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
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
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.
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