1

CHAPTER-I
INTRODUCTION

1.1 Background of the Study

It is reasonably simple exercise to identify a bank as an institution whose essential
operation is to take deposit from public and to lend money. Banks accumulate idle money
from general public and providing attractive sound interest rates in their deposits and
disburse the collected deposits as loan to business organizations, industrial and
agricultural sector, needy people etc.
Bank is financial institution whose main function is to accept deposit and provide loan
with some interests by creation of credit. It is different from other financial institutions
because they cannot create credit though they accept deposits. Bank changes high interest
rate in the loan than the interest rate they provide in the deposit. Now, bank is important
for person, industry, say that the main game of the bank is to play with money, through
which it generates profit.

1.2 Profile of organization/place/events, etc.

Himalayan Bank Limited
Himalayan Bank commenced its operations from December 25, 2002 as the 17th
commercial bank of Nepal. Within a decade, the Bank has created a distinctive identity in
serving the people through a network of 51 branches and 3 extension counters and 67
ATMs spread around Nepal. The paid up capital of HBL bank is 60 Million and
Authorized capital is 240 million .Himalayan Bank is a "customer- oriented" and "growth
driven" bank. The Bank's dynamic product offerings, technology use, competent human
resources and dedicated management team, have always been directed towards best
quality service delivery to its valued customers. The core values of the Bank are customer
focus, shareholder's prosperity, employee's growth and economic welfare in general.

Rastriya Banijya Bank Ltd

Rastriya Banijya Bank Ltd. was established on 2022 magh10 B.S. a synonymous of
stable and people bank in Nepal. Rastriya Banijya Bank is one of the pioneering banks in
 2

Nepalese market that has carried out note kosh fund NRBs draft transaction pension fund
of Nepal government. The paid up capital of RBB is 858 million. Rastriya Banijya Bank
has made glorious history of contributing for the monetization of the economy
eliminating dual currency in the market initiating preliminary sector of the country has
not emerged as a modern and strong financial institute of the country.

1.3 Statement of Problem

Although, the number of financial institutions including Commercial Banks have
increased rapidly; with the introduction of liberalized economic policy after 1990's. The
coverage of Commercial Banks has not spread throughout the nation uniformly. Most of
them centered in limited and facilitated urban areas like Hetauda and other major cities.
The increase in the number of Commercial Banks causes the increase of its share in the
whole financial system and consequently the contribution in the economic development
of the country through mobilization of funds and utilization of its funds to increase the
aggregate demand in the economy. Based in this statement, this study is focused on the
following research questions
 What is the credit policy of the Bank ?
 What is the total debt and total equity of bank ?

1.4 Objectives of the Study

The specific objectives of the study can be classified into three parts:
 To identify the credit policy of the HBL and RBB.
 To study the total debt and total equity of HBL and RBB.

1.5 Rationale of the Study

This field report is prepared in partial fulfillment of the requirement for BBS level it is a
compulsion. It is important not only from that point, but there are also other importance
listed as under:
 The study helps to figure the credit policy of HBL and RBB.
 The study helps to find out the total debt and total equity of HBL and RBB.
 3

1.6 Research Methodology

The research methodology is the process of coming to the solution of the problem
through planned and systematic dealing with the collected analysis and interpretation of
the fact figures. In this study research design interview data collection procedure
presentation and analysis techniques are adopted.

1.6.1 Population and Sample

As there are numerous banks which can be taken as population and as it is self-
explanatory that the study is based on only field work. HBL and RBB will be selected for
the study purpose. The term population of data denotes for the data of each organization
which is within the boundary of specific organization whereas sample data are the data of
those organization which has been selected from that whole population for study.
Purposive sampling method is to be used while selecting sample organizations for this
study. The population data for this study comprises 30 commercial banks among them
only 2 banks have taken as for sample which are currently operating in Nepal. The
selected sample banks for the analysis are :
 Himalayan Bank limited
 Rastriya Banijya Bank

1.6.2 Nature and Sources of Data

The study will use secondary data. The various data required for the study will be
collected from the concerned annual report, economic indicators and official records and
other. They are;

Secondary source:
a) Annual report of HBL and RBB of the year 2016/17 to 2020/21
b) The basic idea about the HBL and RBB was taken from website.
c) Analyzing all the annual report from 2017 to 2021, I tried to identify the entire
ratio and prepared the report.
 4

1.6.3 Data Collection Procedure

The report will mostly rely secondary data. As for secondary data, I will consult the
magazines and bulletins, financial statement and annual financial report of HBL and
RBB. The collected data will be re-arranged and tabulated where necessary to facilitate
the purpose of the study. The conclusions of the study will be derived and suitable
recommendation will be suggested at last.

