1

CHAPTER I:
INTRODUCTION

1.1 Background of the Study

Liquidity as one of these determinants performs a crucial function in the successful
operation of a firm and it is most important to understand that a bank is liquid when it
has an ability to settle its obligations instantly.

Liquidity is that part of total assets, which can be paid immediately to meet the
current obligations. The liquidity of assets refers to the ease and certainty with which
it can be turned into cash. A liquid asset possesses 3 essential characteristics i.e., Price
stability, Ready Marketability and Reversibility. An asset is considered liquid if its
price tends to be reasonably stable over time, if it has an active resale market and if
it's reversible so that investors can recover their original investment without loss. The
basic sources of liquidity are capital and various forms of deposit. However, banks
can borrow cash from NRB for short period. Deposits are liabilities for the bank.
People deposit their saving in the bank because they trust on bank that their money
will be safe in the bank and they get their money at the time of need on their
immediate demand. Without investment, bank cannot earn profit and cannot pay
interest on deposit. So, bank invests those funds in various sectors. Investment can be
made for both longer and shorter period.

Lack of liquidity indicates great financial problem caused by lack of people’s trust. In
such a situation, depositors go on demand of cash rapidly. Similarly, higher the
amount of liquidity, higher will be the opportunity cost of banks which leads to
decrease in profit due to investment in non-earning assets more than requirement. On
the other side there should be trade-off between liquidity and profitability. Keeping
excess liquidity inversely affects the profitability of the business. Hence, the concern
of the management should be synchronizing the liquidity with the profitability of the
business, as a result of which maximum profit can be achieved by keeping appropriate
liquid assets.

It is, therefore, one of the most important tasks in the effective management of any
financial institution like bank lies in maintaining adequate liquidity.
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Profitability means ability to make profit from all the business activities of an
organization, company, firm, or an enterprise. It shows how efficiently the
management can make profit by using all the resources available in the market. In
business, profits are the excess of revenue over cost. It determines the financial
position of an organization. In other words, business profits are the residual income,
which is equal to sale proceeds minus costs. In a simple term, profit mean the residual
balance of earning expected to be available with the firm that is obtained after
deducting entire expenses, costs, charges and provision from total revenue of a period
of time Profit is the resources left to the firm for future growth and expansion or
reward to be distributed to the entrepreneurship in the form of dividends. To achieve
an appropriate return over the amount of the shareholders is the main objective of
companies operating in capitalist economies. After all, profit is the propulsive element
of any investments in different projects. The assessment of profitability is usually
done through the ROA (Return on Assets = Net Income / Total Assets) and ROE
(Return on Equity = Net Income / Equity), which is the ultimate measure of economic
success.

1.2 Organization Profile

Garima Bikas Bank Ltd. is a development bank, established by a group of

enthusiastic, dedicated and successful professionals and entrepreneurs from different
fields including business, teaching, engineering, doctors, banking, accounting,
management etc. The management team also consists of experienced, qualified and
devoted professionals. The bank was incorporated under Company Act on
2064.04.22. On 2064.06.24, it acquired license from Nepal Rastra Bank to perform its
financial transactions which was approved by the Company Registrar's office on
2064.5.29. The bank started its formal operations on 2064.07.18 from Waling 3,
Syangja. However, in the third AGM it was decided to shift the head office to
Pokhara.

Board of Directors

1. Mr. Shyam Prasad Basyal Chairman

2. Dr. Ananda Prasad Shrestha Director
3. Mr. Dipendra Shrestha Director
4. Mr. Bimal Pandey Director(public)
5. Saraswati Pathak Director(public)
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6. Mr. Sanjeev Dhakal Director(public)

Structure of organization

BOD

General council
internal audit CEO board and
secretary

Chief Risk Officer

Government Consumer Operation and IT Chief Financial

relation Group HRM Group Banking Group Group Group Treasurer Officer

Chief Operations
Officer

Accounts Client Services

Monitoring & Corporate Wealth

Sales & Trading
Reporting Finance Management

Trade Processing Operations

& Support Control

IT

(Source: garimabank.com.np)

Capital structure

1. Authorized capital 5,00,00,00,000

2. Paid up capital 3,67,59,12,500
3. issued capital 3,67,59,12,500

(Source annual: report 077/78)

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1.3 Statement of the problem

In response to the economic liberalization policy of the government, establishment

of commercial banks is continued. The tendency to concentrate these banks only in
urban areas like Kathmandu, Chitwan, Pokhara etc. has raised certain questions.
This state of affairs cannot contribute much to the socio-economic development of
the. These commercial banks are reluctant to extend their operation in rural areas.
This study, basically focus our attention to reveal the struggle and success achieved
by the commercial banks. Commercial banks main motive is to make profit by
providing services to the customers. In Nepal, the profitability rate, operating
expenses, dividend distribution among the shareholders etc. have been inconsistent.
There must be some reasons behind such differences in performance. The problem
of the study refers to the liquidity and profitability analysis of these commercial
banks.
In this study, attempts will also be made to sort out the answer to the following
questions:
 Does the overall liquidity and profitability, indicates any strength and
weakness of these banks?
 Are the trends of different ratios of the firm is satisfactory?

1.4 Objectives of the Study

The main objective of study is to analyze examine the policies being formulated. The
objectives are as under:

1) To examine the profitability position and position of liquidity

2) To asses in which condition of cash movement in Garima Bikash bank ltd.
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1.5 Rational of the Study

The proper mobilization and utilization of domestic resources become indispensable

for any developing country aspiring for a sustainable economic prosperity of the
nation. The success and prosperity of the banks relies heavily upon the successful
formulation and effective implementation of investment policy.

