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A report sample for all BBS students providing insights on how to prepare BBS 4th year project report.

Bachelors of business administration (bba101), tribhuvan vishwavidalaya.

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Liquidity analysis of nepal investment bank limited.

Pukar Shrestha

T. Reg. No.: 7-2-538-66-

Canvas international college, submitted to, the faculty of management, tribhuvan university, in partial fulfillment of the requirements for the degree of, bachelor of business studies, kathmandu, nepal.

February, 2022

DECLARATION

I hereby declare that the project work entitled LIQUIDITY ANALYSIS OF NEPAL INVESTMENT BANK LIMITED (NIBL) submitted to the Faculty of Management, Tribhuvan University, Kathmandu is an original piece of work under the supervision of Mr. Sabin Shrestha, Member of Research Committee, Canvas International College, Basundhara, Kathmandu, and is submitted in partial fulfillment of the requirements for the degree of Bachelor of Business Studies (BBS). This project work report has not been submitted to any other university or institution for the award of any degree or diploma.

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Endorsement.

We hereby endorse the project work report entitled LIQUIDITY ANALYSIS OF NEPAL INVESTMENT BANK LIMITED (NIBL) submitted by Pukar Shrestha of Canvas International College, Basundhara, Kathmandu, in partial fulfillment of the requirements for the degree of the Bachelor of Business Studies (BBS) for external evaluation.

................................ .................................

Sabin Shrestha Krishna Prasad Paudel

Supervisor Principal

February, 2022 February, 2022

ACKNOWLEDGMENTS

I would like to express my sincere gratitude to several individuals and organizations for supporting me throughout my research study. First, I wish to express my sincere gratitude to my supervisor, Sabin Shrestha, for his enthusiasm, patience, insightful comments, helpful information, practical advice and unceasing ideas that have helped me tremendously at all times in my research and writing of this report.

I would also thank my friends for helping me throughout the study with their guidance and support.

TU Reg. No.: 7-2-538-66-

SUMMARY AND CONCLUSIONS.................................................................................

3 Summary of the Study.............................................................................................. 3 Conclusion from the Study...................................................................................... REFERENCES APPENDICES

LIST OF TABLES

Table 2 Calculation of current ratio.............................................................................

Table 2 Calculation of quick ratio................................................................................

Table 2 Calculation of cash ratio..................................................................................

Table 2 Calculation of capital adequacy ratio..............................................................

Table 2 Calculation of mean/average...........................................................................

Table 2 Calculation of standard deviation....................................................................

ABBREVIATIONS

ALCO : Assets and Liabilities Committee BBS : Bachelor of Business Studies CD : Certificate of Deposit LC : Letter of Credit LCR : Liquidity Coverage Ratio NRB : Nepal Rastra Bank RBI : Reserve Bank of India TU : Tribhuwan University

INTRODUCTION

1 Background of the study

In business world, we frequently have to face events that affect the business adversely. Risk can be understood as a possible event which could have adverse financial consequences. Risk management is a constant challenge to all financial institutions. Banks need to consistently develop and improve their operational and technical practices. Risk management is the identification of the possible events that could have adverse financial consequences and taking the measures to prevent or minimize the financial losses. (Rajan B. Paudel, 2016). In any financial institutions there are various types of risks. They are interest rate risk, market risk, credit risk, liquidity risk, insolvency risk etc. All the financial institutions face the risk that their liabilities holders will seek to cash in their claims. The holders of a checking amount can always walk into the bank and ask for the balance in cash. This risk of sudden demand for liquid funds is called liquidity risk (Kiran Thapa, 2016). Liquidity is a bank’s capacity to fund increase in assets and meet both expected and unexpected cash and collateral obligations at reasonable cost and without incurring unacceptable losses.

Liquidity risk is the inability of a bank to meet such obligations as they become due, without adversely affecting the bank’s financial condition. Effective liquidity risk management helps ensure a bank’s ability to meet its obligations as they fall due and reduces the probability of an adverse situation developing. For banks using liability-based or off-balance sheet liquidity strategies, traditional measures of liquidity, such as the ratio of loans to deposits or non-core funding dependency, may not provide an accurate view of the institution’s true liquidity position. Such institutions should augment traditional liquidity risk measures with pro forma cash flow and scenario analysis, and should have realistic contingency funding plans that are responsive to changes in liquidity risk exposure. The liquidity risk of banks arises from funding of long-term assets by short- term liabilities, thereby making the liabilities subject to rollover, or refinancing risk. Liquidity risk is usually of an individual nature, but in certain situations may compromise

modern banking system in Nepal. As per the list issued by NRB as of October 2019, the modern banking sector includes 27 Commercial Banks, 20 Development Banks, 22 Finance Companies, and 85 Micro Credit Development Banks.

