1

CHAPTER I

INTRODUCTION

1.1Background

A loan is the act of giving money, property or other material goods to another party in

exchange for future repayment of the principal amount along with interest or other

finance charges. A term loan is a loan from a bank for a specific amount that has a

specified repayment schedule and a fixed or floating interest rate.

(www.investopedia.com)

Loan analysis is the method by which one calculates the creditworthiness of a

business or organization. In other words, it is the evaluation of the ability of a

company to honor its financial obligations. The audited financial statements of a large

company might be analyzed when it issues or has issued bonds or, a bank may

analyze the financial statements of a small business before making or renewing a

commercial loan. (www.academia.com)

Nepal Bank Limited is the oldest commercial bank of Nepal. It was established 1937

A.D. which marked the beginning of an era of formal banking in Nepal. The Bank is

also one of the largest in Nepal with 126 Branches. All branches are inter connected

through optical fiber as well as v-sat and are capable of providing real time on-line

transaction. NBL bank was the first commercial bank in Nepal to received ISO

9001:2000 certificate for its quality management system standard. This is the fruit of

the bank’s outstanding performance backed by belief and support of its customer

toward the bank. (www.nepalbank.com.np)

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1.2 Statement of the Problem

The main problem is to calculate differential amount in loan taken loan disbursed by

Nepal Bank Limited in five years. The other specific problems are as follows:

 What is the trend of loan taken (borrowing)?

 What is the trend of loan disbursed?

 What is the correlation between loan taken and loan disbursed?

1.3 Objectives of the study

The main objective is to examine the differential amount in loan taken loan disbursed

by Nepal Bank Ltd in five years. The other specific objectives are as follows:

 To examine the trend of loan taken (borrowing).

 To examine the trend of loan disbursed.

 To evaluate correlation between loan taken and loan disbursed.

1.4 Rationale

This study will be of substantial importance for investors, planners, researchers,

students to meet their personal or organization objectives

 It gives the researcher the way for the purpose of conducting the survey.

 To know the financial position of the company and various ratios and findings

of the bank.

 To know the total deposit share of the Nepal bank limited and actual consumer

service provided by the bank.

 It helps to predict next year loan amount.

 It helps play a critical role in determining the financial performance of

institution.
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1.5 Report Structure

This study has been divided into five chapters.

Chapter I is introduction which includes general introduction of loan. This chapter

comprises of background, problem statement, objective of the study, rationale and

report structure.

Chapter II is literature review which includes the theoretical framework and review

of the previous studies like published books, journals, and unpublished thesis reports

separately.

Chapter III is methods and it will deal research methodology consisting of type of

research, population and sampling, types of data, data collection procedures,

instruments and technique of analysis.

Chapter IV is results and findings which deals with analysis and presentation of data

collected from different sources. The research will analyze the data to reach closer to

the result by using financial and statistical tools and technique.

Chapter V is discussion and conclusion which will provide the result of discussions,

conclusion and implications of the overall study. At the end, an extensive

bibliography and appendices will also include.

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CHAPTER II

RELATED LITERATURE REVIEW

2.1 Conceptual Review

A lot of research studies have been carried out regarding the relationship between

interest rate and share price.

2.1.1 Loan

A loan is a short term funds for a specific time periods to finance a specific asset. The

loans that have a fixed repayment schedule is known as term loan and the loan that

has a single principal payment at maturity and periodic interest payments over the life

of the loan. (Paudel, et.all 2016)

An analyzing the issuers’ financial information and the specifications of the debt

instruments in order to estimate the ability to make contractual payment of interest

and principal. (Paudel, et.all 2016)

2.2 Review of Previous Work

Afolabi (2010) conducted the study analyzed loan repayment among small scale

farmers in Oyo State, Nigeria. It specifically identified socio-economic

characteristics of the respondents and quantitatively determined some socio-economic

characteristics of these farmers that influence their level of loan repayments.

The result showed that 60.23% of the respondents were more than 50 years old and

92.35% of them were males. Analysis also revealed that 83.92% of these farmers

operated 4.9 hectares or less as farmland. About 82.17% of the respondents obtained

their loans from informal sources while 17.83% patronized formal sources. The result
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of the repayment function showed that the included regressors explained 68.4% in the

variation of the regressand.

Ahmed, Malik (2015) conducted this study with the main aim to evaluate the

influence of credit risk management practices on loan performance (LP) while taking

the credit terms and policy (CTP), client appraisal, collection policy (CP) and credit

risk control (CRC) as the dimensions of the credit risk management practices.

Multiple regression analysis has been used for empirical relationship evaluation of the

credit risk management practices on the performance of loan. The results of the

analysis are showing that the credit terms and client appraisal have positive and

significant impact on the LP, while the CP and CRC have positive but insignificant

impact on LP.

George, Mirogo, Mindila (2013) conducted the banking sector in any economy

serves as a catalyst for growth and development. Banks are able to perform this role

through their crucial functions of financial intermediation, provision of an efficient

payment system and facilitating the implementation of monetary policies. Bank

profitability is usually expressed as a function of internal and external determinants.