The significance of the study is highlighted as below:

1. The study helps to know how well GBBL is utilizing its deposits.
2. The study is important to policy makers and academic professionals to
formulate policies and plans based on the performance of the bank.
3. The study may help the bank to evaluate the performance
4. The study may help the bank to make sound programs and policies based on
the recommendation suggested.
5. The study may guide investors, customers (depositors, Loan takers as well as
other types of clients), competitors, personnel of the banks, stockbrokers,
dealers, market makers, etc., to take various decisions regarding deposits and
borrowings.

1.6 Review of Literature

A literature review is a written document that provides background information on the

subject area and details about previous research that is relevant. A good literature
review is far more than an account of who researched what and when. As we go
through the literature, it is common to find conflicting views/results between authors
and it is important to point out these differences and potentially explain why there are
discrepancies between authors. It is an integral and mandatory process in research
works. Doing a careful and thorough literature review is essential when you write
about research at any level. It is basic homework that is assumed to have been done
vigilantly. It not only surveys what research has been done in the past on the topic, but
it also appraises, captures, compares and contrasts, and correlates various scholarly
books, research articles, and other relevant sources that are directly related to your
current research.
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Philips (2008) had stated that liquidity risk is that asset owner unable to recover full
value of asset when sale desired. Bank liquidity is the ability of institution to
meet obligations under normal business conditions. He further suggests the tools
for protecting against bank liquidity i.e., holding liquid assets (net defensive position
cost in terms of lower profitability), dissipating withdrawal risk by diversifying
funding sources (liability Management), seeking low volatility ratio: VL–LA/TA-
LA, where VL volatile liabilities, LA liquid assets, TA total assets, important role of
supervision & reserve requirements also money market infrastructure ensuring
liquidity maintained.

Acharya (2009), stated that there are two major problem – operational problems and
organizational problem regarding the working capital management in Nepalese PE‟s
has been described the operational problems, according to Acharya, listed in the first
part, are increased of liquid liability than liquid assets, not allowing the liquid ratio
2:1 and show turnover of inventory. Similarly, change in working capital in relation
to fixed capital had very low impact over the profitability and then transmutation of
capital employed to sales, absence of management information system, break even
analysis, funds flow analysis and ratio analysis were either undone or ineffective for
the performance evaluation. Finally, the study points monitoring or the proper
functioning of working capital management has never been considered a managerial
job.

Matz (2011), suggested that the quantity of liquidity you have or can get must be
related to the quantity of liquidity that you think you may need. The quantity of
liquidity that you need is, mainly, the sum of current liabilities you may lose plus
new assets you have to fund. Liquidity Risk, the amount of liquidity you might
need, is highly scenario specific. Liquidity cannot be intelligently measured without
using scenario analysis. Sources available in some scenarios are less available or
unavailable in others.

He emphasized that the essences of liquidity risk are cash flow. Therefore,
fundamentally, liquidity gap analysis is simply an evaluation of the two requirements:
"enough money" and "when we need it". Liquidity risk management tactics are
more vital than managing the time profiles of maturing liabilities. He conducted four
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essential Liquidity Management tools: always keep some asset liquidity reserve,
extend liability terms to reduce liquidity risk, be prepared to enhance liquidity
quickly at the first signs of increased potential need and manage cash flow profiles.

Shrestha (2012), has stated liquidity management as the part of risk management
framework of financial services industry. He found taking high liquidity risk as well
as high credit risk are two main factors that cause banks to fail. Although high
liquidity risk alone is not likely to cause banks failures, a liquidity crisis usually
signals a need for change. He concluded proper liquidity management ensures that
banks and financial institutions' financial commitments and obligations are met.

Maintaining adequate liquidity also helps in avoiding forced sale of assets. The need
for bank liquidity stems from seasonal, cyclical trend and short-term irregular
movements in deposits and loans. The different sources available to meet these
liquidity needs were identified and grouped into asset and liability liquidity
sources. The treasury manager must consider the purpose of the liquidity need, the
length of time for which funds are needed, the access to liability markets, the cost
and the characteristics of various liquidity sources and interest rate forecasts.

1.7 Conceptual Framework

The conceptual framework is the foundation on which the entire research project is
based. It is the researcher understands of how the particular variables in the study
connect with each other. It elaborates the relationships among the variables, explains
concepts and theories underlying these relations, and describes the nature and
direction of the relationships. It is the basically a researcher’s “map” in pursuing the
investigation.

1.7.1 Need and Importance of Liquidity

The liquidity management function of a bank is regular one. Each and every bank
attach with great importance of liquidity for maintaining confidence of customer and
its survival. The importance of liquidity is considered very sensitive because if it can’t
maintain the liquidity, it has to pay fine. The commercial banks and financial
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institutions should keep the stock of liquid assets in the ratio of their deposit liability,
as fixed by the Nepal Rastra Bank. The importance of liquidity is as follows:

a) To meet the expenses for the banks daily administrative work.

b) To pay all sorts of deposits.

c) To control the economic fluctuation and to keep safe from the risk.

d) To fill the demand of the debtor.

e) Providing security to the bank.

1.8 Research Gap

Research gap is the difference between previous work done and the present work.
Earlier works conducted by the previous researchers are very useful and appreciated
by personnel in various related field. The suggestions and recommendations given by
the previous researchers help to improve and increase the necessary data for the
related topic. The main objective of this study is to find out the liquidity position of
selected Commercial Banks. The research regarding the Commercial Banks was seen
relatively limited to the certain topics only. Thus, this research fills the gap by
studying on liquidity and profitability position.

1.9 Research methodology

Research methodology is the technique to achieve the stated objectives of the study.
This chapter studies how research to be conducted, how research is made effective
and what are the steps of research so that the study and goal of the related study can
be easily achieved. Especially research refers sequential steps to be followed by
researcher at the time of solving problem or studying the concerned subject matter in
detail that include following steps.

