Tuesday, March 2, 2010

Recommendations:


Based on the analysis and the observation of fieldwork study, following recommendations are suggested to overcome the weakness and inefficiency and to improve the present financial performance.

Finally, it is universal that banks are the heart of our financial system. So, the ability of banking system to perform its tasks efficiently and in harmony with customers’ needs economic goals depend in large on it’s efficient management.

Summary and Conclusion:

Summary and Conclusion:

Banking sector helps in the economic development of any country. In a country like Nepal, where the economic growth rate is very low, commercial banks have played an important role to increase this rate. They give certain percentage of interest to the depositors and lends by receiving certain percentage of interest. Always, the percentage of lending is higher than the percentage of receiving funds. This is how banks make profits. Commercial banks have also helped to increase the living standard of the people by doing retail banking.

However, in the context of Nepal, the Nepalese economy has been facing various problems for the last several years; this could be due to unstable political as well as economical environment. Maoist’s insurgency as a result banking sector is becoming more and more challenging.

Findings


Ø It is one of the best banks in Nepal and branched to all major cities of Nepal.

Ø It has its branch in other countries around the world too.

Ø It provides remittance service to public.

Ø It was the first bank to establish ATM card service in Nepal.

Ø Good Performing loans to total loan ratio.

Ø The Non-Performing Loan to total Loan ratio has decreased.

Ø No bad debt but Management Efficient Ratio is very high. Employee Turn over Ratio is very low as salary and perk is very handsome.

Ø Profit is very high, so the price of share is increasing day by day.

Earning Analysis


Bank is a profit-oriented organization and its final goal is to achieve the profit that is earning. High earnings reflect to increase its value and goodwill for the bank. An analysis of the ratio helps the management, investors and creditors to know the performance of the bank and they can get information regarding their interests. The very minutes change in these factors can make the earning figure change substantially.

Standard Chartered Bank, New Baneshwor


Ø Located in the key place of city.

Ø Ample parking lies at backside of the bank both for official and customer vehicle.

Ø Service provided by the bank is quick.

Ø Contains ATM besides the main entry door.

Ø Good security management.

Ø Large space for customers.

Ø Easy enquiry of any required information

Ø Adequate number of counters.

Ø Working environment is good and clean.

we are going

We are going through “CAMEL” approach, where M refers to management. For the proper and efficient management, the banks have to possess the following qualities:

· Structure of management team should be perfect.

· Adequate management expenses.

· Internal management system is perfect.

· Qualitative manpower and it’s productivity.

· Proper communication system.

· Fair decision-making ability.

· Good relationship between customers and organization.

· Adequate management expenses.

· Working environment should be perfect.

An institution

An institution can take a desired momentum only when the management is capable of strong and long term vision. In any organization, institution is something like heart in human being.

Performing Loan


Loans which are recovered quickly and will be recovering within 90 days fall on this category. These loans generate the interest and principal on time. So, the provisions maintained is very low i.e. 1% only of the total loan. Higher ratio indicates efficiency in utilizing the good loans.

Performing Loan to Total Loan=Performing Loan

Total Loan

Year Percentage

2003/04 96.23%

2004/05 97.31%

2006/07 97.87%

2. Non Performing Loan

Loan is said to be non-performing with the due date of 3 months to 6 months and 6 to 12 months and more than 1 year. Non-performing loan consists of substandard loan, doubtful loans bad loans. Higher non-performing loan ratio indicates worse management of assets.

Table below shows the classification of loans and required provisions:

Classification of Loans Provision Required

Substandard (3-6 months) 25%

Doubtful (6 months-1 Year) 50%

Bad Loans (more than 1 year) 100%

Non Performing Loan to Total Loan= Non-Performing Loan

Total Loan

3) Total Loan Provisions

In this category, banks have to keep certain amount of capital as provisions for Loan Loss. Not all loans which banks provide are recoverable, so to compensate for the loss, capital kept as provisions will be used. Banks always look to maintain a lower Loan Loss Provision ratio for high profitability.

2.1.3 Management Analysis

The success of any institution depends on the competency of its management. In fact, the management not only makes suitable policy and the business plans but also implements them for the short term and the long term interests, which helps achieve aimed objectives of bank and financial institution. It is evaluated by checking the effectiveness of the Board of Directors, the management, human resources, operating expenditure customer’s relation with the officials and institution, management information system, organization and working method, internal control system, power concentration, monitoring, decision-making process and policies.


quality

quality ratio is also known as activity ratio and also called as Turn over Ratio because it indicates the speed with which assets are being converted or turnover. Assets quality refers to the degree of financial strength and risk in a bank’s assets, typically loans and investment, cash and bank balance money at call investment, loan and advance, etc.