The aim of this study was to close the gap in knowledge by investigating profitability

determinants within commercial banks in Kenya.

Findings of the study showed that public sector banks and private sector banks were

not much affected by increasing or decreasing of interest margin. It can therefore be

interpreted that the profitability growth of public and private sector banks are not

dependent on fluctuation of interest rate although the foreign banks have the benefit

of high return due to increase or decrease in interest margin.

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Arko (2012) conducted a study to obtain the objectives such as to identify the major

causes of non-performing loans in the microfinance institutions in Ghana.

Specifically, it is aimed to determine the trend of incidence of NPLs in a selected

MFI, to assess the impact of NPLs on interest income, operating profit and loan, to

identifying factors accounting for the incidence of non-performing loans in Sinapi

Aba Trust and to identify the sector with the highest incidence of NPLs

recommending strategies that effectively address the problem of non-performing

loans in the MF institutions.

Among the factors that accounted for the incidence of NPLs, it was found out from

the study conducted that ineffective monitoring of loans was the most important factor

accounting for the incidence of NPLs whist trading was found to be the sub sector

with the highest incidence of NPLs. It can therefore be concluded that the loans to the

trading subsector which is major lending activity of the institution is most exposed to

credit risk as compared to other sectors. It is therefore expected that management will

adopt very effective risk mitigating measures in this subsector to improve the overall

health status of the loan portfolio.

2.3 Research Gap

There are many studies have been conducted on loan analysis. For this study,

coefficient of correlation is used to find out the relation between loan taken and loan

disbursed. This study has objectives such as to examine the trend of loan taken

(borrowing) amount, to examine the trend of loan disbursed amount and to evaluate

the correlation between loan taken (borrowing) and loan disbursed.

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CHAPTER III

METHODS

3.1 Type of Research

Research is a systematic, controlled, empirical and critical investigation of

hypothetical propositions about the presumed relations among natural phenomena.

There are two types of research: Qualitative research and Quantitative research. A

research which is conducted based on the measurement of quantity is known as

quantitative research and a research which is concerned with subjective phenomena is

known as qualitative research. And this study is based on quantitative research.

3.2 Population and Sample

The population includes all members of a defined group that we are studying or

collecting information on for data driven decisions. A part of thepopulation is called

a sample. There are 27 commercial banks listed in NEPSE and from among them I

have taken Nepal Bank Limited as sample.

3.3 Types of Data

Information or facts collected through record, observation and measurement is known

as data. Data which are originally collected by the researcher is known as primary

data and if the researcher uses the data developed by others in the past for their own

purpose is known as secondary data. This study is based on secondary data.

3.4 Data collection procedures

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This study is based on secondary data and those data are collected through annual

reports of related bank, financial statics reports, journals, unpublished thesis reports,

newspaper and internet websites.

3.5 Instruments

 Annual reports

 Books, journals and unpublished thesis reports

3.6 Techniques of Analysis

Various statistical and financial tools have been used to analyze the data in this study;

the different tools used in the study are as follows:

3.6.1 Statistical tools

3.6.1.1 Average (Mean)

It is a measure of central tendency that offers a general picture of data calculating

average of series of data. The mean can be derived by adding the value together and

dividing by the numbers of items. Mathematically, it is given by,

ΣX
A.M = n

Where,

A.M= Arithmetic mean

X= sum of all the values of the variable ‘X’

n= number of observations

3.6.1.2 Correlation of coefficient

When the relationship is of quantitative nature, the appropriate statistical tool for

discovering and measuring the relationship and expressing it, in a brief formula is

known as correlation. It is calculated as follows:

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rxy= nΣXY−ΣXΣY

√[nΣX2 −(ΣX)2 ][nΣY2 −(ΣY)2 ]

Where,

X= Deviation of the X measured from the assumed mean

Y= Deviation of the Y measured from the assumed mean

3.7 Limitations

This study solely deals with the loan analysis of NBL. This study has certain of

limitations which are as follows: this sample, along with results obtained may not be

completely representative of the entire population, secondary data is used to obtain

results so there may be subject to a few errors and the errors of statistical methods like

average; correlation exists in this study as well.

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CHAPTER IV

RESULTS AND FINDINGS

4.1 Results

4.1.1 Presentation of data in graph

2.5E+09

2E+09
loan taken (borrowing) amt.

1.5E+09

1E+09 loan taken (borrowing)

500000000

0
2068/69 2069/70 2070/71 2071/72 2072/73
year

Figure 1.Trend analysis of loan taken (borrowing) amt.

In the above figure, borrowing amount is high at year 2068/69 and lowest at year

2070/71 and constant afterwards.

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7E+10

6E+10

5E+10
loan disbursed amt.

4E+10

3E+10 loan disbursed

2E+10

1E+10

0
2068/69 2069/70 2070/71 2071/72 2072/73
year

Figure 2.Trend analysis of loan disbursed amt.

