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Financial Analysis of Himalayan Bank Limited

Chapter I Introduction
Background of the study: This study is conducted for the partial fulfillment of the requirements of "Banking and Insurance." The final year students of BBS program of colleges affiliated with the Tribhuvan University are required to prepare a report in their concerned field in an organization as part of the regular course work. Being a final year student in commercial field, I have conducted a brief study on the Himalayan Bank Limited. I have concentrated my study on the Financial Analysis of "The Himalayan Bank Limited-A Joint Venture with Habib Bank Limited, Pakistan." The chosen title of my study lies under the course offered by the Tribhuvan University, Nepal. Financial resource is an inseparable component in every sphere of life. It is equally important to a social organization as well as for a business organization. Moreover, its importance to a financial organization like a bank, that keeps money for individuals or companies, exchanges currencies, make loans, and offers other financial services, can hardly be neglected. Finance plays an important role in the economy. As banks, credit unions, and other financial institutions provide credit, they help expand the economy by directing funds from savers to borrowers. A wide variety of financial institutions such as a bank has different roles in finance and the economy as it link lenders and borrowers. These institutions act as an intermediary among consumers, businesses, and governments by lending out deposits and help to boost up the national economy. So, the smooth operation of a bank mainly depends upon effective management of its financial resources and effective management is possible upon effective analysis. Meaning of Commercial Bank: Commercial banks are the most significant of the financial intermediaries, accounting for some 60 percent of the nation's deposits and loans. A commercial bank is a bank, which pools together savings of community and arrange for their productive use, accepting deposit on the condition that they are available on demand or on a short-term notice. According to Nepal Commercial Act 2031, a commercial bank is a bank which operates currency exchanges transactions, accepts deposits, provides loans, and performs dealings relating to commerce except the banks which have been specified for the co-operative, agriculture and industry of similar specific objective.

Financial Analysis of Himalayan Bank Limited

Functions of Commercial Banks: The main functions of a commercial bank are as follows: Acceptance of Deposits in Advancing Loans in Agency Service Credit Creation General Utility Services Safekeeping of valuables Assist in foreign trade Making venture capital loans Financial advising Offers security brokerage services Offers investment banking and merchant banking services

Development of Commercial Banks in Nepal The history of commercial banking in Nepal started after the establishment of Nepal Bank Limited in the year B.S. with a paid-up capital of Rs 8, 45,000. Later Nepal Rastra Bank was established as the central bank in 2013 followed by the establishment of Rastriya Banijya Bank. After Nepal practiced Liberalization Policies, Nepal had access to many joint venture banks and other financial institution. Today, Nepal can take legitimate pride in the remarkable growth and progress in the banking and financial industry. Nepal has opened its door to foreign commercial banks to operate in the kingdom. Since then there are 17 commercial and development banks till date.

S. No. 1 2 3 4 5 7 8 9 10 11

Financial Institution Commercial Banks Development Banks Rural Development Banks Finance Companies Cooperatives Insurance Companies Non-Governmental organizations (Ltd banking transactions) Pension Fund Companies Credit Guarantee Corporation Postal Saving Organization
Table A

Numbers 17 16 5 55 35 17 36 1 1 1

Financial Analysis of Himalayan Bank Limited

Introduction to Himalayan Bank Limited Himalayan Bank Limited was incorporated in 1992 by the distinguished business personalities of Nepal in partnership with Employees Provident Fund and Habib Bank Limited, one of the largest commercial banks of Pakistan. Banks operation was commenced from January 1993. It is the first commercial bank of Nepal with maximum share holding by the Nepalese private sector. Besides commercial activities, the Bank also offers industrial and merchant banking. Himalayan Bank's policy is to extend quality and personalized service to its customers as promptly as possible. All customers are treated with utmost courtesy as valued clients. The Bank, as far as possible, offers tailor made facilities to its clients, based on the unique needs and requirements. To extend more efficient services to its customers, Himalayan Bank has been adopting innovative and latest banking technology. This has not only helped the Bank to constantly improve its service level but has also kept it prepared for future adaptation of new technology. Though Himalayan Bank Limited is young in terms of tenure of its operation, at present the bank is serving its valued customers with the following facilities besides the general banking services. Credit Card: Himalayan Bank Limited has been a pioneer in introducing a Nepalese domestic Credit Card. The bank has introduced 'Himalayan Bank Gold Card' which has eased the banking operation. Likewise, the bank is also the member of VISA and MASTER Card. The bank issues all range of VISA card and has a plan to issue MASTER card. Tele-Banking: To provide more prompt and efficient service to its customers, the bank has been pioneering on instituting Tele-banking service. Dialing a pre-specified telephone number, its clients will be able to: Make balance and statement inquires Order statement and cheque books Request instant faxing of statement Get information on foreign exchange etc. Any Branch Banking: This product, integrated with the core banking system has enabled the bank to make certain operations like withdrawal and deposit of cash and cheques from any of HBL branches. Customers maintaining account with any of HBL branches can operate its transaction from any branches convenient to them. Automated Teller Machine: ATM established in the premise of Head Office, Thamel, Maharajgunj branch, Patan Branch and New Road Branch have enabled customers to extend services for 24 hours. Currently Customers can utilize ATMs and make withdrawals at any time round the clock. ATMs of the remaining branches are under testing phase of interfacing with ATM

Financial Analysis of Himalayan Bank Limited

Switching software to enable all the ATMs of the bank to allow Any Branch and International transactions of the customers. Share Subscription of Himalayan Bank Limited Subscription Promoter Share Holders Habib Bank Limited, Pakistan Financial Institution (Employees Provident Fund) Nepalese Public Share Holders Total
Table B