1.6.4 Techniques
The data will be presented in different table, charts and figure. Most of the source of such
data will be secondary data. In the collection of data we have to be systematic. If data are
collected haphazardly, it will be difficult to answer our research question in a conclusive
way.
The financial tools that will be used for data analysis are:
Ratio Analysis
Ratio analysis is a technique of analyzing and interpreting financial statements to
evaluate the performance of an organization by creating the ratios from the figures of
different accounts consisting in balance sheet and income statement. The qualitative
judgment concerning financial performance of a firm can be carried out with the help of
ratio analysis. This study contains following ratios:
 Long Term Debt to Total Debt
The long-term debt to total debt ratio measures the percentage of long-term debt
to total debt used in the companies. So, it is the percentage of long-term debt
among the total debt employed by the company.
The Long Term Debt to Total Debt is calculated as:
Long Term Debt to Total Debt Ratio = Long Term Debt × 100
Total Debt

 Long-Term Debt to Capital Employed

This ratio is used to express the relationship between long-term debt and capital
employed by the firm. It shows the proportion of long term debt and shareholders' fund in
the capital structure. This ratio is calculated as:
 5

Long-Term Debt to Capital Employed = Long Term Debt

Capital Employed
 Debt to Total Assets
This ratio measures the extent to which borrowed funds have been used to finance the
company's assets. It is related to calculate total debt to the total assets of the firm. The
total debt includes long-term debt and current liabilities. The total assets consist of
permanent assets and other assets. It is calculated as :
Debt to Total Asset Ratio = Total Debt X 100
Total Assets
 Debt to Equity Ratio
The debt-equity ratio measures the long-term components of capital structure. Long- term
debt and shareholder's equity are used in financing assets of the companies. So, it reflects
the relative claims of creditors and shareholders against the assets of the firm. Debt to
Equity ratio indicates the relative proportions of debt and equity. The relationship
between outsiders claim and owners' capital can be shown by debt-equity ratio. It is
calculated as:
Debt to Equity Ratio = Long Term Debt X 100
Shareholder's Equity

 Return on Total Assets

Return on total assets ratio measures the profitability of bank that explains a firm to earn
satisfactory return on all financial resources invested in the banks' assets. The ratio
explains net income for each unit of assets.
The return on total assets ratio is calculated using the formula below:
Return on Total Assets = Net Profit After Tax
Total Assets

 Return on Shareholders' Equity

Shareholders are the owners of the company. To measure the return of shareholders, we
use return on shareholders' equity. This ratio analyze whether the company has been able
to provide higher return on investment to the owners or not.
This ratio is calculated as:
 6

Return on Sharholder's Equity = Net Profit After Tax

Shareholders' Equity

1.7 Review of Literature

In this chapter, focus has been made on the review of literature that is relevant to the
investment policy of commercial banks.

1.7.1 Conceptual Review

Bank has been defined into various ways as follows:
As per chamber's Twentieth Century Dictionary - "Institutions for the keeping lendig and
exchanging, etc. of money".
As per US law - "Any institutions offering deposits subject to withdraw on demand and
making loans of a commercial or business nature is a bank".
As per Prof. Sayre - "Ordinary banking business consists of changing cash for bank
deposits and bank deposits for cash, transferring bank deposit from one person or
corporation to another; giving bank deposits in exchange for bills of exchange,
Government bonds, occurred or unsecured promises of businessmen to repay, etc." As
per oxford Dictionary- "An organization offering financial services, especially loans and
the safe keeping of customers' money."
Therefore, a bank is an institution that has been dealing worth money especially
accepting deposits and making loans.
There is no unanimity among learned authors about the origin of bank. Different authors
explained about the origin in their own ways. Some explained that the World Bank is
derived.
From the Latin Word 'Bancus' and some of them believed that it originated from Latin
word 'Banca'. The development process of the banks existing today is found to start from
ancient time. During the past, people used o keep their valuables in the temples and
others safe places. They became very afraid of being robbed and lost of their valuales.
With the introduction of coin, people started lending and borrowing activities charging
some interests on it. Merchants, goldsmiths, and money lender were known to be the
ancestors of modern Banking. People believed them and kept their valuable and coins. As
a reason they had much more valuables and coins which had to return. They found that
 7