1.10 Sources of Data

The research is based on secondary sources of data. All the adequate data are
collected from secondary sources. Secondary data are mostly used for this research
purpose. So, the major sources of secondary data are as follows:
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 Annual Report
 Economic survey of Government of Nepal and Ministry of finance.

It is mentioned that secondary dates are used for the study. Secondary data can be
collected by using different method. The annual report and other information of the
bank is obtained from head office of GBBL and website of the bank. Other
publications are collected from website of Nepal Rastra Bank.

1.11 Population and Sample

The objective of the research is to explore and describe the liquidity management of
development bank in Nepal from the research point of view. However, with regard to
the availability of the financial information, two samples were identified purposively
from the banking sector.

The study of whole universe is not possible due to lack of time, money and capacity.
Thus among 36 development banks, only one development bank has been chosen as
sample. Simple random sampling which is purposive and continent methods have
been selected for the study.

1.12 Data Analysis Tools

The collected raw data will be presented in systematic manner in tabular form and
then will be analyzed by applying different financial and statistical tools to achieve
objectives. Besides these some graph charts and tables will be presented to analyze
and interpret the finding of the study. The tools applied are:

1.12.1 Financial Tools

The following financial ratios are going to be analyzed under the liquidity
management of the selected development banks.
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i) Liquidity Ratios
a) Current Ratio
It shows the ratio of current assets over the current liabilities. It measures quantity of
current assets. This ratio can be computed by dividing the Total Current Assets by
Current Liabilities, which can be presents as:
Current Assets
Current Ratio =
Current Liabilities
Higher ratio indicates the strong short term solvency position and vice versa.

b) Cash and Bank Balance to Total Deposit Ratio

Cash and Bank balances are the most liquid current assets. This ratio measures the
percentage of most liquid with the bank to make immediate payment to the depositor.
This ratio can be computed by dividing cash and bank balance by total deposit can be
presented as:
Cash and Bank Balance
Cash and Bank to Total Deposit Ratio =
Total Deposits
Cash and bank balance includes cash in hand, cheques and other cash items, balance
with domestic and foreign banks. The total deposit includes deposit made by
customers though different accounts like current (demand deposit), saving, fixed
deposit, call deposit and other deposit accounts.

c) Cash and Bank Balance to Current Assets Ratio

This ratio measures the proportion of most liquid assets viz. cash and bank balance
among the total current for cash. The ratio is computed by dividing Cash and Bank
Balance by Current Assets, presented as under,

Cash and Bank Balance

Cash and Bank Balance to Current Assets Ratio =
Current Assets

d) Quick ratio

The quick ratio is an indicator of a company’s short-term liquidity position and

measures a company’s ability to meet its short-term obligations with its most liquid
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assets. The quick ratio is calculated by adding cash, cash equivalents, short-term
investments, and current receivables together then dividing them by current liabilities.

Quick assets
Quick ratio = Current Assets

ii) Assets Management Ratios

a) Loan and Advances to Total Deposit Ratio

This ratio is called credit deposit ratio (CD ratio). It is calculated to find out how
successfully the bank is able to utilize its total deposits on loan and advances for
profit generating purpose. Greater ratio implies better utilization of total deposits.
This ratio can be obtained by dividing loan advances by total deposit as under,

Loan and Advance

Loan and Advances to Total Deposit Ratio =
Total Deposit

b) Total Investment to Total Deposit Ratio

Investment is one of the major factors of credit creation to earn income. This implies
the utilization of firm’s deposit on investment on government Securities, shares and
debenture of other companies and banks. This ratio can be calculated by total
investment divided by total deposit as:

Total Investment
Total Investment to Total Deposit Ratio =
Total Deposit

c) Loan and Advances to Working Fund Ratio

Loan and Advances is the major component in the total working fund (total assets),
which indicates the ability of bank to utilize its deposits in the form of loan advances
to earn high return. The ratio is computed by dividing loan and advances by total
working fund, which is stated as under,

Loans and Advances

Loan and Advances to Working Fund Ratio =
Total Working Fund

iii) Profitability Ratio

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a) Return on Loan and Advances Ratio

This ratio indicates how efficiency the bank utilizes its resources in the form loans
and advances. This also measures the earning capacity of its loans and advances. This
ratio is computed by dividing Net Profit (Loss) by Loans and Advances which can be
expressed as:

Net Profit (Loss)

Return on Loan and Advances Ratio =
Loan and Advances

b) Return on Total Asset Ratio (ROA)

This ratio measures the overall profitability of all working fund i.e., Total Assets. It is
also known as Return on Assets (ROA). This ratio is calculated by dividing net profit
(loss) by total working funs. This can be presented as,

Net Profit (Loss)

Return on Total Working Fund Ratio (ROA) =
Total Working Fund

c) Return on Equity (ROE)

The numerator indicates the portion of income left to the internal equities after
deduction of all costs, charges and expenses. The bank has used funds of the
shareholders. This ratio can be computed by dividing net profit by Total Equity
capital (Net Worth). This can be calculated as,

Net Profit (Loss)

Return on Equity (ROE) =
Total Equity Capital

d) Total Interest Paid to Total Working Fund Ratio

This ratio depicts the percentage of interest paid on liabilities with respect to Total
working Fund, which can be presented as,

Total Interest Paid

Total Interest paid to Total Working Fund Ratio =
Total Working Fund

1.12.2 Statistical Tools

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a) Arithmetic Mean

Its value is obtained by adding together all the times and by dividing this total by the
number of items.
The formula to calculated mean is given by,
Mean, X̅ =∑ K
𝑁

Where,

X = Mean of the values

∑ X= Summation of the values

𝑁= No of observation

a) Standard Deviation (S.D)

A small standard deviation means a high degree of uniformity of the observation as
well as homogeneity of series and vice-versa.
̅ )2
∑(X−X
Standard deviation (σ) = √
N

