A CASE STUDY ON LOAN MANAGEMENT OF NMB BANK - Part II

A CASE STUDY ON LOAN MANAGEMENT OF NMB BANK - Part II

A CASE STUDY ON LOAN MANAGEMENT OF NMB BANK - Part II

CHAPTER – IIPRESENTATIONS AND ANALYSIS DATA

2.1            

         Major findings of the data

Deposits:
Deposits are the funds collected by form accounts holders from the security and transactions motives. It is the amount of money or a valuable item that is received into a bank as security against as a possible loss. Deposits are the foundation upon which banks thrive and grow. They are unique items on a bank’s balance sheet that distinguishes it from other types of a business firm. The ability of a bank’s management and staff to attract checking and savings accounts from business and customers is an importance’s measures of the banks acceptance by the public.

2.2            Types of Deposits Officered by banks.

In the context of commercial banks there are basically Non interest bearing deposits and interest bearing deposits

The Non interest bearing deposits includes

·        Current deposits
·        Margin deposits
·        Other deposits

Interest bearing deposits includes

·        Saving deposits
·        Fixed deposits
·        Call deposits.

Total Deposits Trends of NMB Bank ltd

It gives the idea about deposits of the bank through 5 fiscal year. The total deposit figures of NMB are shown as below.
Table: 2.1

Total Deposits Trends of NMB Bank ltd

Years
Total Deposit
2008/09
747259172
2009/10
862855852
2010/11
1296388884
2011/12
1661604750
2012/13
6787907436

Source: Annual report of NMB/2068

Figure: 2.1

Total Deposits Trends of NMB Bank ltd

From above table it is clear them NMB total deposits have been increasing every year.

Loan
Loan is the sum lent to others for certain time period with the agreement to charge interest on principal. The interest is charged calculating certain percentage on the principal. When money belonging to one is advanced to another to be used for certain time period is called loan. Loan is the major assets of Banks. The basic objective of loan advancement is to earn interest for lending the sum for specified period.
Commercial banks are organized institutes providing loans for the needed. The loan advancement is the main function of commercial banks. Similarly, interest on loan has become their main sources of income. Banks do deposits accepting and lending business. Loans are provided to earn interest. However, sometimes it may be difficult even for the repayment of principal. In this situation interest earning becomes far awaited business it dealt.

2.2.   1    Types of Loans Made By Banks

Banks make a wide variety of loans of a wide variety of customers for many different purposes. For customers the cause of loan purchasing may be investment in business, purchasing automobiles, educations constructing home office building. On the basis of loan purpose, bank loan can be divided into several categories.

     1)    Real Estate Loan

It is the credit extended to purchase or improve real property such as land and buildings.

     2)    Financial Institution Loan

It is the credit extended to banks and other financial service providers. Mostly finance companies insurance companies’ credit banks co operatives saving and credit firms.

     3)    Agricultural Loans

Agricultural loans are the credit extended to support farmland branch operations. This loan is extended to assist in planting, harvesting crops, starting.

    4)    Commercial Loan and Industrial Loan

Commercial Loan and industrial loans are extended to business firms to support the production and distribution of their product and services.

    5)    Individual Loan

This is the loans extended to private individuals for private and household purpose. Generally individual
Table: 2.2

Loan Trend of the NMB Bank of 5 years

Year
Loan
2008/09
717195076
2009/10
1004449560
2010/11
1395884717
2011/12
1939967542
2012/13
5194210667
Sources: Annual Report of NMB/2068


Figure: 2.2

Loan Trend of the NMB Bank of 5 years


Credit Deposit Ratio
This ratio shows the relationship between the Loan and deposit. It shows that how much loan has given by the bank.

Table: 2.3
Credit Deposit Ratio
Year
Loan
Deposits
Credit Deposit Ratio
2008/09
717195076
747259172
95.97
2009/10
1004449560
862855852
116.40
2010/11
1395884717
1296388884
107.67
2011/12
1939967542
1661604750
116.75
2012/13
5194210667
6787907436
76.52
Source: Annual report of NMB/2068

Figure:2.3
Credit Deposit Ratio

Deposit Equity relationship

This ratio shows that how much fund is collected through company Equity.
Table: 2.4

Deposit Equity relationship

Year
Deposits
Equity
2008/09
747259172
194883185
2009/10
862855852
231373949
2010/11
1296388884
284473656
2011/12
1661604750
1213480775
2012/13
6787907436
1592053407
Sources: Annual report of NMB/2068

Figure: 2.4

Deposit Equity relationship

Table: 2.5

Nonperforming Loan

Year
Non Performing Table
2008/09
3.87
2009/10
1.85
2010/11
1.73
2011/12
1.52
2012/13
0.51
Source: Annual report of NMB/2068


Figure: 2.5

Nonperforming Loan

Spread Rate
Spread Rate is the average interest income. It is the major income sources of Bank. Higher the spread rate the income also high and vice versa. Spread rate is calculated by following formula: Interest Income Interest Expense, Interest earning assets, Interest paying liabilities               
Table: 2.6

Spread Rate

Year
Spread Rate
2008/09
4%
2009/2010
3.62%
2010/11
3.58%
2011/12
2.41%
2012/13
3.58%
Sources: Annual report of NMB/2068
Figure: 2.6
Spread Rate

Relationship between the Investment and deposit

The table shows the relationship between how much investment is incurred through the deposit.
Table: 2.7

Relationship between the Investment and deposit

Year
Deposits
Net Investment
2008/09
747259172
707631742
2009/10
862855852
772757877
2010/11
1296388884
854678075
2011/12
1661604750
1242902362
2012/13
6787907436
1857563476
Sources: Annual report of NMB/2068

Figure: 2.7

Relationship between the Investment and deposit


Table: 2.8


This shows the relationship between the interest expenses and deposit.

