SCB 1.99 1.98 1.84 2.61 2.61 1.71
EBL 1.85 1.59 1.83 1.97 1.94 1.42
LBL 1.04 1.35 1.52 1.55 1.66 1.2
SBI 1.55 1.78 1.86 1.85 2.07 1.41
MBL 1.26 1.51 1.89 1.47 1.61 1.02

42
Table no. 9 shown six commercial banks over the six years study period. As shown in the
table Return on Assets of Nepal SBI Bank Limited started by 1.64% in FY 2071/72,
decrease there after in the FY 2072/73 and 2073/74 by 1.59% and 1.57% and increases in
FY 2074/75 and 2075/75 by 1.97% and 1.94% and then decreased in FY 2076/77 by
1.17%. Overall, Return on Assets of NSBI bank is in increasing stage.
Similarly, Return on Assets of Standard Charter Bank is in continually increasing stage
from FY 2071/72 to 2076/77 by 1.99%,1.98% 1.84%, 2.61%, 2.61% and 1.71%. Here,
Return on Assets of EBL started with 1.85% in FY 2071/72, then decreases till FY
2072/73 and reached to 1.83% in the FY 2073/74, there after increase from FY 2074/75
to 2075/76 by 1.97% and 1.94%, then decreases by 1.42% in FY 2076/77. Overall, Return
on Assets of EBL also is in increasing trend.
Likewise, Return on Assets of Laxmi Bank Limited also in increasing stage from FY
2071/72 to 2076/77 by 1.05%,1.35%, 1.52%,1.55%, 1.66% and 1.22%. Here, Sanima
Bank Limited and Machhapuchhere Bank Limited Return on Assets also in increasing
stage from FY 2071/72 to FY 2076/77 whish show the good performance of the bank.
Liquidity Ratio
Liquidity describes the degree to which an asset or security can be quickly bought or sold
in the market without affecting the asset's price. Market liquidity refers to the extent to
which a market, such as a country's stock market or a city's real estate market, allows
assets to be bought and sold at stable prices. Cash is the most liquid asset, while real
estate, fine art and collectibles are all relatively illiquid.
Liquidity for a bank means the ability to meet its financial obligations as they come due.
Bank lending finances investments in relatively illiquid assets, but it funds its loans with
mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its
own liquidity under all reasonable conditions. Liquidity is short- run solvency of a firm. It
reflects the short term financial strength of banks. Bank does not provide all deposit at
loan and advances. The certain percentage of deposit should be kept in bank in the form
of cash. It the bank will keep greater deposit in cash, it losses the opportunity cost.
Similarly, if bank keeps low amount in deposit, it could not be able to pay depositors on
the time of requirement.
Loan to Deposit Ratio
Loan-deposit ratio (LTD ratio or LDR) is a ratio between the banks total loans and
total deposits. The ratio is generally expressed in percentage terms. If the ratio is lower
than one, the bank relied on its own deposits to make loans to its customers, without any
43
outside borrowing. If on the other hand the ratio is greater than one, the bank borrowed
money which it reloaded at higher rates, rather than relying entirely on its own deposits.
Banks may not be earning an optimal return if the ratio is too low. If the ratio is too high,
the banks might not have enough liquidity to cover any unforeseen funding requirements
or economic crises. Banking analysts commonly used metric for assessing a bank's
liquidity. It is calculated as followed:
Loan to Deposit Ratio = ˟100
Total Deposit
Table 10
Loan to Deposit Ratio (in%)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 78.39 72.9 78.06 89.6 90.52 85.5
SCB 48.92 56.88 62.2 66.45 70.11 56.75
EBL 66.63 75.14 84.05 81.86 87.01 83.52
LBL 78.91 83.81 89.2 93.79 95.3 91.53
SBL 83.97 88.1 89.03 87.45 90.42 85.1
MBL 78.77 84.59 88.47 89.78 87 88.56

As shown in the above table represents the Loan to Deposit Ratio of the six sample
commercial bank. Loan to Deposit Ratio of NSBI Bank is continually increased in every
fiscal year. It is started by 78.39% in FY 2071/72 thereafter decrease by 72.9% in FY
2072/73, and this is continually increase from FY 2073/74 to 2076/77 by 78.06%,
89.6%,90.52% and 85.5%. Likewise, Loan to Deposit Ratio of SCB from FY 2071/72 to
2076/77 is 48.92%,56.88%, 62.2% ,66,45%, 70.11% and 56.75%. Similarly, Loan to
Deposit Ratio of EBL started by 66.63% in FY 2071/72, increase there after till FY
2072/73 and FY 2073/74 by 75.14% and 84.86%, decrease in FY 2074/75 by 81.86%,
44
increase in FY 2075/76 is 87.01% and decrease in FY 2076/77 is 83.52%. Here LBL

Loan to Deposit Ratio also is in increasing stage from FY 2071/72 to 2076/77. This is
shown the good performance of the bank. Again, Loan to Deposit Ratio of SBL and MBL
also continually increase in every fiscal Year. In the above table shown the private owned
commercial bank is better as compare to the joint venture bank.
Cash and Equivalent to Total Assets Ratio
The Cash and Equivalent to Total Assets Ratio is a measure of the proportion of a
company's Assets that are made up of Cash and Short Term Investments. It is calculated
as Cash divided by Total Assets. It is measured using the most recent Balance Sheet
available. This ratio is more commonly used to analyze funds and investment trusts. If a
fund has a high proportion of its Assets sat in Cash, this is an indication that the manager
is not investing all available funds. It is calculated as follows:
Cash∧Equivalent
Cash and Equivalent to Total Assets Ratio = ˟100%
Total Assets
Table 11
Cash and Equivalent to Total Assets Ratio (in %)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 2.96 2.29 2 10.22 6.97 11.41
SCB 1.21 1.23 1.05 26.53 13.71 33.71
EBL 2.08 10.23 7.4 6.95 4.56 5.21
LBL 1.51 1.87 1.92 7.45 9.74 7.31
SBL 1.71 1.22 1.29 4.93 4.25 4.11
MBL 4.3 3.54 2.85 2.79 8.97 7.85

