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A STUDY ON FINANCIAL PERFORMANCE OF CITIZENS BANK INTERNATIONAL LIMITED

Submitted to: Office of Examination Faculty of Management Purbanchal University

Submitted by: Sudarshan Baral Batch: 2008 (Spring Semester) PU Regd. No: Himalayan WhiteHouse Int’l College

In partial fulfillment of the requirements for the Master Degree in Business Administration

March, 2011

RECOMMENDATION

This is to certify that the thesis Submitted by: SUDARSHAN BARAL

Entitled

A STUDY OF FINANCIAL PERFORMANCE OF CITIZENS BANK INTERNATIONAL BANK LIMITED

has been prepared as approved by this campus/Department in a prescribed format of faculty of Management. This thesis is forwarded for Examination.

DECLARATION

I hereby declare that the research work entitled, “A Study on Financial Performance of Citizens Bank International Limited” submitted to Office of Examination Controller, Purbanchal University is entirely my own work in the form of partial fulfillment of the requirement of Master in Business Administration(MBA) under the supervision of my report supervisor Mr. Shambhu K. Dahal.

------------------------------Sudarshan Baral (Researcher) PU registration No:

APPROVAL SHEET

This is to certify that the project report prepared by Mr. Sudarshan Baral entitled “A Study on Financial Performance of Citizens Bank International Bank Limited” has been prepared as part of the student’s research and observation. This report has been approved by the concerned department of this institution.

----------------------------External Expert

----------------------------Mr. Shambhu K. Dahal Report Supervisor & Program Director

13 March, 2011

ACKNOWLEDGEMENTS

I am pleased to take this opportunity to express my deep sense of gratitude to my respected thesis supervisor Mr. Shambhu K. Dahal of Himalayan WhiteHouse Int’l College, Kathmandu for his most competent guidance, encouragement and suggestion throughout my work. I am equally grateful to my respected teacher Mr. Yum Lal Poudel for his valuable suggestion, inspiration and other kind of help. Without his great support this thesis would not have complete. His intellectual guidance is immense inspiration for me. I would like to thank to Mr. Govinda Prasad Upadhyaya, Kiran Mahat, Chandrakala Khatiwada, Devendra Shrestha, staff of Citizens Bank International Limited for providing data and suggestion to conduct this thesis. I would like to pay my gratitude to Mr. Sagar Regmi, Mr. Ramchandra Regmi, Janak Kafle who provide valuable time in providing the valuable data and research work. Last but not least; my superseding debt goes to my sister and brother-in-law for providing the computer facility, Himalayan WhiteHouse Int’l College for electricity facility during the period of load shedding, Mr. Dilip Regmi for providing internet facility for searching the data.

I am responsible for all the errors and omissions.

Sudarshan Baral 12 March, 2011

TABLE OF CONTENTS
Recommendation Letter Declaration Approval Sheet Acknowledgement Table of Contents List of Tables List of Figure Abbreviations II III IV V VI XI XII XIII

CHAPTER I INTRODUCTION
1.1 Background of the Study
1.2 History of Banking System in Nepal 1.2.1 Meaning of Commercial Bank in Nepal

Page No.

1
2 3

1.2.2

Function of Commercial Bank 1. 2. 3. Primary Function Secondary Function Contingent function

3 4 4 4 4 4

1.2.3

Role of Commercial Bank in Nepal a) Creation of Competitive Environment

b)

Introducing new method and Technology

in Banking Service c) d) 1.2.4 Providing More Resource for Investment Contribution to National Economy

5 5 5 6 6 7 9 10 10

List of Commercial Bank in Nepal

1.3 A Brief Profile of Citizens Bank International Limited 1.3.1 1.3.2 1.3.3 1.3.4 Board of Director Management Team Total Share of Citizens Bank International Ltd. Service Offered by Citizens Bank International I. Accepting deposits from it customer in various account like current, foxed and saving account II. Granting loan and advance in terms of overdraft demand loan, time loan III. Other services

10

11 11 12 14 15 16 17 17 18

1.3.5 Citizens Bank International Limited 1.4 1.5 1.6 1.7 1.8 1.9 Focus of the Study Statement of the Problem Significance of the Study Objective of the Study Limitation of the Study Scheme of the Study

CHAPTER II REVIEW OF LITERATURE
2.1 2.2 Finance Conceptual Framework 2.2.1 Financial Statement 2.2.2 Financial Statements Analysis 2.2.3 Importance of Financial Analysis 2.2.4 Process of Financial Analysis 2.2.5 Theories of Financial Analysis 2.2.6 Uses and User of Financial Ratios I. II. III. IV. V. 2.3 Short Term Creditor and Depositor Long Term Creditors Equity Investor Management of a Firm Central bank 26 27 28 30

19
19 20 20 21 22 23 24 25 26 26 26 26 26

Reviews of Related Studies 2.3.1 Review of Empirical Studies 2.3.2 Review of Articles 2.3.3 Review of Preview Thesis and Books

CHAPTER III RESEARCH METHODOLOGY
3.1 Research Design

32
32

3.2 3.3 3.4

Nature and Source of Data Data Collection, Processing and Tabulating Procedure Data Analysis Technique 3.4.1 Financial Ratio Analysis A. B. C. D. Liquidity Ratio Leverage or Capital Structure Ratio Profitability Ratio Ownership Ratio

33 33 33 33 33 36 37 39 40

3.4.2 Income and Expenditure Analysis

CHAPTER IV PRESENTATION AND ANALYSIS OF DATA
4.1 Ratio analysis 4.1.1 Current Ratio Cash and Bank Balance to Current Assets Ratio Fixed Deposit to Total Deposit Ratio Saving Deposit to Total Deposit Ratio Cash and Bank Balance to Total Deposit Ratio 4.1.2 Leverage or Capital Structure Ratio I. II. III. Total Debt to Shareholder’s Equity Ratio Total Debt to Total Assets Ratio Total Shareholder’s Equity to Total Assets Ratio Liquidity Ratio 42 43 43 44 45 47 47 48 49

41
41 41

4.1.3 Profitability Ratio I. II. III. Interest Earned to Total Assets Ratio Net Profit to Total Deposit Ratio Net Profit to Total Assets Ratio IV. V. 4.1.4 I. II. Net Profit to Net Worth Ratio

51 51 52 53 53 54 56 56 57 59 60 60 60 62

Net Operating Profit to Total Assets Ratio

Ownership Ratio

Earnings Per Share (EPS) Dividend Per Share (DPS) III. 4.2 Dividend Payout Ratio (DPR)

Income and Expenditure Analysis 4.2.1 Operating Income 4.2.2 Operating Expenses

4.3

Finding from the Ratio Analysis

CHAPTER V SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 5.2 Conclusion 5.3 Recommendations

66
66 67 71

Appendix References

72

LIST OF TABLE

Table:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Current Ratio Cash and Bank Balance to Current Assets Ratio Fixed Deposit to Total Deposit Ratio Saving Deposit to Total Deposit Ratio Cash and Bank Balance to Total Deposit Ratio Total Debt to Shareholder’s Equity Ratio Total Debt to Total Assets Ratio Total Shareholder’s Equity to Total Assets Ratio Interest Earned to Total Assets Ratio Net Profit to Total Deposit Ratio Net Profit to Total Assets Ratio Net Profit to Net Worth Ratio Net Operating Profit to Total Assets Ratio Earnings per Share (EPS) Dividend per Share (DPS) Dividend Payout Ratio (DPR) Operating Income and Operating Expenses

Page No.
42 43 44 45 46 48 49 50 52 52 53 54 55 57 58 59 61

LIST OF FIGURE

Figure:
1. 2. 3. 4. 5. 6. Liquidity Ratio of CTZN Bank Int’l Ltd. Leverage or Capital Structure Ratio of CTZN Bank Int’l Ltd. Profitability Ratio of CTZN Bank Int’l Ltd. Ownership Ratio of CTZN Bank Int’l Ltd. Dividend Payout Ratio of CTZN Bank Int’l Ltd. Income and Expenditure Analysis of CTZN Bank Int’l Ltd.

Page No.
46 50 55 58 60 61

LIST OF ABBREVIATION
NRB = CRR = ROA = ROE EBIT = = Nepal Rastra Bank Cash Reserve Ratio Return on Assets Return on Equity Earnings before Interest and Tax Earnings per Share Dividend per Share Dividend Payout Ratio Citizens Super Savings Account Citizens Sharedhani Bachat Khata Automated Teller Machine Nepal Telecom Public Switched Telephone Network Limited United States United Kingdom Institute of Chartered Accountants of India Master in Arts Village Development Committee Gross Domestic Product Citizens

EPS = DPS = DPR = CSSA = CSBK = ATM = NTC = PSTN = Ltd US UK ICAI MA = = = = =

VDC = GDP = CTZN =

Int’l

=

International

CHAPTER I
INTRODUCTION

1.1

Background of the Study

Nepal is landlocked country with agro-based economy. The country is divided into three parts (I.e. mountains, hills, and Terai region) with its geographical natural. Nepal is one of the least developed and very poor countries in the world. More than 90% of the people are still in rural areas and most of them are deprived minimum physical facilities, which

is necessary for human being. The annual per capital income of Nepalese people is just USS253 (According to Asian Development Bank Report 2004). Nepalese economy is dependent on traditional agriculture agricultures sector contributes only 40% total GDP and is main supplier of raw materials to industries. Development of agriculture sector helps not only to solve the problem of unemployment but also help in the economic development of country. Agriculture is still the backbone of Nepalese economy. Economic development is not possible without agricultural development. National Planning commission has given more emphasis to this sector. But the real picture of this section is very poor. This is because Nepal has not been able to provide basic facilities to the –farmers like irrigation, electricity and transportation. Despite being second richest in water resources in the world we are compelled to pay dear charges in the world. It provides employment opportunities to more than 80% of labor forces however; it contributes just 40% of Gross domestic product. The government of Nepal formulated a policy to develop possible agro-based industries for at least to substitute import of industrial and consumable goods. The basics goal of government policy was self-sufficiency where saw other ware to generate revenue by operating industrial unit and creation of employment opportunities through this sector. Financial section is the lifeblood of the commercial and industrial activities. So commercial bank and other financial institutions can play a vital role in giving a direction to economy’s development by financing the requirement of trade and industry in country. They collect the saving from community and transfer to the require section of trade and industries, so that banking section development is necessary to economy development in the overall development of the banking system in Nepal, the Tejarath Adda’ maybe regarded as the father of modern banking institution and for a quite a long time. It delivered as the father of modern banking institution and for a quite a long time. It delivered a good service to government employees as well as to general public, however,

the concept of modern financial institutions in Nepal was introduced when late former bank, Nepal Bank Limited in 1994 B.S. Before establishment of Nepal Bank Limited, People fulfilled their credit needs from unorganized market of private money lenders. Presently, there are seventeen commercial banks operating their financial activities in the different part of country. They provide modern banking facilities like ATM Card, Debit and Credit Card to their Valuable customers.

1.2 History of Banking System in Nepal
The history of organized banking system in Nepal was very short. Late former Prime Minister Shree Judda Samser Jang Bahadur Rana established first bank, Nepal Bank Limited in 1994 B.S. the bank was established to remove the inconveniences caused to the people. When the concept of planning was formulated, there are needed for established a central bank. From the viewpoint of planning it is necessary that the banking activities specially the loans should be regulate as per priority, thus, Nepal Rastra Bank as the central bank was established in 2013 B.S. for the developing the financial sector under “Nepal Rastra Bank Act 2012. In a developing country like Nepal. The central bank is supposed to help in developing banking system for mobilization o financial resources and using them into the priority areas as fixed in the development plans. In the year 2022, another commercial bank, Rastriya Banijya Bank was established under the “Rastriya Banijya Bank Act.2021”. It was specially established in the response to need for forming a government owned commercial bank to look after the convenience and economic interest of general public. In 1980’s to meet the need of healthy competition in financial sector, Nepal allowed to entry of foreign bank as joint venture with up to 51 % of equity participation. Recently Nepal has allowed to entry to foreign bank as a joint ventures with up to maximum of 75 % of equity participation. In 2005, Nepal has entered as a member of world trade organization. After entering world trade organization, Nepal has committed to open its financial sector for foreign bank to establish branches of their bank by 2010 A.D. In 2004, there are seventeen commercial banks, five rural development banks, fifty

nine finance companies, and twenty co-operatives organization operating their financial activities in the different part of Nepal.

