Balance Sheet Financial Institution
Resume:
CHAPTER -I
INTRODUCTION
Liquidity means allocation of funds in close relation to their respective sources. Liquidity is the status and part of the assets which can be used to meet the obligation inthe commercial banks. Liquidity can be viewed in terms of liquidity stored in the balance sheet and in terms of liquidity available through purchased funds. Liquidity is the ability of a bank to pay cash to depositors on demand. It is the arrangement and the allocation of funds in such a way that can be drawn immediately without any loss of principle. More specifically, the idle money does not make any return. Therefore, the high liquidity may cause of low profitability and inefficient performance of the overall Banking sector. It may cause failure of banking performance in long term. As other organization higher profitability is ultimate aim of commercial banks. One factor that affects profitability is qualitative management of liquidity. In the same way there are various factors that affect level of liquidity. Based on the review of above discussion and given definitions, liquidity is the ability of a financial institution to meet all legitimate demands for funds which is the specific topic of study. It plays a pivotal role in the successful operation in any business. In case of bank, it means stored in the balance sheet and in terms of liquidity available through purchased funds, ability of a bank to pay cash to depositors on demand, amount of money that can drawn in urgent need. While managing level of liquidity organization have to bear risks namely funding and market liquidity risk. Organizations have to manage liquidity level tactfully for achieving the goal. 1.2 Profile of NMB Bank Limited
NMB Bank limited licensed a “A” class financial institution by Nepal Rastra Bank in May 2008 has been operating in the Nepalese financial Market for over twenty years and is one of the leading commercial banks in the banking industry. NMB Bank currently has 202 branches across the nation providing retail and commercial banking services. The Bank has a Joint Venture Agreement with Nederlandse FinancieringsMaatschappij voor Ontwikkelingslanden (FMO), wherein FMO holds 13.69% of the Bank’s shares and is the largest shareholder of the Bank. In September 2016, the Bank signed a Joint Venture Agreement with Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden
(FMO), the Dutch development bank following which FMO became the single largest 2
share holder of the Bank. The alliance with FMO positions NMB Bank in becoming the market leader in managing environmental & social risks and the leading player in renewable energy and agribusiness. NMB Bank was awarded ‘Bank of the year 2017,
‘Bank of the year 2018 ‘ Bank of the year 2020: and bank of the year 2021 in the same year, for the first time in the history of Nepal, the bank was awarded the title of bank of the year 2021 Asia’ by the Banker, financial Times London. 1.3 Statement of the Problem
Banks and financial institutions should have to maintain balanced level of liquidity in efficient and effective manner and policymakers can affect their effort in constructive way. The management of bank and financial policy makers then needs to decide how they can do best to maintain balanced level of liquidity in their respective area. Study proposed that all managements of bank and policy makers should have to do close evaluation to the relationship between liquidity and its independent variable which may be inside the commercial banks or may be outside of the commercial banks. So they can find significance and direction of relation that will certainly helpful for proactive management of liquidity level and invest to the liquidity in beneficial way. This study will try to sick the answer of the following questions
i. What is the liquidity condition of NMB Bank?
ii. What is the financial position of NMB Bank?
1.4 Objectives of the Study
The main objective of the study is to examine the liquidity analysis of NMB Bank are as follows.
i. To analyze liquidity condition of NMB Bank.
ii. To analyze the Financial position of NMB Bank. 1.5 Limitation of the study
Every research study is subject to certain constraints and limitations. In the case of this study, several common constraints have impacted the research process and outcomes. Some of the primary limitations include:
i. This study was based on secondary data
ii. It covered data of only five fiscal years.
iii. Only loan and deposit were taken into consideration 3
iv. Only one bank was taken as the sample for the study among whole population. 1.6 Significance of the Study
The significance of the study is mention below.
i. Understanding a company's liquidity is crucial for assessing its overall health. It provides insights into the firm's ability to meet short-term debts and current liabilities, indicating financial stability and operational efficiency. ii. Liquidity is quantified using ratios such as the cash ratio, current ratio, and potentially others. These ratios offer a quantitative assessment of a company's capacity to cover its immediate financial obligations. iii. This study can also be used as reference for future research. 1.7 Organization of the Study
Research report can be prepared in different ways, researcher writes the style of arrangement of chapter in the thesis, and generally Thesis is written in the following ways.
Chapter -I: Introduction
The first chapter of this study includes general background, statement of the problem, Objectives of the study, Theoretical frame work, research hypothesis, limitation of the study, review of previous work, research design, population and sample, sampling technique, procedure of data collection and data analysis tools. Chapter -II: Result and Analysis
The chapter deals with the presentation of data using appropriate table and graphs as well as analysis of data using financial tools and statistical tools for the analysis and interpretation of data. Lastly, the major finding is drawn from analysis. Chapter -III: Summary and Conclusion
This chapter deals with summary of the reports followed by conclusion of the study. 4
Chapter-II
REVIEW OF LITERATURE
2. Introduction
The literature review is a foundational component of this research, involving a thorough investigation of relevant materials on deposit mobilization. This encompasses a comprehensive scrutiny of sources such as books, research studies, journal articles, previous dissertations, and online resources. The objective is to extract valuable insights and knowledge from these diverse outlets, contributing to a deeper understanding of the subject of deposit mobilization.