The above table represented Cash and Equivalent to Total Assets Ratio of six commercial
banks. Cash and Equivalent to Total Assets Ratio of Nepal SBI Bank started by 2.96% in
45
FY 2071/72, decrease in FY 2072/73 is 2.29%, decrease in FY 2073/74 is 2%, increase

from FY 2074/75 to 2076/77 is 10.22%, 6.97%, and 11.41%. Likely Cash and Equivalent
to Total Assets Ratio of SCB from FY 2071/72 to 2076/77 is 1.21%, 1.23%, 1.05%,
26.53%, 13.71% and 33.71%. EBL have Cash and Equivalent to Total Assets Ratio from
FY 2071/72 to 2076/77 is 2.08%, 10.23%, 7.4%, 6.95%, 4.56%, and 5.21%.
Similarly, Cash and Equivalent to Total Assets Ratio of Laxmi Bank Limited is started
1.51% in FY 2071/72, thereafter continuously ratios are increase from 2072/73 to
2076/77 by 1.87%, 1.92%, 7.45%, 9.74%, and 7.31%. Again, Cash and Equivalent to
Total Assets Ratio of SBL and MBL also increasing stage from fiscal year 2071/72 to FY
2076/77.
4.2.5.3 Cash and Equivalent to Total Deposit Ratio
Cash and bank balance are the most Liquid Assets, so this ratio measures
the bank’s ability to immediately fund the withdrawal of their depositors. A high ratio
represents a greater ability to cover their deposits and vice versa. This ratio is determined
by dividing cash and bank balance by total deposits. Symbolically Cash and Bank
Balance to Total Deposit Ratio = Cash and bank balance/Total Deposit. A
higher ratio shows the higher and greater ability of the bank to meet unexpected demand
of the depositors. On the contrary lower ratio indicates that bank might face liquidity
crunch while paying obligations. It can be calculated as follows:
Cash∧Equivalent
Cash and Equivalent to Total Deposit Ratio = ˟100%
Total Deposit
46
Table 12
Cash and Equivalent to Total Deposit Ratio (In %)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 3.39 2.76 2.43 12.46 8.41 11.41
SCB 1.37 1.14 1.27 32.87 16.67 41.3
EBL 2.48 12.45 9.11 8.71 5.98 6.72
LBL 1.72 2.14 2.31 9.65 12.98 9.58
SBL 2.03 1.47 1.56 5.82 5.12 4.82
MBL 4.74 4.03 3.35 3.3 11.08 9.39

Sources: Annual Report of sample banks
Table no. 12 shown six commercial banks over the six years study period. As shown in
the table Cash & Bank Balance Ratio of NSBI started by 3.39% in FY 2071/72, decreased
there after till 2072/73 by 2.76% and decreases in FY 2073/74, again increased in FY
2074/75 is 12.46%, decrease in FY 2075/76 and reached to 11.41% in FY 2076/77.
Overall, Cash & Bank Balance Ratio of Nepal SBI Bank increases. Likewise, Cash and
Equivalent to Total Deposit Ratio of Standard Charter Bank from FY 2071/72 to 2076/77
is 1.37%, 1.14%, 1.27%, 32.87%, 16.67% and 41.3%. Again, Cash and Equivalent to
Total Deposit Ratio of Everest Bank Limited is started in FY 2071/72 is 2.48%, increase
in FY 2072/73, thereafter decrease till FY 2073/74 to 3076/77 by 9.11%, 8.71%, 5.985
and 6.72%.
Similarly, Cash & Bank Balance Ratio of LBL started with 1.72% in FY 2071/72, then
increases in FY 2072/73, after that increases in FY 2073/74 and again increases in FY
2074/75, and continually increases in every fiscal year. Overall Cash & Bank Balance
Ratio of LBL is slightly increasing.
Likewise, Cash & Bank Balance Ratio of SBL stared with 2.03% in FY 2071/72,
decreases in FY 2072/73 and FY 2073/74 is increases, after that increases in FY 2074/75
to 2076/77. This also shows the increasing trend in overall. Again, Cash and Equivalent
to Total Deposit Ratio of MBL fluctuating not in a constant way.
47
Cash Balance with NRB to Total deposit Ratio

Cash Balance with NRB to Total Deposit ratio (CBNRBR) to measure the liquidity
position of commercial banks. Regulatory body of Nepalese bank and financial
institution, NRB impose rules to deposit certain percentage amount of total collected
deposit by the every bank and financial institutions has to be maintain on NRB's account.
To meet the same regulation, every bank and financial institution most have to deposit
certain at least 3% fund on NRB account. The portion of fund that has maintain on NRB
account from the total collected deposit is called cash balance with NRB to total deposit.
The following table indicates the balance maintained by six commercial bank with NRB
and total amount of deposit collected on different bank account. It is calculated as
follows:
Cash Balance with NRB

Cash Balance with NRB to Total Deposit Ratio = ˟100%
Total Deposit
Table 13
Cash Balance with NRB to Total Deposit Ratio (in %)
Fiscal Year
Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77
NSBI 9.03 9.86 8.95 6.7 9.5 6.86
SCB 16.24 2.72 11.07 5.9 3.24 2.08
EBL 20.61 14.24 15.33 16.39 17.98 13.91
LBL 9.87 7.82 6.91 5.27 5.98 9.6
SBL 2.02 5.54 9.04 7.2 3.11 4.97
MBL 10.44 7.28 9.32 9.96 3.78 4.37

48
The above table represents the Cash Balance with NRB to Total Deposit Ratio of six
commercial bank in nepal. Cash Balance with NRB to Total Deposit Ratio of Nepal SBI
Bank started with 9.03% in FY 2071/73, increase in FY 2072/73 is 9.86%, thereafter
continually decrease from FY 2073/74 to 2076/77. Likewise, Cash Balance with NRB to
Total Deposit Ratio of SCB from FY 2071/72 to 2076/77 is 16.24%,
2.72%,11.07%,5.9%, 3.24%, and 2.08%. Everest Bank Limited Cash Balance with NRB
to Total Deposit Ratio is high as compare to the other commercial bank. It is stared from
FY 2071/72 to 2076/77 is 20.61%, 14.24%, 15.33%,16.39%, 17.98% and 13.91%.
Similarly, Cash Balance with NRB to Total Deposit Ratio of Laxmi Bank Limited started
in FY 2071/72 is 9.87%, decrease in FY 2072/73 to 2075/76, thereafter increase in FY
2076/77 by 9.6%. Here, Cash Balance with NRB to Total Deposit Ratio of Sanima Bank
Limited is 2.02%, 5.54%, 9.04%, 7.2%, 3.11%, and 4.97% from FY 2071/72 to 2076/77.
Again, Cash Balance with NRB to Total Deposit Ratio of MBL started in FY 2071/72 is
10.44%, decrease in FY 2072/73 is 7.28%, increase in FY 2073/72 to 207475, thereafter
decrease in FY 207576 and FY 2076/77 is 3.78%, and 4.37%.
Descriptive Statistics
Descriptive Statistics contain certain measures, such as measures of dispersion or
variability (standard deviation, minimum variable, maximum variable, range) and central
tendency (mean) that are used to describe a data set.
The measure of central tendency defined as the sum of all values in a data set divided by
the total number of values in that data set. Standard Deviation is the measure of
dispersion of data from its mean. It is calculated by taking the square root of the whole
equation in which the sum of squared deviations from the mean of data is divided by the
total number of values in a data set minus one. A higher standard deviation shows a
higher dispersion of data from its mean and vice versa. Maximum Variable is the highest
value in the data set. Minimum Variable is the lowest value in the data set. Which can
show in the table below:
49
Table 14
Comparison of Financial Performance of Joint Venture Bank and Other Private
Owned Commercial Bank On the basis of CAMEL Framework
Veriables Banks N Mean Std. Deviation Minimum Maximum