Where,

σ = Standard Deviation

∑ (X − ̅X)2 = Sum of squares of the deviations measured from arithmetic

average. N = Number of items

b) Coefficient of Variation

The coefficient of variation (C.V) is given by the following formula in the percentage
basis:

Coefficient of Variation (C.V) = 𝜎 × 100

̅ X

c) Measures of Correlation

This tool is used for measuring the intensity or the magnitude of linear relationship
between two variable X and Y is usually denoted by „r‟ can be obtained as:
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N ∑ XY− ∑ X ∑ Y
r=
√N ∑ X2− (∑ X)2 √N ∑ Y2− (∑ Y)2

Where,

N = no of observation in series X and Y

∑ X = Sum of observation in series X

∑ Y = Sum of observation in series Y

∑ X2 = Sum of square observation in series X

∑ Y2 = Sum of square observation in series Y

∑ XY = Sum of the product of observation in series X and Y

1.13 Limitations of the Study

This study is conducted for the partial fulfillment of Bachelor of Business Studies, so
it possesses some limitations of its own kind. The limitations of the study are as
follows:

1) There are in total, 33 development banks in Nepal but only 1 development

bank is selected that is Garima Bikash Bank Ltd.
2) The study covers the past and present state of the development bank in Nepal
and will not make any projection in future.
3) The study is made within limited timeframe, limited data, and with lack of
research experiments.
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CHAPTER II:
PRESENTATION AND ANALYSIS OF DATA

2.1 Financial Analysis

In this part various financial ratios related are presented to evaluate and analyze the
performance of development bank that is Garima Bikash Bank LTD. Some important
financial ratios are only calculated in the point of view of fund mobilization. The
ratios are designed and calculated to highlight the relationship between financial items
and figures.

2.1.1 Liquidity Ratio

Liquidity ratios measure a company's ability to pay debt obligations and its margin of
safety through the calculation of metrics including the current ratio, quick ratio and
operating cash flow ratio. Current liabilities are analyzed in relation to liquid assets to
evaluate the coverage of short-term debts in an emergency. Bankruptcy analysts and
mortgage originators use liquidity ratios to evaluate going concern issues, as liquidity
measurement ratios indicate cash flow positioning.

2.1.1.1 Analysis of Current Ratio

This ratio measures the liquidity position of the development banks. It indicates the
ability of banks to meet the current liquidity. Current assets are important to
businesses because they can be used to fund day-to-day operations and pay ongoing
expenses. Depending on the nature of the business, current assets can range from
barrels of crude oil, to baked goods, to foreign currency. On a balance sheet, current
assets will normally be displayed in order of liquidity, that is, the ease with which
they can be turned into cash.
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Table 2.1

Current Assets to Current Liability Ratio

Year current assets current liabilities Ratio(times)
2073/074 4,533,532,387 4,088,695,404 1.1087
2074/075 7,347,259,038 6,478,723,814 1.1341
2075/076 10,399,561,941 9,376,623,893 1.1091
2076/077 17,312,335,173 14,833,747,360 1.1671
2077/078 24,481,509,902 21,851,685,263 1.1203
Mean 1.1278
S.D. 0.0242
C.V. 2.14%
(Source: Annual Reports (appendix))

From table no. 2.1 shows the current ratio of selected development bank during the
study period. The current ratio of GBBL is in fluctuating trend. In general, it can be
said that the bank doesn’t have sound ability to meet its short-term obligations in
coming year. Current ratio is high in the fiscal year: 2076/077 i.e., 1.1671 times.

Figure 2.1

Current Assets to Current Liability Ratio

1.18
1.17
1.16
1.15
1.14
1.13
1.12 current ratio
1.11
1.1
1.09
1.08
1.07
2073/074 2074/075 2075/076 2076/077 2077/078

From the figure 2.1, analysis it is known that GBBL don’t have better liquidity
position because the standard ratio is 2:1. Generally, banks require more liquid asset
with compare to current liabilities in order to provide better bank service.
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2.1.1.2 Quick Ratio

Quick Ratio establishes a relationship between quick and current liabilities.

Table 2.2:

Quick Ratios
Year quick assets current liabilities Ratio(times)
2073/074 4,521,043,776 4,088,695,404 1.1057
2074/075 7,286,410,331 6,478,723,814 1.1247
2075/076 10,313,147,117 9,376,623,893 1.0999
2076/077 17,150,894,137 14,833,747,360 1.1562
2077/078 24,301,972,321 21,851,685,263 1.1121
Mean 1.1197
S.D. 0.0207
C.V. 1.84%
Source: Annual Reports (appendix)

From table 2.2 shows the quick assets and current liabilities of GBBL for the study period
073/74 to 077/78 and the quick ratio is calculated by dividing quick assets to current
liabilities. The quick ratio of GBBL is unstable trends. The average quick ratio of GBBL is
1.1197 times.
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Figure 2.2
Quick ratio

1.17

1.16

1.15

1.14

1.13

1.12
quick ratio
1.11

1.1
1.09

1.08

1.07
2073/074 2074/075 2075/076 2076/077 2077/078

From figure 2.2, the GBBL showed have good liquidity position because of quick ratios of
every year are higher than standard form. The standard quick ratio is 1:1 i.e., quick
assetsmust be equal to current liabilities.