1.1 Meaning of Commercial Bank

A commercial bank is a financial institution which performs the functions of accepting deposits from the general public and giving loans for investment with the aim of earning profit. In fact, commercial banks, as their name suggests, axe profit-seeking institutions, i., they do banking business to earn profit. Commercial banks are typically concerned with managing withdrawals and receiving deposits as well as supplying short-term loans to individuals and small businesses. Consumers primarily use these banks for basic checking and savings accounts, certificates of deposit (CDs), and home mortgages. Examples of commercial banks include JPMorgan Chase & Co. and Bank of America Corp.

1.1 Commercial Banks in Nepal

Commercial banks are Class ‘A’ type Financial Institutions. Nepal Bank Limited (established in 1937AD) is the first commercial bank in Nepal. Commercial banks perform all kinds of banking business. The primary function of commercial banks is receiving deposits and lending to others. Functions of the commercial banks are; accepting deposits; advancing loans, letter of credit, guarantee, remittance, e-banking, bills, etc.

These banks provide banking facility to the customer through bank branches, branchless banking service, mobile banking, internet banking, ATMs, debit cards, credit cards, etc. As per the latest data from Nepal Rastra Bank, at present, there are a total of 27 Commercial Banks in Nepal. So far, a total of 3884 branches of commercial banks have been established across the nation.

1 Profile of Organisation

Nepal Investment Bank Ltd. (NIBL), previously Nepal Indoseuz bank Ltd., was established in 1986 as a joint venture between Nepali and French partners. The French

partner (holding 50% of the capital) was Credit Agricola Indoseuz, a subsidiary of one of the largest banking groups in the world. When Credit Agricole Indoseuz decided to divest, a group of companies compromising of bankers, professionals, industrialists and businessman acquired 50% of the holdings of Credit Agricole Indoseuz in Nepal Indoseuz Bank in April 2002. The name of the bank was changed to Nepal Investment Bank Ltd. upon approval of the Bank’s Annual General Meeting, Nepal Rastra Bank and Company Registar’s office.

NIBL is one of the top lenders having highest growth rate among banks in Nepal. It is the largest among taxpayers in Nepal. The vision of NIBL is to be the most preferred provider of financial services in Nepal. They aspire to be the leading Nepali bank, delivering world class service through a blend of state-of-the-art technology and visionary management in partnership with competent and committed staff, to achieve sound financial health with sustainable value addition to all our stakeholders. We are committed to fulfilling this mission while ensuring the highest level of ethical standards, professional integrity, corporate governance, and regulatory compliance.

1 Statement of the problem

Liquidity risk is one of the challenges faced by banks at present days. In today’s competitive world, a bank is responsible for the sound management of liquidity risk. A bank should establish a robust liquidity risk management framework that ensures it maintains sufficient liquidity and clearly articulate a liquidity risk tolerance that is appropriate for its business strategy and its role in the financial system. Liquidity costs, benefits and risks in the internal pricing, performance measurement and new product approval process should also be incorporated for all significant business activities (both on- and off-balance sheet) moreover, a bank should have a sound process for identifying, measuring ,monitoring and controlling liquidity risk. Based on the above discussions, this study aims to identify about the management of liquidity in one of the leading banks of Nepal. Within the context, the study deals with following issues:

Why should a bank be responsible for sound management of liquidity risk and articulate a liquidity risk tolerance? 4

asset pricing has been a dynamic area of research. Over the time it has been proved that credit and liquidity risk are considered as key factors that influence market liquidity.

Liquidity crisis, which started during the financial turmoil had created such a buzz that the world regulatory committees were forced to introduce new methods to prevent future liquidity crises. Benzchawel in his article discusses the proposed methods introduced by the Basell Committee to prevent the future liquidity crises and the International Monetary Fund’s proposed methods such as the systemic liquidity risk index (SLRI), for measuring overall and bank-specific systemic risk. The paper focuses on the advantages and the limitations of these models. In addition to that an index for market liquidity, the CLX, is introduced, which is composed of inputs from five liquid derivatives contracts spanning equity, debt, rates, and volatility markets. This model has proven to be useful for measuring various aspects of economic activity and is very similar to the IMF’s SLRI model. In addition, the CLX forms the basis for a liquidity early warning system and can anticipate changes in several major economic releases.