CAR JVB 18 15.65 2.98 12.66 22.99
OPOB 18 12.98 1.56 10.81 16.82
NPLR JVB 18 0.25 0.13 0.10 0.66
OPOB 18 0.56 0.44 0.01 1.30
18
LLCR JVB 615.06 236.87 239.96 1132.97
18
OPOB 1384.40 3001.59 47.00 11594.74
18
LLPR JVB 1.04 0.70 0.01 2.12
18
OPOB 1.23 1.20 0.04 5.28
18 1537199.0
MER JVB 2788658.06 859518.09 0 4585056.00
18
OPOB 1545990.94 420783.67 851380.00 2347264.00
18
EPS JVB 35.94 13.72 17.23 78.04
18
OPOB 21.69 5.17 14.36 32.55
18
ROA JVB 1.85 0.36 1.17 2.61
18
OPOB 1.53 0.29 1.02 2.07
18
ROE JVB 16.67 3.05 10.44 22.84
18
OPOB 14.89 3.99 10.10 23.20
18
LR JVB 74.14 12.35 48.92 90.52
18
OPOB 87.43 4.40 78.77 95.30
18
CETAR JVB 8.32 8.91 1.05 33.71
18
OPOB 4.32 2.80 1.22 9.74
18
CETDR JVB 10.05 10.93 1.14 41.30
18
OPOB 5.28 3.66 1.47 12.98
18
CBNRBTD JVB 10.59 5.50 2.08 20.61
18
OPOB 6.80 2.58 2.02 10.44
Sources: Annual report of Banks complied by MS-Excel
Note : JVB (Voint Venture Bank) and OPOB(Other Private Owned commercial Bank)
50
The above displayed table presented to describe mean, standard deviation, maximum and
minimum values of variables. The results in Table 14 shows the descriptive statistics
applied to the data of the banking industry of Nepal for the period 2071/72 to 2076/77.
Here, using six commercial bank out of them three joint venture bank and three private
owned commercial bank for data analysis.
Ratio of CAR shows that joint venture banks have higher mean than the private sector
banks average. Hence it can be seen that joint venture bank are performing better than the
private owned banks. Because mean value of joint venture bank is 15.65 and private
owned bank is 12.98, standard deviation of joint venture bank and private owned bank is
2.98 and 1.56, minimum value of joint venture bank and private owned bank is 12.66 and
10.81 and maximum value of joint venture bank and private owned bank is 22.99 and
16.82.
The Non-Performing Loan Ratio had mean value of joint venture bank and private owned
bank's are 0.25 and 0.56, standard deviation of joint venture bank and private owned bank
is 0.13 and 0.44, minimum value of joint venture bank and private owned bank is 0.10
and 0.01 and maximum value of joint venture bank and private owned bank is 0.66 and
1.30. The above result of NPLR show that joint venture bank perform better as compare
to the private owned commercial bank because low mean value of joint venture bank.
The mean of six year performance (2071/72 to 2076/77) of joint venture banks is 615.04
and private sector banks are 1384.40 in respect of Loan Loss Coverage Ratio. Standard
deviation of joint venture bank and private owned bank is 236.87 and 3001.59, minimum
value of joint venture bank and private owned bank is 239.96 and 47 and maximum value
of joint venture bank and private owned bank 1132.97 and 11594.74. The above result of
LLCR show that private owned bank performance better as compare to the joint venture
bank.
The Loan Loss Provision Ratio had mean value of joint venture bank and private owned
bank is 1.04 and 1.23, standard deviation of joint venture bank and private owned bank is
0.04 and maximum value of joint venture bank and private owned bank is 2.12 and 5.28.
The above result of LLPR show that low mean value of joint venture bank and then
performance also good of joint venture bank as compare to the private owned bank.
51
The Management Efficiency Ratio had mean value of joint venture bank and private
owned bank is 2788658.06 and 15459909.94, standard deviation of joint venture bank
and private owned bank is 859518.09 and 420783.67, minimum value of joint venture
bank and private owned bank 1537199 and 851380 and maximum value of joint venture
bank and private owned bank 4585056 and 2347264.
Earnings Per Share of joint venture banks have higher mean than the private sector banks
average. Hence it can be seen that joint venture bank are performing better than the
private owned banks. Mean of joint venture bank is 35.94 and private owned bank is
21.69, standard deviation of joint venture bank and private owned bank is 13.72 and 5.17,
minimum value of joint venture bank and private owned bank 17.23 and 14.36 and
maximum value of joint venture bank and private owned bank is 78.04 and 32.55.
Return on Assets of joint venture banks have higher mean than the private sector banks
average. Hence it can be seen that joint venture bank are performing better than the
private owned banks on the result of ROA. Mean of joint venture bank is 1.85 and private
owned bank is 1.53, standard deviation of joint venture bank and private owned bank is
1.02 and maximum value of joint venture bank and private owned bank is 2.61 and 2.07.
The Return on Equity had mean value of joint venture bank and private owned bank is
16.67 and 14.89, standard deviation of joint venture bank and private owned bank is 3.05
and 3.99, minimum value of joint venture bank and private owned bank is 10.44 and
23.20. The above results of ROE show that high mean value of joint venture bank then
performance also better of joint venture bank as compare to the private owned
commercial bank.
Loan to Deposit Ratio had mean value of joint venture bank and private owned bank is
74.14 and 87.43, standard deviation of joint venture bank and private owned bank is
12.35 and 4.40, minimum value of joint venture bank and private owned bank 48.92 and
95.30. In the above results of Loan to Deposit Ratio show that high mean value of private
owned bank. Because 80% of total deposit should use loan in private owned banks. So
52
that private owned commercial bank have good performance as compare to the joint
venture bank.
Cash and Equivalent to Total Assets Ratio had mean value of joint venture bank and
private owned bank is 8.32 and 4.32, standard deviation of joint venture bank and private
owned bank is 8.91 and 2.80, minimum value of joint venture bank and private owned
bank is 1.05 and 1.22 and maximum value of joint venture bank and private owned bank
is 33.71 and 9.74.
Cash and Equivalent to Total Deposit Ratio of joint venture bank have higher mean value
then private owned commercial bank. Hence it can be seen that joint venture bank are
perform better then private owned commercial bank on the result of CETDR. Mean of
joint venture bank is 10.05 and private owned bank have 5.28, standard deviation of joint
venture bank and private owned bank is 10.93 and 3.66, minimum value of joint venture
bank and private owned bank is 1.14 and 1.47 and maximum value of joint venture bank
and private owned bank is 41.30 and 12.98.
Cash Balance with NRB to Total Deposit Ratio of private owned bank have lower mean
value then joint venture commercial bank. Hence it can be seen that private owned bank
are perform better then joint venture bank. because CRR 3% of total deposit should be
deposit in NRB, if more than 3% is in NRB then bank will be loss. So that mean value
of private owned commercial is less as compare to the joint venture bank. Standard
deviation of joint venture bank and private owned bank is 5.50 and 2.58, minimum value
of joint venture bank and private owned bank is 2.08 and 2.02 and maximum value of
joint venture bank and private owned bank is 20.61 and 10.44.
Independent T-test Result