1.2.1 Meaning of Commercial Bank in Nepal
According to Commercial Bank Act 2031, section 2(a) “Commercial bank is a financial institution that operates currency exchanges, money transacton, accept deposits, advance loans and performs other commercial transaction which is not specifically established with the objectives of cooperative, agricultural, industrial or any other such kind of specified purpose.” Commercial bank is a financial institution authorized to provide a variety of financial services, including consumer and business loans (generally short-term), checking services, credit card and saving accounts. It raises fund by collecting deposits from business and consumer via checkable deposits, saving deposit and time deposit. It lends loan to business and consumers. It also buys corporate bonds and government bonds. Commercial bank also refers to a bank or division of bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual member of public (retail banking).

1.2.2 Function of Commercial bank
Commercial banks are profit oriented banks. It provides services to public and maximizes the profit whereas central bank regulates the function of commercial banks with the banking policies made mobilize the national economy. Following are the function of commercial bank:

4. Primary Function
• • • • • • • • Accepting Deposits Demand Deposits Saving Deposits Fixed Deposits Providing Deposits Cash credits Overdraft Loan and Advance



Call Loans

5. Secondary Function
• • • • • Remittance of money Collection of Payment of Credit Instruments Purchase and Sale of Securities Income receiving and payments Acting As trustee and Executor

6. Contingent function
• • • • • Locker Facility Traveler’s Cheque Letter of credit Dealing in foreign Exchange Collection of Statistics

1.2.3 Role of Commercial Bank in Nepal e) Creation of Competitive Environment
Clients are beneficial either by higher rate of interest in their deposition or by lower rate of interest on credit. Ti is possible only under competitive environment. The arrival of commercial bank, old banks is also been competitive. Fair competition among banks not only beneficial for bank themselves and economy too. Fair personnel management efficient financial performance, quality services and research-oriented development is possible only in the competitive environment

f) Introducing new method and Technology in Banking Service
Modern managerial principles and practices in banking sector have been introducing by commercial banks in Nepal. New banking techniques such as hypothecation and syndication are also introduces under NRB guidance. Various techniques follow by

international banks in deposition, lending exchange and they have been introducing by these banks in Nepal. After the establishment of commercial banks, other new and old banks began to computerize the banking system. Some new banks have adopted new techniques such as tele-banking, e-banking, credit, debit card system, twenty-four hour services, and ATM service. Now, these banks are seeking to follow up some developing techniques in international banking sectors.

g) Providing more resource for Investment
The commercial banks have played a significant in canalizing the additional resources for investment for the development of the country. Although it is argued by many that resources raised to locally in the prevailing market those resources would have been mobilized by many other domestic institution, it is assumed that the commercial bank have mobilized net additional resources if they tap so far untapped resources in the local market.

h) Contribution to National Economy
Commercial banks comparatively are adopting new banking systems. They are already
established in financial, garments, agricultural and housing needs and playing a significant role to contribute in national economy from own sector.

Thus, through such banks managerial and banking techniques, new ideas and philosophy, foreign investment and capital, healthy, competitive atmosphere and diversified market concepts transfer to other companies. But here is remarkable point that investments should be directed by economic need and not by political interest. Financial & legal rules, regulations and practices should be clear and convenient to investors.

1.3

A Brief Profile of Citizen’s Bank international Ltd.
Massive changes and developments have taken place during the past two decades in the

financial sector. Amidst all these changes, for economic growth and development of New Nepal, Liberalization, Privatization and Globalization in this sector has given birth to the largest

commercial bank, “Citizens Bank International Ltd”. The Bank is registered as “A” class Bank under Nepal Rastra Bank. It is located at Sharada Sadan, Kamaladi, Kathmandu, the heart of financial sector of the country. It has come into operation from 07 Baishakh 2064. Its share also has been listed in Security Board of Nepal. It is promoted by eminent personalities/business and industrial houses and reputed individuals having high social standing. It is managed by a team of experienced bankers and professionals. The Bank’s Corporate Vision is “to be the leading bank known for its service excellence in the region.” The Bank’s Corporate Mission is “to be a trustworthy partner for the progress of individuals and institutions by designing, producing and delivering the best financial solutions.” The Bank will constantly strive to inculcate in its services five corporate values as follows: Customer Focus- We are committed to meet the financial needs of our customers and exceed their expectations through innovative solutions. Service Excellence- We promise to deliver customer centered products and services par excellence. Human Resource-We employ bright, honest, helpful and pleasant people. We nurture and empower them to achieve their full potential. Corporate Governance-We believe in being accountable, conducting business ethically and maintaining transparency. Social ResponsibilityWe is committed to take social initiatives for the development of the nation. The composition of capital structure of this bank has Rs. 2 Billion Authorized capital and Rs. 1 billion Paid-up capital.

1.3.1 Board of Director
• Mr. Kul Chandra Gautam (Chairman)

He is a former Assistant Secretary-General of the United Nations, and Deputy Executive Director of UNICEF. In his long and distinguished career spanning over three decades, Mr. Gautam dealt with the highest levels of policy making at the United Nations, including serving as Chair or member of the Boards of several international development organizations and public private partnerships. He travelled to over 100 countries and oversaw UNICEF cooperation in over 150 countries. Mr. Gautam was the highest-ranking Nepali in the UN system. He received his higher education in international relations and development economics at Dartmouth College, Princeton University, and Harvard

University in the United States of America. He was born on December, 1949. He is married and has a daughter and a son.



Mr. Pradeep Jung Pandey (Director)
He is one of the leading industrialists. His area of activities are manufacturing of pharmaceutical products, Ayurvedic products and cement along with insurance, investment and trading. He is associated with various social organizations such as Rotary Club, Nepal Blind Association etc. He is the Vice President of FNCCI.



Mr. Bhola Bikram Thapa (Director)
He is an established name in the hospitality business. He has 23 years of professional experience in travel and tour business. He is the Managing Director, President Travel and Tours (P) Ltd., Kathmandu.



Mr. Bal Krishna Prasai (Professional Director)
Former Secretary of the Government of Nepal has successfully served for 25 years in various important capacities under different Ministries of the Government of Nepal. Mr Prasai has acquired wide experience in the field of development and governance (including financial) .He holds Master Degree in Business Administration from the Phillipines and Master Degree in Science from Nepal

• Mr. Manohar Das Mool (Director)
He is one of the leading businessmen of the country with excellent track record since 1980. His main business is paper business and is also associated with various organizations such as Paper Merchants Association of Nepal, Nepal Stationery Manufacturer's Association, Rotary Club of Kantipur, All Nepal Lawn Tennis Association etc. Mr. Mool has acquired numerous entrepreneurship trainings in different countries. He has an excellent academic track record

• Mr. Prakash Chandra Mainali(Public Director)

He is an experienced businessman. He is mainly related with the business sectors like service industry, poultry and other industries. He had also worked in a Joint venture bank for 9 years prior to commencing his own business ventures.



Mr. Anin Rajbhandari (Public Director)
He is a young and promising entrepreneur. His area of activities are export and designing of cashmere products like shawl scarves, blankets, accessories and knitware mainly in countries like, Germany, UK. Irland, France, US, Italy, India, Dubai, Lebonon, China, Japan and Singapore. His is also associated with hospitality industry since last twenty years.

1.3.2 Management team

 Mr. Rajan Singh Bhandari - Chief Executive Officer
Mr. Rajan Singh Bhandari, a Chartered Accountant from Institute of Chartered Accountants of India (ICAI) and M.A (Economics) from Tribhuvan University, served Nepal Rastra Bank for 26 years (June 1980 to December 2006) and headed various departments such as Banking Regulation, Bank Supervision, Kathmandu Banking Office, Accounts, and Internal Audit etc. He was a key player in leading and coordinating Financial Sector Reform Program of Nepal which included re-engineering of Nepal Rastra Bank and restructuring of two state owned Commercial Banks and the capacity building of the financial system. He was also responsible in formulating and introducing various prudential norms and directives in the history of Nepalese Banking System.

 Mr. Ganesh Raj Pokharel - Chief Deposit Marketing / Company Secretary
He is a well known individual in the management field. Mr. Pokharel started his professional career with Management Association of Nepal (July 1995 to January 2007). He has also served as a Principal of Management Development Campus for EMBA program. He also has a vast experience in organizing training programs, talk programs, various researches and consultancy works.

 Mr. Raju Nepal - Chief Operating Officer

He started his banking career with Nepal Grindlays Bank Limited, presently Standard Chartered Bank Nepal Ltd. (February1990 to December 1992). He joined Himalayan Bank Limited, where his responsibility was handling Treasury and Operational functions (December 1992 to September 2004). He served Nepal Bank Limited (September 2004 to December 2006) as a part of the management team, appointed under management contract between Nepal Rastra Bank and Bank of Scotland ICC Consulting (ICCMT).

 Mr. Ramdhan Shrestha - Chief Finance Officer
He was associated with Nepal Rastra Bank where he served for 29 years and his area of expertise is in supervision of financial institutions, personnel administration etc.

 Mr. Bodh Raj Devkota - Chief Credit Officer
He started his banking career from Nepal Bank Limited (December 1996 to March 2007). He has experience in Corporate Credit and SME Loans.

1.3.3 Total share of Citizens Bank International Ltd. is subscribed as follows:Share Capital and Ownership
Particulars 1. Share Capital 1.1 Authorised Capital a) 20,000,000 Ordinary Shares of Rs 100 each b) Non-Redeemable Preference Shares of Rs _ each c) Redeemable Preference Shares of Rs _ each 2064 2,000,000,000 2,000,000,000 2065 2,000,000,000 2,000,000,000 2066 2,000,000,000 2,000,000,000 2067 2,000,000,000 2,000,000,000

1.2 Issued Capital a) 10,000,000 Ordinary Shares of Rs 100 each b) Non-Redeemable Preference Shares of Rs _ each c) Redeemable Preference Shares of Rs _ each 1.3 Paid Up Capital a) 10,000,000 Ordinary Shares of Rs 100 each b) Non-Redeemable Preference Shares of Rs _ each c) Redeemable Preference Shares of Rs _ each 1.4 Proposed Bonus Share 1.5 Calls in Advance

1,000,000,000

1,000,000,000

1,000,000,000

1,000,000,000

560,000,000 560,000,000

560,000,000 560,000,000

1,000,000,000 1,000,000,000

1,000,000,000 1,000,000,000

206,950,000

1.3.4 Service Offered by Citizens Bank International
Citizens Bank International Limited has offered various types of services to its customers are as follows:I.

Accepting deposits from it customer in various account like current, foxed and saving account.
a. Citizens Super Savings Account (CSSA)

b. Citizens Sharedhani Bachat khata CSBK) c. Senior Citizens Bachat d. Citizens Matribhumi Bachat e. Citizens Mahila Bachat f. Citizens Muna Bachat g. Citizens ZERO Balance h. Citizens Saving i. Citizens Dollar Saving j. Citizens EURO Saving k. Citizens GBP Saving l. Citizens Fixed Deposit m. Citizens Call Deposit(NPR) n. Citizens Current Account o. Citizens Rastrasewak Saving p. Citizens Bidyarthi Bachat q. Ctitzen Special Saving r. Euro Saving Account

II.

Granting loan and advance in terms of overdraft demand loan, time loan.
a. Corporate and Commercial Finance b. Consumer Banking c. Citizen Auto Loan d. Citizens Home Loan e. Citizens Mortgage Loan f. Citizens Education Loan g. Citizens Equipment Loan h. Other Loan

III.