2.1.1.3 Cash and Bank Balance to Total Deposit Ratio

Cash and Bank Balance to Total Deposit Ratio indicates the bank ability to meet their
daily requirement of depositors. Higher ratio shows the greater ability of the firms to
meet customer demands on their deposits. Following table shows cash and bank
balance to total deposit of GBBL during the study period. Following table shows cash
and bank balance to total deposit of GBBL during the study period.
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Table 2.3

Cash and Bank Balance to Total Deposit Ratio

Year Cash and bank
balance Total deposit ratio
2073/074 353,631,716 4,015,479,641 0.0880
2074/075 624,455,586 6,358,593,057 0.0982
2075/076 885,464,726 9,228,600,008 0.0959
2076/077 1,295,853,705 14,513,390,540 0.0892
2077/078 1,546,792,883 21,221,205,396 0.0728
Mean 0.0888
S.D. 0.0086
C.V. 9.86%
Source: Annual Reports (appendix)

From table 2.3 revels that the cash and bank balance to total deposit ratio of GBBL is
in decreasing trend after 2073/074. The highest ratio of GBBL is 0.0982 in the fiscal
year 074/75 and lowest is 0.0728 in the fiscal year2077/078.

Figure 2.3

Cash and bank balance to total deposit ratio

0.12

0.1

0.08

0.06 cash and bank balance

to total deposit
0.04

0.02

0
2073/074 2074/075 2075/076 2076/077 2077/078
From figure 2.3, it is known that selected bank has lowest ratio in the year 2077/078
and it has highest ratio in the year 2074/075. But on the year 2073/2074 ratio keeps on
decreasing.

2.1.1.4 Cash and Bank Balance to Current Assets Ratio

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Cash and bank balance to current assets ratio represents the liquidity capacity of the
firms as per cash and bank balance. Higher the ratios, better the ability of the firms to
meet the daily cash requirement of their customers Following the states the cash and
bank balance to current assets GBBL during the study period.

Table 2.4:

Cash and Bank Balance to Current Asset Ratio

Year Cash and bank
balance Current assets ratio
2073/074 353,631,716 4,533,532,387 0.0780
2074/075 624,455,586 7,347,259,038 0.0850
2075/076 885,464,726 10,399,561,941 0.0851
2076/077 1,295,853,705 17,312,335,173 0.0749
2077/078 1,546,792,883 24,481,509,902 0.0632
Mean 0.0772
S.D. 0.0073
C.V. 9.45%
(Source: Annual Reports (appendix).)

From table 2.4 revels that cash and bank balance to current assets ratio of GBBL is in
fluctuating trends. The cash and bank balance ratio of GBBL is highest in in the fiscal
year 2075/076 i.e., 0.0851 and lowest in the fiscal year 2077/078 i.e., 0.0632. The
average ratio of GBBL appears0.0772 and which means that shows how much of
current assets of the bank represent cash and bank balance.
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Figure 2.4
Cash and bank balance to current assets ratio

0.09
0.08
0.07
0.06
0.05
cash and bank balance
0.04 to current assets
0.03
0.02
0.01
0
2073/074 2074/075 2075/076 2076/077 2077/078

From the figure 2.4, we came to know that the ratio of cash and bank balance to
current assets is in fluctuating trend.

2.1.2 Asset Management Ratio

2.1.2.1 Loan and Advance to Total Deposit Ratio

Table: 2.5

Loan and advance to total deposit ratio

Year loan and advance Total deposit ratio
2073/074 3,458,052,990 4,015,479,641 0.8611
2074/075 5,437,744,317 6,358,593,057 0.8552
2075/076 7,909,148,703 9,228,600,008 0.8570
2076/077 12,834,962,318 14,513,390,540 0.8844
2077/078 18,618,910,774 21,221,205,396 0.8774
Mean 0.8670
S.D. 0.0116
C.V. 1.26%
Source: Annual Reports (appendix)
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From table 2.5 shows the loan and advances to total deposit of GBBL during the fiscal
year 2073/74 to 077/78. The table depicts that the ratio of loan and advances to total
deposit of GBBL has fluctuated during the periods, i.e., 0.8552 in the fiscal year
074/75, then increased to 0.8570 in the fiscal year 2075/76 and finally has increased
to 0.8844 in the fiscal year 076/77.

Figure 2.5

Loan and Advance to Total Deposit Ratio

0.89
0.885
0.88
0.875
0.87
0.865 loan and advance to
0.86 total deposit

0.855
0.85
0.845
0.84
2073/074 2074/075 2075/076 2076/077 2077/078

From figure 2.5, we can figure out that for the first-year ratio decrease then it
decreases and again decreases. In average, GBBL has mobilized 0.8670 of the total
deposit in granting loans and advances.

2.1.2.2 Total Investment to Total Deposit Ratio

Commercial banks and financial companies invest their collected funds in various
government securities and other financial or non-financial companies. This ratio
measures how successfully and efficiently the banks are mobilizing their funds on
investment in various securities. This ratio of GBBL is calculated and presented
below.
 23

Table 2.6
Total Investment to Total Deposit Ratio
Year Total investment total deposit ratio
2073/074 30,899,340 4,015,479,641 0.0076
2074/075 39,982,970 6,358,593,057 0.0063
2075/076 107,031,015 9,228,600,008 0.0116
2076/077 187,641,118 14,513,390,540 0.0129
2077/078 501,862,353 21,221,205,396 0.0236
Mean 0.0124
S.D. 0.051
C.V. 41.18%
Source: Annual Reports (appendix)

From table 2.6 the investment to total deposit ratio of GBBL during the study period
073/74 to 077/78. The table shows that the ratio in GBBL is in fluctuating trend. The
ratios of GBBL are 0.0076, 0.0063, 0.0116, 0.0129 and 0.0236 in the fiscal year
073/074, 074/75, 075/76, 076/77 and 077/78 respectively.