An independent sample t test was conducted to evaluate the hypothesis that joint venture
commercial banks have statistically significant different financial performance in term of
Capital Adequacy, Assets Quality, Management Efficiency, Earning, and Liquidity Ratio
(CAMEL) than other private owned commercial banks. The result of analysis is presented
in the table follows:
53
Test of Significance Difference in Capital Adequacy Ratio

Table 15
Group Statistics
Name of Bank N Mean Std. Std. Error
Deviation Mean
Joint Venture 18 15.65 2.98 .703
Capital Adequacy
Other Private
Ratio 18 12.98 1.56 .368
Owned
Table 16
Independent Samples Test
Levene's Test t-test for Equality of Means
for Equality of
Variances
F Sig. t df Sig. Mean Std. Error 95%
(2- Difference Difference Confidence
tailed) Interval of the
Difference
Lower Upper
Equal
variances 5.357 .027 3.358 34 .002 2.67 .794 1.052 4.26
Capital
assumed
Adequacy
Equal
Ratio
variances 3.358 25.680 .002 2.67 .794 1.032 4.29
not assumed
Table no 16 and independent sample test presents the result of independent sample t test
performed to examine whether capital adequacy ratio of joint venture commercial bank is
statistically different from other private owned commercial banks. Levene's t test of
equality of variance in independent sample t test table shows that there are evidences for
equal variance since p value of test is less than 0.05. Therefore to examine the equality of
mean we proceeds from second row of the table 16 p value of test of equality of mean is
less than 0.05 therefore there is evidence to reject null hypothesis. It indicates that joint
venture banks have higher capital adequacy ratio than other private owned commercial
banks.
54
Test of Significance Difference in Nonperforming Loan Ratio
Table 17
Group Statistics
Deviation Mean
Joint Venture 18 .25 .13 .032
Non Performing Loan
Other Private
Ratio 18 .56 .44 .11
Owned
Table 18
for Equality of
Variances
(2- Difference Differenc Confidence
tailed) e Interval of the
Difference
Lower Upper
Equal
-
variances 18.62 .000 34 .008 -.304 .108 -.54 -.08
Non 2.82
assumed
Performing
Equal
Loan Ratio -
variances 20.182 .011 -.304 .108 -.53 -.07
2.82
not assumed
An independent sample t test was conducted to evaluate the hypothesis that there is
significant difference between the Nonperforming Loan Ratio of joint venture bank and
other private owned commercial banks. In the table no.18 it can be seen that variance of
the two groups were significantly unequal as the p value of Levene's test of equality of
mean is less than 0.05. Therefore the output line equal variance not assumed was used to
test the mean difference in Nonperforming Loan Ratio. It can be observed in the table no.
18 that the p value of the t statistics of equality of means is less than 0.05. Therefore there
is evidence that mean difference is significant and joint venture banks have lower
Nonperforming Loan compare to other private owned commercial banks.
55
Test of Significance Different in Loan Loss Coverage Ratio
Table 19
Group Statistics
Deviation Mean
Joint Venture 18 615.06 236.87 55.83
Loan Losses
Other Private
Coverage Ratio 18 1384.34 3001.59 707.48
Owned
Table 20

for Equality of
Variances
F Sig. t df Sig. Mean Std. Error 95% Confidence
(2- Differenc Difference Interval of the
tailed) e Difference
Lower Upper
Equal
- -
variances 11.13 .002 34 .286 -769.34 709.68 672.90
Loan Losses 1.08 2211.58
assumed
Coverage
Equal
Ratio - -
variances 17.21 .293 -769.34 709.68 726.55
1.08 2265.23
not assumed
An independent sample t test was conducted to evaluate the hypothesis that there is no
significant difference between the Loan Loss Coverage Ratio of joint venture bank and
mean is more than 0.05. Therefore the output line equal variance assumed was used to
test the mean difference in Loan Loss Coverage Ratio. It can be observed in the table no.
20 that the p value of the t statistics of equality of means is more than 0.05. Therefore
there is evidence that mean difference is not significant and other private owned
commercial banks have higher Loan Loss Coverage Ratio compare to joint venture banks.
56
Test of Significance Difference in Loan Loss Provision Ratio
Table 21
Group Statistics
Deviation Mean
Joint Venture 18 1.04 .70 .16
Loan Losses
Other Private
Provision ratio 18 1.23 1.20 .28
Owned
Table 22
for Equality of
Variances
Difference
Lower Upper
Equal
-.59
variances .792 .380 34 .557 -.194 .327 -.861 .472
Loan Losses 3
assumed
Provision
Equal
ratio -.59
variances 27.273 .558 -.194 .327 -.867 .478
3
not assumed
significant difference between the Loan Loss Provision Ratio of joint venture bank and
mean is more than 0.05. Therefore the output line equal variance assumed was used to
test the mean difference in Loan Loss Provision Ratio. It can be observed in the table no.
22 that the p value of the t statistics of equality of means is more than 0.05. Therefore
there is evidence that mean difference is not significant and joint venture banks have
lower Loan Loss Provision Ratio compare to other private owned commercial banks.
57
Test of Significance Difference in Management Efficiency Ratio

Table 23
Group Statistics
Deviation Mean
Joint Venture 18 2788658.06 859518.09 202590.35
Management
Other Private
Efficiency Ratio 18 1545990.94 420783.67 99179.66
Owned
Table 24
Levene's t-test for Equality of Means
Test for
Equality of
Variances
(2- Difference Differenc Interval of the
tailed e Difference
) Lower Upper
Equal
variance 6.27 .01 5.50 1242667.1 225564.7 784264.3 1701069.8
34 .000
s 8 7 9 1 5 7 4
Managemen
assumed
t Efficiency
Equal
Ratio
variance 5.50 24.70 1242667.1 225564.7 777827.3 1707506.8
.000
s not 9 6 1 5 6 6
assumed
significant difference between the Management Efficiency Ratio of joint venture bank
and other private owned commercial banks. In the table no.24 it can be seen that variance
of the two groups were significantly unequal as the p value of Levene's test of equality of
mean is less than 0.05. Therefore the output line equal variance not assumed was used to
test the mean difference in Management Efficiency Ratio. It can be observed in the table
no. 24 that the p value of the t statistics of equality of means is less than 0.05. Therefore
there is evidence that mean difference is significant and joint venture banks have higher
Management Efficiency compare to other private owned commercial banks.
58
Test of Significance Difference in Earning Per Share

