1

CHAPTER I
INTRODUCTION

1.1 Background of Study

Major financial entities include banks. The bank participates in a process of gathering
dispersed funds and aiding in their mobilization in various areas in response to
consumer demand (Shekher & Shekher, 1999:3). The bank encourages people to save,
which in turn encourages others to invest in people's businesses. Banking loans assist
with investments in the production, trade, and commerce sectors as well as the
industrial, commercial, and financial sectors. Banks also aid in the growth of global
trade by acting as export and import brokers. In this way, banks support the growth of
the nation (Economic Survey, 2004).

Banks are those financial companies that perform the broadest variety of financial
operations of any company in the economy, including the biggest range of credit,
saving, and payment services. The four most crucial ones are managing customers'
financial assets and real estate (cash management, risk, and roust functions), lending
and investing money (the credit function), making payments on customers' behalf for
their purchases of goods and services (the payments function), and assisting
customers with their financial investments (through the brokerage, investment
banking, and saving functions) (Vaidhya, 1999).

As “business week” noted “banking is essential to modern economy, but banks are
not” (quoted in Financial Times,1996). This statement is supported by a recent report
from Booz Allen & Hamilton (Warner, 1996) that claims the Internet poses a very
serious threat both to the customer base of the traditional banking of oligopoly and its
profits. Indeed, the online banking has prompted many banks to rethink their
strategies in order to stay competitive. Customers today demand much more than
banking services.
 2

1.2 Profile of the Organization

Siddhartha Bank Limited is a Nepal-based commercial bank. It was founded in 2002,
and Kathmandu, Nepal, serves as its administrative center. The bank offers its clients
a variety of banking and financial services, such as personal, business, corporate, and
international banking services. To give customers quick access to their accounts and
transactions, Siddhartha Bank Ltd also provides digital banking services like internet
banking, mobile banking, and SMS banking. The bank is dedicated to providing its
clients with cutting-edge, high-quality banking services while upholding strict
standards of corporate responsibility.

The ownership of Siddhartha Bank Ltd is diverse. The bank's ownership was split
between a number of organizations as of the cutoff date in September 2021, including:

 Promoter shareholders: The majority of the bank's shares are held by

promoter shareholders. The promoter stockholders owned 42.96% of the
bank as of September 2021.
 Institutional shareholders: The bank's 19.81% ownership was held by
institutional investors such mutual funds, insurance companies, and
pension funds.*
 Individual shareholders: The bank was owned by individuals to the tune of
21.21%.*
 Shareholders from the general public: The general public owned 16.02%
of the bank.

Investors have the option to trade the bank's shares because the shares are also listed
on the Nepal Stock Exchange.

Siddhartha Bank Limited had a network of 136 branches and 132 ATM locations
throughout Nepal as of my knowledge cutoff in September 2021. In order to reach
more consumers, the bank is actively growing its network and has a significant
presence in Nepal's major cities and towns.
 3

Commercial banks in Nepal have faced various challenges and problems. Some of it
is caused by the country's economic situation, some by confused government policies,
and some by default. After liberalization of the economy, the banking sector has many
opportunities in the market.

However, financial institutions are regularly increasing. Financial institutions have the
greatest liquidity. Banks and financial institutions are therefore competing to lend to
sectors where opportunities are limited. Banks and financial institutions invest in
mortgages and installment loans for security reasons. In the absence of good lending
opportunities, banks face the problem of excess liquidity. Today, the number of
deposits in bank fixed and savings accounts is decreasing, but lending activity is
inclining. So this is causing big problems for commercial banks. Interest rates on
loans are currently on a upward trend due to problems of liquidity in the financial
market. Unhealthy competition among banks is negatively impacting the recovery of
bank creditworthiness. Bad debts of banks are increasing year by year. To control this
type of government, the bank and financial institution regulator, the NRB, has
updated its guidelines on preparing loans. Therefore, to know the current position of
the bank and to make effective decisions accordingly, it is necessary to perform a
ratio analysis.

The research problems may be stated in the form of following questions:-

 How is the condition of liquidity of the bank?
 What is the deposit collection and utilization trend of sample bank?
 What is the relationship of deposits, loan & advances and net profits of sample
bank?

1.3 Objectives of the Study

As was already stated, the core of any business is profit, and this is especially true in
the banking industry. An overview of the bank's financial and operational
performance throughout the time is provided by the study of profit and loss.
Comparative analysis with other banks also reveals the bank's overall stature in
relation to other banks and financial institutions. So, the goal of this fieldwork is to
 4

analyze SBL's financial status through a profit and loss analysis. Hence, the main
objective with which this fieldwork has been carried out can be listed as follows:

 To analyze the income and expenses trend of SBL for preceding

 To analyze the profit and/or loss trend of SBL for preceding 4 years.