on an average, the withdrawals of coins were much less than the deposits with them. So
they used to keep some money in the reserve. Therefore, the merchants, goldsmiths, and
money - lender became like a bank, we see today, who accept deposit and advance loans.
'Bank of venice' of Italy, is the first bank in the world into existence in 1157 AD. The
second bank is 'bank of Barcelona (1401)' and gradually 'Bank of Geneva (1407)', 'Bank
of Amsterdam (1609), came to be introduced.
The functions of commercial banks are broader in scope, size and magnitudes.
Commercial Banks are one of the major financial intermediaries whose primary function
is the transfer of monetary resources from the savers to the users. The second important
function of a bank is to provide different types of loans. The principal business of
commercial banks is to make loans to qualified borrowers. The commercial bank earns
profit by giving the amounts deposited with it in the forms of loans. Bank loans may be
classified as; Loans and Advances, Overdraft, cash credit, discounting of a bills and so
on. Loans and advances are major component of bank's lending portfolio. There are
mostly commercial loans that are secured and constitute main sources of bank's assets.
The excess loan taken more than deposit balance is overdraft. The credit taken for a short
period of overnight is cash credit. Banks discount the bills on the basis of providing
exports credit using the documents like bill of lending and other supporting documents.
Loan may also be provided on the security backing of fixed time deposits certificates.
The secured loans of commercial banks consists of moveable/ immovable guarantee of
local licensed banks, government guarantee, internationally rated banks, export
documents, fixed deposits receipt, government bond, counter guarantee, personal
guarantee. But in most of cases, the moveable/ immoveable assets constitute more than
90 percent of the secured loan of the commercial banks. The rest 10 percent comes from
others. The bank charges interest on loans which are higher than those offered on other
deposits. Since the banks in Nepal are now free to fix interest rates, the rate of interest on
both deposits and loans various from bank to bank.

1.7.2 Research Gap

In this study, the major areas will be to disclose the credit policy of HBL and RBB. These
types of research are done regularly, however the present credit policy of the bank may
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not have been done. The research can help the people who wanted to know about the
overall credit policy of HBL and RBB.

1.8 Limitation of the Study

The following are the major limitation involved in the study:
 The time has been vital one in imitating the depth of the study of the subject
matter.
 The presentation of data is one of the most important factors in discussing the
problems. Due to the absence of relevant data, the problems cannot be presented
in the desired form.
 The analyzed data are only concerned with HBL and RBB. So, it does not indicate
as a whole problem of commercial banks of Nepal.

1.9 Structure of the body

This study will be divided into three chapters as follows:
Chapter one deals with the subject matter of the study. The outline of the research is
presented in the chapter. The whole research will be based on the introduction chapter. It
also includes review of literature, the research methodology used to evaluate credit policy
of HBL and RBB. It consists of research design, source of data, population and sample.
Chapter two is the main part of the study which fulfills the objective of the study by
presenting data and analyzing them with the help of various statistical tools as per
methodology. In this chapter, major findings of the study have been conducted based on
secondary data.
Chapter three includes the major findings and conclusion of the study. This chapter
deals with the summary and conclusion of the study in the credit policy of HBL and
RBB.
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CHAPTER-II
RESULT AND ANALYSIS

2.1 Data Presentation

This chapter includes analysis of data collection and their presentation. In this chapter,
the effort has been made of analyze the capital structure management of commercial
banks. The chapter Data presentation and analysis is the main body of the study. The
purpose of this chapter is to analyze and elucidate the collected data to achieve the
objective of the study following conversion of unprocessed data to an understandable
presentation. The results of the computation have also been summarized in appropriated
tables. On the background of various reading and literature review in the preceding
chapter, it is tried to analyze and diagnose the recent Nepalese commercial Bank, with
taking a special reference with commercial banks of Nepal. The samples of computation
of each model have been included in annexes. Among the listed commercial banks only
commercial are taken as sample namely, HBL and RBB. Different tables and figures
(diagrams) are drawn to make the result more simple and understandable.

2.1.1 Guiding Principles of Credit Policy

If we perform certain works there is some purpose behind it. To fulfill these purposes, we
should follow some policies and principles. Similarly, commercial banks have to follow
some policies and principles relating to its credit activities.
The investment business is very risky. Therefore, commercial banks should adopt sound
policy regarding loans. The loans provide convince, profit, growth and economic survival
to the borrowers. The loans which are provided by the commercial banks involve several
considerations such as the length of the time, the types of borrowers, the kinds of security
taken etc. Generally sound credit policies of a bank are mostly guided by three major
principles. They are as follows:
a. Safety or Security
b. Liquidity
c. Profitability
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a. Safety or Security:
The first principle of credit policy is safety or security. When commercial banks want to
lend some money to the borrower, direct attention examines the economic condition and
capability of the party. Moreover, they ask for collateral. Gold and silvers are readily
acceptable collaterals. However, other goods are also taken as collateral by commercial
bank. For such goods the bank studies, the prevailing market price and then only bank
grants loan to the borrower.