Table 25
Group Statistics
Deviation Mean
Joint Venture 18 35.94 13.72 3.23
Earnings Per
Other Private
Share 18 21.69 5.17 1.21
Owned
Table 26
for Equality of
Variances
Difference
Lower Upper
Equal
variances 3.903 .056 4.126 34 .000 14.26 3.46 7.24 21.27
Earning
assumed
Per
Equal
Share
variances not 4.126 21.735 .000 14.26 3.46 7.08 21.42
assumed
significant difference between the Earning per Share of joint venture bank and other
private owned commercial banks. In the table no.26 it can be seen that variance of the two
groups were significantly unequal as the p value of Levene's test of equality of mean is
less than 0.05. Therefore the output line equal variance not assumed was used to test the
mean difference in Earnings Per Share. It can be observed in the table no. 26 that the p
value of the t statistics of equality of means is less than 0.05. Therefore there is evidence
that mean difference is significant and joint venture banks have higher Earnings Per Share
compared to other private owned commercial banks.
59
Test of Significance Difference in Return on Equity
Table 27
Group Statistics
Deviation Mean
Joint Venture 18 16.67 3.05 .72
Return on
Other Private
Equity 18 14.89 3.99 .94
Owned
Table 28
for Equality of
Variances
Difference
Lower Upper
Equal
variances 1.845 .183 1.507 34 .141 1.78 1.184 -.62 4.19
Return
assumed
on
Equal
Equity
variances not 1.507 31.789 .142 1.78 1.184 -.62 4.19
assumed
significant difference between the Return on Equity of joint venture bank and other
more than 0.05. Therefore the output line equal variance assumed was used to test the
mean difference in Return on Equity. It can be observed in the table no. 28 that the p
value of the t statistics of equality of means is more than 0.05. Therefore there is evidence
that mean difference is not significant and joint venture banks have higher Return on
Equity compare to other private owned commercial banks.
60
Test of Significance Difference in Return on Assets
Table 29
Group Statistics
Deviation Mean
Joint Venture 18 1.85 .36 .084
Return on
Other Private
Assets 18 1.53 .29 .067
Owned
Table 30
for Equality of
Variances
Difference
Lower Upper
Equal
variances .126 .724 2.873 34 .007 .32 .108 .091 .53
Return
assumed
on
Equal
Assets
variances not 2.873 32.737 .007 .32 .108 .091 .53
assumed
significant difference between the Return on Assets of joint venture bank and other
mean difference in Return on Assets. It can be observed in the table no. 30 that the p
that mean difference is significant and joint venture banks have higher Return on Assets
compare to other private owned commercial banks.
61
Test of Significance Difference in Loan to Deposit Ratio

Table 31
Group Statistics
Deviation Mean
Joint Venture 18 74.14 12.35 2.91
Loan to Deposit
Other Private
Ratio 18 87.43 4.40 1.04
Owned
Table 32
for Equality of
Variances
(2- Differenc Difference Confidence
Difference
Lower Upper
Equal
-
variances 17.658 .000 34 .000 -13.29 3.09 -19.57 -7.02
Loan to 4.301
assumed
Deposit
Equal
Ratio -
variances 21.237 .000 -13.29 3.09 -19.71 -6.87
4.301
not assumed
significant difference between the Loan to Deposit Ratio of joint venture bank and other
mean difference in Loan to Deposit Ratio. It can be observed in the table no. 32 that the p
that mean difference is significant and private owned commercial banks have higher Loan
to Deposit Ratio compared to joint venture banks.
62
Test of Significance Difference in Cash and Equivalent to Total Assets Ratio

Table 33
Group Statistics
Deviation Mean
Joint Venture 18 8.32 8.910 2.09
Cash and Equivalent
Other Private
to Total Assets 18 4.32 2.80 .66
Owned
Table 34
Test for
Equality of
Variances
(2- Difference Difference Interval of the
tailed) Difference
Lower Upper
Equal
variances 6.866 .013 1.821 34 .077 4.01 2.20 -.46 8.47
Cash and
assumed
Equivalent
Equal
to Total
variances
Assets 1.821 20.322 .083 4.01 2.20 -.57 8.59
not
assumed
significant difference between the Cash and Equivalent to Total Assets Ratio of joint
venture bank and other private owned commercial banks. In the table no.34 it can be seen
that variance of the two groups were significantly unequal as the p value of Levene's test
of equality of mean is more than 0.05. Therefore the output line equal variance assumed
was used to test the mean difference in Cash and Equivalent to Total Assets Ratio. It can
be observed in the table no. 34 that the p value of the t statistics of equality of means is
more than 0.05. Therefore there is evidence that mean difference is not significant and
joint venture banks have higher Cash and Equivalent to Total Assets Ratio compare to
other private owned commercial banks.
63
Test of Significance Difference in Cash and Equivalent to Total Deposit Ratio