· Performing Loan to Total Loan

· Non-performing Loan to Total Loan

· Total Provision to Total Loan

Capital Adequacy


The inception of every business starts with the requirements of fund commonly known as Capital. Normally, the capital structure consists of equity and debt mix. Capital adequacy ratio shows how much of shareholders fund of an organization are contributing their capital fund in risk weighted assets. According to the directive of Nepal Rastra Bank, Capital Adequacy Ratio (CAR) has been sealed down to 11 percent from the existing level of 12 percent. It is computed by dividing the total fund by the total risk weighted assets. This is calculated as:

Capital Adequacy Ratio: Total Capital Fund X 100%

___________________

Total Risk Weighted Assets

Where, Total Capital Fund = Core Capital + Supplementary Capital

Total Risk Weighted Assets = On Balance Sheet Risk Weighted Items+ Off Balance Sheet Risk Weighted Items

The Table below shows CAR of SCBNL in Percentage

2003/2004 15.75%

2004/2005 15.85%

2005/2006 14.91%

2006/2007 15.88%

2007/2008 14.95%

Interpretation

If the CAR percentage is higher than the mandatory of minimum capital fund, interest of depositors is safe but in shareholders point of view, it is not better because of idle fund.

2.1.2Asset Quality

Asset is the most critical factor in determining the strength of any bank. Assets

Financial Analysis

1

The analysis of the financial portion of any firm to examine its performance is known as financial analysis. It is the process evaluating the position of a firm by establishing relationship with various components parts of the financial statements. According to I.M. Pandey, “Financial analysis is the process of identifying the financial strength and the weakness of a firm by properly establishing the relationship between the items of balance sheet, ration analysis, funds flow statement, etc. are used for the analysis.

For the data analysis of this report, ratio analysis is preferred and is used as it considered as the most powerful tool of financial analysis. It uses financial report and data and summarizes the key relationship in order to appraise financial performance.

DATA PRESENTATION AND ANALYSIS

DATA PRESENTATION AND ANALYSIS

This chapter deals with the analysis of collection data and presentation of the result from the analysis. The analysis has been undertaken on the basis of CAMEL analysis.

Where,

C= Capital Adequacy

A= Assets Quality

M= Management

E= Earnings

L= Liquidity

Source of Data


Generally, there are two sources of data

· Primary data

· Secondary data

1) Primary data is the first hand data, which is generally collected by direct interview, observation and questionnaires

2) Secondary data are those data which are derived from already printed sources.

Research Methodology


Research methodology is the main step carried out by the students regarding their field visit. Research methodology deals with collecting, presenting and analyzing the data for purpose of preparing fieldwork report.

Objective of the Study


The basic objective of the commercial bank is directing the economic activities of any country. The main objectives of the study can be listed below:

i) To analyze the relation between loan and deposits

ii) To analyze the trend of deposit in different banks

iii) To know about different products and services offered to the pubic

iv) To draw out problems in capital adequacy management

Statement of Problems


Now days, banking sectors is increasing day by day rapidly which is a good indication of economic growth. Due to the liberalization, numbers of banks are increasing. Besides this, there are many problems like unbalanced development policy of Nepal, High banking, Institution is established in urban areas thus creating competition even over. The most important problem for the country is its economic back wardress this which cannot be hidden nor can be avoided. These should be given due consideration.

So, to maintain the problems faced by the financial institution profit is the essential function. So, deposits mobilization is the key factor to adequate credit objectives. So, bank should maintain adequate credit deposit ratio but sometimes bank credit may expand out of proportion to the requirement.

Product and Service

Product and Service

Standard Chartered Bank Nepal has offered wide range of banking products and services in terms of whole sale and consumer banking ranging from individuals to local corporate, large public sector companies, Embassies, Aid Agencies, Airlines, Hotels and Government Corporations. Some products launched and services offered can be listed below:

o Current

o Saving

o Call and Term deposit account in Local & Foreign Currency

o Fund Transfer Services – Local & International Drafts

o SWIFT

o Internet Banking

o SMS Banking

o Personal; Education; Home and vehicle loans

11.4 Present situation and its Services:

As it is an international bank, it provides products and services to customers according to international standard. It has offered wide range of banking products and services in terms of wholesale and consumer banking ranging from individuals to local corporate. Large public companies, embassies, aid agencies, airlines, hotels and Government Corporation rely on this bank because of its quality service. It is a consumer bank because it has satisfied the need of consumers through its service. From the time of its establishment, the bank has enjoyed success and profit has come along with. Although its major objective is to earn maximum profit, it believes in providing qualitative service to customers in order to maintain it’s reputation. It is a well-established brand in the country. It is the only bank which hasn’t incurred any loss in the history of the banking in Nepal. It has been fulfilling its promise every year and has been sincere both in the eyes of the government and the general public. Other important fact about this bank is it has been one of the highest contributing organizations in the revenue of the government even in the last year. Its tax contribution in 2008 was Rs. 38.15 million which is more than the previous year of Rs. 32.