b. Liquidity
Liquidity is another principle of credit policy. It is also very necessary as safety or
security. "Liquidity" generally means capacity to produce cash on demand for deposits. It
refers to the work that the banker used to describe his ability to safety demands for each
in exchange for deposits. To maintain confidence also he must maintain an adequate
degree of liquidity in his assets. Generally, liquidity of a bank is measured by the ratio of
loan to total deposits of the banker. The higher the ratio, the lower the liquidity and vice-
versa.

c. Profitability
Only safety and liquidity are not sufficient for a sound and viable lending policy of a
bank. Profitability is also equally important. Therefore, the grant long-term loans but
sometimes they advance long-term loan to particular industries in the country on the
guarantee of NIDC.
The profit of a bank partially depends upon the volume of investment. The higher the
volume of investment, the greater will be the rate of profit. Thus profitability. I some
cases if Nepal Rastra Banks must invest in the sector even there is no profit and security.

2.1.2 Credit Policy of HBL and RBB

Every institution has its own objective. Many policies are made to implement that
objective. Similarly, HBL and RBB also has its own is also influenced by NRB. It is not
out of the control of NRB. Moreover, NRB has directed commercial banks to lend to
priority sectors for the development of the country.
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Main objectives of HBL and RBB is to make profit by conducting various function and
another objective of the bank is to improve economic condition of the country in one
hand and to earn profit on the other hand. According to its policy, loans are granted to
social, commercial, industrial and priority and deprived sectors. Before providing the
loan some securities are taken by that bank. Securities keep the bank safe from loss. If
borrowers are unable to pay the loan the bank can easily recouped its loan by auctioning
borrowers' deposited goods. Due to this, borrowers also try for maximum utilization of
the loan. The bank charges some percentage of interest on loan. The difference between
the interest paid to the depositor and interest charged to the borrowers is the profit of the
bank. Thus difference is known as margin rate. Higher the martin - rate; higher will be
the profit and vice-versa. Finally lending policy plays vital role in banking business. So a
sound lending policy is indispensable for each bank in order to maintain an effective,
prudent and profitable environment for credit activities. It is based on priorities; plan
work procedures and practices in the process of providing credits (loans).

2.1.3 Capital Structure Analysis

The term capital structure refers to, the relationship between the various long terms forms
of financing such as debentures, preference shares, capital and equity share capital.
Financing the firm assets is a very crucial problem in every business and as a rule there
should be a proper mix of a debt and equity capital financing the firm's assets. Though
the capital structure cannot affect the total earning of a firm, it greatly affects the earnings
of available equity holders. Managing the capital structure of a firm is an important
aspect of corporate financing. The main issue with respect to source of financing is
concerned with the nature of relationship between the debt- equity ratio and the market
value of the firm.
The first objective presents the capital structure of commercials banks. This objectives
deals the calculated and analysis of long term debt to total debt ratio, long term debt to
capital debt ratio, total debt to total assets ratio, long term debt to equity ratio and
interest coverage ratio.
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2.2 Data Analysis

The term capital structure refers to, the relationship between the various long terms forms
of financing such as debentures, preference shares, capital and equity share capital.
Financing the firm assets is a very crucial problem in every business and as a rule there
should be a proper mix of a debt and equity capital financing the firm's assets. Though
the capital structure cannot affect the total earning of a firm, it greatly affects the earnings
of available equity holders. Managing the capital structure of a firm is an important
aspect of corporate financing. The main issue with respect to source of financing is
concerned with the nature of relationship between the debt- equity ratio and the market
value of the firm.
The first objective presents the capital structure of commercials banks. This objectives
deals the calculated and analysis of long term debt to total debt ratio, long term debt to
capital debt ratio, total debt to total assets ratio, long term debt to equity ratio and
interest coverage ratio

