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Research Work (BBS 250)
Tribhuvan Vishwavidalaya
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FINANCIAL PERFORMANCE ANALYSIS
OF
STANDARD CHARTERED BANK NEPAL LTD
A Project Work Report
By Nitesh Gautam TU Regd No: 7-2-927-143- Symbol No: 9270153 Shwoyambhu International College Group: Finance
Submitted To: The Faculty of Management Tribhuvan University Kathmandu
In partial fulfillment of the Requirement for the Degree of BACHELOR OF BUSINESS STUDIES (BBS) Shwoyambhu International College, New-Baneshwor Kathmandu, Nepal January,
DECLARATION
I hereby declare that the project work entitled “FINANCIAL PERFORMANCE ANALYSIS OF STANDARD CHARTERED BANK NEPAL LTD” submitted to Faculty of Management, Tribhuvan University, is an original piece of work under the supervision of Mr. Raju Raut, faculty member, Shwoyambhu International College, Kathmandu and is submitted in the partial fulfillment of the requirements for the degree of Bachelors of Business Studies (BBS). This Project work has not been submitted to any other university or institution for the award of any degree or diploma.
Signature: Nitesh Gautam Date:
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ENDORSEMENT
We hereby endorse the project work entitled “FINANCIAL PERFORMANCE ANALYSIS OF STANDARD CHARTERED BANK NEPAL LTD” submitted by Nitesh Gautam of Shwoyambhu International College, Kathmandu, in partial fulfillment of the requirements for award of the Bachelor of Business Studies (BBS) for external evaluation.
Dr. Hari Sharan Chakhun Suman Prasad Chaudhary Management Research Committee Shwoyambhu International College Date: Date:
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ACKNOWLEDGEMENTS
This project work report entitled “FINANCIAL PERFORMANCE ANALYSIS OF STANDARD CHARTERED BANK NEPAL LTD” has been prepared in partial fulfillment for the degree of Bachelors of business studies (BBS) under the course designed by the Faculty of Management, T. This study is based on the prescribed research format involving the use of financial ratios in banking sector. At the time of preparing this study, I have consulted with various personalities. So, I would like to extend my sincere thanks to all whose works and ideas helped me in conducting the study. Sincerely, I would like to pay my sincere gratitude to my project work report supervisor Mr. Raju Raut of Shwoyambhu International College who guided through research work with providing valuable suggestions, supports and supervision. Finally, I would like to offer my profound gratitude to my family members, my friend, colleagues, well-wishers for their encouragement and support during the entire period of my study.
Nitesh Gautam
Date:
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- Major Findings of the Study..................................................................................................-
- CHAPTER THREE:SUMMARY AND CONCLUSION................................................-
- Summary......................................................................................................
- Conclusion................................................................................................-
- BIBLIOGRAPHY......................................................................................................
- APPENDICES...........................................................................................................
- Table 1 Cash and Bank Balance to Current & Saving Deposit Ratio............................................ LIST OF TABLES
- Table 2 Fixed Deposit to Total Deposit Ratio...............................................................................
- Table 3 Return on Asset.................................................................................................................
- Table 4 Return on Net Worth.........................................................................................................
- Table 5 Return on Total Deposit....................................................................................................
- Table 6 Loan and Advances to Total Deposit Ratio......................................................................
- Table 7 Investment to Total Deposit Ratio....................................................................................
- Table 8 Capital Adequacy Ratio....................................................................................................
- Table 9 Earnings Per Share (EPS).................................................................................................
- Table 10 Price-Earnings Ratio (P/E Ratio)....................................................................................
ABBREVIATIONS
SCBNL Standard Chartered Bank Nepal Limited
i. That is
Rs. Rupees
EPS Earnings Per Share
MPS Market Price Per Share
ROA Return on Assets
RONW Return on Net Worth
ROE Return on Equity
CAR Capital Adequacy Ratio
RWE Risk Weighted Exposure
x
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CHAPTER ONE
INTRODUCTION
Background
Financial stability of a firm is associated with its ability to generate profit, increase the value of invested capital and at the same time repay its short- and long-term liabilities
Assessment of financial performance is primarily based on various methods of financial analysis. Financial analysis is structural and logical way to present and analyze overall financial information of a financial institution.
Performance evaluation is the important approach for enterprises to give incentive and restraint to their operators and it is an important channel for enterprise stakeholders to get the performance information (Sun, 2011).