Figure 2.6

Total Investment to Total Deposit Ratio

0.025

0.02

0.015
total investment to
0.01 total deposit ratio

0.005

0
2073/074 2074/075 2075/076 2076/077 2077/078

From figure 2.6 it is clear that total investment in respect to total deposit is increasing
yearly. In average, GBBL has disbursed 0.0124 of the total deposit as investment.
 24

2.1.2.3 Loan and Advances to Total Assets Ratio

A high ratio indicates better mobilization of funds as loan and advance and vice-
versa. The following table shows loan and advances to total assets of GBBL is as
follows.
Table 2.7
Loan and Advances to Total Assets Ratio
Year Loan and advance Total assets Ratio
2073/074 3,458,052,990 4,612,393,111 0.7497
2074/075 5,437,744,317 7,452,362,534 0.7297
2075/076 7,909,148,703 10,582,389,095 0.7474
2076/077 12,834,962,318 17,662,114,792 0.7267
2077/078 18,618,910,774 25,237,498,466 0.7377
Mean 0.7382
S.D. 0.0118
C.V. 1.59%
(Source: Annual Reports (appendix))

From table 2.7 show that the loans and advances to total assets ratios of sample banks
over the study period 073/74 to 077/78. The ratios of GBBL trends in the study period
and ranged from 0.7497 in the fiscal year 073/74 to 0.7377 in the fiscal year 077/78.
In average, the loans and advances have covered 0.7382 in GBBL and coefficient of
variation of 1.59% has indicated uniformity in the ratio.
 25

Figure 2.7

Loan and Advances to Total Assets Ratio

0.755
0.75
0.745
0.74
0.735 loan and advances to
total assets
0.73
0.725
0.72
0.715
2073/074 2074/075 2075/076 2076/077 2077/078

From figure 2.7, ratio between loan and advances to total assets are in fluctuating
ratio. For the year 2075/076 it increases and then it decreases for coming year.

2.1.3 Profitability Ratios

2.1.3.1 Return on Loan and Advances

Every financial institution tries to mobilize their deposits on loan and advances
properly. So, this ratio helps to measure the earning capacity of selected banks. Return
on loan and advances ratio of selected bank is presented as follows.
 26

Table 2.8

Return on Loan and Advances

Year net profit loan and advance Ratio
2073/074 104,232,944 3,458,052,990 0.0301
2074/075 144,209,774 5,437,744,317 0.0265
2075/076 222,017,422 7,909,148,703 0.0281
2076/077 349,011,275 12,834,962,318 0.0272
2077/078 441,859,945 18,618,910,774 0.0237
Mean 0.0271
S.D. 0.0037
C.V. 13.65%
(Source: Annual Report (appendix))

From table 2.8 shows the return on loan and advance ratio of GBBL during the study
period 073/74 to 077/78. The return on loan and advance ratio of GBBL is in
fluctuating trends over the study period. The average ratio of GBBL is 0.0271 with
13.65% of coefficient of variation.

Figure 2.8

Return on Loan and Advances

0.035

0.03

0.025

0.02
return on loan and
0.015 advances

0.01

0.005

0
2073/074 2074/075 2075/076 2076/077 2077/078

From figure 2.8, for the year 2075/076 return on loan and advances increases and for the
year 2076/077, return on loan and advances decreases and same for the remaining year.

2.1.3.2 Return on Total Assets

 27

This ratio measures the overall profitability of all working fund i.e., Total Assets. A
firm has to earn satisfactory return on working funds for its survival. Return on assets
(ROA) is an indicator of how profitable a company is relative to its total assets. ROA
gives a manager, investor, or analyst an idea as to how efficient a company's
management is at using its assets to generate earnings. The following table shows
return on total assets ratio of selected bank

Table 2.9

Return on Total Assets Ratio

Year NPAT Total Assets ratio
2073/074 104,232,944 4,612,393,111 0.0225
2074/075 144,209,774 7,452,362,534 0.0194
2075/076 222,017,422 10,582,389,095 0.0210
2076/077 349,011,275 17,662,114,792 0.0198
2077/078 441,859,945 25,237,498,466 0.0175
Mean 0.02004
S.D. 0.0012
C.V. 5.98%
(Source: Annual Reports (appendix))

From table 2.9 shows the return on total assets of GBBL during the fiscal year 073/74
to 077/78. The return of total assets of GBBL is in fluctuating trends during the study
period. The ratio stared form 0.0225 in 073/074, 0.0194 in 074/75 moved to 0.0210 in
the fiscal year 075/76 then decreases to 0.0198 in the fiscal year 076/77 and then
decreased to 0.0176 in the fiscal year 077/78. In average, the GBBL generated
0.02004 of its total assets investment as net profit.
 28

Figure 2.9

Return on Total Assets Ratio

0.025

0.02

0.015
return on total assets
ratio
0.01

0.005

0
2073/074 2074/075 2075/076 2076/077 2077/078

From figure 2.9, for the year 2075/076 the return on total assets increases and for the year
2076/077 returns on total assets decreases and same for the remaining year.

2.1.3.3 Total Interest Paid to Total Assets Ratio

The following table shows that total interest paid to total assets of GBBL
Table 2.10
Total Interest Paid to Total Assets Ratio
Year total interest paid Total assets ratio
2073/2074 244,667,957 4,612,393,111 0.0530
2074/075 269,328,134 7,452,362,534 0.0361
2075/076 384,582,939 10,582,389,095 0.0363
2076/077 754,198,495 17,662,114,792 0.0427
2077/078 1,443,897,407 25,237,498,466 0.0572
Mean 0.0450
S.D. 0.0086
C.V. 19.11%
(Source: Annual Reports (appendix))
 29

From table 2.10 shows that the total interest paid to total assets ratio of GBBL. The
higher ratio of GBBL is 0.0572 in same fiscal year 077/78. The lower ratio of GBBL
is 0.0361 in same year 074/75.From the table 2.10 we notice that mean ratio of GBBL
is 0.0450.