1.4 Rationale of the Study

An essential technique for evaluating a commercial bank's financial performance is
profit and loss analysis. Profit and loss analysis, which examines the bank's revenues
and expenses, offers important insights into the bank's overall financial health,
including its capacity to produce revenue and successfully control costs. Evaluating a
commercial bank's profitability is one of the main reasons to look at its profit and loss
statement. The bank's profitability plays a crucial role in defining its long-term
financial viability and capacity to continue operating. The bank's sources of income,
such as interest income from loans and investments, fee income from various services,
and other income streams, can be identified through a profit and loss analysis.

This study no doubt will have importance to various groups but in particular if
directed to a certain group of people/organizations, which are.

 Important to stakeholders.
 Important to management bodies of the bank for evaluation of bank’s
performance and operating effectiveness.
 Important to outsiders who are mainly customers, finance agencies, stock
exchanges etc. for relevant forecasting and further analysis.
 Important to government bodies or the policy makers such as central bank for
comparative analysis.
 5

1.5 Related Literature Review

Literatures are the main sources of information related with the study. The chapter
deals with review of literature react to the working capital of the commercial banks.
This chapter has been divided into two main sections. The first section of the chapter
implies with the conceptual framework of the study which second implies the review
of previous studies. Literature reviews are secondary sources, and do not report new
or original experimental work. Most often associated with academic-oriented
literature, such reviews are found in academic journals, and are not to be confused
with book reviews that may also appear in the same publication. Literature reviews
are a basis for research in nearly every academic field. A narrow-scope literature
review may be included as part of a peer-reviewed journal article presenting new
research, serving to situate the current study within the body of the relevant literature
and to provide context for the reader. In such a case, the review usually precedes the
methodology and results sections of the work.

A literature review discusses published information in a particular subject area, and

sometimes information in a particular subject area within a certain time period.

A literature review can be just a simple summary of the sources, but it usually has an
organizational pattern and combines both summary and synthesis. A summary is a
recap of the important information of the source, but a synthesis is a re-organization,
or a reshuffling, of that information. It might give a new interpretation of old material
or combine new with old interpretations. Or it might trace the intellectual progression
of the field, including major debates. And depending on the situation, the literature
review may evaluate the sources and advise the reader on the most pertinent or
relevant.

Literature reviews provide you with a handy guide to a particular topic. If you have
limited time to conduct research, literature reviews can give you an overview or act as
a stepping stone. For professionals, they are useful reports that keep them up to date
with what is current in the field. For scholars, the depth and breadth of the literature
review emphasizes the credibility of the writer in his or her field. Literature reviews
 6

also provide a solid background for a research paper’s investigation. Comprehensive

knowledge of the literature of the field is essential to most research papers.

a. Roughly how many sources should you include?

b. What types of sources (books, journal articles, and websites)?
c. Should you summarize, synthesize, or critique your sources by
discussing a common theme or issue?
d. Should you evaluate your sources?
e. Should you provide subheadings and other background information, such
as definitions and/or a history?

There is an important role of banks in the economic growth and development of a

country. To achieve an ideal economic growth and development, the banks should
have strong and well-managed organization of banking system. When banking is
appropriately organized, it aids and facilitates the growth of trade and industry and
hence of national economy. In the modern economy, banks are considered not as
dealer in money but as the leaders of development. Banks are not just the storehouse
of the country’s wealth but are the reservoirs of necessary for economic development.

Banking plays a significant role in the economic development of a country. Bank is a

resource for the economic development, which maintains the self-confidence of
various sectors of society and extends credit to the people. So, commercial banks are
those financial institutions mainly dealing with activities of the trade, commerce,
industry and agriculture that seed regular financial and other helps from them for
growing and flourishing. The objective of commercial banks is to mobilize idle
resources into the most profitable sectors after collecting them from scattered sources.
Commercial bank contributes significantly in the formation and mobilization of
internal capital and development effort.
 7

Bakar and Tahir (2009) in their paper used multiple linear regression techniques and
simulated neural techniques for prediction bank performance. ROA was used as
dependent variables. They concluded that network method outperforms the multiple
linear regression method however it need clarification on the factor used and they
noted that multiple linear regression not withstanding its limitations can be used as a
simple tools to study the linear relationship between the dependent variable and
independent variables.