In the above figure, disbursed amount is high at year 2072/73 and low at year

2069/70. The trend is increasing throughout the years.

4.1.2 Presentation of data in tabular form

Table 1

Calculation of coefficient of correlation between loan taken(borrowing) amount and

loan disbursed amount.

Year Loan taken (borrowing) Loan disbursed amt.(Y)

amt.(X)
2069/70 2153794480 27670840071
2070/71 2342738892 35611699549
2071/72 Nil 39035600831
2072/73 Nil 50970857910
2073/74 Nil 61250072035
Average 899306674.4 42907814079.2
𝑟𝑋𝑌 -0.7638
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In the above table, there is an inverse relationship between loan taken (borrowing)

amount and loan disbursed amount.

4.2 Findings

4.2.1 The trend of loan taken (borrowing) amount is decreasing. The loan taken

amount is Rs 2153794480 at year 2069/70, Rs 2342738892 at year 2070/71 and

afterwards the loan taken amount is zero.

4.2.2 The trend of loan disbursed amount is fluctuating and it is increasing throughout

the years. The loan disbursed amount is lowest with Rs 27670840071 at year

2069/70and highest with Rs 61250072035 at year 2073/74.

4.2.3 The coefficient of correlation between loan taken (borrowing) and loan

disbursed is -0.7638 which means there is an inverse relationship between loan taken

(borrowing) amount and loan disbursed amount.

CHAPTER V
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DISCUSSION AND CONCLUSION

5.1 Discussion

This study examines the trend of loan analysis of Nepal Bank Limited, examines the

relationship between loan taken (borrowing) amount and loan disbursed amount.

There is negative correlation between loan taken amount and loan disbursed which

means that if loan taken (borrowing) amount increases, loan disbursed amount will

decrease and vice-versa. This project work is focused on the loan analysis of the bank.

5.2 Conclusions and Implications

5.2.1 Conclusion

This study, loan analysis of NBL, is based on only one commercial bank whose stocks

are listed in NEPSE. The coefficient of correlation of Nepal Bank Limited shows that

there is a negative relationship between the loan taken (borrowing) amount and loan

disbursed amount. If the loan amount increases, the loan disbursed amount will

decrease and if the loan amount decreases, the loan disbursed amount will increase.

5.2.2 Implications

This study is based on the statistical tool like correlation which helps to examine the

relationship between the two variables. Other implications of this study are ; it helps

to allocate and predict next year loan amount, helps to mobilize loan disbursed

(borrowing) to decrease the cost and helps to know to increase/decrease the loans to

maximize income.

REFERENCES
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Afolabi, J.A. (2010). Analysis of Loan Repayment among small scale farmers in Oyo

State, Nigeria, Department of Agricultural Economics and Extension, Federal

University of Technology Akure, 22(2), pp. 115-119

Ahmed, S.F., Malik Q.A., (2015). Credit Risk Management and Loan performance:

Empirical Investigation of Micro Finance Banks of Pakistan, International

Journal of Economics and Financial Issues, 5(2), pp. 575-579

Arko, S.F., (2012). Determining the causes and impact of non-performing loans on

the operations of Microfinance Institutions: A case of Sinapi Aba Trust,

Kwame Nkrumah: An Unpublished Master’s Degree thesis, Submitted to the

Institute of Distance Learning, University of Science and Technology

George, G. E., Mirogo, Julius, B., Mindila, R., (2013). An Analysis of Loan Portfolio

Management on Organization Profitability: Case of Commercial banks in

Kenya, Research Journal of Finance and Accounting, Vol. 4, No. 8, pp. 24-35

Paudel, R.B., (2016). Foundations of Financial Markets & Institutions, Kathmandu:

Asmita Books Publisher and Distributors (P) Ltd.

www.nepalbank.com

www.investopedia.com

www.academia.com

APPENDICES

Value of loan taken (borrowing) amt. from year 2068/69 to 2072/73

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Year Loan taken (borrowing) amt.

2069/70 2153794480

2070/71 2342738892

2071/72 Nil

2072/73 Nil

2073/74 Nil

Value of loan disbursed amt. from year 2068/69 to 2072/73

Year Loan disbursed amt.

2069/70 27670840071

2070/71 35611699549

2071/72 39035600831

2072/73 50970857910

2073/74 61250072035

Calculation of coefficient between loan taken and loan disbursed

(Rs in millions)
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Year X Y XY X2 Y2

2069/70 2153 27670 59573510 4635409 765628900

2070/71 2342 35611 83400962 5484964 1268143321

2071/72 Nil 39035 - - 1523731225

2072/73 Nil 50970 - - 2597940900

2073/74 Nil 61250 - - 3751562500

N=5 ∑X=4495 ∑Y=214536 ∑XY=142974472 ΣX 2 =10120373 ΣY 2 =9907006846

rxy= nΣXY−ΣXΣY

√[nΣX2 −(ΣX)2 ][nΣY2 −(ΣY)2 ]

= -0.7638