2.2.1 Long Term debt to Total Debt Ratio.

The ratio of long term debt to total debt indicates the higher claim of long term debt upon
the total debt and the lower ratio indicates the higher portion of short term loans and
current liabilities in the total debt of the firm. The amount of short term loans and current
liabilities usually depends upon the liquidity of that firm. This relationship of long term
debt and total debt is presented in the following table along will the percentage change in
the ratio to show the movement of trend individually. The relationship between long term
debt and total debt has a decisive impact on the financial structure of the companies.
This relationship indicates what percentage of total debt is covered by long term debt of
the firm. Normally firm uses short term and long term debt. Current liabilities and
provisions are also needed during the operation of the firm. Simply dividing long term
debt by the total debt can derive the relationship between the long term and total debt of
the firm. The total debt includes all types of borrowed fund, current liabilities and
provisions. If the firm uses large amount of short term loans and occur current liabilities
and provisions in large amount, the percentage of long term debt to total debt will be low
and vice versa.
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Table: 2.2.1
Long Term Debt to Total Debt Ratio (Rs. In million)
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Long Total Debt Ratio (%) Long Total Debt Ratio (%)
Term Debt Term Debt
2018/19 1321.11 10405.3 1.26 1511.12 11502.3 1.31
2019/20 1312.56 11316.1 1.16 1755.69 12321.1 1.42
2020/21 1401.16 12571.8 1.11 1821.11 13657.3 1.33
2021/22 1570.53 15187.2 1.03 1750.43 17156.1 1.02
2022/23 1822.19 19718.6 9.24 1964.16 20123.4 9.76
Source: Annual Report of HBL and RBB At Hetauda FY 2018/19 to 2022/23 Annex

Table 2.2.1 shows the ratio of long term debt to total debt of HBL and RBB. In fiscal
year 2018/19 long term debt of HBL is Rs 1321.11 million and RBB is 1511.12 Million,
in same year the total debt of HBL is Rs 10405.3 million and RBB is 11502.3 Million the
ratio of long term debt to total debt of HBL is 0.12% and RBB is 1.31.

Figure: 2.2.1
Graphical Presentation of Long term debt to Total Debt Ratio
12

10 9.76
9.24

2 1.26 1.31 1.16 1.42 1.11 1.33 1.03 1.02

0
2018/19 2019/20 2020/21 2021/22 2022/23

HBL RBB
 14

This means the contribution of long term debt in total debt is 12% and the remaining
portion is contributed by the current liabilities.

2.2.2 Total Debt to Total Assets Ratio

Debt to total assets ratio express the relationship between creditors fund and total assets.
Debt includes all loans and total assets include all types of assets of the firm. This ratio
measures the extent to which borrowed funds have been used to finance the company's
assets. The total debt includes long term debt and current liabilities. This ratio can be
calculated by simply dividing long term debt by the total assets of the firm.

Table: 2.2.2
Total Debt to Total Assets Ratio (Rs In million)
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Total Debt Total Ratio (%) Total Debt Total Ratio (%)
Assets Assets
2018/19 10405.3 24405.8 4.26 54321.3 45762.3 1.18
2019/20 11316.1 29628.7 3.82 78043.8 31096.3 2.51
2020/21 12571.8 33653.8 3.73 14799.4 58411.2 2.53
2021/22 15187.2 40328.8 3.76 18597.3 61165.9 3.04
2022/23 19718.6 50719.7 3.88 20976.4 71356.7 2.94
Source: Annual Report of HBL and RBB At Hetauda FY 2018/19 to 2022/23 Annex

Table 2.2.2 shows that the ratio of total debt to total assets ratio of HBL and RBB. In
fiscal year 2018/19 total debt of HBL is Rs 10405.2 million in same year the total assets
of HBL is Rs 24405.8 million and the ratio of total debt to total assets is 0.42%. Similarly
the ratio of RBB is [Link] means the contribution Ratio of RBB is higher than the
HBL. Following figure and trend line 2.2.2 shows the actual position of total to total
assets ratio.
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Figure: 2.2.2
Trend Line of Debt Assets Ratio

HBL RBB
4.26
3.82 3.76 3.88
3.73

3.04 2.94
2.51 2.53

1.18

2018/19 2019/20 2020/21 2021/22 2022/23

There is a fluctuation in the trend line of the Debt assets ratio, the ratio has sharp
decrement till the 2018 then it is increasing trend.