Table 35
Group Statistics
Deviation Mean
Joint Venture 18 10.05 10.93 2.57
Cash and Equivalent
Other Private
to Total Deposit Ratio 18 5.28 3.66 .86
Owned
Table 36
Test for
Equality of
Variances
(2- Difference Difference Interval of the
tailed) Difference
Lower Upper
Equal
Cash and variances 5.472 .025 1.755 34 .088 4.77 2.72 -.75 10.29
Equivalent assumed
to Total Equal
Deposit variances
1.755 20.762 .094 4.77 2.72 -.88 10.42
Ratio not
assumed
significant difference between the Cash and Equivalent to Total Deposit Ratio of joint
of equality of mean is more than 0.05. Therefore the output line equal variance assumed
was used to test the mean difference in Cash and Equivalent to Total Deposit Ratio. It can
be observed in the table no. 36 that the p value of the t statistics of equality of means is
more than 0.05. Therefore there is evidence that mean difference is not significant and
joint venture banks have higher Cash and Equivalent to Total Deposit Ratio compare to
other private owned commercial banks.
64
Test of Significance Difference in Cash Balance with NRB to Total Deposit Ratio
Table 37
Group Statistics
Deviation Mean
Cash Balance with Joint Venture 18 10.59 5.50 1.29
NRB to Total Deposit Other Private
18 6.80 2.58 .60
Ratio Owned
Table 38
for Equality of
Variances
(2- Differenc Difference Confidence
Difference
Lower Upper
Cash Equal
Balance with variances 10.518 .003 2.645 34 .012 3.78 1.43 .88 6.69
NRB to assumed
Total Equal
Deposit variances 2.645 24.117 .014 3.78 1.43 .83 6.74
Ratio not assumed
significant difference between the Cash Balance with NRB to Total Deposit Ratio of joint
of equality of mean is less than 0.05. Therefore the output line equal variance not
assumed was used to test the mean difference in Cash Balance with NRB to Total Deposit
Ratio. It can be observed in the table no. 38 that the p value of the t statistics of equality
of means is less than 0.05. Therefore there is evidence that mean difference is significant
and private owned commercial banks have lower Cash Balance with NRB to Total
Deposit Ratio compared to joint venture banks.
65
Discussion
The present study attempt to analyzed and evaluate the comparative financial
performance of six commercial banks which include three joint venture banks (Nepal SBI
Bank Limited (NSBI), Standard Chartered Bank Limited (SCBL), Everest Bank Limited
(EBL) and three other private owned commercial banks (Laxmi Bank Limited (LBL),
Sanima Bank Limited (SBL), Machhapuchchhre Bank Limited (MBL) for the last six
fiscal years (2071/72-2076/77). The performance of the banks under study is judged by
using five parameters of CAMEL Model which include Capital Adequacy, Asset Quality,
Management Capability, Earning Quality and Profitability and Liquidity . Capital
Adequacy Ratio of joint venture bank is better than other private owned commercial
banks. Mean value of joint venture is higher as compare to other private owned
commercial banks. An independent sample t test was conducted to evaluate the
hypothesis that there is significant difference between the Capital Adequacy Ratio of joint
venture bank and other private owned commercial banks because p value < 0.05. These
results are similar with findings of Bothra & Purohit (2018); Hilbers, Krueger & Morettii,
(2000). The private banks are found to be relatively better than the public sector banks
with respect to solvency ratio and capital adequacy ratio. The possible reason for this was
poor performance of public bank in advance to assets, debt to equity and government
securities to total investment ratio.
Again, Nonperforming Loan Ratio of joint venture banks is better than other private
owned commercial banks. Mean value of joint venture banks is lower as compare to the
other private owned commercial banks. An independent sample t test was conducted to
evaluate the hypothesis that there is significant difference between the Nonperforming
Loan Ratio of joint venture bank and other private owned commercial banks because p
value < 0.05. Loan Loss Coverage Ratio of other private owned commercial banks is
better than joint venture banks. Mean value of other private owned commercial banks is
higher as compare to joint venture banks. An independent sample t test was conducted to
evaluate the hypothesis that there is no significant difference between the Loan Loss
Coverage Ratio of joint venture bank and other private owned commercial banks because
p value > 0.05. Loan Loss provision Ratio of joint venture banks are less than other
private owned commercial banks. Mean value of joint venture banks is less as compare to
other private owned commercial banks. An independent sample t test was conducted to
evaluate the hypothesis that there is no significant difference between the Loan Loss
66
Provision Ratio of joint venture bank and other private owned commercial banks because
p value >0.05. Assets quality has a significant impact on the banks performance. Despite
the fact that our findings are consistent with the past studies (see for instance: Hirtle &
Lope, 1999; Rahaman & Islam, 2018; Bhandari,2006) have succeeded to find theoretical
support for results. The literature review on asset quality as a determinant of a bank`s
performance indicates that it has a significant impact on the bank`s performance.
Management Efficiency Ratio of joint venture banks is better than other private owned
commercial banks. Mean value of joint venture banks is higher as compare to other
private owned commercial banks. An independent sample t test was conducted to
evaluate the hypothesis that there is significant difference between the Management
Efficiency Ratio of joint venture bank and other private owned commercial banks because
p value < 0.05. The findings from the study Khanal (2015); Rai (2005); Zeinab, (2006)
can be helpful for the management of these selected banks to improve their financial
performance and formulate policies that will improve their overall performance.
Earnings per Share of joint venture bank are better than other private owned commercial
banks. Mean value of joint venture banks higher as compare to other private owned
commercial banks. An independent sample t test was conducted to evaluate the
hypothesis that there is significant difference between the Earning per Share of joint
venture bank and other private owned commercial banks because p value < 0.05. Return
on Equity of joint venture bank is better than other private owned commercial banks.
Mean value of joint venture banks higher as compare to other private owned commercial
banks. An independent sample t test was conducted to evaluate the hypothesis that there
is no significant difference between the Return on Equity of joint venture bank and other
private owned commercial banks because p value > 0.05. Return on Assets of joint
venture bank is better than other private owned commercial banks. Mean value of joint
venture banks higher as compare to other private owned commercial banks. An
independent sample t test was conducted to evaluate the hypothesis that there is
significant difference between the Return on Assets of joint venture bank and other
private owned commercial banks because p value < 0.05. Result of this study got
contradicted with the findings of Reddy, (2011); Hirtle & Lope (1999); as they concluded
that significant impact of EPS, ROA and ROE of the bank performance. Positive
67
relationship between the bank performance and joint venture banks perform better then
public banks and other private banks.
Loan to Deposit Ratio of other private owned commercial banks is better than joint
venture banks. Mean value of other private owned commercial banks higher as compare
to joint venture banks. An independent sample t test was conducted to evaluate the
hypothesis that there is significant difference between the Loan to Deposit Ratio of joint
venture bank and other private owned commercial banks because p value < 0.05. Cash and
Equivalent to Total Assets Ratio of joint venture banks is better than other private owned
commercial banks. Mean value of joint venture banks higher as compare to other private
owned commercial banks. An independent sample t test was conducted to evaluate the
hypothesis that there is no significant difference between the Cash and Equivalent to
Total Assets Ratio of joint venture bank and other private owned commercial banks
because p value > 0.05. Cash and Equivalent to Total Deposit Ratio of joint venture banks
is better than other private owned commercial banks. Mean value of joint venture banks
higher as compare to other private owned commercial banks. An independent sample t
test was conducted to evaluate the hypothesis that there is no significant difference
between the Cash and Equivalent to Total Deposit Ratio of joint venture bank and other
private owned commercial banks because p value > 0.05. Cash Balance with NRB to
Total Deposit Ratio of other private owned commercial banks is better than joint venture
banks. Mean value of other private owned commercial banks lower as compare to joint
venture banks. An independent sample t test was conducted to evaluate the hypothesis
that there is significant difference between the Cash Balance with NRB to Total Deposit
Ratio of joint venture bank and other private owned commercial banks because p value <
0.05. These results are similar with findings of Baral, (2005); Sharma & Chopra, (2018);
Kumar, (2014); Poudel, (2007); Shing, (2008) have succeeded to find theoretical support
for results. Liquidity indicators of joint venture banks show that they have stored high
level of liquidity and are not facing the liquidity deficit problem, instead, they are facing
the high liquidity problem. Their high liquidity is affecting their financial health
adversely by deteriorating their profitability. Thus, with a view point of liquidity position,
the health of joint venture banks is looked like a little bit unhealthy.
68
CHAPTER V
SUMMARY AND CONCLUSION
This chapter presents the summary of the entire study. The chapter begins with the
discussion of major finding of the study. On the basis of major finding, conclusions are
drawn in separate section of this chapter. Moreover, this chapter ends with the implication
on the basis of study conducted in the related field.
Summary
This study was focused on the area of comparative financial performance analysis of
commercial banks by using CAMEL approach in Nepalese banking industry. The study
was conducted on three joint venture banks (Nepal SBI Bank Limited (NSBI), Standard
Chartered Bank Limited (SCBL), Everest Bank Limited (EBL) and three other private
owned commercial banks Laxmi Bank Limited (LBL), Sanima Bank Limited (SBL),
Machhapuchchhre Bank Limited (MBL). The data collected from their annual reports
from fiscal year 2071/72 to 2076/77. This study is based on the secondary data over the
period of time. The overall objective of this study is to analyze the financial performance
of commercial banks by using the parameters of (CAMEL) Capital Adequacy Ratio,
Assets Quality Ratio, Management Efficiency Ratio, Earnings and Profitability Ratio and
Liquidity Ratio and to compare the financial performance of joint venture banks and other
private owned commercial banks. This research was also tried to answer research
question of what is the Capital Adequacy Ratio, Assets Quality Ratio, Management
Efficiency Ratio, Earnings and Profitability Ratio and Liquidity Ratio of commercial
banks in Nepal and is financial performance of joint venture banks in term of Capital
Adequacy Ratio, Assets Quality Ratio, Management Efficiency Ratio, Earnings and
Profitability Ratio and Liquidity Ratio is better as compared to other private owned
commercial banks.
This study were used independent variable which are Capital Adequacy Ratio,
Nonperforming Loan, Loan Loss Coverage, Loan Loss Provision, Management
Efficiency, Earnings per Share, Return on Equity, Return on Assets, Loan to Deposit
Ratio, Cash and Equivalent to Total Assets Ratio, Cash and Equivalent to Total Deposit
Ratio, Cash Balance with NRB to Total Deposit Ratio in addition to CAMEL variable to
test the hypothesis and CAMEL variable have significant effect on joint venture banks
and other private owned commercial banks. The descriptive statistical tools, ratio analysis
69
and independent sample test have been used to make analysis meaningful and systematic
and meet the research objective.
The analysis has been made to compare the banks ratios with NRB and international
standard. The banks are successful to maintain Capital Adequacy Ratio as per NRB
standard i.e. 11%. As per current data joint venture banks has highest CAR. It means,
joint venture banks have higher internal sources and comparatively strong financial
position and security to depositors as compare to other private owned commercial banks.
The lower non performing loan ratio reflects the good performance of the banks in
mobilizing loan and advance. Joint Venture banks has lower NPL ratio, it indicates the
better proportion of performing loans and risk of default (credit) than other private owned
commercial banks. NPL ratio is in decreasing trend where is the loan loss coverage ratio
of bank is increasing in each year. In the same way, loan loss provision ration is
decreasing. Lower LLP ratio is better for the banks. Joint venture banks has lower LLP
ratio as compare to other private owned commercial banks.
The management efficiency ratio (MER) indicates the better operation of the bank and
better profitability. Management efficiency ratio is fluctuation over the study period. Joint
venture banks has highest management efficiency ratio, it indicates the better operation
management and better printability of joint venture banks rather than other private
commercial banks.
Earnings per share of joint venture banks are in increasing trend and mean value of joint
venture banks also higher and standard deviation is lower as compare to other private
owned commercial banks. The Return on Equity of joint venture banks are in increasing
trend with fluctuation. Similarly, Return on Assets of Joint Venture banks are in
increasing trend with fluctuation but but mean value of joint venture banks also higher
and standard deviation is lower as compare to other private owned commercial banks.
Liquidity indicators of joint venture banks show that they have stored high level of
liquidity and are not facing the liquidity deficit problem, instead, they are facing the high
liquidity problem. Their high liquidity is affecting their financial health adversely by
deteriorating their profitability. Thus, with a view point of liquidity position, the health of
joint venture banks is looked like a little bit unhealthy.
70
Conclusion
The results of present study indicate that the Joint Venture Banks perform better than the
other private owned commercial banks on all other parameters of CAMEL model except
Liquidity Ratio. Other private sector commercial banks display low soundness in
comparison. Joint Venture Banks successfully maintain the Capital Adequacy Ratio,
Assets Quality Ratio, Management Efficency Ratio, and Earnings and Profitability ratio
as compare the other private owned commercial banks.
Therefore it can be concluded that private sector owned commercial banks performance
in terms of capital adequacy, management efficiency, assets quality, earning capability
should be improved to gain competitive position. Likewise, joint venture banks liquidity
position should be improved.
Implication
The theoretical implication of the study is that it provides bases for the future
comparisons and the practical implications of the study are to provide reason for poor
performance and suggestion to improve financial performance of the banks. CAMEL
ratio is valuable for the helping business financiers to know the qualities and
shortcomings for defining methodologies and policies that will push a successful and
sound money framework.
Furthermore, CAMEL framework using of latest technology because new leading
technology can be utilized to provide for operational efficiency, a wider range of delivery
channel as well as helping reducing cost for consumers and business. And there is future
scope of the study to compare the attitude, job dedication and productivity of the joint
venture banks and private sector banks employees for the bank performance.
71
REFERENCES
Ayele, H. (2012). Determinants of Bank Profitability: An Empirical Study on Ethiopian