% Holding 51 % 20% 14% 15% 100%

Beneficiaries: This analysis is destined to provide financial information to different sectors of business that is directly or indirectly influenced by financial performances of Himalayan Bank Limited. Especially this report will serve the management, share holders, long-term and short-term money lenders, creditors and employees members of Himalayan Bank Limited in implementing future projects or initiating corrective actions by status of the organization. In addition, this report may also help potential investors, financial institutions and people interested in financial analysis and similar business. Objectives of the study: The overall objectives of this study are to give a brief insight about the financial strength and weakness of the organization. However, the specific objectives of this analysis are as follows: To evaluate the organization's financial status To evaluate the organization's operating efficiency To measure the comparative ratios of the bank To measure the organization's short-term solvency To measure the organization's long-term solvency To evaluate the organization's efficiency in managing and utilizing its assets To help us work on the practical scenario of day-to-day operation in an organizational environment. To help in enhancing and developing managerial behavior and skills. Limitations: This study was done during the busy office hours. So it was somehow difficult to cope along with the office personnel and the entire analysis is based on the secondary data. The data provided then is limited to the research and the report. Detailed information

Financial Analysis of Himalayan Bank Limited

about the financial resources of the bank could not be provided due to security reasons of the bank's operation technology and software. Field Work Procedure: The main objective of this fieldwork is to study the financial position of Himalayan Bank Limited. The study is purely based on the exploratory design finding access to the requisites of the study. The analysis is diagnosed through limited resources from the bank due to different reasons. In the beginning, required secondary data was obtained through the bank's website which was reviewed and presented in a systematic and tabular form along with charts to make the study more precise. The data collected were the bank's operating statements and balance sheets etc. Method of data collection: Data can be collected from different sources. Generally, there are two sources of data. Primary Data: Primary data are the first data obtained by the researchers during the field visit. These are the first data obtained for different kinds of study related to the research. It can be collected through interviews, interactions and questionnaires etc. Although primary data plays an important role by making the research person familiar with the field, work, people and the environment, in this analysis, however, primary data could not be obtained for different reasons. Secondary Data: Secondary data are second data that has already been published before in the form of records, annual reports, pamphlets, statistic gather, directories, publications, computer data banks etc. This entire report is based on the secondary data. Since the report is concerned with the financial analysis of the organization, balance sheets of five years from the fiscal year 2055/56 - 2059/60 were collected from different sources. The balance sheet and other required documents and information were obtained from the Eleventh Annual Report of Himalayan Bank Limited. Likewise other required information were collected from libraries, the bank's website and review of the previous studies done by former third year students. Tools used for the analysis: Financial analysis is a process of determining the financial relation amongst different financial variables, strength and weakness of a firm by establishing a scientific and systematic strategy and knowing the financial status of the firm at present. Different financial tools may be available for financial analysis. Ratio Analysis has been used as a tool in analyzing this part of field work

Financial Analysis of Himalayan Bank Limited

Chapter II
Presentation and Analysis of Data This chapter is incorporated with different tools for the analysis of the financial status of Himalayan Bank Limited. Different ratios are used for the purpose of analysis. The first presentation of the analysis is the comparative balance sheet. A. Comparative Balance Sheet: A comparative balance sheet is an aggregate balance sheet prepared from the individual balance sheets of many years. It helps to study, compare and make a quick review of the financial status of the firm. Presented here is the comparative balance sheet of five years from the FY 2055/56 to 2059/60. Comparative Balance Sheet of Himalayan Bank Limited Amt Rs. in '000'
Particulars 1. Assets Cash & bank balance Placement Investment Loans, advances & bills purchased Total Current Assets Fixed Assets Other Assets Total Assets 2. Liabilities Borrowings Deposit Liabilities Total current Liabilities Other Liabilities Total Liabilities Net Assets Paid up capital Proposed capitalization of profit bonus share Reserves Reserves for doubtful debt Retained earnings Total shareholders' Equity Total Capital + liabilities 232653 9772736 10005389 543604 10548993 695103 192000 48000 157144 243919 54040 695103 11244096 128646 14043097 14171743 821462 14993205 870535 240000 60000 200600 344484 25451 870535 15863740 79527 17532404 17611931 690369 18302300 1198272 300000 90000 261697 477681 68912 1198272 19500572 534013 18619375 19153388 660931 19814319 1501529 390000 39000 309585 643414 119530 1501529 21315848 645840 21007379 21653219 6,38,872 2,22,92,091 19,05,883 429000 107250 404389 842751 122494 1905883 24197974 802208 4125854 468945 5245975 10642982 171313 429801 11244096 901907 4682762 2216416 7224727 15025812 193046 644882 15863740 1435175 4057654 4083160 9015347 18591336 201679 707557 19500572 1264672 352350 9157107 9557137 20331266 318844 665738 21315848 1979209 150100 10175435 10844599 23149343 2,29,871 8,18,760 2,41,97,974 2055/56 2056/57 2057/58 2058/59 2059/60

Table C

Financial Analysis of Himalayan Bank Limited

Comparative Profit and Loss A/C


Of

Himalayan Bank Limited


Particulars Income Interest Income Interest Expenses Net Income Commission and Discounts Foreign Exchange Income Other Income Non-Operating Income Total Income Expenses Staff Expenses Operating Expenses Provision for Doubtful Debts Provision for staff Bonus Non-operating Expenses Total Expenses Profit before Tax Income Tax Provision Net Profit After Tax PL Appropriation
Profit/Loss Carried Down Statutory General Reserve Exchange Equalization Fund Interest Spread Reserve Fund HBL Bond 2066 Redemption Reserve Interim Dividend Proposed Dividend Transfer to Paid up Capital Proposed Capitalization of Profit Bonus Share Income tax of Last Year Staff Gratuity Fund

2055/56 862054 533590 328464 101983 63958 5624 1061 501090 47364 109746 64570 27941 0 249621 251469 86221 165248

2056/57 1033660 594800 438860 110330 87327 9685 1695 647897 59880 132545 103249 34855 3672 334201 313696 114316 199380

2057/58 1326378 734518 591860 96065 119261 31220 2303 840709 85575 141116 134320 48336 0 409347 431362 154323 277039

2058/59 1148998 578134 570864 101704 104601 32038 2451 811658 101537 155786 166506 38783 0 462612 349046 114023 235023

Rs in '000' 2059/60 1201234 554128 647106 102561 109599 30154 10760 900180 120146 177132 202873 400003 0 900154 360024 147896 212128

