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CHAPTER I INTRODUCTION Background of the Study Nepal Investment Bank Limited is one of the leading commercial banks of Nepal. Previously known as Nepal Indosuez Bank Ltd., the bank was established in 1986 as a joint venture between Nepalese and Indosuez. The French partner (holding 50% of the capital of NIBL) was credit Agricole Indosuez, a subsidiary of one of the largest banking group in the world. Later in 2002 a group of Nepalese companies comprising of bankers, professionals, industrialists and businessmen acquired 50% share holding of credit Agricole Indosuez in Nepal Indosuez bank ltd and accordingly the name of the bank also changed to Nepal Investment Bank Ltd. At present shareholding pattern is as promoters 69% and General public 31%. From then the Nepalese investors have raised this bank to one of the most trusted and popular bank in the country. Till date it has 79 branches, 13 Extension Counters (112 ATM outlets) scattered throughout the country giving modern banking service. A bank is a financial institution that accepts deposits from public and creates credits. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in financial stability of a country, banks are highly regulated in most of a country. The money thus accumulated can be invested different sectors such as business, foreign trades, agriculture’s industry and social works for which it charges certain percentages of interest which is higher than interest paid by the bank to accumulated fund. Such charges on advancing loan is the major revenue sources of the bank by which it can bear administration expenses incurring in the process of operating its activities. Thus the bank is a good mediator between depositors and loan takers. To know the precise and clear meaning of bank, some expert’s definition can be given.

Chamber’s twentieth century dictionary defines a bank as an “Institutions for keeping, lending and exchanging etc of money. “According to Crowther “A banker is a dealer in debts. The bankers business is then to take the debts of other to people, to offer his own in exchange and thereby to create money.”According to World Bank, “Banks are the financial institutions that accept funds in the form of deposit repayable on demand or short notice.”

Therefore a bank is a financial institution, which collects deposits and in turn provides loans by creating credit. Today banking is such a vague tern, it does a lot more then deposits and

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credit like remitting money, issue of money guarantee, letter of credit, controlling, payment, other agency functions, monetary activity of country etc. are also the major function of bank. This multiplicity of bank service and function has led to a bank being labeled “financial supermarket.

Introduction of the liquidity Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value. In other words: the ease of converting it to cash. Liquidity is the status and part of the assets which can be used to meet the obligation. Cash is universally considered the most liquid asset. Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it funds its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions. Bank needs to maintenance some seasonable level of liquidity to fulfill different commitments such as provide money to depositors when they demand for administrative expenses, for maintaining cash reserve ratio in the central bank etc. so, liquidity is defined as the bank’s capacity to pay cash in exchange of deposits. This study focuses on the liquidity position of Nepal Investment Bank Ltd.

Liquidity is also defined as the position or

capability of a bank to meet the current obligation of customers such as payment of cheque. Payment of demand drafts, disbursement of approved loan etc. Bank needs to maintain some reasonable level of liquidity to fulfill different commitments such as provide money to depositors when they demand for administrative expenses, for maintaining cash bank’s capacity to pay cash in exchange of deposits. Liquidity is crucial in the business like banking. Because if the bank has high liquidity, it can no earn a desire profit and if the bank has the shortfall of the liquidity it cannot satisfy its customers. Inadequate liquidity may lead to collapse of the banks while excess liquidity is detrimental to bank’s profitability. In order to remove demerits associated with maintaining inadequate and excess liquidity, banks should maintain an optimum level of liquidity. This possible only when bank’s liquidity needs is correctly predicted. Prediction covers in present outflows of liquidity. If prediction shows more outflows, bank should be prepared to cover the shortfall by borrowing or by liquidating assets. If inflow greater than outflow, bank should plan where to invest so that income can be

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increase. Banks attach great importance short term and long term predictions. Prediction of liquidity need should be in the firm of primary and secondary reserves so that bank generates income and at the same time does not compromise to liquidity. Nepal investment Bank Ltd is one of the leading commercial banks of Nepal. Nepal investment Bank Ltd. (NIBL), previously Nepal Indosuez bank Ltd., was established in 1986 as a joint venture between Nepalese and French partners. The French partner (holing 50% of the capital of NIBL) was Credit Agricole Indosuez, a subsidiary of one the largest banking group in the world. The Nepalese investors have raised this bank to one of the most trusted and popular bank of Nepal. Till date it has 79 branches scattered throughout the country giving modern banking services of international class. It has its main head office in durbar marg. At NIBL the main focus is to be perfect at customer service Profile of the organization Generally, bank is an institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, saving, and time deposit. There institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primary concerned with receiving deposits and lending to business. In an economy the bank is regarded as one of the economic backbone of the country for its development. Bank is a financial institution that deals in money. The basic function of bank is collecting deposit and granting the loans. It involves in credit creation that in related to creation of deposit and loan. In the economy, the banks collects small saving of general people, accumulative it and lends the productive sectors of the society for the overall economic development. The term “bank” is familiar to almost all type of people in the world. Normally, people take a bank as a place of money and credit, an institution involved in monetary transaction. Broadly, a bank is a legal organization established by law to deal with public money and credit. A modern bank refers to the financial service provider where money exchange, acceptance of deposit, transfer of money and credit collection of cheques and other financial facilities takes place. So, it can be better termed as,” A financial supermarket”.