Year
Interest expense
Deposits
% change
2008/09
79192582
747259172
6.1
2009/10
72335660
862855852
4.29
2010/11
140253280
1296388884
6.28
2011/12
139095730
1661604750
7.17
2012/13
254260906
6787907436
3.54
Source: Annual report of NMB/2068



Figure: 2.8

This shows the relationship between the interest expenses and deposit.



Table: 2.9

Relationship between interest loan and Loan

Years
Interest income
Loan
% Interest income/loan
2008/09
148618041
717195076
20.72
2009/10
135871041
1004449560
13.52
2010/11
237933473
1395884717
17.04
2011/12
251409352
1939967542
12.95
2012/13
402582568
5194210667
7.75


Figure: 2.9

Relationship between interest income and Loan

Table: 2.10

Deposit composition of NMB

Deposits Composition of NMB Bank
2009/10
2010/11
2011/12
2012/13
Saving Deposits
342591198
444923070
395696971
1544421213
Fixed Deposits
516365836
682412718
926512315
2079158904
Call Deposits
164407593
314439976
3139334816
Current Deposits
11898
22412139
101421681
Margin Deposits
3898818
4526505
2543349
13570822
Source: Annual report of NMB/2068


Figure: 2.10
Deposit Composition of NMB

2.2.2 Trend Line Analysis of Total Deposits

Trend line Analysis is the tool of time series analysis which gives us the understanding of the past behavior of the Variable in different period and helps to estimate the future movement of that Variable. There are many methods of estimating trend line, among which here is used ‘Least square Method’s most popular and widely used method. Using the Least square method I have calculate the trend line of the total deposit using the 5-Years deposit figure.
Calculation of equation of trend line of total deposits
Equation of straight line is Yc=a+bx………….
Where, Yc=estimated value of total deposits
a=Y-intercept of the trend line
b=slope of the trend line
Table Estimation of trend line of total loan

CHAPTER – III

SUMMARY, CONCLUSION ANDRECOMMENDATION

3.1            Summary
The modern banking system that we have today has passed through several before reaching the present stage. Because of the liberal economic policy adopt the Nepalese government; numbers of commercial banks are operating to Nepal. Among the commercial established in Nepal. NMB is one of them:

The fieldwork report covers “Loan Management in NMB” and is prepared with objective of finding out whether NMB is able to manage loan effectively or no report consists of discussions and presentation of various aspects of Loan Management such as loans, advances and overdraft, loan loss provision, interest income or and advances. Bills purchased and discounted, commission and discount on purchased and discounted and total deposits. It is conducted by using Primary Secondary data. Arithmetic and financial and statistical tools have been used present, analyze and interpret the data on the aspects of Loan Management. The points for analysis and interpretations were:

A study of five years period of loans advances and overdraft shows that the loan of NMB is following an increasing trend except in the year.
Trend line Analysis is the tool of time series analysis which gives us understanding of the past behavior of the Variable in different period and helps to estimate the future movement of that Variable. There are many methods of estimating trend line, among which here is used ‘Least square Method’s most popular and widely used method. Using that least square method I have calculate the trend line of the total deposit using the 5-Years deposit figures.
3.2            
         Conclusions
After conclusion a thorough study of loan management in NMB, it can be said that NMB is able to perform the loan management satisfactorily till date. All the aspects of loan management have been paid due attention. Besides, the study concludes the following points:
The loan assets of the bank is increasing in most of the years. This shows that NMB having keen competition in banking sector is able to substantially increase its lending capacity. If the loan is repaid within a stipulated time, then the increasing trend in the loan can be appreciated. But, if a default takes place, the outcome may be disadvantageous. A loan asset can be a hen with golden eggs only if there is the least or no chance of non repayment.
The fluctuation inherent in the interest income on loans and advances ration is because of the declination of the interest rate itself. A declination in the interest income to loans and advances is not a good sign for NMB.
The loan loss provision of NMB is increasing in most of the years. This shows that bank is safe in case of non repayment of loan since there is adequate provision. But at the same time it is not possible to rule out the fact that a higher loan loss provision reflects the inefficiency of management.
3.3            
        Recommendations
There is no doubt that an effective management is must for all the banking functions. However, it more important for lending functions of commercial banks. Based on the conclusion derived from the study of loan management of NMB, the bank is suggested to work in the light of the following recommendations:
NMB has invested a maximum amount of its fund on risky asset i.e. is loan. Thus the bank is always threatened by the fear of default. It will be the better if the bank diverts some amount of its find from lending and invest it in less risky investment alternative. This will help the bank to diversify the risk.
The increase in the loan loss provision in NMB is reflecting the inefficiency of management. The bank needs to reduce its loan provision as in 2004/2005. This can be done by proper risk management which includes:
Careful screening of loan application.
Proper valuation of securities.
Proper appraisal of projects.

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