Profit Transfer to Balance sheet

234419 33050 429 770 0 28800 37200 0 84000 0 2130 54040

253420 39876 3580 0 0 36000 84000 0 60000 813 37000 25451

302491 57117 3962 0 0 60000 22500 0 90000 0 0 68912

303936 47005 901 0 0 0 97500 0 39000 0 0 119530

331656 42426 1720 0 51429 0 5645 0 107250 0 0 122493

Table D

Liquidity Ratio: Liquidity ratio is defined as the test for solvency position for the payment of short-term liabilities, solvency position or liquidity denotes ability for the payment of short-term

Financial Analysis of Himalayan Bank Limited

liabilities. It is extremely essential for a firm to be able to meet its obligation as they become due. Liquidity ratio measures the ability of a firm to meet its current obligation. In fact, analysis of liquidity need preparation of cash budget and cash and funds flow statement; but liquidity ratio by establishing cash and other current assets to current obligations, provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity and that it does not have excess liquidity. The failure of a company to meet its obligation due to lack of sufficient liquidity will result in a poor credit worthiness, loss of creditors confidence or even legal tangles resulting closure of the company. A very high degree of liquidity is also bad; idle assets earn nothing. The firms fund will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity. While considering liquid assets, it includes cash and those assets, which can be converted into cash within a year, such as sundry debtors, short-term investments, bank deposits; stock advances and accrued income etc. current; liabilities includes those obligation which mature within one year such as creditors, bills payable, outstanding expenses, bank drafts, income tax payable etc. 1. Current Ratio: Current Ratio is the ratio between the current assets and the current Liabities of a firm. The current ratio is a measure of a firms short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. This ratio helps the company to determine the desirable liquidity position to meet its maturing obligations so; the company may neither suffer from lack of liquidity nor too much high liquidity. The current ratio is calculated by dividing current asset by current liability. As a conventional rule, current ratio of 2:1 or more is considered satisfactory. Mathematically, Current ratio = Current assets Current liabilities Where, Current assets = cash and bank balance + receivables + advances and deposits Current liabilities = sundry creditors + payables and provisions Calculation of Current Ratios Amount Rs. in "000"
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Current Assets 10642982 15025812 18591336 20331266 23149343 Table 1 Current Liabilities 10005389 14171743 17611931 19162388 21653219 Current Ratios 1.064 1.060 1.056 1.061 1.069

Financial Analysis of Himalayan Bank Limited

Comparative Current Ratios


25000000 20000000 Amt in Rs. 15000000 10000000 5000000 0 2055/56 2056/57 2057/58 2058/59 2059/60 Fiscal Year 1.07 Current Ratios 1.065 1.06 1.055 1.05 1.045

Current Assets Current Liabilities Current Ratios

Chart 1

The table 1.1 above shows different level of Current Ratios at varying level of Current Assets and Current Liabilities during the five year of observation. The highest and the lowest Current Ratios are 1.069 and 1.064 in the F.Y 2055/56 and 2059/60 respectively. Generally, Current Ratio of 2:1 is considered satisfactory. In case of the Himalayan Bank Limited, the current ratio is below the standard. However, the current ratio trend is increasing slowly which is a good sign of good liquidity management and satisfactory performance done by the bank. 2. Cash Ratio Since cash is the most liquid asset, a financial analysis may examine cash ratio and its equivalent current liabilities. Trade investments or marketable securities are equivalent of cash; therefore, they may be included in the computation of cash ratio. Mathematically, Cash Ratio = Cash + Marketable securities (investment) Current Liabilities

Calculation of Cash Ratio Amt Rs in '000'


Fiscal Year Cash Investment Current Liabilities Cash Ratio

2055/56 2056/57 2057/58 2058/59 2059/60

1271153 3118323 5518335 10421779 12154644


Table 2

10005389 14171743 17611931 19153388 21653219

0.127 0.220 0.313 0.544 0.561

Financial Analysis of Himalayan Bank Limited

C o m p a ra tiv e C a s h R a tio s
25000000 20000000 Amt in Rs. 15000000 10000000 5000000 0 2 0 5 5 /5 6 0 5 6 / 5 7 0 5 7 /5 8 0 5 8 / 5 9 0 5 9 / 6 0 2 2 2 2 F isc a l Y e a r 0 .6 0 0 0 .5 0 0 Cash Ratios 0 .4 0 0 0 .3 0 0 0 .2 0 0 0 .1 0 0 0 .0 0 0 C a s h In ve s tm e n t C u rre n t L ia b ilitie s C a s h R a tio

Chart 2

The above table shows the highest and the lowest cash ratio of Himalayan Bank Limited as 0.561 and 0.127 times in the FY 2055/56 and 2059/60 respectively. The cash ratio trend of The Himalayan Bank is not satisfactory which means that the cash and the investments of this bank have very low liquidity to meet its current obligation. However the Cash Ratio trend is increasing which shows that the banks performances in meeting its current obligation are increasing. 3. Net Working Capital Ratio: The difference between the current asset and the current liabilities excluding the shortterm bank borrowings is called the net working capital of net current assets. Net working capital is some time used as the measure of firms liquidity. It is considered that, between two firms, the one having the larger working capital has larger ability to meet its current obligations. This is not necessarily so, the measure of liquidity is a relationship, rather than the difference between the current assets and the current liabilities. Net working capital however measures the firms potential reservoir of funds. Mathematically, Net Working Capital Ratio = Net working Capital Net Assets Where Net Assets = total current assets - total current liabilities-short - term bank borrowings Calculation of Net Working Capital Ratio Amt Rs in '000'
Fiscal Year Current Assets Current Liabilities Short Term Bank Borrowings Net Working Capital Net Assets Net Working Capital Ratio

2055/56 2056/57 2057/58 2058/59

10642982 15025812 18591336 20331266

9772736 14043097 17532404 18619375

870246 982715 1058932 1711891

695103 870535 119827 2 150152 9

1.252 1.129 0.884 1.140

10

Financial Analysis of Himalayan Bank Limited

2059/60

23149343

21007379
Table 3

2141964

190588 3

1.124

Comparative Net Working Capital


2500000 2000000 Amt in Rs. 1500000 1000000 500000 0 2055/56 2056/57 2057/58 2058/59 2059/60 Fiscal Year 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 NWCR Net Working Capital Net Assets NWCR