Other services
a. Remittance

b. Clean Bill/Cheque Purchase c. Documentory Bill d. Lockers e. NTC PSTN Bill Payment f. ATM Service g. Internet Banking h. SMS Banking i. Dabit Card 1.3.5

Citizens Bank International Limited Network Branches

Corporate Office/Kamaladi Branch P.O.BOX: 19681, Sharada Sadan Kamladi, Kathmandu, Nepal Bouddha Branch Jorpati -3, Bouddha

New Road Branch, Kathmandu-23,Naya Sadak,Basantapur Kumaripati Branch Lalitpur-5, Kumaripati Koteshwor Branch Kathmandu-10, Koteshwor Biratnagar Branch, Dharan Road-8, Biratnagar,Morang

Birgunj Branch Adarsha Nagar Chowk,Main Road, Birgunj-7,Parsa,Nepal

Pokhara Branch Nayasadak,Pokhara-9,Kaski,Nepal Nepalgunj Branch Nepalgunj-2 Banke,NepalNarayanghat Branch Lions Butwal Branch Pushpalal Park,Butwal-8,Rupandehi Dhangadhi Branch Main Road,Dhangadhi-4,Kailali Birtamod Branch Kakadvitta Road,Anarmani VDC-3,Birtamod, Jhapa Kalanki Branch Ganesh Man Singh Marg, (Near Kalanki Mandir),Kathmandu

Thahiti Branch, Thahiti Chowk, Kathmandu Nayabazar Branch V.S. Complex, Sohrakhutte, Nayabazar, Kathmandu Maitidevi Branch

Setopul, Maitidevi, Kathmandu Beni Branch New Road – 1,Beni Bazar, Myagdi Ghorahi Branch New Road -11, Ghorahi, Dang Gaighat Branch Gaighat Bazar – 4, Udayapur Kirtipur Branch Naya Bazar – 17, Kirtipur Narayan Gopal Chowk Branch,Narayan Gopal Chowk , Maharajgunj, Kathmandu Mahendranagar Branch Municipality – 4 (Nearby Buspark), Mahendranagar, Kanchanpur Kapan Branch Saraswatinagar – 6, Kapan Marg, Kapan, Kathmandu Pathalaiya Branch Pathalaiya, Pipra Simra - 9, Bara

Thimi Branch Bayakha Bazar – 7, Thimi, Bhaktapur

1.4

Focus of the Study

The focus of this study is “The Financial Performance of Citizens Bank International Limited.” Financial performance covers the financial analysis and other portfolios and the Citizens Bank International Limited. Financial analysis is the process of determining the significant operating

and financial characteristics of a firm from accounting data and financial statement. The goal of financial analysis is to determining the efficiency and performance of the firm’s management as reflected in financial record and reports (Hampton, 1983: 121). Beside the financial analysis, the study is also focused on income and expenditure analysis and statistical analysis. Financial ratio has helped the researcher to make a qualitative analysis about the financial performance of the bank. The income and expenditure analysis is the percentage in relation to total assets or total sales, which has helped the researcher to study trends in financial statement over time. The statically analysis is refers either to quantitative information or to a method of dealing with quantitative information.

1.5

Statement of the Problem

Financial management aspect is considered to be the vital and integral part of overall management of any enterprise, ensuring financial strength adequate cash flow, liquidity and utilization of assets. Commercial bank set up in Nepal seems to need greater funds in terms of financing to the expansion of their assets because of growing new number of new establishment of commercial bank in the country. These banks deal with other people’s deposits, most of which are payable to on demand. There is no doubt that survival of commercial bank and other financial institution depend upon how they manage their assets and liabilities to maximize their profit with the minimum exposure of assets to risks, and guided by three important conflicting criteria of solvency, liquidity, and profitability. Therefore, the financial management is the main indicator of the success or failure of any business firm. Financial condition of the business firm should be sound from the point of view of shareholders, debenture holders, financial institutions and nation as a whole. Citizens Bank International Limited has achieved a remarkable success in banking sector in terms of market share and profitability compared to other commercial bank because of its reliable and professional service. Since, this bank has been able maintain its position as one of the market leader in the banking industry, it cannot be predicted that the bank would continue to maintain its profitability and stability of earning because of the tough competition in this sector. In the context of open market economy, the bank is to prone to both external and internal threats. The economy of the country cannot be termed as bright in recent past years. Financial sector has

really suffered because of the continuous decline owing to the poor performance of industrial, trading, tourism, and other forms of economy. The vicious circle of low income, low saving and low investment, which is the key factor responsible for low growth rate of the country, enhances the need for vigorous effort to increase the level of saving. Saving mobilization and effective credit management system is must for economic development especially for a country like Nepal where the economic growth rate is very low. In this regard, good banking system can play a vital role in the accelerating the pace of economic development through the mobilization of scattered saving and channeling it in the productive sector in the economy. This study attempts to evaluate the financial performance of the bank with the help of various financial and statically tools. This study also attempts to recommend some suggestion for improvement in financial performance aspect. The issues for this study are derived from some selected literatures containing financial analysis of the business firm. It is focused on the financial performance of Citizens Bank International Limited. Therefore this study has aimed in answering the following issues. A. B. C. D. E. Has the bank been using its capital efficiently? What is the liquidity position of the bank? What are the financial performance trends of the bank during the study period? What is level of profitability of the bank? How effectively the bank has utilized its assets in generating interest earnings?

1.6

Significance of the Study

Banking sectors has been one of the major contributor’s national providing varieties of disbursement to different sectors, enabling to boost the GDP. Hence, the performance of this sector needs to be above the part to any other field. The financial performance of commercial banking sector should be very much capable in enhancing the capital market as well. This research is a conclusion-oriented research. This thesis will help to know the financial performance Citizens Bank International Limited. This study will also helpful as literature for the future study about the relating topics. Apart from this, the institution and

firm can allow the suggestion of this study to make their policy and strategy more practical and scientific. The accounting figures presented in the financial statements do not convey And meaningful understanding, it need to be analyzed and interpreted to know the financial position and performance of the banks. This study will be beneficial to different parties concerned with this bank as well as other interested parties. Especially it will be beneficial to,

• • • • • •

Management of bank. Lenders and borrowers of the bank. Policy maker of the bank. Concerned parties and general interested parties of the bank. Customer of the bank.

1.7

Objective of the Study

The objective of the study is to evaluate the financial performance of Citizens Bank International Limited with the help of ratio analysis and other measuring tools. Besides, the following specific objectives are to support the evaluation and comparison of efficiency and progress of this bank. A. B. C. D. To analyze liquidity, leverage, profitability and ownership ratio of the bank To examine the income and expenditure statement of the bank. To identify the deposit loan and advance. To provide suggestion and recommendations based on the finding of the analysis.

1.8

Limitation of the Study

This study has attempted to evaluate the financial performance of the Citizens Bank International Limited. Every study has its own limitations. This study is also not an exception. The following are the limitation. 1. This study has been carried out based on the published financial document such as balance sheets, profit and loss accounts, related journals and books and website if this bank. These published documents have their own limitation. 2. 3. 4. 5. 6. The study has been based on the secondary data only. Study has been focused on the financial performance of Citizens Bank International Limited with the help of financial tools. It covers the financial performance of Citizens Bank International Limited for the period from 2064/65 to 2067/68 No comparison has been made with other commercial bank. The conclusion drawn up from this study may or may not be applicable to other commercial bank in Nepal.

1.9

Scheme of the Study

The study has been organized into five chapters each devoted to some aspect of the study on “Comparative Study of Financial Position of Nabil Bank and Himalayan Bank” the titles of these chapters are as follows. Chapter I Chapter II Chapter III Chapter IV Chapter V : Introduction : Review of Literature : Research Methodology : Data Presentation and Analysis : Summary, Conversion & Recommendations

CHAPTER II

REVIEW OF LITERATURE

Review of literature means reviewing research studies or other relevant preposition in related area of the study so that all past studies, their conclusions and deficiencies may be known and further research can be conducted. It is secondary sources and such, and do not report any new or original experimental work. Its ultimate goal is to bring the researcher up to date with current literature on the topic and forms the basis or another goal, such as further research that may be needed in the area. All those studies related to this thesis works are categorized in to two parts: first conceptual framework and covers the area of the research work and theoretical concepts developed by the various scholars writers. The second part refers review of related studies. It includes review of articles and review of thesis. All the reviewed literature has been presented orderly as follows:
2.1 Finance

Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concept of time, money and risk and how they are interrelated. It also deals with how money is spent and budgeted. Finance works must basically through individual and business organizations depositing money in a bank. The bank then lends the money out to other individuals or corporations or consumption or investment and charges interest on the loans. Loans have become increasingly packaged or resale meaning that an investor buys the loan (debts) and collect the interest or sell the debt on a secondary market. Banks are the

main facilitator of funding through the provision of credit, although private equity, mutual funds hedge funds and other organization have become important as they invest in various forms of debt. Financial assets known as investments are financially managed with careful attention of financial risk. Financial instrument allow many forms of securitized assets to be traded on securities exchanges such as stocks exchange, including debt such as bonds as well as equity in publicly-related corporations.Central Banks act as lender of last resort and control the money supply which affects the interest changes. As money supply increases rates decreases. 2.2 Conceptual Framework

Conceptual framework is a type of intermediate theory that has the potential to connect to all aspect of inquiry. Conceptual framework act like maps that give coherence to empirical inquiry. The frameworks cover the area of research work and theoretical concepts developed by various scholars. It is presented in details as follows: 2.2.1 Financial Statement Financial statements are annual report prepared by the organization. They are prepared for period review on the progress made and results achieved during the period under review. They generally refer the income statements, profit and loss account and statements of affairs i.e. balance sheet, drawn at the end of each financial year. Financial statements provides the information pertaining; • • • The adequacy of earning to be able to attract potential investors, The profitability of the firm, company or institution, Liquidity position of the firm, company or institution, Financial statements are prepared from the accounting records maintained by the firm. The generally accepted accounting principles and procedures are followed to prepare these statements. The basic objectives of financial statement are to assist in decisionmaking process.

The definition of financial statements by American institute of public accounts will be worthwhile to quote here: “financial statements are prepared for the purpose presenting a periodical review or report on the progress by the management. They deal with the status of investment in the business as also with the results achieved during the period. They reflect a combination of recorded facts, accounting conventions and personal judgments. And the judgments and conventions applied affect them materially. The soundness of the Judgment necessarily depends upon their competence and integrity of those makes them and on their adherence to generally accepted accounting principle and conventions”. The definition presented above briefly explains the key contain and important feathers of the financial statements. 2.2.2 Financial Statements Analysis Financial statement analysis involves a comparison of a firm’s performance with that of other firms in the same line or business which often is identified by the firm’s industry classification. Generally speaking, the analysis is used to determine the firm’s financial position in order to identify its current strength and weakness and to suggest actions that might enable the firm to take advantage of its strengths and correct its weaknesses. Business enterprises communicate financial information to the users through financial statements and reports. The financial statements contain systematically organized summarized information of the enterprise’s financial information. However, the information provided in financial statements doesn’t say anything itself. It needs to be analysis is the process of identifying the financial strength and weaknesses of the firm by properly establishing relationship between the items of financial statements. Financial statements analysis is important not only for the firm’s managers but also for the firm’s investors and creditors. Internally, financial managers use the information provided by financial analysis to help make financing and investment decisions to maximize the firm’s value. Externally, stockholders and creditors use financial statements analysis to evaluate the attractiveness or the firm as an investment by examining its ability to meet

its current and expected financial obligations. As investors and financial analysis examine the firm’s performance in order to make investment decisions based on these statements, they should be carefully prepared and should be as much informative as possible. “Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by the single set of statement and a study of the trend of these factors as shown in a series of statements”(Mayer, J.N., 1961:4). Pradhan Surendra urged “Financial Analysis is to analyze the Achieved Statements to see if the result meets the objective of the firm to identify problems if any, in the past or presents and of likely to be in the future and to provide recommendations to solve the problems” (Pradhan, 2000:120). According to Hampton “Financial analysis is used primarily to gain insight in to operating and financial problems conforming the firms, with respect to these problems we must be careful to distinguish between the cause of problems and symptom of it.” It is thus an attempt to direct the financial statements in to their components on the basis of purpose in hand and establish relationship says between these components on the one hand as between individual components and total of these items on the other. Along with this, a study of various important factors over the past several years is also undertaken to have clear understanding of changing profitability and financial condition of the business organization. Jain Says “Mush-can is learnt about business performance and financial position through an appraisal of financial statement. The appraisal or analysis of financial statements spotlights and significant facts and relationship concerning managerial performance corporate efficient, financial strength and weakness and worthiness, that would have otherwise been buries in a maze of details. 2.2.3 Importance of Financial Analysis The importance of analysis of financial statement can be generally outlined as below: • Financial statement analysis measures the firm’s liquidity and solvency position.