Figure 2.10

Total Interest Paid to Total Assets Ratio

0.07

0.06

0.05

0.04

0.03 total interest paid to

total assets ratio
0.02

0.01

0
2073/2074 2074/075 2075/076 2076/077 2077/078

From figure 2.10, total interest paid to total assets of a selected bank from the year
2074/075 to 2077/078 increases but for the year 2073/074 it decreases.

2.1.3.4 Return on Net Equity

This ratio measures the profit earned by the commercial banks by utilizing owner’s
equity there by generating return to safety the owners. 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.
The following table presents the net profit to net worth ratio of the banks
 30

Table 2.11

Return on Net Equity Ratio

Year NPAT Total Equity Capital Ratio
2073/074 104,232,944 523,697,675 0.1990
2074/075 144,209,774 973,638,721 0.1481
2075/076 222,017,422 1,205,765,202 0.1841
2076/077 349,011,275 2,828,367,435 0.1234
2077/078 441,859,945 3,167,313,203 0.1395
Mean 0.1588
S.D. 0.0283
C.V. 17.82%
Source: Annual Reports (appendix)

From table 2.11 shows the return on equity of GBBL during the fiscal year 073/74 to
077/78. The table shows that the returns on equity of the GBBL are in fluctuating
trends over the study period.

Figure2.11

Return on Net Equity Ratio

0.25

0.2

0.15
return on net equity
0.1 ratio

0.05

0
2074/075 2075/076 2075/076 2076/077 2077/078

From the figure, 2.11 Return on equity of GBBL over the period 2073/074 and
2077/078 is fluctuating nature. Return on equity for the year2075/076 increases and
decreases for the remaining year.
 31

2.2 Statistical Analysis of Various Variables

2.2.1 Correlation Analysis of Various Variables

For this purpose, Karl Pearson’s co-efficient of correlation has been taken and applied
to find out and analyze the relationship between deposit and loan and advances,
deposit and total investment, loan and advance and net profit, total investment and net
profit of GBBL using Karl Persons coefficient of correlation, value of coefficient of
are also calculated and value of them are analyzed.

Table 2.12

Coefficient of Correlation Analysis

Components Correlation of GBBL

Total Deposit and Loan & Advances 0.9942

Total Deposit and Total Investment 0.4611

Total Investment and Net Profit 0.4445

From the above table, it is found that coefficient of correlation between deposits and
loan and advances of GBBL is 0.9942. Similarly, the coefficient of correlation
between total deposit and total investment of GBBL is 0.4611.
Correlation coefficient between total investment and net profit of GBBL is 0.4445
which implies there is positive correlation between total investment and net profit.
 32

2.3 Questionaries Distributed and Collected

Table 2.13

Presentation of primary data

S. N Question Yes No

1 Is it possible to predict future profitability on 12 8

the basis of past return?

2 Is it possible to predict future liquidity on 17 3

thebasis of past information?

3 Does your bank electronic money transfer help 14 6

in effective cash management?

4 Is there a relationship between effective cash 18 2

management and liquidity of your bank?

5 Does the ICS of your bank reduce resource 11 9

misuse and fraud?

6 Is there a relationship between cash 13 7

management and profitability of your bank?

7 Is management of cash is important to your 20 0

bank?

Figure: 2.12
Response regarding profitability and past return

Yes
No

From figure 2.12, 60% of employee of GBBL believes that it is possible to predict
future profitability on the basis of past return but 40% of employees doesn’t believe
that.
 33

Figure: 2.13
Response regarding liquidity and past return

Yes
No

From figure 2.13, 84% of employees believes that it is possible to detect future
liquidity on the basis of the past return but16% of employees doesn’t believe that.

Figure: 2.14
Response regarding electronic money transfer

Yes
No

From figure 2.14, 14(70%) of employees believe that electronic transfer money helps
in cash management of their bank but 6(30%) of the employees believe that electronic
money transfer does not helps in their cash management system.
 34

Figure: 2.15
Response regarding effective cash management and liquidity

Yes
No

From figure 2.15, 18(85%) employees of Garima Bikash Bank Ltd. believes that there
is a relationship between effective cash management and liquidity of bank but
remaining employees (2) believes that there is no relationship whatsoever.

Figure: 2.16
Effect of ICS on bank resources

Yes
No

From figure 2.16, 11(55%) employees of GBBL believes that with the help of internal
control system misuse of resources of bank can be minimize but 9(45%) of employees
believes that there is no use of internal control system to minimize the misuse or fraud
in the bank. Internal control system formulates the rules for daily activities which
govern the employees of the bank.
 35

Figure: 2.17
Response regarding cash management and profitability

Yes
No

From figure 2.17, 13(65%) employees of Garima Bikash Bank Ltd. think that there is
a relationship between effective cash management and profitability of the bank. With
the proper use of cash at bank, bank can earn more profit but 7(35%) of employees
doesn’t believe that with proper cash management, there is no guarantee of more
profitability.

From the table 2.13, 100% (20) employees believe that cash management is important
to their bank. Bank is all about the money or cash. Cash is deposited or withdrawn by
the customer of the bank. With no proper cash management system in the bank, bank
cannot earn more profit

2.4 Major Findings

This assignment work report has been prepared as per the format prescribed by the
subject lecture and entitled „A Study on Analysis of Profitability and Liquidity of
Garima Bikash Bank Ltd‟. This report has been divided into three chapters as
Introduction, Presentation and analysis of data, Summary and conclusion. Major
findings are as follows:

 From the study, we can find that quick ratio of the bank is higher than the
standard ratio i.e., 1:1. Although the quick ratio is higher than the standard
ratio but it is fluctuating for the study period.
 36

 Liquidity ratio of the bank is lower than the standard ratio i.e.,2:1, it indicates
that the bank has fewer liquid assets and more liabilities. Liquidity ratio is
fluctuating over the study period.
 Return on total assets and return on net equity is fluctuation over the study
period.
 Total deposit, Cash and bank balance, Total investment and Net profit of
Garima Bikash Bank ltd. increases over the years.
 37