Chart 3

During the study of period, net working capital ratio of the Himalayan Bank Limited is satisfactory. It has recorded the highest ratio of 1.252 and the lowest of 0.884 times in the fiscal year 2055/2056 and 2057/58 respectively. However, the ratio after the F.Y. 2057/58 is increasing towards satisfactory which shows the Bank has been maintaining sound liquidity position to meet its current obligations. Leverage Ratio: Leverage ratio is defined as the ratio of relationship between the total debt and total assets organizations long-term solvency. The short-term creditors, like bankers and supplies of raw materials, are most concerned with the firms current debt paying ability. On the other hand, long-term creditors like debenture holders and financial institution etc are more concerned with the firms long-term financial strength. To judge the long-term financial position of a firm, financial leverage and structure ratio are calculated. These financial positions indicate mix of funds provided by owners and lenders. Generally, there should be an appropriate mix of debt and owners equity in financing the firms assets.

Debt Ratio: Several Debt ratio s may be used to analyze long-term solvency of a firm. The firm may be interested in knowing the proportion of the interest bearing debt in the capital structure. We may therefore compute debt ratio by dividing total debt by total asset. Total debt will include long-term and short- term from financial institutions, debenture, bonds, 11

Financial Analysis of Himalayan Bank Limited

and different payments arrangements for buying capital equipments, bank borrowings, public deposits and any other interest-bearing loan. Mathematically, Debt Ratio = Total Debt Total Assets Where, Total Debt = Borrowings + Deposit Liabilities + other Liabities Total Assets = cash and Bank Balances + Placements + Investments + Loans, Advances and Bills Purchased + Fixed Assets + Other Assets Calculation of Debt Ratio Amount Rs. In 000
Fiscal Year Total Assets Total Debt Debt Ratio

2055/56 2056/57 2057/58 2058/59 2059/60

11244096 15863740 19500572 21315848 24197974


C o m p arisio n B etw een T o tal D e b t & T o tal Assets

10548993 14993205 18302300 19814319 22292091


Table 4

0.938 0.945 0.939 0.930 0.921

3 0000000 2 5000000 Amt in Rs. 2 0000000 1 5000000 1 0000000 5000000 0 2055/56 2056/57 20 57/5 8 F isca l Ye a r 2058 /59 2059/ 60

0. 950 0. 945 0. 940 0. 935 0. 930 0. 925 0. 920 0. 915 0. 910 0. 905

Debt Ratios

Tota l A s s ets Tota l Debt Debt R atio s

Chart 4

From the above study, the highest and the lowest debt ratio of Himalayan Bank Limited are 0.945 and 0.921 times in the F.Y. 2056/57 and 2059/60 respectively. Normally debt financing is costly and riskier in the long run. In this context, HBL has been reducing its debt financing since the F.Y. 2057/58 which is a good sign of financing. The current year's debt ratio is 0.921, which indicate that the bank has financed 92.10% of debt from total assets. Debt Equity Ratio:

12

Financial Analysis of Himalayan Bank Limited

This ratio reflects the relation between the shareholders fund and the outsiders fund. The relationship describing the lenders contribution for each rupee of the owners contribution is called Debt-Equity Ratio. It is relationship between debt and equity, i.e. debt-equity ratio indicates to what extent the firm depends upon the outsiders for its existence. Mathematically, Debt-Equity Ratio = Long Term Debt Shareholders Equity Calculation of Debt-Equity Ratio: Amount Rs. in 000
Fiscal Year

2055/56 2056/57 2057/58 2058/59 2059/60

Total Debt 10548993 14993205 18302300 19814319 22292091

Share Holders Equity 695103 870535 1198272 1501529 1905883 Table 5

Debt Equity Ratio 15.176 17.223 15.274 13.196 11.696

Comparative Debt-Equity Ratio


25000000 Amt in Rs. 20000000 15000000 10000000 5000000 0
6 7 8 55 /5 56 /5 57 /5 58 /5 9 59 /6 0

20 15 10 5 0 Debt-Equity Ratio Total Debt Shareholders equity Debt-Equity Ratio

20

20

20

20

Fiscal Year

20

Chart 5

From the above study, the highest and the lowest debt-equity ratio of Himalayan Bank Limited are 17.223% and 11.696% in the F.Y. 2056/57 and 2059/60 respectively. It indicates that the firm does not need to depend more on the outsiders for its financing. It has different other reliable sources for its financing.

Profitability Ratio: A company should earn profit to survive and grow over a long period of time. Profit is essential but it would be wrong to assume that every action initiated by management

13

Financial Analysis of Himalayan Bank Limited

should be aimed at maximizing profit, irrespective of social consequences. Profit is the difference between revenue and expenses over a period of time, usually one year. Profit is the ultimate output of a company, and it would have no future if it fails to make sufficient profit. Therefore, a financial manager should continuously evaluate the efficiency of his company in terms of profit. The profitability ratios are calculated to measure the operating efficiency of a company. Besides management of a company, creditors and the owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of principals regularly. Owners want to get a required rate of return on their investments. This is possible only when the company earns enough profits. Generally, higher value of profitability ratio shows better financial performances of the company and vice versa. Return on Share Holders Equity (ROSE): Common or ordinary shareholders are entitled to the residual profit. The rate of dividend is not fixed; the earnings may be distributed to the shareholders or retained in the business. A return on shareholders equity is calculated to see the profitability of the owners investments. ROSE indicates how a firm has used the resources of the owners. In fact this ratio is on of the most important relationships in financial analysis. Generally, higher ratio shows the efficient utilization of owners fund. Mathematically, ROSE = Net Profit after Tax x 100 Shareholders Equity Calculation of Return on Shareholders Equity Amount Rs. in 000
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Net Profit After Tax 165248 199380 277039 235023 212128 Table 6 Share Holders Equity 695103 870535 1198272 1501529 1905883 Return on Shareholders Equity 23.773 22.903 23.120 15.652 11.130