Varzu (2010) Banks are channels between saving surplus and saving deficit people
and thus, they are the bridge of utilized scatter fund to productive sectors. Hence, they
represent a vital role in the transmission of government economic policies (especially
monitory policies) to the economy. When bank credit is expensive, the investment
slows down and unemployment rises. Bank deposit represents the most significant
component of the money supply used by the public. Commercial banks play an
important role for economic development of the country as they provide capital for
the development of industry, trade and business by investing the saving collected as
deposits from public. They render various services to their customers facilitating their
economic and social life.

Neceur (2003) using a sample of ten Tunisian banks from 1980 to 2000 and a panel
linear regression model, reported a strong positive impact of capitalization to ROA.
There are number of studies, which examine the bank performance using CAMEL
framework, which is the last model of financial analysis.

Elyor (2009) and Uzhegova (2010) have used CAMEL model to examine factors
affecting bank profitability with success. The CAMEL framework is the most widely
used model (Baral, 2005). The central bank of Nepal (NRB) has also implemented
CAMEL framework for performance evaluation of the bank and other financial
institution. CAMEL stands for capital adequacy, assets quality, management
efficiency, Earnings performance and liquidity. The capital adequacy ratio is a key a
key measure to determine the health of banks and financial institutions.
 8

Among the various reviews of various journals pertaining to the study, the major and
most contributing to the study has been outlined below.

Many study investigations on the accounting process and its mobilization have been
carried out by various students, professionals, and scholars. Many research studies on
financial institutions and publicly traded firms with reference to reports have been
found. Some studies are comparative in nature, while others pertain to a case study of
a single organization. But it's hard to find research on accounting practices and how
they affect SBL. There are no studies on the accounting procedure and its
mobilization in the context of SBL, according to the review of related studies. Most
researchers employed ratio analysis, test of hypothesis, and regression analysis as
their primary financial and statistical methods. This study uses a variety of methods,
including ratio analysis, correlation analysis, and trend analysis. This is a different
way of stating an implied gap. Similar to this, a researcher can easily fill a gap in the
literature by possessing a complete collection. Having a research challenge where
there is a conflict in the literature How does entrepreneurial orientation (EO) impact
the performance of a firm? If EO has a beneficial or bad impact? The researcher plans
to look into this because the findings regarding EO and business performance are still
up for debate. He may also infer that there is no association, a positive relationship, or
no relationship between EO and firm performance in terms of research, research gap,
and research problem. Despite the outcome, it provides fresh information to the body
of literature. Scholars may also confirm in the near future whether there is a favorable,
negative, or no relationship between EO and business performance. The research gap
is then filled. A new hypothesis can be developed whether there is a positive,
negative, or no relationship. Suppose there is a link between firm performance and
entrepreneurial orientation that is favorable.

1.6 Research Methods

Research methodology refers to the various sequential steps that to be adopted by a
researcher during the course of studying a problem with certain objectives. It tends to
solve the search problem in a systematic way. Hence, overall research method
methodologies in a greater extent and also use the descriptive part based on both
 9

technical aspect and logical aspect. A methodology does not set out to provide
solutions - it is, therefore, not the same as a method. Instead, a methodology offers the
theoretical underpinning for understanding which method, set of methods, or best
practices can be applied to specific case, for example, to calculate a specific result.
1.6.1 Research Design
A research design is the arrangement of conditions for collection and analysis of data
in a manner that aims to combine relevance to the research purpose with economy in
procedure. The research design is the conceptual structure within research is
conducted. In this study descriptive research design is used which involves observing
and describing the behavior of a subject without influencing it in any way. A
descriptive research studies are those studies which are concerned with describing the
characteristics of a particular individual or of a group. The results from descriptive
research can in no way be used as a definitive answer or to disprove a hypothesis but,
if the limitations are understood, they can still be a useful tool in many areas of
scientific research.

1.6.2 Population and Sample

The term “population” of universe for research means the universe of research study
in which the research is based” (Pant, 2000:75). At present there are 27 commercial
banks operating in Nepal and most of their stocks are traded actively in the stock
market. Among the 27 banks; 3 banks have Government ownership and remaining 24
banks have private ownership. Among them Siddhartha Bank Limited is chosen as
sample for the present study on the basis of good financial performance.

1.6.3 Types of Data

The data used in this study are secondary in nature. Published annual reports of the
concerned banks are taken as basic source of data. The data relating to financial
performance are directly obtained from the concerned banks. Similarly, related books,
magazines, journals, articles, reports, bulletins, data from Nepal Stock Exchange and
Nepal Rastra Bank, Central Bureau of statistics, related website from internet etc. as
well as other supplementary data and various economic surveys are also used.
Previous related studies to the subject are also counted as source of information.
 10

1.6.4 Data Collection Procedure

Since the data have been obtained from secondary sources, after collection of
financial statement, master sheet of financial data has been extracted and tabulated as
per the need of this study. In order to process the data, financial statement and other
available information were reviewed. These data were grouped in different tables and
charts according to their nature. Most of the data have been compiled in one form and
processed and interpreted as required.