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According to Kent,” A bank is a organization whose principle operations are concerned with accumulation of the purpose of advancing to other expenditure.” According to Halsbury’s law of England,”A banker is defined as an individual partnership or corporation whose sole or predominating business is banking i,e the receipt of money or current or deposit account and the payment of cheques paid it by a customer.” Introduction of Nepal Investment Bank Limited (NIBL) Nepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez bank Ltd., was established in 1986 as a joint venture between Nepalese and French partners. The French partner (holding 50% of the capital of NIBL) was credit Agricole Indosuez, a subsidiary of one the largest banking group in the world. With the decision of credit Agricole Indosuez to divest, a group of companies comprising of bankers, professionals, industrialists and business man, had acquired on April 2002 the 50% shareholding of credit Agricole Indosuez in Nepal Indosuez bank Ltd. The name of the bank has been change to Nepal Investment Bank Ltd.Upon approval of bank’s annual general meeting,.NIBL, which is Managed by the experienced bankers and professional having proven track record, believe that it can offer the customer what they are looking for. NIBL is sure that the customer choice of the bank is guided among other things by responsibilities flow together from the top level management. The Chairman/Chief executive is responsible for controlling and decision making functions. The bank follows the MBO (management by Objectives) approach.

PRODUCTS & SERVICES: Some products and services of Nepal Investment Bank Ltd Are given below: o Deposit  Saving deposit  Current deposit  Fixed deposit  Call deposit o Lending o Documentary credits o Guarantee o Collections (agency functions)

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o Credit card o Safe deposit locker o Fund transfer o Remittance o SWIFT member o E-banking o ATM  Fast cash  Withdrawal  Pin change  Enquiry

NIBL as a reputed bank of Nepal has its branches in almost all districts. It’s head office is in Durbar Marg, Kathmandu. Nepal Investment Bank, one of the leading commercial banks of the country. This bank has 79 branches, 112 ATM counters & 13 extension counters. The Chairman of the Nepal investment Bank Limited is Mr. Prithivi Bahadur Pandey. Besides all the function that (NIBL) performs, it is generally known for its remittance services. It boasts of being one of the most dependable and the strongest center of money transfer to Nepal Strategies and Future Plans of the Nepal Investment Bank Ltd. The Nepal Investment Bank Ltd. mission is to be the “Bank of the first choice” to attain the goal to be the “Bank of the first choice”, bank is concerting into the service of its customers and social issues. So Nepal investment is the customer focus and goal oriented. NIBL’s strategies and future plans: 

To develop a customer oriented service culture with special emphasis on customer care and convenience

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To increase its market share by following a disciplined growth strategy.

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To leverage its technology platform and pen scalable system to achieve cost effective operation, efficient MIS, improved delivery capability and high service standards.

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To develop innovative products and service that attracts its targets customer and market segments

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To continue to develop products and service that reduces its cost of funds.

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To maintain a high quality assets portfolio to achieve strong and sustainable returns and to continuously build share holders value.

Objective of the Study This report is prepared to analyze the liquidity position of Nepal investment bank. This report comprises the date from 2012 to 2017. This would help the bank to observe the trend of the liquidity position hold in those periods. Besides that, this study also evaluates the role of short term obligation and the bank ability to pay the currently maturity obligation. Moreover, the study will check the profitability of the bank. This will help the bank to take the corrective actions if there are any errors on the past performance and the study aims to recommend correcting the division if the standard has not been met. Other objectives can be listed below:  To check the liquidity position of the NIBL  To analyze the financial performance  To check the NIBL bank’s profitability  To suggest the amount of the optimum level of liquidity  To suggest the liquidity management policies  To fulfill the partial requirement of T.U. (department of management) for the degree of bachelor of business study.

Significance of the Study This report is prepared to analyze the liquidity position of Nepal investment bank. This report comprises the date from 2012/13 to 2016/17. This would help the bank to observe the trend of the liquidity position hold in those periods. Besides that, this study also evaluates the role of short term obligation and the bank ability to pay the currently maturity obligation. Moreover, the study will check the profitability of the bank. This will help the bank to take the corrective actions if there are any errors on the past performance and the study aims to recommend correcting the division if the standard has not been met.

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Rational The research focuses on Liquidity performance of a commercial bank (Nepal Investment Bank). It gives the depth knowledge of Liquidity performance and the financial position of the bank. This study will help the bank to improve the financial performance of the bank by finding the strength and weakness. 