C a lc u la tio n o f R e tu rn o n S h a re h o ld e rs E q u ity
2500000 2000000 Amt in Rs. 1500000 1000000 500000 0 2 055 /56 20 56/57 20 57/58 205 8/59 205 9/60 F isc a l Y e a r 25 20 ROSE 15 10 5 0 N e t P ro fit a ft e r T a x S h a re h o ld e rs e q u ity RO S E

14

Financial Analysis of Himalayan Bank Limited

Chart 6

In the above table, the highest and the lowest return on shareholders equity is 23.773% and 11.13% in the fiscal year 2055/56 and 2059/60 respectively. The return on shareholders equity of HBL is in decreasing trend. It may be due to decreasing profit after tax and increasing shareholders equity over the few years. The lowest percentage in return on shareholders equity in the current year may indicate inefficient management of incomes and expenses. Return on Total assets: Return on total assets is defined as the ratio of relationship between net profits after tax to total assets. It evaluates the efficiency of a firm in utilizing and mobilizing its assets. Mathematically, Return on total Asset = Net Profit after Tax Total Assets Calculation of return on Total Assets Amount Rs. In 000
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Net Profit After Tax 165248 199380 277039 235023 212128 Total Assets 11244096 15863740 19500572 21315848 24197974 Table 7 Return on Total Assets 1.470 1.257 1.421 1.103 0.877

C o m pa rativ e retu rn o n T otal As sets


30000000 25000000 Amt in Rs. 20000000 15000000 10000000 5000000 0 2055/56 2056/57 2057/58 2058/59 2059/60 F isca l Ye a r 1 .6 1 .4 1 .2 1 .0 0 .8 0 .6 0 .4 0 .2 0 .0 ROA Net P rofit A fter Tax Total A s s ets RO A

15

Financial Analysis of Himalayan Bank Limited

Chart 7

In the above table, the highest and the lowest return on total assets is 1.47 and .877 in the fiscal year 2055/56 and 2059/60. It shows that the management has utilized its assets to earn profit at it full capacity. The lowest ratio does not mean that the firm's profit is in a decreasing trend. It is due to the increasing trend in fixed assets. The profit after tax and the return on total assets of the company is satisfactory. Earning Per Share (EPS): Earning per share expresses the amount the shareholders get on every share held by them. It also helps to determine the market price of the equity share of the company and also helps in estimating the company's capacity to pay dividend to its shareholders. Mathematically, EPS = Net profit after tax available to equity shareholders No. of equity shares outstanding Calculation of Earning Per Share (Amt Rs in '000')
Fiscal Year

2055/56 2056/57 2057/58 2058/59 2059/60

Net Profit After Tax in "000" 165248 199380 277039 235023 212128

No of Equity Shares in"000" 192000 240000 300000 390000 429000 Table 8

Earning Per Share 86.067 83.075 92.346 60.262 49.447

16

Financial Analysis of Himalayan Bank Limited

E a r n in g P e r S h a r e 100 80 60 40 20 0 2 0 5 5 /5 6 0 5 6 /5 7 0 5 7 /5 8 0 5 8 /5 9 0 5 9 /6 0 2 2 2 2 F is c a l Y e a r

EPs

E a rn ing P e r S ha re

Chart 8

The above table shows the highest and the lowest earning per share at 92.346% and 49.447% in the FY 2057/58 and 2059/60 respectively. During the five years analysis, although the EPS of HBL is good, it has gradually decreased. However, it does not mean that the EPS in the decreasing trend. It is due to bonus share of 107250 provided in the year 2059/60. It shows that profit of Himalayan Bank Limited is highly satisfactory. Dividend Per Share (DPS): The net profit after tax belongs to the shareholders. But the income, which they really received, is the amount of earnings distributed as cash dividends. Therefore, a large number of present and potential investors may be interested in DPS, rather than EPS. DPS is the total dividends divided by the total numbers of equity shares outstanding. Mathematically, DPS = Total Dividends No. of Equity Shares Outstanding

Where, Total Dividend = interim dividend + proposed dividend Calculation of Dividend per Share (Amt Rs. In '000')
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Total Dividend in 96000 120000 82500 97500 5645 Table 9 No of Equity Shares 192000 240000 300000 390000 429000 Dividend Per Share 50.000 50.000 27.500 25.000 1.316

17

Financial Analysis of Himalayan Bank Limited

D iv idend P er S hare
60 DPS 40 20 0 20 5 5/5 6 2 0 56 /57 2 0 57 /58 20 5 8/5 9 2 0 59 /60 F isc a l Ye ar D PS

Chart 9

The above table shows that the highest and the lowest dividend per share as 50 in the F.Y. 2059/60 and 1.316 in the FY 2055/56 to 2056/57 respectively. The DPS of HBL has gradually decreased since the F.Y.2056/57 which is not a good sign to the shareholders. Other Ratios: The liquidity ratio, profitability ratio and the leverage ratio are mostly used for the manufacturing houses and firms. It does not mean that these financial indicators are not useful for analyzing banking sectors. However, for proper analysis of any ban\k, we have to use other ratios and other financial indicators. Different other ratios used are as follows: Dividend Payout Ratio (D/P Ratio): Also known as Payout ratio, dividend payout ratio is defined as the ratio that measures the relationship of earnings belonging to the ordinary shareholders and the dividend paid to them. It can be found out by dividing the DPS by EPS. Alternatively, it can be calculated by dividing the total dividend paid to the owners by the total no. of earnings available to them. D/P Ratio = Total Dividend to Equity Holders Total Net Profit Belonging to Equity Holders Or, D/P Ratio = DPS EPS Calculation of Dividend Payout Ratio Amount Rs. In '000'
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Earning Per Share 86.067 83.075 92.346 60.262 49.447 Dividend Per Share 50.000 50.000 27.500 25.000 1.316 Dividend Payout Ratio 58.095 60.187 29.779 41.485 2.661

18

Financial Analysis of Himalayan Bank Limited

Table 10
C om p a ris io n B e tw e en E P S an d D P S
100 90 80 70 EPS / DPS 60 50 40 30 20 10 0 205 5/56 2056/57 2057/58 F isca l Ye a r 20 58/59 2059/60 70 60 50 DP Ratio 40 30 20 10 0 E arning P er S h are D ividend P er S ha re D ividend P ay out R atio