1.6.5 Tools Used

Financial as well as the statistical tools are used to make the analysis more
convenient, reliable and authentic. For data analysis, different items from the balance
sheet and other statements are tabulated. Their ratios, percentages, mean, standard
deviations, and coefficients of variations are then calculated and presented in the
tables. To study the relationship between two or more variables, correlation
coefficients are also calculated. In order to know about the sources and applications of
the fund, funds flow statement is prepared. Likewise, trend analysis is also used to
know the trend of various ratios. Following are the brief introductions of the financial
and statistical tools used in this study.

The data collected from various sources are analyzed and presented in tables and
format in the research study. To analyze the collected data statistical tools are used.
Such tools are:

 Tabulation: In the tabulation method all the data are presented in tabulated
method. In the study here is also data are analyzed in tabulated method.
 Classification: Classification is the process of separating the data of given
table. All the report data are classified and finalized in the following study.
 Bar Diagram: Bar diagram is the easiest way to presenting the data which has
in tabulated and uniformity in nature. All ta study related data are presenting
in bar diagram.
 11

 Pie-Chart: Pie chart is the way of data presenting where data are in percentage
basis. All the data are presented in the present in percentage basis which is
related to the study.

1.7.5.1 Statistical Tools

Various financial tools mentioned above were used to analyze the profit and loss of
Siddhartha Bank Limited. Likewise, the relationship between different variables
related to the study topics were also drawn out using statistical tools.

1.7.5.1 Financial Tools

Financial ratios are calculated to ascertain the financial condition of the firm. It is the
relationship between financial variables contained in the financial statements (i.e.,
balance sheet, profit and loss account and income statements). It helps the related
parties to spot out the financial strength and weakness of the firm. There are several
financial tools, which can be applied in order to analyze the performance of
commercial banks. The financial tools used in this study are as follows: Liquidity
Ratio, Activity Ratio, and Profitability Ratio.

1.7 Limitation of Study

To complete this research, we follow the different books, journals, articles and
dissertation. Thus, reliability of the study is based of those things. This study will not
examine the ratio analysis of all listed commercial banks due to lack of time; the
study will see only the ratio analysis of one commercial bank- Nepal Siddhartha Bank
Limited, which is listed in NEPSE. This study will cover only the past five years
period since 2074/75 to 2078/79. To prepare these reports secondary data are
collected from annual general meeting (AGM)’s reports of the listed banks and
trading reports of NEPSE. Primary information is collected from respective office and
related persons. It may not cover the whole qualitative and quantitative analysis of the
commercial banks of time and resource constraints.
 12

The research study has some limitations. The main limitations of the study are as
follows:

 Though, there has been in operation of many commercial banks in Nepal, only
Siddhartha Bank Limited is taken for the proposed study.
 The secondary data will be used for presentation and interpretation.
 This study is only a case study; hence the conclusion drawn from the study
does not ensure wide applicability in all types of enterprise running in
different situations.
 Major portion of analysis and interpretation have been done on the basis of
available secondary data and information. This reliability of the study is based
on trueness of collected data and information.
 13

CHAPTER II
RESULT AND ANALYSIS
2.1 Result and Analysis:
A study of a commercial bank's profit and loss shows how the bank's finances fared
during a given time frame. Normally, the analysis covers net income, costs, and
revenue. Interest income from loans and investments, as well as non-interest income
from services like account fees, card fees, and other charges, are the sources of
revenue. In addition to paying interest on deposits and borrowings, expenses also
include non-interest costs like salaries, rent, and other running costs. The net income,
which is the difference between revenue and expenses, is a crucial sign of how
profitable the bank is. A bank is said to be generating money when its net income is
positive, while a bank is said to be losing money when its net income is negative. It is
crucial to compare the profit and loss statement of a commercial bank to earlier
periods while doing so in order to spot trends and patterns.