• Financial statement analysis illustrates the profitability position of the firm. • Financial analysis provides sufficient information to the management in order to organize objectives device plans, formulate policies and implement them effectively.


Financial statement analysis furnishes necessary information to fulfill the needs of current as well as potential investors and regulatory authorities. • Financial statement analysis shows the true and fair picture of the firm.

2.3.3 Process of Financial Analysis Financial analysis is the technique to answering the question about the performance of financial institutions. It answers the questions on the basis of the analysis carried out on historical data and the future prospective performance of the firm. This analysis is useful to all the stakeholders of the firm to know about the performance of the firm and to take corrective actions if any fault is found. Financial analysis answers the problem in a systematic pattern. First the problem is to be found out before answering the problem. For this analysis of financial statements are to be carried out to diagnose the problem using appropriate tools and techniques. In the second step the identified problem is analyzed and a way is looked for the correction of the problem. Appropriate recommendations are made and then to project the expected results and examine them if there are improvements before implementing such recommendations. The following chart clarifies the financial analysis process. Chart 2.1
Analysis of Problem Analysis of financial Statement Process of the Use of appropriate techniques Diagnosis of Problem

Improvement? Recommendations

Yes

No

Analysis of Problem

Implement Recommendations

2.2.2 Theories of financial analysis Financial analysis is the process of identifying the financial strength and weaknesses of the firm by properly establishing relationship between the items of balance Sheet and profit and Loss Account (Pandey, 1989: 104). Financial analysis is the selection, evaluation and interpretation of financial data along with other pertinent information to assist in investment and financial decision making. Financial analysis may be used internally to evaluate issues such as employee performance, efficiency of operation and credit policies and extremely to evaluate potential investments and the credit-worthiness of borrower among other things. Financial analysis can be undertaken by management of the firm or by parties outside the firms via owners, creditors and visitors. The nature analysis will differ depending on the purpose of the analysts. For example, trade creditors are interested in the facts that the firms should be able to meet their claims over a very short period of time; the suppliers in the firms are interested in long term solvency and survival. So, financial analysis is undertaken by outsider, creditor, and investors and also by the firms itself. Thus the

various parties according to the particular interest of the analysts undertake the type of financial analysis. Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. The yardsticks frequently used are a ratio or index relating two pieces of financial data to each other. Analysis and interpretation of various ratios should give an experienced skilled analyst a better understanding of financial condition and performance of the firm than the individual would obtain from analysis of the financial data alone. So, financial analysis depends to a very large extent on the use of ratios though there are other equally important tools of such analysis. Thus, a direct examination of the magnitude of two related items is somehow informative but the comparison great facilitated by expressing the relationship as a ratio. Ratio is simply one number expressed in terms another, it is expression or relationship spelt out by dividing one figure into the other. The relationship between two accounting figures expressed mathematically is known as a ratio. A ratio helps the analysts to make qualitative judgment above the firm’s financial position and performance. However, quantitative relation represented by ratio analysts is not an end in them but are means to understanding a firm’s financial position. Quantitative ratio analysis is not capable of providing precise answer to the entire problem faced by the Financial Manager or potential fund supplier unless several ratios related to one another are computed. And then, the ratio analysis acquires some significance from the point of view of its user. So, a financial analyst through ratio analysis assists in identifying the major strengths and weakness of the bank. It indicates whether the bank has enough cash to meet its obligation and ability to utilize the available resource properly. All of which are necessary if the firm is to achieve the goal of maximizing shareholder’s wealth. Financial analysis can also be used to assist the bank’s viability, as an ongoing enterprise and determine whether a satisfactory return is being earned for the risk taken.

2.2.3 Uses and user of financial ratios There are basically two uses of financial ratio analysis: to track individual firm performance over time and to make comparative judgments regarding firm’s performance. Firm’s performance is evaluated using trend analysis- calculating individual ratios on a pre-period basis, and tracking their values over time. This analysis is can be used to spot trend that may be cause for concern, such as increasing average collection period for outstanding receivable for a decline in the firm’s liquidity status. Another common uses of ratio is to make relative performance comparison for example, comparison of firm’s profitabi9lity to that of major competitor or observing how the firm’s stacks up versus industry average enables the user to form judgments concerning key areas such as profitability or management effectiveness. Use of financial ratios includes parties both internal and external to the firm. External user includes security analysts, current and potential investors, creditors, competitors, and other industry observer. Initially, manager use ratio analysis to monitor performance and pinpoint strength and weakness from which specific goal, objective, and policy initiatives may be formed.
VI.

Short Term Creditor and Depositor Creditor and Depositor are interested primarily in the liquidity of the firm. In order words, they are concerned with the firm’s ability to pay its bill promptly. In the case of banks, they have various forms of borrowing, such as federal funds market or the discount window. They also maintain some assets that can be readily sold in the secondary market. If the need for fund is temporary, an increase in short term liabilities (from the federal fund market or the discount window) may be more appropriate (Madum Jeff, 1989)
VII.

Long Term Creditors

Long term Creditor holds bonds or mortgage against the firm who are mainly interested in the cash flow ability of the firm to serve4 debt over the long run. They may evaluate the ability by analyzing the capital structure of the firm. In case of commercial banks.

The central bank and other foreign bank are more concerned in capital structure of the bank. VIII. Equity Investor Equity Investor generally refers to the buying and holding of shares of stock on a stock market by individual and funds in anticipation of income from dividends and capital gain as the value of stock rises. IX.Management of a Firm Management of a firm is interested in overall ratios not particularly in one or two, because the firm’s purpose is not only to have internal control but also better understanding of what capital suppliers seek in financial condition and the performance from it. X. Central bank The Central Bank of Nepal is more concerned on liquidity management and capital adequacy fund of the banks. It has made some statutory prescription that must be followed by the commercial bank. 2.3 Reviews of Related Studies

It gives the detail information about different books, journal and thesis reviewed by the researcher. This section examines recent research studies that act as a basis for the researcher’ study. The reviewed studies are defined as follows: 2.3.1 Review of Empirical Studies Different researcher has approached financial analysis in different ways. A review of such studies is essential to develop an approach in order to adopt in the Nepalese Enterprises. Several empirical studies have been undertaken to show promise for statically testing the predictive power of financial ratios. The focus on empirical studies has been mostly done to ascertain the predictive power of financial ratios that have been investigated in the various areas such as corporate bankruptcy/sickness, credit rating, acquisition/merger targets, and relationship of financial ratios in industry target.

In fact, number of ratios overlap with each other and therefore some common information can be obtained by using anyone of the overlapping ratios. The manager is always at a loss to find out which ratios to use. Therefore the decision maker always requires selective financial ratios without much loss of relevant and significant information with determining group of overlapping ratios. W.H. Beaver tested the ability of financial ratios to predict failure (Beaver, 1996: 77111). This study revealed five ratios, which could determine between failed and nonfailed firms. The ratios are; cash flow to total debt; net income to total assets; total debt to total assets; working capital to total assets; and current ratios. It was obvious that failed firm had more debt and low returns on assets. They had less cash but more receivable as well as current ratios. The stock was very low. James O. Horrigan tested the power of financial ratios to predict corporate bond rating (Horrigan, 1996: 44-62). His multiple regression analysis revealed that working capital to sales, net worth to total debt, sales to net worth and net operating profit to sales were bases for predicting bond rating. Likewise, Y.E. Orgler used a multiple regression model to predict which loans bank examiners would criticize (Orgler, 1970: 435-445). The principle financial ratio he used was the ratio of working capital ratio to current assets. The model was only moderately successful in predicting criticized loans. The main purpose of the study by (Dambolena and Khoury , 1980: 1017-1025) was to know the stability of all financial ratios over time, as well as the level of their ratios are explanatory variables in the deviation of discriminate function. The ratios used were: profitability ratios; activity and turnover ratios; liquidity ratios; indebtedness ratios. 2.3.2 Review of articles In addition to financial performance, there are various financial aspects which deal in the context of Nepalese commercial and other financial banks. The major findings of the approaches used in this study are reviewed briefly.

The article entitled “Capital adequacy of Bank- the Nepalese context” (Shrestha, 1990: 24-27) has suggested the banks that deal in highly risky to maintain strong capital base. He concludes that the capital base should neither be too much leading to inefficient allocation of scarce resources nor so weak so as to expose to extreme risk. The study accepts that the operations of banks and the degree of risk associated with them are subject to changes country, bank and time period wise. Henceforth the study suggested preparing standard capital adequacy ratios for each individual bank keeping in the mind the various reason factors. Chopra Sunil in his article “Role of foreign banks in Nepal” undoubtedly conducted that the Commercial Bank are playing an increasingly dynamic and vital role in the economic development of the country (Chopra, 1990: 1-2). Gilles Serra in his article” the role of commercial Banks in Nepalese Context” has conducted that due to the pressure of competition for public welfare, five commercial banks are improving their services” (Gilles, 1990: 31- 36). Bodhi B. Bajaracharya in his article “Monetary policy and Deposit mobilization in Nepal” concludes that the mobilization of domestic saving is one of the prime objective of the monetary policy of Nepal and for this purpose commercial banks are the vital active financial intermediary for generating resources in the form of deposit of the private sector and providing credit to the investors in different sectors of the country (Bajaracharya, 1991:93-97). Dr. Manohor Krishna Shrestha on “Financial Management- theory Practice” has concluded that the bank has sufficient liquidity to meet the claim of the depositors 9excluding fixed deposit). The bank has highly geared capital structure and is more depending on borrower’s funds. The bank has been able to meet the interest on deposits out of its profits. The rate of returns on ownership capital is favorable. He further suggests that the operational efficiency should be enhanced to achieve its higher profit goals for better performance. (Shrestha, 1980).

Another study conducted by Sunity Shrestha on “Portfolio of Commercial Bank in Nepal” ha analyzed the financial performance of the commercial bank using both descriptive and diagnostic approach. In her study she was concluded in following points. Per capita deposit as well as per capita credit in commercial bank has increased tremendously. The contribution in GDP has also been seen increasing. The assets holding of commercial banks are growing with 42.12% rate that is supposed to be higher for developing country. It can be concluded that the commercial bank in Nepal are performing their function of collecting the domestic property. The structural ratio of commercial bank shows that bank invest on average 75% of their total deposit on government securities and shares. The analysis of share of reserve position of commercial banks showed quite high percentage of deposit as cash reserve. Sharma (2005) in his paper on Capital Structure of Selected Commercial Banks of Nepal concludes with following key points: • Paid up Capital of Nepalese Commercial Banks is increasing indicating banks maintain the capital standards set by NRB • Total equity capital is growing as compared to total debt.


The fluctuating interest coverage ratio of the Nepalese Commercial Banks indicates the earnings stream and interest expenses are inconsistent over the period of past five years. The debt servicing capacity of the Nepalese Banks is not highly satisfactory but it is sufficient to meet the interest expenses in all years and is continuously improving.

• •

The capital adequacy ratios of the banks are adequate against set norms of NRB indicating sound financial health and sufficient to meet on banking operation. The total capital fund and capital adequacy ratios are fluctuating which indicate fluctuating risk adjusted assets of the banks. • Core Capital and supplementary capital ratios are in line with the NRB norms.