2.2.3 Long Term Debt to Equity Ratio

Long term debt to equity ratio is used to show the relationship between borrowed funds
and owners capital. It reflects the relative claims of creditors and shareholders against the
assets of the firm. It is an important tool for the financial analysis to appraise the financial
structure of a firm. The ratio reflects the relative contribution of owners and creditors
capital of business in its financing. In other words, this ratio exhibits the relative
proportions of capital contributed by owners and creditors. Debt equity ratio can be
calculated in the basis of shareholders equity and long-term debt, shareholders' equity
includes reserve and accumulated profit, preference share and equity share capital. Where
long-term debt includes total debt minus short-term debt or current liabilities, here debt
equity ratio is also computed by simply dividing long- term debt of the firm by,
shareholders equity. The high D/E ratio shows the large share of financing in the capital
by the creditors then the owners or it also reflects that the creditors claim is higher against
the assets of firm and vice-versa.
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Table: 2.2.3
Long Term Debt to Equity Ratio (Rs. In Million)
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Long Equity Ratio (%) Long Equity Ratio (%)
Term Debt Term Debt
2018/19 1321.11 1340 9.8 1511.12 1476 1.02
2019/20 1312.56 1619 8.10 1755.69 1709 1.03
2020/21 1401.16 1813 7.73 1821.11 1941 9.38
2021/22 1570.53 2031 7.73 1750.43 2116 8.27
2022/23 1822.19 2437 7.47 1964.16 2535 7.75
Source: Annual Report of HBL and RBB At Hetauda FY 2018/19 to 2022/23 Annex
Table and figure 2.2.3 shows that debt equity ratio HBL and RBB. In year 2018/19 long
term debt of HBL is Rs. 1321.11 million and RBB is 1511.12 million, equity of HBL is
Rs. 1340 million and RBB is 1476, the long term debt to equity ratio is 0.98% and RBB
is 1.02%. Long term debt to equity ratio of HBL is 9.8, 8.10, 7.73, 7.73, 7.47 and RBB is
1.02, 1.03, 9.38, 8.27, and 7.75 in FY 2018/19, 2019/20, 2020/2021, 2021/22 and
2022/23 respectively.
Figure: 2.2.3
Graphical Presentation of Long term debt to Equity Ratio
12

10 9.8
9.38

8.1 8.27
8 7.73 7.73 7.47 7.75

2
1.02 1.03

0
2018/19 2019/20 2020/21 2021/22 2022/23

HRL RBB
 17

Figure 2.2.3 shows that there is the decreasing trend of the equity ratio.

2.2.4 Return on Total Assets

For the second objectives the impact of capital structure on profitability is calculated and
analysis as following way, they are: return on total assets, return of shareholder's equity,
and net income. Return on total assets ratio measures that explains a firm to earn
satisfactory return on all financial the profitability of a firm resources invested in the
bank's assets. The ratio explains net income for each unit of assets. The higher ratio
shows the higher return on assets of the company. From the viewpoint of judging
operational efficiency, rate of return on total assets is more useful measure.

Table: 2.2.4
Return on Total Assets Ratio (Rs. In million)
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Net Profit Total Ratio (%) Net Profit Total Ratio (%)
Assets Assets
2018/19 240.85 24405.8 9.86 311.12 45762.3 6.79
2019/20 311.42 29628.7 1.05 455.69 31096.3 1.46
2020/21 330.46 33653.8 9.82 521.11 58411.2 8.92
2021/22 482.56 40328.8 1.19 650.43 61165.9 1.06
2022/23 706.16 50719.7 1.39 864.16 71356.7 1.21
Source: Annual Report of HBL and RBB At Hetauda FY 2018/19 to 2022/23 Annex

Table 2.2.4 shows that the return on total assets ratio of HBL. In fiscal year 2018/19 net
profit of HBL is Rs 240.85 million and RBB is 311.12 million, in same year the total
assets of HBL is Rs 24405.8 million and RBB is 45762.3, the ratio of return on total
assets of HBL is 9.86 and RBB is 6.79. This means the contribution of net profit in total
assets is 9%. Following figure 2.2.4 and trend line shows the actual position of return on
total assets.
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Figure: 2.2.4
Trend Line of Return on Assets