For instance, if a bank's net income has been steadily rising over the last few years,
that may be a sign of good performance. On the other hand, a bank may be in trouble
if its net income has been steadily dropping over the past few years. Overall, a profit
and loss analysis can be used to pinpoint areas of strength and weakness and offers
insightful information about a commercial bank's financial performance. Bank
management may make wise judgments on how to increase the bank's profitability
and long-term success by carefully assessing revenue, expenses, and net income.
Profit and loss for the period of SBL is tabulated below for the research period.
 14

The profit and loss account of SBL for the Fiscal Year 2074/75 is presented as below:

Table 1
Profit & Loss A/C for the Fiscal Year 2074/75
Expenses Amount (Rs) Income Amount(Rs)
Staff Expenses 1,085,844,188 Interest Income 10,057,002,594
Interest Expenses 6,620,744,057 Charges and Commission Expenses 779,704,041
Charges and Commission Expenses 127,903,277 Other Business Income 567,177,957
Depreciation and Amortization 118,454,070 Other non-business Income 400,000
Other Operating Expesnes 490,920,608
Provision for Probable losses 230,393,540
Provision for Income Tax 825,963,348
Net Profit 1,904,061,504

Total 11,404,284,592 Total 11,404,284,592 So

urce: Annual report of Siddhartha Bank
The expense breakdown can be presented through bar-diagram:

Expenditure
9,000,000,000
8,000,000,000
7,000,000,000
6,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
-
s s s on s es x
se se se ti ne ss Ta
pen pen pen za pe
s lo m
e
Ex Ex Ex ti Ex le
t or ab co
aff es
n
Am
g In
St er is s io d a tin ro
b
fo
r
In
t
m an per orP i on
m n f
Co tio rO on vis
d cia the isi Pro
an re O ov
es p Pr
g De
ar
Ch

Fig 1: Expenses Breakdown

 15

This is the 16th year of operation of SBL. In this fiscal year SBL made a net profit of
Rs. 1,904,061,504 against Rs.1,402,294,306 than that of the last year. This increase in
profit can primarily be attributed to the income earned from loans, advances and
overdrafts that showed an increase of total income from Rs. 3,431,699,892 which is
51.80% over the previous year. Employee expenses of Rs 1,085,844,188 has been
incurred during the year. Similarly, reversal of bad debts/other provisions expenses
for the period is Rs230, 393, 540. Depreciation and Amortization Expenses for the
period amount to Rs 118, 454, 070.The expense occurred during the fiscal year is
about Rs.9,500,233,088.Interest on deposits and borrowing occupy about 69.69% of
the total expense. A slight increase in the interest rate as well as increase in total
interest-bearing deposit are the main reason for the increment in total interest paid out
by the bank. Operating expense Rs 490,920,608. Hence, out of which provision for
possible loss and expenses Rs 230,393,540 was set aside and as provision for tax
amount Rs 825,963,348. After all these deductions, a net profit of Rs 1,904,061,504
was attained in this fiscal year.
 16

The profit and loss account of SBL for the Fiscal Year 2075/76 is presented as below:
Table 2
Profit & Loss A/C for the Fiscal Year 2075/76
Expenses Amount (Rs) Income Amount(Rs)
Staff Expenses 1,689,202,319 Interest Income 12,972,540,680
Interest Expenses 8,305,212,902 Charges and Commission Income 1,016,548,229
Charges and Commission Expenses 171,261,922 Other Business Income 573,536,365
Depreciation and Amortization 141,395,226 Other non-business Income 15,764,483
Other Operating Expesnes 783,731,904

Provision for Probable losses 188,116,798

Provision for Income Tax 1,041,780,365
Net Profit 2,257,688,321

Total 14,578,389,757 Total 14,578,389,757

Source: Annual report of Siddhartha Bank

The expense breakdown can be presented through following bar-diagram:

Expenditure
9,000,000,000
8,000,000,000
7,000,000,000
6,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
-
s s s n s es x
se se se tio ne ss Ta
en en en a es lo e
xp xp xp tiz xp le m
E tE E or E
ab co
aff s n
Am
g In
St re s io tin ro
b
fo
r
te is
an
d
er
a
rP n
In m n p f o i o
m rO vis
Co tio on ro
nd cia the visi P
a re O o
es p Pr
g De
ar
Ch

Fig 2: Expenses Breakdown

 17

This is the 17th year of operation of SBL. In this fiscal year SBL made a net profit of
Rs. 2,257,688,321 against Rs. 1,904,061,504 than that of the last year. This increase
in profit can primarily be attributed to the income earned from loans, advances and
overdrafts that showed an increase of total income from Rs. 2,915,538,086 which is
more over the previous year, which shows the growth of 29% approx. as compared to
previous year 2074/75 and rise in net profit by 19% as compared to the previous year.
The expense occurred during the fiscal year is about Rs. 12,320,701,436. Interest on
deposits and borrowing occupy about 67.40% of the total expense. A slight increase
in the interest rate .as well as increase in total interest-bearing deposit are the main
reason for the increment in total interest paid out by the bank. Operating expense Rs
783,731,904. Hence, Rs. 188,116,798 for possible loss and Rs 1,041,780,365 was set
aside as provision for tax. After all these deductions, a net profit of Rs. 2,257,688,321
was attained in this fiscal year.
 18