Private Commercial Banks, Unpublished MBA Project, Addis Ababa University.
Bansal, D. (2010). impact of Liberlisation on productivity and Profitability of public

sector banks in India. A Ph.D Thesis submitted to Saurashtra UniversityRajkot.
Baral, K. J. (2005). Health check-up of commercial banks in the framework of CAMEL: A case
study of joint venture banks in Nepal. Journal of Nepalese Business Studies, 2(1), 41-55.
Berger, A. N., & Davies, S. M. (2011). The Information Content of Bank Examinations.
Journal of Financial Services Research .
Bhandari, K. (2006). The Financial Performance of Himalayan Bank Ltd. in the

Framework of CAMEL. An Unpublished Master Degree Thesis submitted to Faculty of
Management T.U.
Bhattarai, Y. R. (2017). EFFECT OF NON-PERFORMING LOAN ON THE

PROFITABILITY OFCOMMERCIAL BANKS IN NEPAL. Prestige International
Journal of management and Research .
Bono, Z. B. (2020). Determinants of Commercial Bank Financial Performance:

Empirical Evidence From Ethiopia. Ethiopia: Walaita Sodo University.
Bothra, P., & Purohit, A. (2018). A CAMEL MODEL ANALYSIS OF SELECTED

PUBLIC AND PRIVATE SECTOR BANKS IN INDIA. International Journal of
Management and Applied Science .
Dhungana, B. (2014). Problem Bank Identification, Correction & Resolution Mechanism

in. 53rd Anniversary Special Issue .
Dhungana, B. R. (2011). Impact of Bank's Deposit in Economic Growth of Nepal.

Journal of finance and management; Kathmandu, Nepal , 186-195.
Elyor, S. (2009). Factors affecting the performance of foreign banks in Malaysia. Univ.
Utara Malaysia: Master’s degree Thesis, .
Gupta. (2014). An analysis of Indian public sector banks using CAMEL approach. IOSR
Journal of Business and Management , 94-102.
Gupta, A. (2015). Comparative study of public and private sector banks in India: An
empirical analysis. International Journal of Applied Research , 1(12):895-901.
Hays, L. (2009). Financial development and economic growth: views and agenda.
Washington, DC: The Brookings Institution.
72
Hazzi, O., & Kilani, M. (2013). The Financial Performance Analysis of Islamic and
Traditional Banks: Evidence from Malaysia. European Journal of Economics, Finance
and Administrative Sciences, , 1450-2270.
Health Check-up of Commercial Bank in the Framewoek of CAMEl: A Case Study of