Therefore, Saadaoui & Boujelbene conducted a study, whose main objective was to provide an empirical analysis of the effect of liquidity and credit risk on the worsening of liquidity problems across ten emerging bond markets in countries like Argentina, Australia, Hong Kong, Hungary, Greece, Mexico, Peru, Poland, Spain, and turkey’s bond markets after the subprime crisis period. In order to understand the relationship between these risks the researchers used Control variables, outstanding amount, coupon, age, and interest rates. Their results indicated that liquidity risk has a greater impact on the liquidity of the bond market than credit risk.

Yan M. et al. in their paper presented a quantitative model known as the exposure based cash flow on risk in order to estimate the liquidity risk in the banking sector. They applied this model in their UK banking sector by using the data for the period 1997-2010. With the help of their data they were able to demonstrate that which bank’s cash flow is the most impulsive of the six leading United Kingdom banks selected in their sample.

Subramonim K. examines the Basel III Framework on Liquidity Standards and includes in his paper the challenges that are faced by the Indian banks on the Liquidity Risk Management. In his paper he discusses the guideline that has recently been published by

the Reserve Bank of India (RBI) based on the Basel framework ISSN 2413- International Journal of Applied Sciences and Management Vol. 1, No. 2, 157-170, 2016 160 Int. J. Appl. Sci. Manag. on the liquidity risk management. RBI included improved regulation on liquidity risk governance, measurement, monitoring and reporting to the RBI on liquidity positions. The regulations also cover two minimum international regulatory standards which are currently being adopted by some of the leading financial markets, i. Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The paper tries to bring out the procedure given by RBI and the challenges the banks may face in implementing the guidelines.

In one of the studies conducted by Vodova, the author tried to evaluate the liquidity positions of commercial banks in the Czech Republic through the computation of number of liquidity ratios. The period selected for the research was from 2001-2010 and the aim of the paper was to investigate whether the liquidity management differs with the size of the banks. The results of their study suggested that the Czech Republic banks were least liquid during the financial crisis of 2009. The research also indicated that while ensuring liquidity, that large bank depends on interbank markets, whereas small or medium size banks hold buffer of liquid assets.

Gatev et al. conducted a study on managing bank’s liquidity risk and the objective was to find out how the deposit and loans synergies vary with market conditions. In their study, they showed that the transactions deposit help banks, hedge liquidity risk from unutilized commitment of loans. Bank stock-return unpredictability increases with unutilized commitments, especially for the banks that had less transactional deposits such as saving or demand deposits. They also found out that during the tight liquidity deposit-lending hedge becomes more dominant, when anxious depositors move their funds to the banking institutes. Their results reverse the standard notion of liquidity risk at banks, where runs from deposit holders is considered the cause of concern.

E. Bareikaite and R. Martinkute conducted a research on the liquidity risk of the Lithuania banking system as we saw the failure of two of their commercial banks since they were not able to evaluate the liquidity risk or did not deal with it properly. The purpose of their research was to examine the liquidity position towards liquidity, the way

1.7 Sources of Data

Secondary data is the data that has already been collected through primary sources and made readily available for researchers to use for their own research. It is a type of data that has already been collected in the past. A researcher may have collected the data for a particular project, then made it available to be used by another researcher. The data may also have been collected for general use with no specific research purpose like in the case of the national census.

All the data collected to analyze in the study are conducted on the basis of secondary data. The study is based on the facts collected from the annual report of NIBL Bank.

1.7 Data Collection Procedure

Data or information can be collected by using either primary or secondary sources. Since my study is based on secondary sources of data, I have used such information’s which were already gathered by other people. The sources are published sources and computerized database. I collected data with the help of published annual report of Nepal Investment Bank Limited. Moreover, I took help from computerized database by searching information’s through different websites, pages etc in the internet.

1.7 Tools and Techniques

The collected data were processed for analysis. Various table and calculation have been shown in the study in order to come to reliable conclusions. Finding and results are compared and interpreted.

While processing data in the table and charts following tools were used:

Liquidity Ratio

Profitability Ratio

Activity/Turnover Ratio

Capital structured or Leverage Ratio.

Others Ratios.

1 Limitations of the study

This study is simply conducted for the partial fulfillment of the requirement for the degree of the bachelor in business studies (BBS). While preparing this project, many problems showed up. As we know, there are positive and negative factors in everything. The limitations of this project report are given below:

This project report is based on secondary sources of data which could not disclose actual result.

Data contains mostly of the annual reports of the bank from 2016 to 2020only.

Only annual data is used due to time and cost constraints.

The only aims to fulfill the partial requirement for the degree so bachelor in business studies so it cannot cover all the dimension of all subject matter.

Multiple Choice

Course : Bachelors of Business Administration (BBA101)

University : tribhuvan vishwavidalaya.

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More from: Bachelors of Business Administration BBA101 Tribhuvan Vishwavidalaya 943 Documents Go to course