The performance evaluation of a commercial bank is usually related to how well the bank can use its assets, shareholders’ equities and liabilities, revenues and manage expenses. In the practice of financial analysis, financial ratios are mainly used for their simplicity and additional information value. Financial ratios are the most popular and most widely used methods of financial analysis also because they can be used as input data of more complex mathematical models.
Van Horne & WachowiczJr (2005) stated that,” To evaluate a firm’s financial condition and performance, the financial analyst needs to perform “check-ups” on various aspects of a firm’s financial health. A tool frequently used during these check-ups is a financial ratio, or index, which relates two pieces of financial data by dividing one quantity by the other”. One can employ financial ratios to determine a firm’s liquidity, profitability, solvency, and adequacy used financial ratios to show the financial position and performance analysis of Bank.
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1 Profile of Standard Chartered Bank
Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987 when it was initially registered as a joint-venture operation. Today, the Bank is an integral part of Standard Chartered Group having an ownership of 70% in the company with 29% shares owned by the Nepalese public. The Bank enjoys the status of the only international bank currently operating in Nepal is a leading international banking group with a 160-year history in some of the world’s most dynamic markets. Its heritage and values are expressed in its brand promise, Here for good. Bank says “Our operations reflect our Purpose”, which is to drive commerce and prosperity through unique diversity. SCB is present in 60 markets and serve clients in a further 85. The banks’ businesses serve four client segments in four regions- Europe & Americas, Africa and Middle East, Asia & South Asia, Greater China & North Asia. Standard Chartered PLC is listed on the London and Hong Kong Stock Exchanges as well as the Bombay and National Stock Exchanges in India. With 15 points of representation, 26 ATMs across the country and more than 531 local staff, Standard Chartered Bank Nepal Limited is serving its clients and customers through an extensive domestic network. In addition, the global network of Standard Chartered Group enables the Bank to provide truly international banking services in Nepal.
Standard Chartered Bank Nepal Limited offers a full range of banking products and services to a wide range of clients and customers including individuals, mid-market local corporates, multinationals, large public-sector companies, government corporations, airlines, hotels as well as the development organizations segment comprising of embassies, aid agencies, bilateral entities, multilateral entities, non-government organizations and international non-government organizations. The Bank has been the pioneer in introducing client-focused products and services and aspires to continue its leadership. It is the first Bank in Nepal to implement the Anti- Money Laundering policy and to apply the ‘Know Your Customer’ procedure on all the customer accounts.
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The Bank believes in delivering shareholder value in a social, ethical and environmentally responsible manner. Standard Chartered throughout its long history has played an active role in supporting those communities in which its customers and staff live.
Board of Directors details of Standard Chartered Bank Nepal:
Ms. Zarin Daruwala - Chairperson
Ms. Karen De Alwis - Director
Mr. Krishna Kumar Pradhan - Director
Mr. Bharat Kunwar – Director
Mr. Anirvan Ghosh Dastidar – Director
Capital Structure
Share Capital and Ownership
As on 31 Ashad 2077
Particulars Amount (Rs) Authorized Capital (90,000,000 Ordinary shares of Rs. 100 each) 9,000,000, Issued capital (80,114,306 Ordinary shares of Rs. 100 each) 8,011,430, Subscribed and paid-up capital (80,114,306 Ordinary shares of Rs. 100 each) 8,011,430, Total 8,011,430,
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service coverage. In such a situation, this study tries to analyze the present performance of banks, which would give the answers to following queries:
a) What is the comparative liquidity, profitability and activity ratio of the bank over different time periods? b) Is the trend of different ratios of the bank satisfactory over different time periods?
1 Objectives
PRIMARY OBJECTIVE:
To analyze the financial performance with reference to Standard Chartered Bank Nepal ltd. To evaluate the financial position in terms of profitability, activity, and earnings ratios.
1 Rationale
Report writing is very significant to students as it helps to broaden their mind by studying directly without another proper guide. The case of the study is related with the financial performance of Standard Chartered bank Nepal ltd. The analysis will be helpful to know the financial strength of the bank. It is hoped that the study will help to improve the performance of the bank in future. Lastly, it becomes the most suitable literature for future study.
1 Review
1.6 Conceptual Review Ahuja (1998), “Financial Performance analysis is a study or relationship among the various financial factor in business a disclosed by a single set of statement and a study of the trend of these fact as shown in a series of statements. By establishing a strategic relationship between the item of a balance sheet and income statements and other operative data, the financial analysis unveils the meaning and signification of such items.”