Chart Title
12

10 9.86 9.82
8.92
8
HRL
6.79 RBB
6

2
1.46 1.19 1.39
1.21
1.05 1.06
0
2018/19 2019/20 2020/21 2021/22 2022/23

2.2.5 Return on Shareholders' Equity

If the company's earning is good, shareholders earning is greater than outside investors
because they are ultimate owners and they are bearing a high risk as well. But outside
investors get return before the owners that is fixed. Shareholders get the return after
paying the fixed interest charge to the creditors and tax to the government. Earnings after
tax (EAT) are the profit of the shareholders. Therefore this ratio is calculated on the basis
of equity. In this study, the sampled companies have not been employed the preference
share thus it includes only return on shareholders' equity. Higher ratio represents the
higher profitability of the firm and vice versa. So obviously a company's owners prefer
higher return on shareholders' equity.
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Table: 2.2.5
Return on Shareholders' Equity (Rs. In Millions)
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Net Profit Equity Ratio (%) Net Profit Equity Ratio (%)
2018/19 240.85 1340 1.79 311.12 1476 2.11
2019/20 311.42 1619 1.92 455.69 1709 2.66
2020/21 330.46 1813 1.82 521.11 1941 2.68
2021/22 482.56 2031 2.37 650.43 2116 3.07
2022/23 706.16 2437 2.89 864.16 2535 3.41
Source: Annual Report of HBL and RBB At Hetauda FY 2018/19 to 2022/23 Annex
Table 2.2.5 shows that the return on shareholders' ratio of HBL and RBB. In fiscal year
2018/19 net profit of HBL is Rs 240.85 million and RBB is 311.12 million, in same year
the equity of HBL is Rs 1340 million and RBB is 1476 million, the return on
shareholders' ratio of HBL is 0.18%And RBB is 2.11%. Following figure 4 trend line
shows the actual position of return on shareholders' equity.

Figure: 2.2.5
Trend Line of Return on Shareholders' Equity
7

4
RBB
3 HRL

0
2018/19 2019/20 2020/21 2021/22 2022/23
 20

Figure 2.2.5 shows that there is a increasing trend of the trend line. It shows the actual
position of shareholder's equity.

2.2.6 Correlation Analysis

To find out the correlation between two continuous variables, Karl Pearson's co- efficient
of correlation (r) is used. One of the very convenient and useful way of interpreting the
value of coefficient of correlation (r) between the two variables is coefficient of
determination, which is denoted by r2. It explains the total variation in dependent
variable is explained by independent variable.
The significance of coefficient of correlation (r) is tested with the help of 't' test. If
calculated 't' is less than or equal to tabulated value of 't' it falls in the accepted region and
null hypothesis is accepted or 'r' is not significant, if calculated 't' is greater than tabulated
't' null hypothesis is rejected or 'r' is significant of correlation in the population.
2.2.7 Correlation between Long Term Debts to Total Debt of HBL and RBB Coefficient
of correlation measures the degree of relationship between two variables, Long term debt
and total debt of two commercial banks. Here suppose long term debt is independent
variable () and Total debt is dependent variable (). The purpose of computing is to find
out the relationship between Long term debt and total debt is going to same direction or
opposite direction.

2.3 Major findings

 The ratio of long term debt to total debt of HBL and RBB. In fiscal year 2018/19
long term debt of HBL is Rs 1321.11 million and RBB is 1511.12 Million, in
same year the total debt of HBL is Rs 10405.3 million and RBB is 11502.3
Million the ratio of long term debt to total debt of HBL is 12% and RBB is 1.31
and remaining portion is contributed by the current liabilities.
 The ratio of total debt to total assets ratio of HBL and RBB. In fiscal year 2018/19
to 2022/23, ratio of total debt of HBL is 0.42, 0.38, 0.37, 0.37, 0.38 whereas RBB
is 1.18, 2.51, 2.53, 3.04, 2.94 respectively .This means the contribution of total
debt in total assets is 42% and 118%.
 21

 Debt equity ratio HBL and RBB banks. Long term debt to equity ratio of HBL is
0.81, 0.77, 0.77 and 0.74% and RBB is 1.02, 1.03, 9.38, 8.27, 7.75 in FY 2018/19
to 2022/23 respectively.
 The return on total assets ratio of HBL and RBB. In FY 2018/19 to 2022/23, the
HBL ratio is 9.86, 1.05, 9.82, 1.19, 1.39 whereas the ratio of RBB is 6.79, 1.46,
8.92, 1.06, 1.21 respectively. This means the contribution of net profit in total
assets is 9% and 6%.
 Return on shareholders' ratio of HBL and RBB. In fiscal year 2018/19 to 2022/23,
the ratio of HBL is 1.79, 1.92, 1.82, 2.37, 2.89 whereas the ratio of RBB is 2.11,
2.66, 2.68, 3.07, 3.41 respectively.
 22

CHAPTER- III
SUMMARY AND CONCLUSION

3.1 Summary
Himalayan Bank Limited, which was established in 2049 B.S. under commercial bank
Act 2031 B.S. has been playing a major role in commercial banking activities. It has
helped to collect scattered savings of the Nepalese economy along with investing such
deposits in the productive sector such as industry, agriculture, commerce and trade etc.
The most important assets of commercial bank are the loan performance. Indeed 65% of
all commercial bank assets are in the form of loans. This is not surprising since lending is
the central activity of commercial banking. As a professional lender, HBL & RBB has
been providing finance I variety of ways by advancing money to customers, by
overdrafts, by loan in various forms, by cash credit etc. in each case lending process is
different. When a bank grants credit there is always some probability that borrowers will
not pay. Hence the bank's loan officer must somehow estimate the probability that a
consumer will pay.