2.3.3 Review of Preview Thesis and Books Various thesis work have been done in different aspects of commercial banks such as lending policy, investment policy, financial performance analysis, resource mobilization and capital structure. The review of some previous study, which is relating to the Nepalese banking sector, is the most relevant and assistant for this research. Mrs. Tamang (2006) in her thesis paper entitled “Lending Policy of Commercial Banks in Nepal” had tried to examined to lending policy of the commercial bank and she had concluded that efficient utilization of resource is more important than collection of the same lower investment means lower capital formation that hamper economic development than bank showed emphasis on utilization of resources (Tamang, 2006). Mr. Shrestha S.L (2006), through his thesis “A study of Financial performance of Commercial Banks” concluded that the liquidity position of commercial bank has found relatively highly leveraged compared to the joint venture banks. Loan and advance have been their main forms of the investment. Two third assets have been used for earning purpose. The review of the above mentioned research have definitely enrich many vision to elaborate analysis to come to the meaningful conclusion in realistic term and few key suggestion that help in improvement of commercial banks. Sayers (1967) in his book ‘modern banking’ focuses in the economic importance of commercial banks and their function of creation of money according to him the special interest of economists in the bank because by their operations they can effect the monetary situation in sense of the availability of the purchasing power. When a bank makes an advance by allowing customers to overdraw his accounts the banks in effect exchanges its own promise to pay off the immediately against the customer’s promise to pay off the advance later on the economics importance of this exchange is that the bank’s promise to pay immediately is absolutely effective purchasing power, when play’s and instrumental role in increasing the total demand of the goods and services. Here people use banks for the purpose of making payments and as sources of loans; the letter involves

society’s interest in the distribution between different used of the resources that can be debuted to adding to the real capital of nature” The book was written by Bhuman/Sharita (2056) in their ‘A hand of banking highlight in function of credit creation, accepting various types of deposits and advancing loan in different field. According to the authors, the various marketing concept by bank, commercial-oriented concept of commercial banks following Nepal Rastra Bank directives. Pradhan (1980) conducted a study on investment policy of Nepal Bank Ltd. The objective to that study was to evaluate the lending policy and to find out the ways to encourage the bank lending. This study has covered only five fiscal years BS 2028/29 through BS 2033/34. He used Karl Pearson's coefficient of correlation, ratio analysis and percentage analysis. He concluded with the positive relationship between deposits and loans and advances. But the same was not in a proportionate manner, greater increase in deposits led to little increase in the loans and advances. Increase in the interest rate was the main factor for the decrease in loan demand. The bank had investment only 3 percent of its total investment in the priority sector, which was lower than the percentage (7 percent) imposed by NRB.

CHAPTER III
RESEARCH METHODOLOGY
The research methodology is systematic way of solving research problem. Research methodology refers to the overall research process, which a researcher conducts during their study. Research can be conducted on the basis of primary and secondary data. Here in the study all the data and observed data are analyzed with using appropriate financial tools. To evaluate, analyze and interpret on every subject and discipline a detailed research plan is required. Without gathering detailed data and without applying different analytical tool it is impossible to confess anything about the related subject. It is the time of liberalization & globalization and it is being realized that the economic growth/advancement of a country can be achieved only after the active involvement of banking sector in economic activities. In Nepal, role of government owned bank is not that much of effective what that was expected from them in the sector of economic development and at the same time commercial banks are performing their role successfully and effectively. In order to track out the reason behind the weak performance of government owned bank. The present study has its objective to analyze the financial performance of commercial bank. I have selected Citizens Bank International Limited for the purpose of my research work. The basic objective of the study is to compare of financial performance of Citizens bank International Limited. To achieve these objectives, the following metholodogy have been adopted which includes the research design, period covered, the nature and sources of data, data collection, tools used, analysis technique and so on. 3.1 Research Design

The main objective of this study is to analyze, examine and interpret the financial performance of Citizens bank International Limited by analyzing the financial statements. The study is an initiative study based on the analysis of past three year’s financial performance of Citizens bank International Limited. Descriptive research design had been used to make the analysis more conclusive. 3.2 Nature and Sources of Data The data of Citizens bank International Limited have been collected mainly from the secondary sources. The secondary data are related publication of bank, central bank as well as other financial institution. Beside this I have discussed informally with the staffs of Citizens bank International Limited in order to get needed information. Along with different websites are frequently visited for the purpose of data collection. The data and information are used for ratio analysis. All these data were collected personally. In this way both primary and secondary data are used in this study. 3.3 Data Collection, Processing and Tabulating Procedure The required financial and information have been collected from the balance sheet and profit and loss account of the bank. The collected data were complied and processed in order to achieve the objective of the study. The data are tabulated on the following sequences: • The financial data have presented according to time series, which are of four starting from the fiscal year 2064/65 to 2067/2068. • The data were analyzed with the help of ratios, percentage, average and time change 3.4 Data Analysis Technique years

The tabulated data are analyzed with the help of various fundamental financial tools. The following financial ratios and tools have been used to analyze the data: 3.4.1 Financial Ratio Analysis A. Liquidity Ratio

Liquidity ratio measure the firm’s ability to meet current obligations. In fact, analysis of liquidity needs the preparation of cash budget and cash flow and funds flow statements; but liquidity ratio, by establishing relationship between cash and other current assets to current obligation, provide a guide measure of liquidity (Pandey; 1989: 103) Bank can experience lack of liquidity when cash outflow (due to deposit, withdraws, loans etc) exceed cash inflows (new deposit, loan repayment etc.). They can resolve any cash deficiency by either creating additional liabilities or by selling assets. To analyze the ability of banks, the following selected ratios are calculated. I. II. III. IV. V. I. Current Ratio Current Ratio Cash and Bank Balance to Current Assets Ratio Fixed Deposit to Total Deposit Ratio Saving Deposit to Total Deposit Ratio Cash and Bank Balance to Total Deposit Ratio

The current ratio is the ratio of total current assets to total current liabilities. It is calculating by dividing current assets by current liabilities which are expressed as follows:

Current assets represent those assets which can be converted into cash and bank balance within accounting period such as cash and bank balance, investment in treasure bills, money at call or placement, loan and advances, bills purchased and discount, inter branch account, other short term loans, receivable and prepaid expenses etc. Current liability refers to short-maturing obligations. This include all deposit liabilities, interbank reconciliation account, bills payable, tax provision, staff bonus, dividend payable, bank overdrafts, provision and accrued expenses, etc. II. Cash and Bank Balance to Current Asset Ratio

Cash and bank balance is the most liquid form of current assets. The cash and bank balance ratio indicates the percentage of readily available fund with in the bank. The cash and bank balance to current assets ratio is calculated by using the following formula:

III.

Fixed Deposit to Total Deposit

Fixed deposit is the high interest bearing deposit, which can be withdrawn only after its maturity. It is calculated by dividing the amount of fixed deposits by the amount of total deposit, which is given below:

IV.

Saving Deposit to Total Deposit Ratio

Saving deposit is the low interest bearing deposit than the fixed deposit. These deposits are not as freely withdrawal as current deposit. This ratio is calculated in order to find out the proportion of total deposit which is interest bearing and short term; it can be calculated by dividing the amount of saving deposits by the amount of total deposits. It is expressed as:

V.

Cash and Bank Balance to Total Deposit (Cash Reserve ratio)

In country where capital market is not well developed, the cash reserve requirement can be used not only to control the commercial bank credit but also to influence the investment portfolios of the commercial banks.

Regarding cash reserve, Nepal Rastra Bank has guided all the commercial banks to maintain at least 12% of their deposit of their liabilities as reserve (Vault cash is 4% and the central cash balance is 8% of total deposits. Cash Reserve Ratio (CRR) is calculated by dividing the cash and bank balance by the amount of total deposit, which is presented below:

B.

Leverage or Capital Structure Ratio

Leverage or capital structure ratio measures the outsider’s capital in financing the firm’s assets, and is calculated by establishing relationship between borrowed capital and equity capital. Higher leverage ratio indicates larger amount of borrowed funds used by the firms to finance its assets and it also indicates increasing obligation and known as risky firm. A firm must have sufficient margin of equity to pay the fixed charges and refund the borrowed funds in the maturing date. The following ratios have been used to measure the long term solvency position of Citizens Bank International Limited with the help of financial data of past three years of the bank. 1. Total Debt to Shareholder’s Equity Ratio Total debt-equity ratio indicates the relationship between the long term funds provided by the creditors and those provided by the firm’s owners. It is commonly used to measure the degree of financial leverage of the firm and is calculated as follows:

2. Total Debt to Total Assets Ratio Total debt to total assets ratio is the relationship between creditors fund and owner’s capital. These ratios shown the proportion of outsiders fund used in financing total assets. This ratio is calculated is by dividing the total debt of the bank by its total assets, which are presented below.

3. Total Shareholder’s Equity to Total Assets Ratio Shareholder’s equity to total assets ratio indicates the proportion of assets which is financed from ownership capital of the firm. This ratio also exhibits the relationship between shareholder’s fund and owner’s capital. This ratio shows the share of shareholders on the total assets. It can be expressed as follows:

C.

Profitability Ratio

Profit is the difference between total revenue and total expenses over a period of time. Profit is unlimited of a commercial bank and it will have no future if it fails to make sufficient profits. Therefore, the financial manager continuously evaluates the efficiency of the bank in terms of profits. The profitability ratios in this study are calculated to measure the operating efficiency and performance of Citizens Bank International Limited. Following are the measure profitability ratios calculated in this study: I. Interest Earned to Total Asset Ratio Interest earning is the major sources of a commercial bank. This ratio is calculated to find out percentage of the interest earned in comparison to total assets. The ratio can be calculated by suing the following formula:

II. Net Profit to Total Deposit Ratio The collected deposits are mobilized in investment and loans to get profit. This ratio indicates the percentage of profit earned by using the total deposit. It is calculated by dividing the amount of net profit by the amount of total deposits which is presented below:

III.Net profit to Total Assets The ratio is a useful measurement of the profitability of all financial resources invested in the bank’s assets. The return on total assets (ROA) or profit to assets ratio is calculated by dividing the amount of net profit by the amount of total assets.

IV. Net profit to Net Worth (Return on Equity) Net Worth or shareholders equity refers to the owner’s claim on assets of the bank. The ROE measures the earned on owner’s investment. This ratio indicates how well the banks have used the resources of the owners. It is calculated by dividing net profit after tax by net worth.

V. Net Operating Profit to Total Asset Net operating profits is the profit before interest and taxes (EBIT). When financial charges are significant, then it is appropriate for the comparative study to compute the net operating profit to total assets ratio rather than the return on assets ratio. This ratio is useful to measure the profitability ratio before interest and taxes of all financial resources invested in the bank assets. The following formula has been used to calculate the net operating profit to total assets ratio:

VI. Net profit To Risk Assets Ratio

Risk assets refer to those assets, which are invested in loans and advances and bill purchased and discounted. The ratio is calculated by dividing the amount of net profit by the amount of risk assets which is expressed as:

D.

Ownership Ratio

The true owners of business firms are the common stockholders, who invest their money in the firm because of their expectation of the future returns. The common stockholders are referred as residual owner, who receives what is left after all other claims on the firm’s income and assets have been satisfied. As a result of this generally uncertain position, the common stockholder expected to be compensated with adequate dividends and ultimately capital gains. From the point of view of the shareholder, the following financial ratios indicate the financial performance of the firm in a given period of time. I. Earnings Per Share (EPS) II. Dividend Per Share (DPS) III. Dividend Payout Ratio (DPR) I. Earnings Per Share (EPS) The EPS represents the amount earned on the behalf of each outstanding, share of common stock. They are closely watched by the investing public and are considered an important indicator of the firm’s success. EPS is calculated as follows:

II. Dividend Per Share (DPS) Dividend per share is calculated to know proportion of the earning distributed to the shareholder per share. DPS is calculated with the help of following formula:

III.

Dividend Payout Ratio

This ratio represents the percentage of the profits distributed as dividend and the percentage retained as revenue and surplus for the growth of the bank. It is determined by dividend per share (DPS) by earning per share (EPS) as expressed below:

3.4.2

Income and Expenditure Analysis

Income and expenditure are the main indicators of the financial performance of the business firms. The income and expenditure statement provides a financial summary of the firm’s operating result during the specified period. Therefore, the attempt has been made to analyze the income and expenditure the statement of Citizens Bank International Limited of three years from 2063/64-2066/67 to know the financial performance of the bank. In this study the analysis of operating income and expenditure has been made as per the following details; I. Operating Income The sources of operating income are interest earnings, exchange earning, commission earning and other operating incomes. II. Operating Expenses The expenditure heads of the banks are interest expenses, personnel expenses and other operating and non-operating expense.