Chart 10

In the above table, the highest and the lowest D/P ratio are 60.187% and 2.661% % in the F.Y 2056/57 and 2059/60 respectively. In the current year, the D/P ratio has decreased sharply due to very low dividend compared to the earnings. Return in Loans and Advances (ROLA): The ROLA is defined as the relationship between net profit after tax and loans and advances. It shows the percentage of return on loans and advances provided by the firm. Mathematically, ROLA = Net Profit after Tax Loans and Advances Calculation of Return on Loans and Advances Amount Rs. In '000'
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Net Profit After Tax in "000" 165248 199380 277039 235023 212128 Loans and Advances 5245975 7224727 9015347 9557137 10844599 Table 11 Return on Loans & Advances 3.150 2.760 3.073 2.459 1.956

19

Financial Analysis of Himalayan Bank Limited

Comparision Between Loans & Advances and Net Profit Afrer Tax
12000000 10000000 Amt in Rs. 8000000 6000000 4000000 2000000 0 2055/56 2056/57 2057/58 Fiscal Year 2058/59 2059/60 3.5 3.0 2.5 ROLA 2.0 1.5 1.0 0.5 0.0 Net Profit After Tax Loans & Advances ROLA

Chart 11

In the above table, the highest and the lowest return on loans and advances are 3.15% and 1.956% in the FY 2055/56 and 2059/60 respectively. For a firm whose main income is the return on loans and advances, the decreasing trend of ROLA is not good. The rate of ROLA is inefficient for the bank. It shows that HBL has defaulted in collecting its return on the loans and advances. Return on Net Fixed Assets (RONFA): Return on Net Fixed Assets is defined as the relationship between net profit and net fixed assets. It shows the quantity of return on fixed assets. Mathematically, RONFA = Net Profit after Tax Net Fixed Assets Calculation of Return on Net Fixed Assets Amount Rs in '000'
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Net Profit After Tax 165248 199380 277039 235023 212128 Net Fixed Assets 171313 193046 201679 318844 229871 Table 12 Return on Net Fixed Assets 96.460 103.281 137.366 73.711 92.281

20

Financial Analysis of Himalayan Bank Limited

C o m parative N et F ixed Assets and N et P ro fit After T ax


350000 300000 250000 Amt in Rs. 200000 150000 100000 50000 0 2055/56 2056/57 2057/58 2058/59 2059/60 Fisca l Ye a r 160 140 120 RONFA 100 80 60 40 20 0 Net P rofit After Tax NetFixed A s sets RONFA

Chart 12

The above table presents the ratio between net profit and net fixed assets. The highest and the lowest RONFA are 137.366% and 73.711% in the F.Y. 2057/58 and 2058/59 respectively. The percentage of return in net fixed assets is tending towards satisfactory. Total Interest Earnings to External Assets (TIEEA): Total interest earnings to external assets is the ratio of relationship between interest earnings and external assets. It is the ratio of interest earnings from its assets such as loans, advances, investments, placements etc. It shows how much a bank has earned from its external assets. Mathematically, TIEEA = Total Interest Income Total External Assets Where, Total external assets = investments + money at call and short notice + loans, advances and bills purchased and discounted Calculation of Total Interest Earnings to external Assets Amount Rs. in '000'
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Total Interest Earnings 862054 1033660 1326378 1148998 1201234 Total External Assts 9840774 14123905 17156161 19066594 21170134 Table 13 Total Interest Earnings to External Assets 8.760 7.319 7.731 6.026 5.674

21

Financial Analysis of Himalayan Bank Limited

C o m p a ra tiv e E x te rn a l As s e ts a n d T o tal In te re s t E a rn in g s
2 50000 00 2 00000 00 Amt in Rs. 1 50000 00 1 00000 00 50000 00 0 2055 /562056/ 572057/ 582 058/5 920 59/60 F i sca l Ye a r 10 8 TIEEA 6 4 2 0 To tal E x terna l A s s ets To tal Int eres t E arn ings TIE E A

Chart 13

The above table presents the highest and the lowest percentage of total interest earnings to external assets as 8.76% and 5.674% in the FY 2055/56 and 2059/60 respectively. The return or the income not satisfactory. The management should use effective policy to increase its interest income from external assets. Exchange Earning to Gross Income (EEGI): Exchange earning to Gross Income is the relationship between earnings from foreign income and gross income excluding gross expenses. It shows the income from foreign currency exchange. Mathematically, EEGI = Foreign Exchange Income Gross Income Calculation of Exchange Earnings to Gross Income (Amt Rs in '000')
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Foreign Exchange Income 63958 87327 119261 104601 109599 Gross Income 501090 647897 840709 811658 900179 Table 14 Exchange Earnings To Gross Income 12.764 13.479 14.186 12.887 12.175

22

Financial Analysis of Himalayan Bank Limited

Comparative Exchange Earnings And Gross Income


1000000 900000 800000 700000 Amt in Rs 600000 500000 400000 300000 200000 100000 0 2055/56 2056/57 2057/58 2058/59 2059/60 Fiscal Year 12.5 12.0 11.5 11.0 14.5 14.0 13.5 EEGI 13.0
Foreign Exc hange Inc ome Gross Inc ome Exc hange Earnings To Gross Inc ome

Chart 14

The above table shows the highest and the lowest EEGI as 17.54% in the FY 2054/55 and 6.16% in the FY 2053/54 respectively. The percentage of EEGI in gross income is satisfactory but not highly satisfactory. Commission to Gross Income (CGI): Commission to gross income is the ratio that shows the percentage of commission and discount in total income or gross income. A financial manager should know the percentage of commission to make effective policy in the near future. Mathematically, CGI = Commission and Discount Gross Income Calculation of commission to Gross Income Amount Rs. in '000'
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Gross Income 501090 647897 840709 811658 900179 Commission And Discount 101983 110330 96065 101704 102561 Table 15 Commission to Gross Income 20.352 17.029 11.427 12.530 11.393

23

Financial Analysis of Himalayan Bank Limited

C om p ara tive G ro ss Incom e And C o m m issio n & D iscoun t


1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 2055/56 2056/57 2057/58 2058/59 2059/60 Fisca l Ye a r 25.0 20.0 15.0 10.0 5.0 0.0 CGI
Gros s Inc ome Commis sion & Disc ount CGI

Amt in Rs.