Joint Venture Bank in Nepal (2005).
Hilbers, P., Krueger, R., & Moretti, M. (2000). New Tools for Assessing Financial
System Soundness. Finance and Development , 37:8-12.
Hirtle, B. J., & Lopez, J. A. (1999). Supervisory Information and the Frequency of Bank.
Federal Reserve Bank of New York, Economic Policy Review .
Jha, S., & Hui, X. (2012). A comparison of financial performance of commercial banks:
A case study of Nepal. African Journal of Business Management , 7601-7611.
Khanal, J. R. (2015). Financial Performance Analysis of commercial banks In Nepal

theFrame work of CAMEL (A Comparative Study of Kumari Bank andMachhapuchchhre
Bank. An Unpublished Master Degree Thesis submitted to Faculty of Management, T.U.
Kumar, P. (2014). Financial Performance of Scheduled Commercial Banks in India:An

Analysis.”.
Levine, R. (1997). Financial development and economic growth: Views and Agenda.
Journal of Economic Literature , 688-722.
Li, Y. (2007). Determinants of Banks' Profitability and its Implication on Risk

Management Practices: Panel Evidence from the UK in the Period 1999-2006.
[Dissertation (University of Nottingham only)] (Unpublished).
Madura, J. (1999). Financial Institution and Maeket. New Delhi: Akash Press.
Madura, Jeff. (1999). Financial Markets and Institution. New Delhi: Akash Press.
McKinnon, R. I. (1973). Money and capital in economic development. Washington, DC::

The Brookings Institution.
Nandi, J. K. (2012). performance evaluation of selected banking companies in India.

India: The University of Burdwan West Bengal.
Poudel, R. (2007). A Study on Comparative Analysis of Financial Performance Between

Himalayan bank and Standard Charter Bank. An Unpublished Master Degree Thesis
submitted to faculty of Management T.U.
Rahman, Z., & Islam, S. (2018). Use of CAMEL Rating Framework: A Comparative
Performance Evaluation of Selected Bangaladeshi Private Commercial Banks.
International Journal of Economices and Finance , 120-128.
73
Rai, E. (2005). Financial Performance Analysis (CAMEL - Test) of Selected CBs(Nabil,

NIBL &SCBL). An Unpublished Master Degree Thesis submitted to Faculty of
Management T.U.
Rashesh, V. (2013). Evaluation of financial performance of commercial bank in the

framework of CAMEL. MBA diss.Tribhuvan University.
Reddy, D. M. (2011). Evaluating performance of Regional Rural banks: an application of

CAMEL Model. Journal of Arts, Science & Commerce , 60-67.
Regmi, S.R. (1997). Joint Venture Banks in Nepal A Comparative Evaluation of Financial
Performance. An Unpublished Masters Degree Thesis Submitted to Graduate School of Business
Assumption University, Huamark, Bangkok.
Rose, P. (1999). Commercial Bank Management. Boston: Irwin McGraw-Hill.
Rostami, M. (2015). CAMEL Analysis in Banking Industries. Global Journal of

Engineering Science and Research Management (GJESRM) , 50-62.
Sharma, S. R. (2007). Financial Performance Analysis of Nepal SBI Bank Ltd. In the
Framework of CAMEL. An Unpublished Master Degree Thesis submitted to Faculty of
Management T.U.
Sharma, S., & Chopra, I. p. (2018). A COMPARATIVE STUDY OF PUBLIC AND

PRIVATE BANKS IN INDIA USING CAMEL MODEL. www.ijcrt.org , 704-717.
Shing, K. (2008). A Study of CAMEL Analysis of Commercial banks (SCBNL, HBL

&Nabil Bank). An Unpublished Master Degree Thesis submitted to Faculty of
Managment T.U.
Siddiqui, M. A., & Shoaib, A. (2011). Measuring performance through capital structure:
Evidence from banking sector of Pakistan. African Journal of Business Management ,
5(1): 1871-1879.
Sun, C. C. (2011). Assessing Taiwan financial holding companies performanceusing

window analysis and Malmquist productivity index. African Journal of Business
Management , 5(26):10508-10523.
Timsina, S. (2016). Capital structure management of joint venture banks of Nepal. Journal of
Business and Social Sciences Research, 1(1), 58-79.
Vong, A. P., & Chan, H. S. (2006). Determinants of Bank Profitability in Macao. Macau
Monetary Research Bulletin, , 93-113.
Zeinab, A. (2006). Commercial banking and economic development; the Lebanese

experience. Lund studies in Economic History , 1856-1974.
74
Websites
www.nsbi.statebank.com.np
www.sc.com.np
www.everestbankltd.com
www.laxmibank.com
www.sanimabank.com
www.machbank.com

Dissertation Purposal Format

Uploaded by

Copyright:

Available Formats

Dissertation Purposal Format

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Dissertation Purposal Format

Uploaded by

Copyright:

Available Formats

1

Background of the study

Financial performance is a managerial activity which is concerned with planning, rising,

Financial performance analysis is the process of interpret the different components of

CAMEL approach is used to evaluate financial performances of banks because; it benefits

Statement of the Problems

 What is the Capital Adequacy Ratio, Assets Quality Ratio, Management

Objective of the study

 To analyze the financial performance of commercial banks by using the

Rational of the study

management. It will provide the real picture of performance which is beneficial to

Limitation of the study

Literature review is a survey of scholarly sources on specific topics. It provides an

Review of CAMEL Model Study

B. Assets Quality Ratio

C. Management Efficiency Ratio

D. Earning Performance Ratio

Bhandari (2006) conduct a study on "Financial performance Analysis of Himalayan Bank

Research methodology is the specific procedures or technique used to identify select,

Population and Sample

Tools for Data Presentation and Analysis

Research Framework and Definition of Variables

Capital Adequacy Ratio

Assets Quality Ratio

Management Efficiency Ratio Financial Performance

Earning and Profitability

A. Capital Adequacy Ratio

Total Capital Fund

Total Non−Performing Loan

Total Loan Loss Provision(LLP)

Total Loan Loss Provision(LLP)

C. Management Efficiency Ratio

 Fair decision making capacity

Net Profit After Tax

Net Income After Tax

Net Income After Tax

Total Loan∧ Advance

Cash Balance with NRB

Descriptive Statistical Tools

A descriptive statistic is a summary statistic that quantitatively describes or summarizes

ƩX = Sum of all values of observation

Standard Deviation ( σx) =

X1 = Expected return of the historical data

Independent Sample T-test

Total Capital Fund

Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77

NSBI 14.03 13.49 15.71 15.15 14.12 15.55

SCBL 13.1 16.38 21.08 22.99 19.69 18.51

EBL 13.33 12.66 14.54 14.2 13.74 13.38

LBL 10.81 11.51 13.58 12.43 11.83 13.02

SBL 11.08 12.36 15.57 12.41 13.49 13

MBL 12.24 12.36 16.82 15.36 12.79 13.02

Assets Quality Ratio

Banks 2071/72 2072/73 2073/74 2074/75 2075/76 2076/77

NSBI 0.19 0.14 0.1 0.2 0.2 0.23

SCB 0.34 0.32 0.19 0.18 0.15 0.44

EBL 0.66 0.38 0.25 0.2 0.16 0.22

LBL 1.3 0.8 0.93 1.29 1.11 1.04