CHAPTER IV
PRESENTATION AND ANALYSIS OF DATA

The main aim of this chapter is presentation and analysis of data according to research methodology to attain the objective of this study. In this chapter, an attempt has been made to

analyze financial performance of Citizens Bank International Limited for its operational period of four years that is 2064/65 to 2067/68. The data for this study are presented in tabular form and are analyzed with the financial tools viz. ratio analysis, income and expenditure statement analysis and statistical tools such as correlation described in chapter III. 4.1 Ratio analysis

Ratio analysis involves the method of calculating and interpreting financial ratios in order to access the firm’s performance and status. The basic input of ratio analysis is the firm’s income and expenditure statement and balance sheet for the period to be examined. The following ratios are used to analyze the financial performance of Citizens Bank International Limited. 4.1.1 Liquidity Ratio

The liquidity of a business firm is measured by its ability to satisfy its short term obligation as they come due. Liquidity refers to the solvency of the firm’s overall financial position. The following ratios are used to measure to measure liquidity position of Citizens Bank International Limited with the help of financial data of past four years of the bank. VI. VII. VIII. IX. X. I. Current Ratio Cash and Bank Balance to Current Assets Ratio Fixed Deposit to Total Deposit Ratio Saving Deposit to Total Deposit Ratio Cash and Bank Balance to Total Deposit Ratio

Current Ratio

The current ratio, one of the most commonly cited financial ratio, measure’s the firm’s ability meet its short term obligations. Current Liabilities includes the Sum of Borrowings, current and call deposit liability, Bills payables, proposed dividend and other liabilities. Current Assets include the Cash balance, Balance with NRB, Money at Call and short Notice, Loans, Advances and Bills Purchased and Other Assets. It is expressed as follows;

The current ratio of Citizens Bank International Limited is exhibited in table-1 below; Table: 1 Current Ratio of Citizens Bank International Limited Year Current Assets Current Liability Current Ratio (In terms of times) 0.89 0.89 2.35 2.85 (Rs) (Rs) 2063/64 1,363,292,347 1,532,899,101 2064/65 5,969,166,094 6,669,878,357 2065/66 10,817,077,832 4,608,220,131 2066/67 13,672,861,307 4,791,482,217 Source: calculated by using the data from www.ctznbank.com

The above table shows that the current ratio of Citizens Bank International Limited has less than 1 in the year of 2064 and 2065. In later period it has more than one i.e. 2.35 times in the year 2066 and 2.85 times in the year of 2067. In the study period of the year 2066 and 2067 is generally considered to have good short term financial strength. If the current liabilities exceed current assets then the company may have problem meeting its short term obligations. In general, the Citizens Bank International Limited is able to meet its short term obligation in later years. II. Cash and Bank Balance to Current Asset Ratio

Cash and bank balance is the most liquid form of current assets. The cash and bank balance ratio indicates the percentage of readily available fund with in the bank. The cash and bank balance to current assets ratio is calculated by using the following formula:

The cash and bank balance to current ratio of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 2 below;

Table: 2 Cash and Bank Balance to Current Assets Ratio Year 2063/64 Cash and Bank Balance(Rs) 146,821,592 Current Assets (Rs) 1,363,292,347 Ratio (In terms of %) 10.77

2064/65 732,482,003 5,969,166,094 2065/66 1,655,352,993 10,817,077,832 2066/67 2,445,617,795 13,672,861,307 Source: calculated by using the data from www.ctznbank.com

12.27 15.30 17.89

Cash and bank balance include the cash balance, Balance with NRB, Balance with Banks/Financial Institutions. The above table shows that cash and bank balance to current assets ratio of the bank was maximum (17.89%) in year 2067 and minimum (i.e. 10.77%) in year 2064. It seems that the ratio in increasing trend in later years than in previous year. III. Fixed Deposit to Total Deposit

Fixed deposit is the high interest bearing deposit and can be withdrawn only after its maturity. This ratio is calculated in order to find out the proportion of fixed deposit with respect to total deposit. It is calculated by dividing the amount of fixed deposits by the amount of total deposit, which is given below:

The fixed deposit to total deposit of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 3 below; Table: 3 Fixed Deposit to Total Deposit Year Fixed Deposit Total Deposit Ratio (In terms of %) 63.61 66.11 32.22 46.49 (Rs) (Rs) 2063/64 987931041 1,553,169,924 2064/65 4,059,066,310 6,139,579,055 2065/66 3,713,589,712 11,524,425,599 2066/67 6,607,995,873 14,214,481,799 Source: calculated by using the data from www.ctznbank.com

Fixed deposit includes the fixed deposit liabilities of a bank. It also include high interest bearing deposit. It includes the interest bearing and non interest bearing deposit liabilities. Total deposit includes the interest bearing total deposit and non interest bearing deposit. Total deposit is the

summation of current deposit, fixed deposit; call deposit, saving deposit, certificate of deposit and other. The above data shows that fixed deposit to total deposit ratio of the bank varies from maximum of 66.11% in the year of 2065 and minimum in the year of 2066 during the study period of four year.

IV.

Saving Deposit to Total Deposit Ratio

Saving deposit stand midway between current and fixed deposit. These deposits are not as freely as current deposit. It can be calculated by dividing the amount of saving deposits by the amount of total deposits. It is expressed as:

The Saving Deposit to Total Deposit of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 4 below; Table: 4 Saving Deposit to Total Deposit Ratio Year Saving Deposit (Rs) Total Deposit (Rs) Ratio (In terms of %)

2063/64 97,726,192 1,553,169,924 2064/65 1,106,994,358 6,139,579,055 2065/66 3,610,190,585 11,524,425,599 2066/67 3,809,137,370 14,214,481,799 Source: calculated by using the data from www.ctznbank.com

6.29 18.03 31.33 26.80

Saving deposit includes the interest bearing saving deposit. It consists of saving in local currency and foreign currency by individual, institution and others. The above table shows that saving deposit to total deposit ratio of the bank varies from maximum of 31.33% in year of 2066 to the minimum of 6.29% in the year of 2064 during the study period of four years. V. Cash and Bank Balance to Total Deposit (Cash Reserve Ratio) The cash reserve requirement in the most developed and developed countries have been used extensively as a means to control commercial bank’s credit. Especially in countries where capital market is not well developed, cash reserve requirement can be used not only to control the commercial bank credit but also to influence the investment portfolio of the commercial banks. Cash Reserve Ratio (CRR) is calculated by dividing the cash and bank balance by the amount of total deposit, which is presented below:

The cash reserve ratio of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 5 below;

Table: 5 Cash and Bank Balance to Total Deposit Year Cash and Bank Total Deposit Ratio

Balance(Rs) (Rs) 2063/64 148,821,592 1,553,169,924 2064/65 1,175,164,304 6,139,579,055 2065/66 2,555,752,993 11,524,425,599 2066/67 2,680,599,442 14,214,481,799 Source: calculated by using the data from www.ctznbank.com

(In terms of %) 9.58 19.14 22.18 18.86

Cash and bank balance include the Cash balance, Deposit with NRB, deposit with bank and other financial institution and money at call and short notice. The above table shows that CRR of the bank varies from maximum of 22.18% in year 2066 to minimum of 9.58% in year 2064 during the study period of four years. Ratios are fluctuation may be the central bank has indicated the higher CRR to all the banks or may be higher cash and bank balance of Citizens Bank International Limited.

4.1.2

Leverage or Capital Structure Ratio

Leverage or capital structure ratio measures the outsider’s capital in financing the firm’s assets, and is calculated by establishing relationship between borrowed capital and equity capital. Higher leverage ratio indicates larger amount of borrowed funds used by the firms to finance its assets and it also indicates increasing obligation and known as risky firm. A firm must have sufficient margin of equity to pay the fixed charges and refund the borrowed funds in the

maturing date. The following ratios have been used to measure the long term solvency position of Citizens Bank International Limited with the help of financial data of past four years of the bank. I. Total Debt to Shareholder’s Equity II. Total Debt to Total Assets Ratio III. Total shareholder’s Equity to Total Assets Ratio 4. Total Debt to Shareholder’s Equity Ratio Total debt-equity ratio indicates the relationship between the long term funds provided by the creditors and those provided by the firm’s owners. It is commonly used to measure the degree of financial leverage of the firm and is calculated as follows:

The total debt to Shareholder’s Equity Ratio of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 6 below; Table: 6 Total Debt to Shareholder’s Equity Ratio Year Total Debt Shareholder’s Equity Ratio (In terms of %) 252.04 79.42 24.18 49.77 (Rs) (Rs) 2063/64 1,372,569,467 544,579,962 2064/65 476,074,000 599,421,208 2065/66 250,000,000 1,034,073,481 2066/67 651,151,000 1,308,269,489 Source: calculated by using the data from www.ctznbank.com

The above table shows that debt to equity ratio varies from maximum of 252.04% in year 2064 to minimum of 24.18% in year of 2066 during the study period of four years. This analysis indicates that the there is highly fluctuation in the debt to equity ratios. It also indicates that the creditor had invested in previous year than later. But after 2066, creditors are interested to invest than in previous year. II. Total Debt to Total Assets Ratio

This ratio exhibits the relationship between creditor’s funds and owner’s capital. This ratio shows the proportion of outsider’s fund used in financing total assets. This ratio is calculated by dividing the total debt of the bank by its total assets, which is presented below.

The total debt to total assets ratio of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 7 below; Table: 7 Total Debt to Total Assets Ratio Year Total Debt Total Assets Ratio (In terms of %) 39.36 6.55 1.93 3.94 (Rs) (Rs) 2063/64 1,372,569,467 3,487,296,143 2064/65 476,074,000 7,269,299,565 2065/66 250,000,000 1,2966,073,908 2066/67 651,151,000 16,516,884,949 Source: calculated by using the data from www.ctznbank.com

Total debt includes the loan from Inter-bank and Financial Institutions and from NRB. The above table shows that debt to total assets of the bank varies from maximum of 39.36% in year 2064 to the minimum of 1.93% in year 2066 during the study period of four year. III. Total Shareholder’s Equity to Total Assets Ratio

Shareholder’s equity to total assets ratio indicates the proportion of assets which is financed from ownership capital of the firm. This ratio also exhibits the relationship between shareholder’s fund and owner’s capital. This ratio shows the share of shareholders on the total assets. It can be expressed as follows:

The shareholder’s equity to total assets ratio of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 8 below; Table: 8

Total Shareholder’s Equity to Total Assets Ratio Year Total shareholder’s Total Assets Ratio (In terms of %) 15.62 8.25 7.97 7.92 Equity (Rs) (Rs) 2063/64 544,579,962 3,487,296,143 2064/65 599,421,208 7,269,299,565 2065/66 1,034,073,481 1,2966,073,908 2066/67 1,308,269,489 16,516,884,949 Source: calculated by using the data from www.ctznbank.com

Total shareholder’s equity is included Share Capital and Reserve and Funds. The above table shows that the shareholder’s equity to total assets of the bank varies from maximum of 15.62% in year 2064 to minimum of 8.25% in year 2065 during the study period of four year. The ratio shows that the total asset of the bank is financed through equity capital and remaining from debt capital.