Chart 15

The above table shows the highest and the lowest CGI ratios as 20.352% and 11.393% in the FY 2055/56 and 11.393% respectively. The percentage of commission in total income is not so satisfactory and it should be noted that the decreasing trend of CGI is not a good symptom of effective management. Total External Assets to Total Deposit (TEATD): The ratio of total external assets to total deposit refers to the relationship between external assets i.e. out gone assets or investments with deposit collection. It shows in which ratio the bank has utilized its deposit in external assets. Mathematically, TEATD = Total External Assets Total Deposit Where, Total external assets = investments + placement + loans, advances, bills purchased and discounted. Calculation of Total External Assets to Total Deposit Amount Rs. In '000'
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Total External Assts 9840774 14123905 17156161 19066594 21170134 Total Deposit 9772736 14043097 17532404 18619375 21007379 Table 16 Total External Assets to Total Deposit 100.696 100.575 97.854 102.402 100.775

24

Financial Analysis of Himalayan Bank Limited

Comparative Total External Assets to Total Deposit


25000000 20000000 Amt in Rs. 15000000 10000000 5000000 0 2055/56 2056/57 2057/58 Fiscal Year 2058/59 2059/60 103 102 101 TEATD 100 99 98 97 96 95
Total External Assets Total Deposit TEATD

Chart 16

The above table shows the highest and the lowest TEATD ratio in percentage as 102.402% and 97.854% in the FY 20584/59 and 2057/58 respectively. It means that the external assets have been invested properly from total deposit, which is a symptom of effective management policy. Total Shareholders Equity to Total Risk :(TSETR) Total shareholders equity to total risk ratio defines the risk for the shareholders in their share of profit. It shows that risk in shareholders equity from loans, advances and bills purchased that is provided by the bank. It can be calculated by dividing shareholders equity by total risk. Mathematically, TSETR = Shareholders Total Risk Where Total Risk = Loans, advances and bills purchased Calculation of Total Shareholders Equity to Total Risk Amount Rs in '000'
Fiscal Year 2055/56 2056/57 2057/58 2058/59 2059/60 Share Holders Equity 695103 870535 1198272 1501529 1905883 Total Risk 5245975 7224727 9015347 9557137 10844599 Table 17 Total Shareholders equity to Total Risk 13.250 12.049 13.291 15.711 17.574

25

Financial Analysis of Himalayan Bank Limited

Comparative Shareholders Equity to Total Risk


12000000 10000000 8000000 Amt in Rs. 6000000 4000000 2000000 0 2055/56 2056/57 2057/58 Fisca l Ye a r 2058/59 2059/60 20 18 16 14 TSETR 12 10 8 6 4 2 0
Shareholders Equity Total Risk TSETR

Chart 17

In the above table the highest and the lowest TSETR ratios are 17.574% and 12.049% in the F.Y. 2059/60 and 2056/57 respectively. It is considered that this ratio is to be lowered much as possible. The increasing trend of this ratio in case of HBL indicates that HBL's risk is also increasing simultaneously.

26

Financial Analysis of Himalayan Bank Limited

Study Result: Financial performance concerns with the measurement and analysis of financial operation of a firm through liquidity, leverage, profitability, turnover and other useful ratios. By using ratio analysis as an analytical tool, some of the results found through this study are as follows: Current ratio of Himalayan Bank Limited shows that the higher ratio is 1.069 and the lowest ratio is 1.056 times. Generally, the current ratio is concerned satisfactory when 2:1. In this sense, the current ratio of this bank is not much satisfactory. Cash ratio of Himalayan Bank Limited shows highest and lowest ratios as 0.561 and 0.127 respectively. The cash ratio trend of Himalayan Bank Limited is not satisfactory and has very low liquidity to meet its current obligation. Net Working Capital Ratio of Himalayan Bank Limited has recorded highest and the lowest as 1.252 and 0.889 times. It shows that Himalayan Bank Limited has maintained a sound liquidity position to meet its current obligation. The highest and lowest debt ratio of Himalayan Bank Limited is 0.9456 and 0.921 times respectively. HBL has been reducing its debt financing since the F.Y. 2057/58 which is a good sign of financing. The current year's debt ratio is 0.921, which indicate that the bank has financed 92.10% of debt from total assets. Higher return on shareholders equity ratio shows efficient utilization of owners' investment. Here, highest ratio is 23.773% and the lowest ratio is 11.13%. The lowest percentage in return on shareholders equity in the current year may indicate inefficient management of incomes and expenses. Return on total asses measures the profitability of invested funds in the organization. The highest and the lowest ratios recorded here are 1.47% and 0.877% respectively. The lowest ratio does not mean that the firm's profit is in a decreasing trend. It is due to the increasing trend in fixed assets. The profit after tax and the return on total assets of the company is satisfactory. Earning per share helps in estimating the organization's capacity to pay dividends. In this respect, the highest and the lowest ratios of Himalayan Bank Limited are 92.346% and 49.447%. During the five years analysis, although the EPS of HBL is good, it has gradually decreased. However, it does not mean that the EPS in the decreasing trend. It is due to bonus share provided in the year 2059/60. It shows that profit of Himalayan Bank Limited is highly satisfactory. A large number of present and potential investors may be interested in DPS. The highest and the lowest DPS recorded are 50% and 1.316. The DPS of HBL has