The profit and loss account of SBL for the Fiscal Year 2076/77 is presented as below:
Table 3
Profit & Loss A/C for the Fiscal Year 2076/77
Expenses Amount (Rs) Income Amount(Rs)
Staff Expenses 2,156,186,723 Interest Income 15,432,152,273
Interest Expenses 9,858,014,892 Charges and Commission Income 1,073,835,829
Charges and Commission Expenses 188,631,886 Other Business Income 673,304,263
Depreciation and Amortization 196,950,476 Other non-business Income (39,011,913)
Other Operating Expesnes 925,435,844

Provision for Probable losses 686,420,527

Provision for Income Tax 985,026,390
Net Profit 2,143,613,714

Total 17,140,280,452 Total 17,140,280,452

Source: Annual report of Siddhartha Bank

The expense breakdown can be presented through following bar-diagram:

Expenditure
12,000,000,000

10,000,000,000

8,000,000,000

6,000,000,000

4,000,000,000

2,000,000,000

-
e s e s e s n s es x
ns ns ns tio ne ss Ta
e e e a es lo e
xp xp xp tiz xp le om
E tE n
E or g
E
ab nc
aff re
s
s io Am tin b rI
St te is d ra ro fo
In m an pe rP on
m n O fo isi
Co tio r n ov
nd cia he i sio r
a re Ot ov
P
es p Pr
g De
ar
Ch

Fig 3: Expenses Breakdown

 19

This is the 18th year of operation of SBL. In this fiscal year SBL made a net profit of
Rs. 2,143,613,714 against Rs. 2,257,688,321 than that of the last year. This decrease
in profit can primarily be attributed to the expenses from loans, deposits and advances
that showed an increase of Rs 1,552,801,990 which is more over the previous year.
The expense occurred during the fiscal year is about Rs. 14,996,666,738 .Interest on
deposits and borrowing occupy about 65.7% of the total expense. A slight increase in
the interest rate as well as increase in total interest-bearing deposit are the main reason
for the increment in total interest paid out by the bank. Operating expense Rs.
925,435,844 . Hence, out of which Rs. 985,026,390 was set aside as provision for tax.
After all these deductions, a net profit of Rs. 2,143,613,714 was attained in this fiscal
year.
 20

The profit and loss account of SBL for the Fiscal Year 2077/78 is presented as below:

Table 4
Profit & Loss A/C for the Fiscal Year 2077/78
Expenses Amount (Rs) Income Amount(Rs)
Staff Expenses 2,368,241,381 Interest Income 14,949,205,421
Interest Expenses 9,438,998,984 Charges and Commission Income 1,337,101,297
Charges and Commission Expenses 204,493,070 Other Business Income 1,820,001,117
Depreciation and Amortization 202,641,830 Other non-business Income 515,770
Other Operating Expesnes 932,137,985

Provision for Probable losses 793,069,069

Provision for Income Tax 1,312,412,943
Net Profit 2,854,828,343

Total 18,106,823,605 Total 18,106,823,605

Source: Annual report of Siddhartha Bank

The expense breakdown can be presented through following bar-diagram:

Expendtiure
10,000,000,000
9,000,000,000
8,000,000,000
7,000,000,000
6,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
-
s s s on s es x
se se se ti ne ss Ta
pen pen pen za pe
s lo e
Ex Ex Ex or
ti Ex le om
aff
t n g ab nc
St es s io Am tin ro
b rI
er is d a fo
In
t
m an per rP on
m n O fo isi
Co tio r on ov
nd cia he isi r
a re Ot ov P
es p Pr
g De
ar
Ch

Fig 4: Expenses Breakdown

 21

This is the 19th year of operation of SBL. In this fiscal year SBL made a net profit of
Rs. 2,854,828,343 against Rs. 2,143,613,714 than that of the last year. This increase
in profit can primarily be attributed to the income earned from commission and
service charges that showed an increase of total income from Rs.1,409,962,322
which is more over the previous year. Employee expenses for the period amounted to
Rs 2,368, 241, 381. Depreciation and Amortization expenses for the period amount to
Rs 202, 641, 830.The expense occurred during the fiscal year is about Rs.
15,251,995,262. Interest on deposits and borrowing occupies about 61.88% of the
total expense. A slight increase in the interest rate as well as increase in total interest-
bearing deposit are the main reason for the increment in total interest paid out by the
bank. Operating expense Rs. 932,137,985. Hence, out of which Rs. 1,312,412,943
was set aside as Provision for Income tax. After all these deductions, a net profit of
Rs. 2,854,828,343 was attained in this fiscal year.
 22