3.2 Conclusion
From the study of HBL & RBB in lending aspect it is known that some weaknesses (or
problems) are existing in it which can be drawn as follows:
 The first problem faced by the HBL & RBB is to grant credit to the right
customers even though the bank lacks complete information about them.
 The loan officers of the HBL & RBB are seemed to be inexperienced and new to
job, his to said in the sense that they are not able to say even the establishment of
the bank where they work.
 It is noted during study period that the bank has fixed lower state of interest on
deposits than other banks. This is quite absurd because savers are hesitated to
deposit their saving in it and they move to another bank for financial institution
where they get higher rate of interest on deposits as a result to which effects the
lending policy.
 23

 The credit policy of the bank is established by the board of directors based on
recommendation of chief executive officer. Hence the loan officer is not free from
taking decision himself.
 The loan facility provided to deprived sector is low in percentage (i.e. 3.57% in
the respective year of the total amount of loan).
 Rate of interest charged for different types of loan by HBL & RBB for trading
sector is higher than industrial sector.
 24

BIBLIOGRAPHY

Adhikari Dev Raj, (2016), research Methodology, Kathmandu: Asmita publication

Pandey, I.M. (2001), Vikash Publishing House Pvt. Ltd., New Delhi.

Pradhan, Surendra (2012), "Educational Enterprises Pvt. Ltd., Kathmandu.

Pandey, Manju Kumari (2013), Unpublished Master Thesis T.U. Kathmandu

Shah Anjana (2014), Unpublished Master's Thesis, T.U., Kathmandu)

Websites

[Link]

[Link]

[Link]
 25

Appendices
Appendix 1
Calculation of Long Term Debt to Total Debt Ratio
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Long Total Debt Ratio (%) Long Total Debt Ratio (%)
Term Debt Term Debt
2018/19 1321.11 10405.3 1.26 1511.12 11502.3 1.31
2019/20 1312.56 11316.1 1.16 1755.69 12321.1 1.42
2020/21 1401.16 12571.8 1.11 1821.11 13657.3 1.33
2021/22 1570.53 15187.2 1.03 1750.43 17156.1 1.02
2022/23 1822.19 19718.6 9.24 1964.16 20123.4 9.76

Appendix 2
Calculation of Total Debt to Total Assets Ratio
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Total Debt Total Ratio (%) Total Debt Total Ratio (%)
Assets Assets
2018/19 10405.3 24405.8 4.26 54321.3 45762.3 1.18
2019/20 11316.1 29628.7 3.82 78043.8 31096.3 2.51
2020/21 12571.8 33653.8 3.73 14799.4 58411.2 2.53
2021/22 15187.2 40328.8 3.76 18597.3 61165.9 3.04
2022/23 19718.6 50719.7 3.88 20976.4 71356.7 2.94

Appendix 3
Calculation of Long Term Debt to Equity Ratio
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Long Equity Ratio (%) Long Equity Ratio (%)
Term Debt Term Debt
2018/19 1321.11 1340 9.8 1511.12 1476 1.02
2019/20 1312.56 1619 8.10 1755.69 1709 1.03
2020/21 1401.16 1813 7.73 1821.11 1941 9.38
2021/22 1570.53 2031 7.73 1750.43 2116 8.27
2022/23 1822.19 2437 7.47 1964.16 2535 7.75

Appendix 4
 26

Return on Total Assets Ratio

Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Net Profit Total Ratio (%) Net Profit Total Ratio (%)
Assets Assets
2018/19 240.85 24405.8 9.86 311.12 45762.3 6.79
2019/20 311.42 29628.7 1.05 455.69 31096.3 1.46
2020/21 330.46 33653.8 9.82 521.11 58411.2 8.92
2021/22 482.56 40328.8 1.19 650.43 61165.9 1.06
2022/23 706.16 50719.7 1.39 864.16 71356.7 1.21

Appendix 5
Return on Shareholders' Equity
Bank Himalyan Bank Ltd. Rastriya Banijya Bank Ltd.
Year Net Profit Equity Ratio (%) Net Profit Equity Ratio (%)
2018/19 240.85 1340 1.79 311.12 1476 2.11
2019/20 311.42 1619 1.92 455.69 1709 2.66
2020/21 330.46 1813 1.82 521.11 1941 2.68
2021/22 482.56 2031 2.37 650.43 2116 3.07
2022/23 706.16 2437 2.89 864.16 2535 3.41