4.1.3

Profitability Ratio

There are many measure of profitability. Each relates the return of the firm to its sales, assets, and equity or share value. As a group, these measures allow the analyst to evaluate firm’s

earning with respect to given level of sales, a certain level of assets, the owners investment or share value. Profit is the difference between total revenue and total expenses over a period of time. Profit is unlimited of a commercial bank and it will have no future if it fails to make sufficient profits. Therefore, the financial manager continuously evaluates the efficiency of the bank in terms of profits. The profitability ratios in this study are calculated to measure the operating efficiency and performance of Citizens Bank International Limited. Following are the measure profitability ratios calculated in this study: I. Interest Earned to Total Assets Ratio II. Net Profit to Total Deposit Ratio III. Net Profit to Total Assets Ratio IV. Net Profit to Net Worth Ratio V. Net Operating Profit to Total Assets Ratio

I. Interest Earned to Total Assets ratio Interest earning is the major sources of a commercial bank. This ratio is calculated to find out percentage of the interest earned in comparison to total assets. The ratio can be calculated by suing the following formula:

The interest earned to total assets ratio of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 10 below; Table: 10 Interest Earned to Total Assets ratio Year 2063/64 2064/65 Interest Earned (Rs) 26,954,623 396,842,474 Total Assets (Rs) 3,487,296,143 7,269,299,565 Ratio (in terms of times) 0.77 5.46

2065/66 758,256,197 1,2966,073,908 2066/67 1,398,830,691 16,516,884,949 Source: calculated by using the data from www.ctznbank.com

5.85 8.47

The above table shows the interest earned to total assets of the bank varies from maximum of 8.47% in year 2067 to the minimum of 0.77% in year 2064 during the study period of four year. The analysis indicates that the ratio is in increasing trend in later period as compared to previous year. II. Net Profit to Total Deposit Ratio The collected deposits are mobilized in investment and loans to get profit. This ratio indicates the percentage of profit earned by using the total deposit. It is calculated by dividing the amount of net profit by the amount of total deposits which is presented below:

The net profit to total deposit ratio of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 11 below; Table: 11 Net Profit to Total Deposit Ratio Year 2063/64 2064/65 2065/66 2066/67 Source: www.ctznbank.com Net Profit (Rs) (15420038) 54841245 95809926 193561798 Total Deposit (Rs) 1,553,169,924 6,139,579,055 11,524,425,599 14,214,481,799 Ratio (In terms of %) -0.99 0.89 0.83 1.36

Net profit to total deposit of the bank varies from 1.36% in the year 2067/68 and 2064/65 -0.99%.Although the period (1964/65) was initial phase of the bank so that it could not be in positive return. This analysis shows that the calculated ratio shows the increasing trends. III.Net Profit to Total Assets Ratio The ratio is a useful measurement of the profitability of all financial resources invested in the bank’s assets. The return on total assets (ROA) or profit to assets ratio is calculated by dividing the amount of net profit by the amount of total assets.

The net profit to total assets of Citizens Bank International Limited for the period of 2054/652067/68 is presented in Table- 12 below;

Table: 12 Net Profit to Total Assets Ratio Year Net Profit Total Assets Ratio (In terms of %) -0.44 0.75 0.73 1.17 (Rs) (Rs) 2063/64 (15,420,038) 3,487,296,143 2064/65 54,841,245 7,269,299,565 2065/66 95,809,926 1,2966,073,908 2066/67 193,561,798 16,516,884,949 Source: calculated by using the data from www.ctznbank.com

The above table shows that net profit to total assets of the bank varies from -0.44% in year 2064/65 to maximum of 1.17 % in year 2067/68 during the study period of 4 years. The analysis indicates that the net profit earned in comparison to total assets is in fluctuation or increasing trend. IV. Net Profit to Net Worth(Return on Equity) Ratio Net Worth or shareholders equity refers to the owner’s claim on assets of the bank. The ROE measures the earned on owner’s investment. This ratio indicates how well the banks have used the resources of the owners. It is calculated by dividing net profit after tax by net worth.

The net profit to net worth of Citizens Bank International Limited for the period of 2054/652067/68 is presented in Table- 13 below; Table: 13 Net Profit to Net Worth Year Net Profit (Rs) Net worth (Rs) Ratio (In terms of %)

2063/64 (15,420,038) 560,000,,000 2064/65 54,841,245 560,000,000 2065/66 95,809,926 1,000,000,000 2066/67 193,561,798 1,206,950,000 Source: calculated by using the data from www.ctznbank.com

-2.75 9.79 9.58 16.04

Here net worth includes the Shareholder’s equity. The above table shows that return on equity of the bank varies from maximum of 16.04% in year 2067/68 to the minimum of -2.75% in year 2064/65 during the study period of 4 year. The analysis indicates that ROE of Citizens Bank International Limited is in better position as compared to previous years. V. Net Operating Profit to Total Assets Ratio Net operating profits is the profit before interest and taxes (EBIT). When financial charges are significant, then it is appropriate for the comparative study to compute the net operating profit to total assets ratio rather than the return on assets ratio. This ratio is useful to measure the profitability ratio before interest and taxes of all financial resources invested in the bank assets. The following formula has been used to calculate the net operating profit to total assets ratio:

The net operating profit to total assets ratio of Citizens Bank International Limited for the period of 2054/65-2067/68 is presented in Table- 14 below; Table: 14 Net Operating Profit to Total Assets Ratio Year Net Operating Profit Total Assets Ratio (In terms of %) -0.31 -0.02 0.14 1.01 (Rs) (Rs) 2063/64 (10,674,000) 3,487,296,143 2064/65 (1,479,000) 7,269,299,565 2065/66 18,750,000 12,966,073,908 2066/67 165,995,000 16,516,884,949 Source: calculated by using the data from www.ctznbank.com

The above table shows that net operating profit to total assets of the bank varies from -0.31% in year 2063/64 to the maximum 1.01% in year 2066/67 during the study period of 4 years. This analysis indicates that the net operating profit to total assets shows increasing trend in later period.

Note: The bank’s annual report’s data and published data in the website are different. 4.1.4 Ownership Ratio

Unlike creditor, the owners of business firms are the common stockholders, who invest their money in the firm because of their expectation of the future returns. The common stockholders are referred as residual owner, who receives what is left after all other claims on the firm’s income and assets have been satisfied. As a result of this generally uncertain position, the common stockholder expected to be compensated with adequate dividends and ultimately capital gains. From the point of view of the shareholder, the following financial ratios indicate the financial performance of the firm in a given period of time. I II. III. Earnings per Share (EPS) Dividend per Share (DPS) Dividend Payout Ratio (DPR)

Therefore these financial ratios have been included in this study to make the research effective and conclusive. I. Earnings Per Share (EPS)

The firm’s earning per share is generally of interest to present or prospective stockholders and management. The EPS represents the amount earned on the behalf of each outstanding share of common stock. They are closely watched by investing public and are considered an important indicator of the firm’s success. EPS is calculated as follows:

The following table shows the earning per share of Citizens Bank International Limited. Table: 15 Earnings per Share Net Profit after Year 2063/64 2064/65 2065/66 Interest and Taxes (Rs) (15,420,038) 54,841,245 95,809,926 No. of Share O/S 5,600,000 5,600,000 10,000,000 EPS (In Rs.) -2.75 9.79 9.58

2066/67 193,561,798 10,000,000 Source: calculated by using the data from www.ctznbank.com

19.36

The above table shows that EPS of the bank varies from maximum of Rs. 19.36 in year 2066/67 to the minimum of -2.75 in the year 2063/64 during the study period of four year. The above analysis indicates that EPS of Citizens Bank International Limited is improving. II. Dividend Per Share (DPS)

Dividend per share is calculated to know proportion of the earning distributed to the shareholder per share. DPS is calculated with the help of following formula:

The following table shows the dividend per share of Citizens Bank International Limited. Table: 16 Dividend per Share Year Earning paid to No. of Share O/S DPS (In Rs.) 0 0 10 12.63 Shareholder (Rs) 2063/64 0 5,600,000 2064/65 0 5,600,000 2065/66 100,000,000 10,000,000 2066/67 126,315,789 10,000,000 Source: calculated by using the data from www.ctznbank.com

The above table shows DPS of the bank. in the initial period of two year of observation was not distributed the dividend to its shareholders and in the remaining periods of two year has distributed Rs. 10 as dividend. Note: Rs. 10 was distributed as dividend which is mentioned in annual report of year 2066/67 but the calculation shows Rs. 12.63 as dividend. III. Dividend Payout Ratio

This ratio represents the percentage of the profits distributed as dividend and the percentage retained as revenue and surplus for the growth of the bank. It is determined by dividend per share (DPS) by earning per share (EPS) as expressed below:

The following table shows the dividend payout ratio of Citizens Bank International Limited.

Table: 17 Dividend Payout Ratio Year DPS (in Rs) 2063/64 2064/65 2065/66 2066/67 0 0 10 12.63 EPS (In Rs.) -2.75 9.79 9.58 19.36 DPR (In %) 0 0 104.38 65.24

The above table shows that dividend payout ratio of the bank in initial period of two year was zero during the observation period of four year years. It was because the bank was in loss in the year 2064 and did not distribute in the year 2065 even if the bank was in profit. It was so because the bank covered the loss of initial year’s loss. From the third year it started to distribute the dividend. The dividend payout ratio is 104.38% in year of 2066 and 65.24% in year of 2067. 4.2 Income and Expenditure Analysis

Income and expenditure are the main indicators of the financial performance of the business firms. The income and expenditure statement provides a financial summary of the firm’s operating result during the specified period. Therefore, the attempts have been made to analyze

the income and expenditure the statement of Citizens Bank International Limited of four years from 2064/65-2067/68 to know the financial performance of the bank. 4.2.1 Operating Income The sources of operating income are interest earnings, exchange earnings, and commission earnings and other operating incomes. 4.2.2 Operating Expenses The expenditure heads of the bank are interest expenses, personal expenses and other operating and non-operating expenses. In this study the analysis of operating income and expenditure has been made as per the following details;

Table: 18 Income and Expenditure Year 2063/64 2064/65 2065/66 2066/67 Operating Income (In Rs.) 5,211,000 79,289,000 150,641,000 361,092,000 Operating Expenses (In Rs.) 15,885,000 80,768,000 131,891,000 195,097,000 Difference (In Rs.) -10,674,000 -1,479,000 18,750,000 165,995,000

The above table shows that operating profit of the bank varies in increasing trend during the study period of four year. In year of 2063/64, 2064/65, 2065/66 and 2066/67 the percentage increment from 2063/64-2064/65 was 1416.98% and similarly in 2064/65-2065/66 and 2065/662066/67 were respectively 89.95% and 92.72%. On the other hand, the percentage increment of operating expenses in year2063/64-2064/65, 2064/65- 2065/66 and 2066/67-2065/6 were respectively 408.45%, 63.30% and 47.92%. 4.3 Finding from the Ratio Analysis

Ratio analysis involves the method of calculating and interpreting financial ratios in order to access the firm’s performance and status. The following are the finding from the ratio analysis:

1.

Current ratio of Citizens Bank International Limited has less than 1 in the year of 2064 and 2065 In later period it has more than one i.e. 2.35 times in the year 2066 and 2.85 times in the year of 2067. In the study period of the year 2066 and 2067 is generally considered to have good short term financial strength. If the current liabilities exceed current assets then the company may have problem meeting its short term obligations The current ratio analysis of the bank over the four year period indicates that the bank is able to meet its short-term obligation and has sound liquidity position in later years.

2.

Cash and bank balance to current assets ratio of the bank was maximum (17.89%) in year 2067 and minimum (i.e. 10.77%) in year 2064. It seems that the ratio in increasing trend in later years than in previous year.

3.

Fixed deposit includes the fixed deposit liabilities of a bank. It also includes high interest bearing deposit. It includes the interest bearing and non interest bearing deposit liabilities. Total deposit includes the interest bearing total deposit and non interest bearing deposit. Total deposit is the summation of current deposit, fixed deposit; call deposit, saving deposit, certificate of deposit and other fixed deposit to total deposit ratio of the bank varies from maximum of 66.11% in the year of 2065 and minimum in the year of 2066 during the study period of four year.

4.

Saving deposit stand midway between current and fixed deposit. Saving deposit to total deposit ratio of the bank varies from maximum of 31.33% in year of 2066 to the minimum of 6.29% in the year of 2064 during the study period of four years.

5.

The CRR in most of the developed and developing countries has been used extensively as a means to control commercial bank credit. CRR of the bank varies from maximum of 22.18% in year 2066 to minimum of 9.58% in year 2064 during the study period of four years. Ratios are fluctuation may be the central bank has indicated the higher CRR to all the banks or may be higher cash and bank balance of Citizens Bank International Limited.

6.

Total debt-equity ratio indicates the relationship between the long term funds provided by the creditors and those provided by the firm’s owners. Debt to equity ratio varies from

maximum of 252.04% in year 2064 to minimum of 24.18% in year of 2066 during the study period of four years. This analysis indicates that the there is highly fluctuation in the debt to equity ratios. It also indicates that the creditor had invested in previous year than later. But after 2066, creditors are interested to invest than in previous year.
7.

Total debt includes the loan from Inter-bank and Financial Institutions and from NRB. The above table shows that debt to total assets of the bank varies from maximum of 39.36% in year 2064 to the minimum of 1.93% in year 2066 during the study period of four year.

8.