27

Financial Analysis of Himalayan Bank Limited

gradually decreased since the F.Y.2056/57 which is not a good sign to the shareholders. The dividend payout ratio measure the earnings belonging to the ordinary shareholders and dividend paid to them. In the previous table, the highest and the lowest D/P ratio is 60.187% and 2.661%. In the current year, the D/P ratio has decreased sharply due to very low dividend compared to the earnings. Higher return on loan and advances are preferable. Here, the highest and the lowest ROLA are 3.15% and 1.956. The rate of ROLA is inefficient for the bank. It shows that HBL has defaulted in collecting its return on the loans and advances. Return on net fixed asset is the total profit returned in total investment in fixed assets. Higher return is considered the best. In the above table, the highest and the lowest RONFA is 137.366% and 92.281%. The percentage of return in net fixed assets is tending towards satisfactory. Total interest to external asset means the profit earned from investments. Here, the highest ratio is 8.76% and the lowest ratio is 3.674%. The return or the income not satisfactory. The management should use effective policy to increase its interest income from external assets. The highest and the lowest exchange earnings to gross income ratio of Himalayan Bank Limited are 114.186% and 12.175%. The percentage of EEGI in gross income is satisfactory but not highly satisfactory. Commission to gross income ratio Of Himalayan Bank Limited has recorded highest and the lowest as 20.352% and 11.393% respectively. The percentage of commission in total income is not so satisfactory and it should be noted that the decreasing trend of CGI is not a good symptom of effective management. The external assets to total deposit mean the ratio of relationship between investments with deposit. In case of HBL, the highest and the lowest ratio recorded are 102.402% and 97.854% respectively. It means that the external assets have been invested properly from total deposit, which is a symptom of effective management policy. Lowest ratio in shareholders equity to total risk is preferred best. In the abovementioned table, the highest and the lowest ratios recorded are 17.574% and 12.049% respectively. It is considered that this ratio is to be lowered much as possible. The increasing trend of this ratio in case of HBL indicates that HBL's risk is also increasing simultaneously. It can be highly satisfactory if the ratio go down further.

28

Financial Analysis of Himalayan Bank Limited

Chapter III
Summary and Conclusion Summary: Nepal being a development country has not been able to reach the peak of development due to the lack of finance. It has many sectors to develop, which can be done by the government or the private sectors. For this development, a bank has played a vital role. It has been providing loans to the government and private sectors for development as well as for business purpose to the public and the private sectors. A bank provides money to the government by purchasing treasury bills and providing loans to the public for agriculture, small as well as cottage industries by keeping reasonable securities. A bank is a financial institution that deals with financial securities. It also works as a financial intermediary for the public. There are many banks involved in this field, amongst which Himalayan Bank Limited is one. The objective of this study is to investigate whether Himalayan Bank Limited is sound or not. To fulfill this objective, financial data are collected from Himalayan Bank Limited for a period of five years, from the fiscal year 2055/56 to 2059/2060. After they have organized in a suitable table and charts, financial position and performances of Himalayan Bank Limited is determined using the financial tools such as Ratio Analysis. Conclusion: The following conclusion referring to the ratio calculated and interpreted has been drawn regarding the financial situation of the organization. Liquidity position of Himalayan Bank Limited is good. It has a satisfactory liquid asset and there is no liquidity crisis in the organization. The current ratio, cash ratio and the net working capital has been balanced but is not very satisfactory. No body can predict the future. The main obligation of a commercial bank is to pay to its depositors on demand. In case if a bank defaults so, it may have a negative impact on its worthiness. In addition to this, in this competitive world good will is a must. Hence, the bank should, in future, try to maintain a sound liquidity position. Himalayan Bank Limited has properly balanced the leverage ratio. It seems that the bank has properly balanced the debt from the total assets. The ratio is satisfactory which implies that management has been utilizing its assets and capital efficiently and optimally. 29

Financial Analysis of Himalayan Bank Limited

Profitability position of Himalayan Bank Limited is not highly satisfactory. Although the bank has been earning profits every year, the profit so earned is not enough for a financial firm. On the basis of this analysis, we can clearly see that the main profit indicators such as Return on shareholders equity, return on total assets, dividend per share, earning per share etc. are in a decreasing trend. Hence, it can be concluded that profitability position of HBL is not so good. Other ratios such as D/P ratio, return on loans and advances, return on net fixed assets, exchange earnings to gross income, commission to gross income, external assets to total deposits and total shareholder equity risk ratios are satisfactory however the firm should try to minimize risk much as possible. Last but not the least, this analysis is based only on the availability of an annual report. Other necessary documents required for the total analysis could not be obtained due to various reasons. Likewise, an analysis based only in terms of ratios may not be sufficient for the overall analysis of a bank. Hence, due to these limitations this report can not be concluded as the overall and the actual analysis of Himalayan Bank Limited. This analysis report may only be used as reference concerning the Financial Analysis of Himalayan Bank Limited. In addition, since the bank is run by highly competent personnel, they may have utilized the bank's assets and loans to its optimum capacity.

30

Financial Analysis of Himalayan Bank Limited

Recommendation
Based on the study performed, the following suggestions are recommended. The current ratio shows the minimum position, which is not satisfactory and the cash ratio trend is not much satisfactory either to meet its current obligations. Management should be concerned about it and they should try to maintain a good cash ratio in the coming future. The profitability ratio of Himalayan Bank Limited is not highly satisfactory. The financial manager should make more effective policies to make high profit. The trend of return on loans and advances is not much satisfactory. The bank has a high percentage of public deposits and to pay interest to them the ratio of returns on loans and advances are not much enough. The management should investigate and make effective policies to increase the ratio of return on loans and advances. The ratio of percentage of return on net fixed assets is highly satisfactory. However, after the FY. 2052/53, the percentage of return on net fixed assets is slightly in a decreasing trend, which is not a good indication in this cut- throat competition. The management of the bank should investigate the reasons for the decreasing tend and should increase the ratio in the coming year. The highest ratio of earnings to external assets is satisfactory but not much. The management should use effective policies to increase its interest income trend from external assets. Exchange earnings to gross income ratio are satisfactory but it would have been more precise if the trend were higher. The ratio of commission to gross income is satisfactory but the trend is slowly decreasing which is not a good symptom for the bank. So the management should investigate about this and use different policies to increase its commission income. Total shareholders equity to total risk rate trend clarifies that the risk in shareholders equity is not high. This ratio must be lowered, as the owners are concerned their equity of profit. Therefore, management should decrease the ratio mush as possible.

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