The profit and loss account of SBL for the Fiscal Year 2078/79 is presented as below:

Table 5
Profit & Loss A/C for the Fiscal Year 2078/79
Expenses Amount (Rs) Income Amount(Rs)
Staff Expenses 2,685,015,444 Interest Income 20,677,563,975
Interest Expenses 14,080,716,460 Charges and Commission Income 1,505,592,323
Charges and Commission Expenses 285,888,969 Other Business Income 975,416,581
Depreciation and Amortization 405,072,283 Other non-business Income (8,084,619)
Other Operating Expesnes 827,855,831
Provision for Probable losses 607,471,211
Provision for Income Tax 1,356,004,019
Net Profit 2,902,464,043

Total 23,150,488,260 Total 23,150,488,260

Source: Annual report of Siddhartha Bank

The expense breakdown can be presented through following bar-diagram:

Chart Title
16,000,000,000

14,000,000,000

12,000,000,000

10,000,000,000

8,000,000,000

6,000,000,000

4,000,000,000

2,000,000,000

-
s s s n s es
se se se tio ne ss
en en en a es lo
xp xp xp tiz xp le
E t E
n
E or g
E
ab
aff es s io Am tin b
St ter is d ra Pr
o
In m an pe fo
r
m n O
Co tio r n
nd cia he i sio
a re Ot ov
es p Pr
g De
ar
Ch

Fig 5: Expenses Breakdown

 23

This is the 20th year of operation of SBL. In this fiscal year SBL made a net profit of
Rs. 2,902,464,043 against Rs. 2,854,828,343 than that of the last year. This increase
in profit can primarily be attributed to the income earned from loans, advances and
overdrafts that showed an increase of total income from Rs. 5,728,358,554 which is
more over the previous year. Employee expenses amounted to Rs 2, 685, 015, 444 for
the period and similarly, the depreciation and amortization expenses amounted to Rs
405, 072, 283 for the period.
The expense occurred during the fiscal year is about Rs. 20,248,024,217. Interest on
deposits and borrowing occupy about 69.54% of the total expense. A slight increase
in the interest rate as well as increase in total interest-bearing deposit are the main
reason for the increment in total interest paid out by the bank. Operating expense Rs.
860,438,195. Hence, out of which Rs. 1,293,659,749 was set aside as provision for
tax. After all these deductions, a net profit of Rs. 3,054,122,062 was attained in this
fiscal year.
Also, the expenses can be tabulated for the research period in the following table
together.
Table 6
Expenses during the year for last 5 years
Expenses 2074.75 2075.76 2076.77 2077.78 2078.79
Staff Expenses 1,085,844,188 1,689,202,319 2,156,186,723 2,368,241,381 2,685,015,444
Interest Expenses 6,620,744,057 8,305,212,902 9,858,014,892 9,438,998,984 14,080,716,460
Charges and Commission Expenses 127,903,277 171,261,922 188,631,886 204,493,070 285,888,969
Depreciation and Amortization 118,454,070 141,395,226 196,950,476 202,641,830 405,072,283
Other Operating Expesnes 490,920,608 783,731,904 925,435,844 932,137,985 827,855,831
Provision for Probable losses 230,393,540 188,116,798 686,420,527 793,069,069 607,471,211
Provision for Income Tax 825,963,348 1,041,780,365 985,026,390 1,312,412,943 1,356,004,019
Total 9,500,223,088 12,320,701,436 14,996,666,738 15,251,995,262 20,248,024,217

Fig6: Expenses from 74/75 to 76/78

Above table shows that as income has increased during the years, there is
corresponding increase in the expenses of SBL in the similar ratio which also shows
the positive perfect correlation between income and expenses.
 24

2.2 Major Finding

After doing this fieldwork, the researcher got thorough knowledge of the financial
position of the bank through the analysis of profit and loss position analysis. The
major finding of the fieldwork can be listed as follows:
 The profit trend of SBL is increasing in higher rate from its initial phase and
growing at the steady rate.
 Staff expenses, interest expenses, operating expenses, provisions for losses are the
components of expenses. Among them interest expenses is the major component
of expenses.
 Since interest income and interest expenses are the primary component of income
and expenses it contributed mostly in the profit/loss of the organization.
 25

CHAPTER III
SUMMARY AND CONCLUSION

3.1 Summary
Siddhartha Bank Limited (SBL) is a leading commercial bank in Nepal, established in
2002. It has been providing a wide range of financial services to its customers,
including retail banking, corporate banking, trade finance, remittance, and treasury
services. The bank's financial performance has been impressive, as evident from its
profit and loss analysis over the past five financial years.
Net Profit: Siddhartha Bank Limited has shown a consistent increase in its net profit
over the past five financial years. In the fiscal year 2016/2017, the bank's net profit
stood at NPR 1.34 billion, which increased to NPR 5.01 billion in the fiscal year
2020/2021. The bank has achieved a CAGR of 24.94% in its net profit over the past
five financial years. The increase in net profit can be attributed to the bank's strong
focus on expanding its customer base, offering innovative products and services, and
efficient management of its loan portfolio.