Focus


The main objective in the near term would be to protect revenue lines by providing solutions to the customers through value added and structured products at competitive pricing. The bank focus on the following plans.

Ø The bank has a vision – “Seeing believes”

Ø It focuses on ensuring that their corporate responsibility aspiration is aligned with their business strategy

Ø SCBNL introduced project “Know your customers” and is following it strictly.

Ø It is maintaining good credit quality portfolio for tourism-related industries.

Ø It focuses on the corporate social responsibility by participating at different camps, donating at orphanage, Red Cross Society etc

Ø It focuses on the consumer banking.

Introduction of Standard Chartered Bank, Nepal:


Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987(2043 BS) as Nepal Grind lays bank in collaboration with Grindlays Bank London. After Standard Chartered group acquire world wide operation of Grindlays, it change its name on July 16th, 2001. The bank is an integral part of Standard Chartered Group having an ownership of 75% and the balance owned by the Nepalese public. The bank is the largest international bank currently operating in Nepal. This bank is a second foreign joint venture bank under the company act 1964, the head office of Standard Chartered Bank is situated at New Baneshwor, Kathmandu.

With 16 points of representation, 17 ATMs and more than 350 local staff, Standard Chartered Bank Nepal Ltd. is in a position to serve its’ customers through an extensive domestic network. In addition, the global network of Standard Chartered Group gives the bank a unique opportunity to provide truly international banking services in Nepal. Standard Chartered Bank Nepal Limited offers a full range of banking products and services in wholesale and consumer banking. The bank has been the pioneer in introducing ‘customer-focused’ products and services and aspires to continue to be a leader in introducing new products in delivering superior services.

Along with Nepal, the bank has its operation in about 70 countries including Nepal. It is considered as the best international and commercial bank in the world. The main headquarter of this bank is in London, England. The bank has a history of 150 years. The bank employs almost 75000 people representing over 115 nationalities, worldwide including Nepal. It is trying to increase its branch in other countries around the world slowly and gradually.

Concept of Commercial Banks


Commercial banks are those financial institutions, which deal in accepting deposit of the persons and institutions and in giving loans against securities. These banks also provide technical and administrative assistance to industries. The main purpose of priority sector investment scheme is to uplift the back ward sector of the economy. It has power to create money and destroy money, with in limits, through the use of loans and demand deposit. Thus

commercial banks are the hearts of the financial system. They hold the deposits of general public, government establishment and business units.

To regulate and control Money/ Cash Management

§

· By controlling or increasing issuance of note.

· By controlling bank interest rate and credit quantity flow.

· By controlling the facilities and the banking services.

· By regulating the country policy.

Agency Activities

§

· Banks work as agent of their customers.

· Banks collect payment on their behalf.

· They collect dividends on shares.

They pay insurance, premium and make other

To issue letter of credit

§

· Banks issue letter of credit to their customers certifying their worthiness.

· Letter of credit is very useful in foreign trade for export and import business.

The

· The bank purchases the bills brokers and discounts them directly for merchants.

Remittance of Fund

§

Banks remit fund for their customers through bank draft, TT mail message to manager, fax message etc.

§ To provide loan at lower rate

· A bank is needed for the purpose of providing or granting loan at low rate of interest in comparison to individual money lender.

§ For underwriting & discounting of bills

· Bank underwrites securities issued by the government, public or private bodies because of its full faith in banks.

For mobilization of saving


· Bank accepts the saving.

· Provide loan to others who will be able to utilize the amount properly.

Need of Bank


  • For economic Development

Bank can contribute to a country’s economic development in the following ways:

· Capital formation

· Encouragement to entrepreneurial innovations

· Influencing economic activity

· Implementation of Monetary policy

· Promotion of trade and industry

The new soft ware

The new soft ware replaced the traditional services like ATM, E-banking , Mobile banking and card like debit card, credit card, prepaid card etc. which helps the customers as well as banks to operate and conduct their activities more effectively.

In order to

In order to established and developed other joint venture commercial banks and other financial institutions, Nepal adopted liberal free economic policy. After 2041 B.S. the government gradually liberalized and opened up the financial sectors, as a result there were altogether 20 commercial banks operated at different parts of the country.