Shareholder’s equity to total assets ratio indicates the proportion of assets which is financed from ownership capital of the firm. This ratio also exhibits the relationship between shareholder’s fund and owner’s capital. This ratio shows the share of shareholders on the total assets. Shareholder’s equity to total assets of the bank varies from maximum of 15.62% in year 2064 to minimum of 8.25% in year 2065 during the study period of four year. The ratio shows that the total asset of the bank is financed through equity capital and remaining from debt capital.

9.

The collected deposits are mobilized in investment and loans to get profit. This ratio indicates the percentage of profit earned by using the total deposit. Interest earning is the major sources of a commercial bank. Interest earned to total assets of the bank varies from maximum of 8.47% in year 2067 to the minimum of 0.77% in year 2064 during the study period of four year. The analysis indicates that the ratio is in increasing trend in later period as compared to previous year.

10. The ratio is a useful measurement of the profitability of all financial resources invested in

the bank’s assets. Net profit to total assets of the bank varies from -0.44% in year 2064/65 to maximum of 1.17 % in year 2067/68 during the study period of 4 years. The analysis indicates that the net profit earned in comparison to total assets is in fluctuation or increasing trend.
11. Net Worth or shareholders equity refers to the owner’s claim on assets of the bank. The

ROE measures the earned on owner’s investment. This ratio indicates how well the banks have used the resources of the owners. Return on equity of the bank varies from maximum of 16.04% in year 2067/68 to the minimum of -2.75% in year 2064/65 during

the study period of 4 year. The analysis indicates that ROE of Citizens Bank International Limited is in better position as compared to previous years.
12. Net operating profits is the profit before interest and taxes (EBIT). When financial

charges are significant, then it is appropriate for the comparative study to compute the net operating profit to total assets ratio rather than the return on assets ratio. This ratio is useful to measure the profitability ratio before interest and taxes of all financial resources invested in the bank assets Net operating profit to total assets of the bank varies from -0.31% in year 2063/64 to the maximum 1.01% in year 2066/67 during the study period of 4 years. This analysis indicates that the net operating profit to total assets shows increasing trend in later period.
13. The firm’s earning per share is generally of interest to present or prospective stockholders

and management. The EPS represents the amount earned on the behalf of each outstanding share of common stock. They are closely watched by investing public and are considered an important indicator of the firm’s success. EPS of the bank varies from maximum of Rs. 19.36 in year 2066/67 to the minimum of -2.75 in the year 2063/64 during the study period of four year. The above analysis indicates that EPS of Citizens Bank International Limited is improving. 14. The above table shows DPS of the bank. in the initial period of two year of observation was not distributed the dividend to its shareholders and in the remaining periods of two year has distributed Rs. 10 as dividend.
15. Percentage of the profits distributed as dividend and the percentage retained as revenue

and surplus for the growth of the bank. Dividend payout ratio of the bank in initial period of two year was zero during the observation period of four year years. It was because the bank was in loss in the year 2064 and did not distribute in the year 2065 even if the bank was in profit. It was so because the bank covered the loss of initial year’s loss. From the third year it started to distribute the dividend. The dividend payout ratio is 104.38% in year of 2066 and 65.24% in year of 2067. 16. The sources of operating income are interest earnings, exchange earnings, and commission earnings and other operating incomes. The expenditure heads of the bank are interest expenses, personal expenses and other operating and non-operating expenses.

17. Operating profit of the bank varies in increasing trend during the study period of four

year. In year of 2063/64, 2064/65, 2065/66 and 2066/67 the percentage increment from 2063/64-2064/65 was 1416.98% and similarly in 2064/65-2065/66 and 2065/66-2066/67 were respectively 89.95% and 92.72%. On the other hand, the percentage increment of operating expenses in year2063/64-2064/65, 2064/65- 2065/66 and 2066/67-2065/6 were respectively 408.45%, 63.30% and 47.92%.

CHAPTER V
SUMMARY, CONCLUSION AND RECOMMENDATION

5.1

Summary

The present study has been undertaken to examine and evaluate the financial performance of Citizens Bank International Limited. The researcher has used financial tools and statistical tools to make this study more effective and informative. This study has covered four year data from 2063/64 to 2066/67 of the bank. In this section, the researcher has tried to summarize the financial performance of Citizens Bank International Limited.

Although the observed period includes the four year when the bank was in the initial phase which shows the data fluctuation different in the initial period, it has tried to make adequate and accurate picture of the financial position of the bank. Apart from the initial year of the observation period of the bank, the bank has been able to maintain its position in the country as one of the leading commercial banks. Moreover, competition in the financial sector is getting tougher day by day. Instead of political instability, domestic unrest and threats, the bank is making all possible efforts to consolidate its business portfolio and cut down the cost in all operating areas to maintain the profitability. The principle activities of the bank in past four years continued to be consumer and corporate banking, trade finance, credit card service and foreign exchange dealing. The bank has successfully installed and launched Automated Teller Machine (ATM). The number of card issued by the bank is increasing and the bank now has critical mass in its account base. The liquidity of a business firm is measured by its ability to satisfy its short term obligation as they come due. Liquidity refers to the solvency of the firm’s overall financial position. The following ratios are used to measure to measure liquidity position of Citizens Bank International Limited with the help of financial data of past four years of the bank. Liquidity includes Current Ratio, Cash and Bank Balance to Current Assets Ratio, Fixed Deposit to Total Deposit Ratio, Saving Deposit to Total Deposit Ratio, Cash and Bank Balance to Total Deposit Ratio Leverage or capital structure ratio measures the outsider’s capital in financing the firm’s assets, and is calculated by establishing relationship between borrowed capital and equity capital. Higher leverage ratio indicates larger amount of borrowed funds used by the firms to finance its assets and it also indicates increasing obligation and known as risky firm. A firm must have sufficient margin of equity to pay the fixed charges and refund the borrowed funds in the maturing date. The profitability of the bank has been good and increasing during the study period of four years. However the grown rate is increasing. As per the data analysis deposit increased tremendously, it is greater in latest year of observation in comparison to first year of observation. However the rate of increment is positive and during the study period. The total investment of the bank has

been increasing over the year which is mainly due to the bank’s strategy of sate lending and also as a result of increase in customer deposits and limited opportunity in present scenario with increase in loans and advances; the bank has been holding adequate provision for loan loss. Income and expenditure analysis shows that the bank’s main income source are interest income, foreign exchange and commission earning where its main expenditure items are interest expenses, office expenses and personnel expenses. Analyzing the credit sector and bank guarantee, the bank is trying to avoid unnecessary risk, thus categories itself as a risk avert bank. By mobilizing the fund more in loans and advances, the bank could have increased its profit. Unlike creditor, the owners of business firms are the common stockholders, who invest their money in the firm because of their expectation of the future returns. The common stockholders are referred as residual owner, who receives what is left after all other claims on the firm’s income and assets have been satisfied. As a result of this generally uncertain position, the common stockholder expected to be compensated with adequate dividends and ultimately capital gains. 5.2 Conclusion

During the study period of four years, that is 2063/64 to 2066/67 various ratio analyses have been performed to find out the financial performance of Citizens Bank International Limited. The major finding of the study are listed Chapter IV, Section 4.3 of this report. Based on the finding the conclusions have been drawn. Current ratio of Citizens Bank International Limited has less than 1 in initial period of year. In later period it has more than one i.e. 2.35 times in the year 2066 and 2.85 times in the year of 2067. In the study period of the year 2066 and 2067 is generally considered to have good short term financial strength. The current ratio of 2.0 is occasionally cited as acceptable but acceptability of the value depends on the industry in which a firm operates. If the current liabilities exceed current assets then the company may have problem meeting its short term obligations The current ratio analysis of the bank over the four year period indicates that the bank is able to meet its short-term obligation and has sound liquidity position in later years.

Cash and bank balance to current assets ratio of the bank was maximum (17.89%) in year 2067 and minimum (i.e. 10.77%) in year 2064. It seems that the ratio in increasing trend in later years than in previous year. Fixed deposit includes the fixed deposit liabilities of a bank. It also includes high interest bearing deposit. It includes the interest bearing and non interest bearing deposit liabilities. Total deposit includes the interest bearing total deposit and non interest bearing deposit. Total deposit is the summation of current deposit, fixed deposit; call deposit, saving deposit, certificate of deposit and other fixed deposit. Saving deposit stand midway between current and fixed deposit. The CRR in most of the developed and developing countries has been used extensively as a means to control commercial bank credit. Ratios are fluctuation may be the central bank has indicated the higher CRR to all the banks or may be higher cash and bank balance of Citizens Bank International Limited. Total debt-equity ratio indicates the relationship between the long term funds provided by the creditors and those provided by the firm’s owners. The analysis indicates that the there is highly fluctuation in the debt to equity ratios. It also indicates that the creditor had invested in previous year than later. But after 2066, creditors are interested to invest than in previous year. Total debt includes the loan from Inter-bank and Financial Institutions and from NRB. Shareholder’s equity to total assets ratio indicates the proportion of assets which is financed from ownership capital of the firm. This ratio also exhibits the relationship between shareholder’s fund and owner’s capital. The ratio shows that the total asset of the bank is financed through equity capital and remaining from debt capital. The collected deposits are mobilized in investment and loans to get profit. This ratio indicates the percentage of profit earned by using the total deposit. Interest earning is the major sources of a commercial bank. The analysis indicates that the ratio is in increasing trend in later period as compared to previous year. The analysis indicates that the net profit earned in comparison to total assets is in fluctuation or increasing trend. Net Worth or shareholders equity refers to the owner’s claim on assets of the bank. The ROE measures the earned on owner’s investment. This ratio indicates how well the banks have used the resources of the owners. Return on equity of the bank varies from maximum of Net operating

profits is the profit before interest and taxes (EBIT). When financial charges are significant, then it is appropriate for the comparative study to compute the net operating profit to total assets ratio rather than the return on assets ratio. This ratio is useful to measure the profitability ratio before interest and taxes of all financial resources invested in the bank The firm’s earning per share is generally of interest to present or prospective stockholders and management. The EPS represents the amount earned on the behalf of each outstanding share of common stock. They are closely watched by investing public and are considered an important indicator of the firm’s success. Analysis indicates that EPS of Citizens Bank International Limited is improving. In the initial period of two year of observation was not distributed the dividend to its shareholders and in the remaining periods of two year has distributed Rs. 10 as dividend. Percentage of the profits distributed as dividend and the percentage retained as revenue and surplus for the growth of the bank. Dividend payout ratio of the bank in initial period of two year was zero during the observation period of four year years. It was because the bank was in loss in the year 2064 and did not distribute in the year 2065 even if the bank was in profit. It was so because the bank covered the loss of initial year’s loss. The sources of operating income are interest earnings, exchange earnings, and commission earnings and other operating incomes. The expenditure heads of the bank are interest expenses, personal expenses and other operating and non-operating expenses. The income and expenditure statement provides a financial summary of the firm’s operating result during the specified period. Operating income and expenditure analysis indicates that the bank is reducing its operating expenditure and increasing profit year by year to maximize the shareholder’s equity. Operating profit of the bank varies in increasing trend during the study period of four year. In year of 2063/64, 2064/65, 2065/66 and 2066/67 the percentage increment from 2063/64-2064/65 was 1416.98% and similarly in 2064/65-2065/66 and 2065/66-2066/67 were respectively 89.95% and 92.72%. On the other hand, the percentage increment of operating expenses in year2063/642064/65, 2064/65- 2065/66 and 2066/67-2065/6 were respectively 408.45%, 63.30% and 47.92%.

5.3 • • •

Recommendation The bank should try to gain major share of public deposits. The bank should hold stars such as foreign exchange to preserve market-share. Focus on the business such as credit cards, debit cards, wealth managements, global market and cash management. As these all are high return businessman. If possible, diversify wealth management business to include a range of retailed foreign exchange products.

On the basis of various analyses, the researcher came out with the following recommendations:

• •

Borden the range of product and service offered to the customers, at the same time identifying those which can make a real contribution to profit. Lending contributes to be very important part of business but it is not the sole driver behind a corporate relationship. Increase emphasis on cross selling and lending with higher value products in order to increase the overall relationship.

• • • •

Focus more on non-risky lending such as mortgage, housing loan and personal loan. Focus more on INGO and new project accounts to generate non-interest bearing accounts. The bank has been maintaining excess liquid funds which should be reduced and invest in earning assets. Focus on consortium financing.

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