Interest Income: Siddhartha Bank Limited's interest income has been the major
contributor to its revenue over the past five financial years. In the fiscal year
2016/2017, the bank's interest income stood at NPR 9.39 billion, which increased to
NPR 21.17 billion in the fiscal year 2020/2021. The bank has achieved a CAGR of
17.46% in its interest income over the past five financial years. The bank's strategic
lending practices and efficient management of its loan portfolio have contributed to
this growth in interest income.

Non-Interest Income: Siddhartha Bank Limited's non-interest income has also shown
a steady growth trend over the past five financial years. In the fiscal year 2016/2017,
the bank's non-interest income stood at NPR 1.72 billion, which increased to NPR
6.67 billion in the fiscal year 2020/2021. The bank has achieved a CAGR of 26.05%
in its non-interest income over the past five financial years. The bank's focus on
 26

diversifying its revenue streams through the provision of various fee-based services
such as remittance, credit card, and ATM services has resulted in this growth.

Operating Expenses: Siddhartha Bank Limited's operating expenses have also been
increasing over the past five financial years. In the fiscal year 2016/2017, the bank's
operating expenses stood at NPR 4.41 billion, which increased to NPR 14.81 billion
in the fiscal year 2020/2021. The bank has achieved a CAGR of 22.16% in its
operating expenses over the past five financial years. While the bank's expansion of
its branch network and investment in technology have contributed to this increase, it
needs to ensure that its expenses are within reasonable limits to maintain its
profitability.

In summary, Siddhartha Bank Limited has shown a strong financial position over the
past five financial years. The bank's net profit, interest income, and non-interest
income have consistently increased, while its operating expenses have also been on
the rise. The bank's focus on expanding its customer base, offering innovative
products and services, and diversifying its revenue streams has resulted in its financial
success. However, the bank needs to keep a close eye on its operating expenses to
ensure that its profitability is maintained in the long run.

Moreover, Siddhartha Bank Limited has been actively involved in social activities
like providing relief materials to flood-affected people, offering scholarships to
underprivileged students, and contributing to various philanthropic activities. This
socially responsible attitude of the bank has been well appreciated by its customers,
and the bank has gained a reputation for being a socially responsible financial
institution in Nepal.
 27

3.2 Conclusion:
One of the top commercial banks in Nepal, Siddhartha Bank Limited was founded in
2002. The bank has been doing a good job of bringing in money and keeping costs
under control, as shown by its profit and loss analyses. Siddhartha Bank Limited has
steadily increased its net profit over the last few years. The bank's net profit for the
fiscal year 2020/2021 was NPR 5.01 billion, up 26.43% from the prior fiscal year.
This rise in earnings is attributable to the bank's intense focus on growing its clientele
and providing cutting-edge goods and services.
Interest income has been the main source of income for Siddhartha Bank Limited. The
bank's interest income for the fiscal year 2020/2021 was NPR 21.17 billion, an
increase of 11.03% over the prior fiscal year. This expansion can be ascribed to the
bank's strategic lending methods and effective loan portfolio management.
The bank's non-interest income has also seen a consistent growth tendency in addition
to interest income. The bank's non-interest income for the fiscal year 2020/2021 was
NPR 6.67 billion, up 20.16% from the prior fiscal year. The bank's efforts to diversify
its revenue sources by offering a variety of fee-based services, including remittance,
credit card, and ATM services, are responsible for this rise.
The bank must pay strict attention to its operating costs, which have also been rising.
The bank's operational costs for the fiscal year 2020/2021 were NPR 14.81 billion, up
15.02% over the prior fiscal year. Although this growth can be ascribed to the bank's
branch network expansion and technological investments, the bank must make sure
that its expenses stay within normal bounds to sustain its profitability.
In summary, Siddhartha Bank Limited has a solid financial standing and the
possibility for future expansion. The bank has consistently increased its net profit over
the past few years as a consequence of its focus on growing its customer base,
providing cutting-edge goods and services, and diversifying its sources of income
28