Evolution of the information technology has revolutionized the banking sector is saving lots of time and money by implementing IT. The new technology has replaced the old technology

The fourth phase of Banking Development


Ø From 2041 B.S. His Majesty Government of Nepal established 5 rural development banks. They are as follows:

· Central Rural Development Bank

· Western Rural Development Bank

· Eastern Rural Development Bank

· Mid-western Rural Development Bank

· Far western Rural Development Bank

The Third phase of Banking Development

§ The Third phase of Banking Development

Ø The process of development banking system in Nepal was not satisfactory.

Ø The New technology, Law and Policy are drawn from developed countries which help to attract the foreign investors.

Ø Nepal is allowed to established different joint venture banks under the collaboration with foreign banks.

The second phase of Banking Development

§ The second phase of Banking Development

Ø The modern banking in Nepal has started with established of Nepal Bank Limited in 1994 B.S.

Ø To formulate monetary policies, Nepal Rastra Bank was set up in 2013 B.S. as the central bank in Nepal.

Ø In B.S. 2022 Government set up Rastriya Banijya Bank as a fully government owned commercial Bank.

Origin of Bank in Nepal

1.1.1 Origin of Bank in Nepal:

Banking concept existed even in the ancient period when the goldsmiths and the rich people used to issue the receipts to the common people against the promise of safe keeping their valuable items on the presentation of receipts. The depositors would get back their gold and valuables after paying a small amount for safe-keeping and saving, the gold smith and the money lenders became banker of those days who started performing two functions of modern banking-accepting deposits and advancing loans. However, stage wise development of banking can be narrated as follows:

§ The first phase of banking development

Ø In the 11th century, during Malla reigns, there was an evidence professional money lender and buyer.

Ø Tejrath Adda was established in 1877 A.D. which provided loan at very low rate of 5%.

The bank

CHAPTER 1

INTRODUCTION

1.1 Background of Bank:

Bank constitutes an important segment of the financial infrastructure of any country. The economic history of many countries reveals that economic development and growth of financial infrastructures go hand in hand. Without the growth in financial infrastructure, there can be no development in the economy.

Generally, an institution established by law, which deals with money and credit is called bank. In a common sense, an institution involved in monetary transactions is called bank. A bank simply carries out the work of exchanging money, providing loan, accepting deposit and transferring the money.

Banking is nearly as old as civilization. The ancient Romans developed a relatively advanced banking system to serve their vast network, which extended throughout Europe, Asia and much of Africa.

The term bank was derived from the Latin word “Bancus” which means the bench on which the banker would keep its money and its’ records. The first banking institution was established in 1157 A.D. known as “Bank of Venice”. Following its establishment, a lot of banks in different parts of the world were created notably as “Bank of Barcelona” in 1401 A.D. and “Bank of England” during the 17th century.

Standard Chartered Bank was the first international bank to be established in Nepal and it was established in 1987 during the Shah dynasty. It was established as Nepal Grindlays Bank in collaboration with Grindlays Bank of London. After Standard Chartered Group acquired worldwide operation of Grindlays Bank, it changed it’s name to Standard Chartered Bank Limited on July 16, 2001 in Nepal.

Bank



INTRODUCTION

1.1 Background of Bank:

Bank constitutes an important segment of the financial infrastructure of any country. The economic history of many countries reveals that economic development and growth of financial infrastructures go hand in hand. Without the growth in financial infrastructure, there can be no development in the economy.

Generally, an institution established by law, which deals with money and credit is called bank. In a common sense, an institution involved in monetary transactions is called bank. A bank simply carries out the work of exchanging money, providing loan, accepting deposit and transferring the money.

Banking is nearly as old as civilization. The ancient Romans developed a relatively advanced banking system to serve their vast network, which extended throughout Europe, Asia and much of Africa.

The term bank was derived from the Latin word “Bancus” which means the bench on which the banker would keep its money and its’ records. The first banking institution was established in 1157 A.D. known as “Bank of Venice”. Following its establishment, a lot of banks in different parts of the world were created notably as “Bank of Barcelona” in 1401 A.D. and “Bank of England” during the 17th century.

Standard Chartered Bank was the first international bank to be established in Nepal and it was established in 1987 during the Shah dynasty. It was established as Nepal Grindlays Bank in collaboration with Grindlays Bank of London. After Standard Chartered Group acquired worldwide operation of Grindlays Bank, it changed it’s name to Standard Chartered Bank Limited on July 16, 2001 in Nepal.