CHAPTER III:

SUMMARY AND CONCLUSIONS

3.1 Summary
This research is concerned about the comparative study on liquidity management of
Garima Bikash Bank LTD. Liquidity management helps to assist in analyzing the
situation of Liquidity position of bank. Therefore, proper planning and controlling is
important to survive and lead the company successfully. Organization cannot achieve
its goal without proper planning and implementation. Therefore, it is necessary to
make good management to reduce such risk. Liquidity management is one of the tools
to analyze the relationship between lending and borrowing. Liquidity management is
the part of risk management framework of financial service industry. Liquidity is the
lifeline of the GBBL; in this regard the term liquidity management fulfills the short-
term obligation of any types of organization. Liquidity management helps to show
about the company strength and weakness and solvency position in the market. In this
study mostly secondary data have been used and informal conversation for other
information. The main objective of the study is to find the liquidity and profitability
position of bank but there are many commercial banks so Garima Bikash Bank Ltd. is
selected for the study.

The researcher used to descriptive and analytical research design for the EB.
Descriptive research design defined the situation and analytical research design
analyzed information is critically evaluated of GBBL. The researcher also used
various financial tools i.e., liquidity ratio, asset management ratio, risk ratio,
efficiency ratio and trend analysis of these bank. The researcher also prepares some
questionnaire to collect the primary data. The question is given to the staff of the
Garima Bikash Bank Ltd. with the collection of primary data different analysis was
made on the liquidity and profitability of the bank. From the calculation we find that
the bank has low current ratio then the standard ratio but bank has quicker ratio than
the standard ratio. Return on equity increases over the study period.
 38

3.2 Conclusion
In conclusion, it can be said that liquidity analysis is one of the most important parts
of every financial institution.

GBBL have not better liquidity position because the standard ratio is 2:1. Generally,
banks require more liquid asset with compare to current liabilities in order to provide
better bank service. The cash and bank balance position of GBBL is good in order to
serve its customers deposits. It implies the better liquidity position of GBBL from the
viewpoint of depositor demand. In contrast a high ratio of cash and bank balance may
be undesirable which indicates the bank’s inability to invest its funds income
generating areas. Thus, GBBL should invest in more productive sectors like short
term marketable securities insuring enough liquidity which will help the bank to
improve its profitability. On the basis of cash reserve ratio, it can be considered the
liquidity position of GBBL is good.

GBBL has remained successful in mobilizing total assets in loans and advances.
However, the higher ratio also indicated that the total assets of GBBL are riskier.
However, banks seem to have poor performance in order to have returns from loan
andadvance because of heavy less than four percent of return on loan and advances as
four percent in benchmarking ratio in this case. The sample bank is required to
increase the ratio of return on total assets by making investment in higher sectors
because both the banks do not see to be utilizing their assets more efficiently.

The shareholders of GBBL remained satisfied as GBBL has generated more

percentage of average return from shareholders‟ equity. Similarly, there is positive
correlation between total deposit and total investment of GBBL and the correlation
coefficient between total investment and net profit of GBBL is also positive.
 Bibliography
Books, Journals, Reports and Articles

Adhikari, D.R. & Pandey, D.L. (2016), Business Research Methods, Kathmandu,
Asmita Books Publishers and Distributors (P) Ltd.
Bajracharya, B.C. (2056 B.S), Business Statistic and Mathematics, M.K. Publisher,
Kathmandu.

Damena, 2011, Determinants of commercial banks profitability: an empirical study on

Karobar Daily article “The Problem of Liquidity Management”

Kothari, C.R. (1990), Research Methodology: Methods and Technique, New Delhi.

Previous Thesis
Belayneh (2011), Determinants of commercial banks profitability: an empirical review
of Ethiopian commercial banks, MSc project paper, Addis Ababa University

Deepak Giri (2004 A.D), “Liquidity Management of Commercial Banks in Nepal.”

TU, Kathmandu.
Ishwari Poudel (2010) “Liquidity Management of Commercial Bank (in reference to
NBL and KBL)”.
Kishor Poudel (2002 A.D) “A study on Investment & Liquidity Position of Joint
Venture Commercial Banks in Nepal.” TU Kathmandu.
Maharjan Bidhya Laxmi (2009 A.D) “Liquidity Management in Commercial Banks of
Nepal”, T.U, Kathmandu
Niraj Pradhan (2013) “Liquidity Management of Himalayan Bank Ltd”, T.U,
Kathmandu.
Reema Shrestha (2002 A.D)," Liquidity Position of Commercial Bank of Nepal," TU
Kathmandu.
 Appendix
Questionnaire
The information is collected for the research on profitability and liquidity of GBBL.
All information will be kept secret and it will be used for research purpose only. Your
valuable time and cooperation will be highly appreciated.

Please fill in the blank or tick the option according to your view.

Section: one

Person related

S. N Question Response category

1 Sex Male [ ]

Female [ ]

2 Marital status Single [ ]

Married [ ]

3 Age …………….

4 Length of services …………….

Section: Two

Research related

S. N Question Response category

1 Is it possible to predict future profitability on Yes [ ]

the basis of past return?
No [ ]

2 Is it possible to predict future profitability on Yes [ ]

the basis of publicly available information?
No [ ]

3 Does your bank electronic money transfer helps Yes [ ]

in effective cash management?
No [ ]

4 Is there a relationship between effective cash Yes [ ]

management and liquidity of your bank?
No [ ]
5 Does the ICS of your bank reduce resource Yes [ ]
misuse and fraud?
No [ ]

6 Is there a relationship between cash Yes [ ]

management and profitability of your bank?
No [ ]

7 Is management of cash is important to your Yes [ ]

bank?
No [ ]