The primary significance of the study to me is that I will be able for the partial fulfillment of the requirement for the degree of BBS.

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The study will help the stakeholders (shareholders, creditors, investors, general public and others) to know the Liquidity performance of the bank.

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This study will help the bank administration to adapt and make the dynamic strategies to minimize the risks and to achieve its vision of being lading one.

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One who is eager to know about this bank can get the brief information about this bank

Review Bank needs to maintain some reasonable amount of liquidity to fulfill different commitments. Such as provide money to depositors when they demand for administrative expenses, for maintaining cash reserve ratio in the central bank etc. so, liquidity is define bank’s capacity to pay cash in exchange of deposits. It is an integral mandatory process in research works. It is a crucial part of all dissertations. In other words it’s just like fact are finding based on sound theoretical framework oriented towards discovery of relationship guided by experience, resonating and empirical investigation. It helps to find out already discovered things. Review of relevant literature implies putting new spectacle in old eyes to think in new way by posting the problem with new data and information to see that what results are derived. The primary purpose of literature is to learn and it helps researcher to find out what research studies have been conducted in one’s chosen field of study, and what remains to be done. For review study, the researcher uses different books and journal, reviews and abstracts, indexes, reports, and dissertation or research studies published by various institutions, encyclopedia etc. According to Wikipedia.-“A literature review is a text of scholarly papers, which includes the current knowledge including substantive findings as well as theoretical and

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methodological contribution to particular topics.” In word of [ CITATION wal \l 1033 ],” A literature review is a summary and analysis of current knowledge about a particular topic or area of enquiry.” Various books, journal, newspapers, articles, abstracts, internet and websites have been studied to complete research work. This portion has been further divided into sub-section. First sub-section presents a brief discussion on the review of theories. In second sub-section review of previous works related to interaction between various factors and financial analysis is reviewed and presented on chronological order. Liquidity needs of commercial banks are unique because in no other types of business there will be such large portion of deposits payable on demand. Inadequate liquidity does damage credits standing of other organization as well but a banks fails to pay the deposits on demands, the bank loose the faith of the public. Bank may maintain the liquidity in the form of :  Cash and bank balance  Placement money at short calls or short notice  Investments in government securities and other securities convertible into cash International federation of accountants has recommended the measuring the liquidity of bank by: 

Cash and liquid securities

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Interbank money deposit liabilities

Liquidity of the bank should be maintained according to standard; excel liquidity as well as lack of the liquidity indicates that a bank is serious financial problems. The implication of the financial problem results losing of deposits, which erodes its supply of cash and forces the institutions to dispose of its safer and more liquid assets. On the other hand, other banks that are strong in liquidity will be increasingly reluctant to lend the problem bank liquid funds at higher interest rates. Conceptual Review

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Although profit maximization is a major objective of commercial bank, to achieve this objectives commercial bank performs various functions under the mandatory rules and registrations and directives of NRB and commercial Bank Act 2031(1974) which are:  Primary functions 1. Accepting Deposits: Accepting deposits is the main function of commercial banks. Commercial banks collects money from those who want to deposit in different types of deposits accounts such as: 

Fixed deposit account

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Current deposit account

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Saving deposit account 1. Advancing of Loans:Commercial banks provide the required loan or credit to various sectors of economy such as industry, trade, agriculture, business deprived sector etc. in this way bank creates facilities.

 General Utility functions Commercial banks also form general utility functions such as:  Issuing of letters of credit to customers  Issuing of bank draft and travels chequeetc for transfer of funds from one place to another.  Dealing in foreign exchange and financial foreign trade by accepting or collecting foreign bill of exchange.  Underwriting loans to be raised public bodied and corporations.  Providing safety vaults or lock for the safe custody of valuables and securities of the customers.  Agency Functions Apart from the above function, commercial banks also perform agency functions for which they act as agent and claim commission on some facilities such as:  Collection of customer’s money from other banks.  Receipt and payment of dividend and interest.  Security brokerage service  Financial advisory services  To underwrite the government and private securities. Previous Review

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Poudel(2008) found that the finance companies violating the directives regarding the deposits mobilization. Poudel found companies mobilize the deposit by more than ten times of their capital base credit to deposit ratio remained high. The loan diversification is improved to purchase and housing loan consumed greater amount of loan.Poudel found that due to increasing number of companies sources of fund declined. Poudel suggested that regulatory and supervisory authority to keep eyes to financial companiesRai (2014) has made study on comparative study on “A comparative study of financial performance between the commercial bank.” The main objective of the study is to examine the financial performance of SBI bank and NBBL bank. The other objectives are:-

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To study liquidity position of both the bank.

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To analyze lending position of the bank.

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To examine the marketability position and efficiency ratio of SBI and NBBL bank.

Islam (2014) conducted a thesis on “An analysis of financial performance of national bank limited using financial ratio.” The obje...