2.1 Conceptual Review
2.1.1 Concept of Liquidity
Liquidity is important for both individuals and companies, while a person may be rich in terms of total value of assets owned, that person may also end up in trouble if he or she is unable to convert those assets into cash. The same holds true for companies. Without cash coming in the door, they can quickly get into trouble with their creditors. Bank are important for both groups. Providing financial intermediation between those who need cash and those who can offer it, thus keeping the cash flowing. An understanding of the liquidity of a company’s stock within the market helps investor judge when to buy or sell share. Finally an understanding of a company’s own liquidity helps investors avoid those that might run into trouble in the near future. The review of existing literature revealed that bank’s liquidity has significant influence on banking outcomes such as banks performance, banks risk taking behavior, moral hazard, and other financial risks. However, we find that empirical evidence on all these is majorly skewed toward developed market. a literature review is an overview of the preciously published works on a topic. The term can refer to a full scholarly paper or a section of a scholarly work such as a book or an article.
2.2 Review of Previous Work
Khanal (2019) studied the effect of bank’s specific and macroeconomic variables on banks’ liquidity and their impact on financial performance in case of Nepal. The study took the sampling period of 2005/06 to 2015/16. This study has taken liquid asset /total asset and liquid asset/deposit and borrowing to measure the liquidity of Nepal by 5
selecting the bank specific and macro-economic variables of Nepal. Multiple regression model has used. The study concluded that ROA has positive significant impact whereas ROE, Size and inflation have negative and significant impact on liquidity. Similarly CAR and GDP has negative insignificant impact on loan to deposit ratio whereas, NPL has positive insignificant impact. This study concludes that ROA, ROE, bank size and inflation are major determinants of banks’ liquidity. 6
CHAPTER -III
RESEARCH METHODOLOGY
3.1 Research Design
The research design is specification of methods and procedures for acquiring the needed information to solve the problem. Research methodology is the process of assigning at solution of the problem through systematic way for dealing with data inputs, data presentation and analysis, and research output. In this study descriptive research design will use. The study is based on two types of research design namely descriptive and analytical. To describe the nature and behavior of variables, descriptive design is used. 3.2 Population and Sample
In Nepal, currently has 20 commercial banks in operation, and these 20 commercial banks constitute the population for this study, given the study's focus on commercial banks. Out of the 20 banks to do so, only one Commercial bank was selected as sample i.e. NMB Bank Ltd on the basis of convenience sampling method. 3.3 Sources of Data
This research is based on secondary data. The annual reports of the concerned bank are the major sources of data for the study. However, the relevant data articles, magazines, published reports, journal available in the business-related newspaper. 3.3.1 Primary Data
Primary data refers to original and firsthand information that is collected directly from the source. It is data that has not been previously gathered, analyzed, or interpreted by anyone else. Researchers collect primary data for specific research purposes, and it is often used to address a particular research question or objective. There are various methods to collect primary data, including surveys, interviews, observations, experiments, and direct measurements.
3.3.2 Secondary Data
Secondary data refers to information that has been collected, processed, and published by someone else for a purpose other than the current research or study. This data has already undergone analysis and interpretation by the original researchers or organizations. 7
Researchers use secondary data when they leverage existing datasets, literature, reports, or other sources of information that were not originally collected for their specific research objectives.
3.4 Data Collection Procedure
The study relied on secondary data, which was sourced from various publications, including reports from Nepal Rastra Bank, Annual Reports of NRB, Annual Reports of NMB Bank and Annual Reports of the Security Board. Additionally, the study drew from a wide range of reference materials, such as books, journals, seminar papers in the library, related articles, and previous BBS reports. This secondary data collection approach allowed the study to access a diverse set of information and research sources. 3.4.1 Questionnaire
A questionnaire in research is a structured set of questions designed to gather information from individuals or groups for the purpose of study or analysis. It is a common method of data collection, particularly in survey research, and is used to systematically gather responses to specific questions.
3.4.2 Research Interview
A research interview is a method of data collection in which a researcher engages in a structured conversation with a participant or a group of participants to gather information, insights, and opinions on a specific topic of interest. Research interviews can be a valuable qualitative research technique and are commonly used in various fields, including social sciences, psychology, business, and market research. 3.4.3 Observation
Observation in research refers to the systematic and purposeful process of watching, documenting, and recording events, behaviors, or phenomena as they naturally occur. This method is commonly used in various research disciplines, including social sciences, anthropology, psychology, education, and more. Researchers conduct observations to gain insights into specific behaviors, interactions, or situations in their natural context. 8
3.5 Use of Statistical Tools and Techniques
The major tool employed for the analysis of the data was ratio analysis, which established the numerical relationship between two variables of the financial statement. Besides financial tools, the statistical tools were also used. 3.5.1 Financial Tools
The financial tools that will used for data analysis are: i. Current Ratio
ii. Cash and Bank Balance to Total Deposit Ratio
iii. Cash and Bank Balance to Current Assets Ratio iv. Debt Assets Ratio
v. Credit Deposit Ratio
vi. Working Capital
3.5.2 Statistical Tools
To evaluate the position of capital structure of a firm, following statistical tools will used are;
i. Mean
ii. Standard Deviation
iii. Coefficient of Variation
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