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Pandey (1997) has defined as “The finance statement provides a summarized view of the financial operation of the firm. Therefore, something can be learnt about a firm and careful examination of the financial statements as invaluable documents or performance reports. Thus, the analysis of financial statement is an important aid to financial analysis or ratio analysis which is a main tool of financial statement analysis.
According to Metcalf and Tatar (1996), “Financial Performance analysis is a process of evaluating the relationship between components parts of a financial statement to obtain a better understanding of a firm’s position and performance.”
Khan and Jain have defined that (1990) “The ratio analysis is defined as the systematic use of ratio to interpret the financial performance so that the strength and weakness of firm as well as its historical performance and current financial condition can be determined.”
In the word of Horne (1994) “Financial ratio can be derived from the balance sheet and the income statement. They must be analyzed on a comparative basis. Ratio may also be judged in comparison with those of similar firms in the same line of business and when appropriate, with an industry average and we can look to future progress in this regard.”
A comparative study of financial performance is a basic process, which provides information on profitability, liquidity position, earning capacity, efficiency in operation, sources and use of capital, financial achievement and status of the companies. This information will help to determine the extent of efficiency and effectiveness of the company in respect of deploying financial resources in the profitable manner.
Brigham and Houston (2004) views that financial profitability lies in a firm’s ability to generate revenues in excess of its costs: for either long or short term. In the long run, a firm should be able to maintain the value of invested capital and able to yield a profit, which exceed the opportunity cost of cost of capital meaning that the yield generated by the firm should exceed the opportunity cost of capital.
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The fourth largest bank showed a slight inefficiency. Overall, seven banks were classified as inefficient and the article recommends target areas for the banks to improve their efficiencies with guidelines that bankers in inefficient banks could use to increase their sustainable profitability.
UK where Drake (2001) & Webb (2003) found the larger banks less efficient. This difference could be attributed to the differences in operating environment as South Africa is an emerging economy with a different political and economic history whereas UK is a developed country.
Ncube (2009) who uses the stochastic frontier model to analyze the cost and profit efficiency of four large and four small South African banks. The results of the study show that South African banks have significantly improved their cost efficiencies between 2000 and 2005 with the most cost-efficient banks also being most profit efficient.
The measurement of bank performance particularly commercial banks is well researched and has received increased attention over the past years (Sei ford and Zhu, 1999). There have been a large number of empirical studies on commercial bank performance around the world (see Yeh, 1996; Webb, 2003; Lacewell, 2003; Halkos and Salamouris, 2004; Tarawneh, 2006).
Traditionally accounting methods primarily based on the use of financial ratios have been employed for assessing bank performance (Ncube, 2009). However, the limitations of this method coupled with advances in management sciences have led to the development of alternate methods such as non-parametric DEA and parametric Stochastic Frontier Approach (hereafters) (Berger and Humphrey, 1997).
Shrestha (2003) Profitability in future is sound for the commercial banks in Nepal. Since the only 15 years old commercial banks are selected as a sample and weighted interest rate is used as discounting rate; the result should not be generalized from this study.
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In the Samad (2004) investigated the performance of seven locally incorporated commercial banks during the period 1994-2001. Financial ratios were used to evaluate the credit quality, profitability, and liquidity performances. The performance of the seven commercial banks was compared with the banking industry in Bahrain which was considered a benchmark. The article applied a Student’s t-test to measure the statistical significance for the measures of performance. The results revealed that commercial banks in Bahrain were relatively less profitable, less liquid and were exposed to higher credit risk than the banking industry, in which wholesale banks are the main component.
1 Research Methods
1.7 Research Design
Research design is the task of defining the research problem. In other words, "A research design is the arrangement of conditions, for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. In fact, the research design is the conceptual structure within which the research is conduct. General objective of this research is to examine and evaluate the financial performance of joint venture bank especially that of Standard Chartered Bank Nepal. In order to achieve this objective, descriptive research design has been followed. Also, the research is based on historical research design (used of historical data for analysis).
1.7 Population and Sample
The population for this study comprises of 27 commercial banks currently operating in the country. The sample consists of one judgmentally selected bank- Standard Chartered Bank Nepal ltd. This unit represents 3% of the total population.
1.7 Sources of Data
The present study is based on secondary data. The necessary data is obtained from published Annual report containing Statement Of financial position, Statement of Comprehensive Income
Bbs-4th-year-final-work compress
Course: Research Work (BBS 250)
University: Tribhuvan Vishwavidalaya
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