PROFITABILITY ANALYSIS OF

SANIMA BANK LIMITED

A Project Report

Submitted by:
Mohan Bahadur Sen
Pokhara Multimodal Campus
T.U. Registration No: 7-2-397-10-2018
Exam Roll No.: 703970003

Submitted to:
The Faculty of Management
Tribhuvan University
Kathmandu

In the partial fulfillment of the requirement for the degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Pokhara

April, 2023
 DECLARATION

I hereby declare that the project work entitled “PROFITABILITY ANALYSIS OF

SANIMA BANK LIMITED” submitted to the Faculty of Management, Tribhuvan

University, Kathmandu is an original piece of work under the supervision of NIRMAL

PAHARI, faculty member, POKHARA MULTIMODAL CAMPUS, Pokhara, and is

submitted in partial fulfillment of the requirements for the degree of BACHELOR OF

BUSINESS STUDIES (BBS). This project work report has not been submitted to any

other university or institution for the award of any degree or diploma.

.....................

MOHAN BAHADUR SEN

April, 2023

ii
 SUPERVISOR’S RECOMMENDATION

The project work report entitled “PROFITABILITY ANALYSIS OF SANIMA BANK

LIMITED” submitted by MOHAN BAHADUR SEN of POKHARA MULTIMODAL

CAMPUS, Pokhara, is prepared under my supervision as per the procedure and format

requirements laid by the Faculty of Management, Tribhuvan University, as partial

fulfillment of the requirements for the degree of BACHELOR OF BUSINESS

STUDIES (BBS). I, therefore, recommend the project work report for evaluation.

....................

NIRMAL PAHARI

April, 2023

iii
 ENDORSEMENT

We hereby endorse the project work report entitled “PROFITABILITY ANALYSIS

OF SANIMA BANK LIMITED” submitted by MOHAN BAHADUR SEN of

POKHARA MULTIMODAL CAMPUS, Pokhara, in partial fulfillment of the

requirements for the degree of the BACHELOR OF BUSINESS STUDIES (BBS) for

external evaluation.

......................... …………………..

Baburam Lamichhane Krishna Bahadur K.C

Chairman, Research Committee Campus Chief

(Pokhara Multimodal Campus) (Pokhara Multimodal Campus)

April, 2023 April, 2023

iv
 ACKNOWLEDGEMENT

This study attempts to examine the Profitability Analysis of SANIMA Bank limited

with available data and information. It also deals with problem identification besides

this field study to acquire the reality of banking operation of SANIMA Bank. For easier

study, the data has been presented by tables, graphs and have been interpreted using

various statistical methods. This report tries to focus on the study of SANIMA Bank

only. I express my heartiest gratitude to NIRMAL PAHARI for guiding and inspiring

me to do this project-work. I would also like to thank Krishna Bahadur K.C (Campus

Chief), Baburam Lamichhane (Head of Research Department) and the entire staff

members for their kind co-operation and supports providing valuable information

required for the completion of the report. Finally, I want to thank my colleagues for

their continued moral support.

Mohan Bahadur Sen

v
 TABLE OF CONTENTS

Title Page ... ... ... ...... ... ... ... ... ... ... ... … … … ... ... ... … ... . ... ... …i
Declaration .... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... … … … … ... ..ii
Supervisor’s Recommendation ... ... ... ... ... ... ... ... ... … … … … ... ..iii
Endorsement ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ....iv
Acknowledgements ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..v
Table of Contents... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...... ... .... ..vi
List of Tables ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... … ... ... .... .. vii
List of Figures ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... viii
Abbreviations............................................................................................ ix

CHAPTER I: INTRODUCTION ... ... ... ... .. ... ... ... ... ... ... ... ... ... ..1
1.1 Background of the Study ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..1
1.2 Brief Introduction of SANIMA Bank Ltd. ... ... ... ... ... ... ... ...6
1.3 Objectives of the Study ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .8
1.4 Rationale/Significance of the Study ... ... ... ... ... ... ... ... ... ... ..8
1.5 Literature Review ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..8
1.6 Methods of Study ... ... ... ... ... ... ... ... ... ... ... ... ... ... . .... .. ... 16
1.7 Limitations of Study... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..17

CHAPTERII: RESULTS AND ANALYSIS ........................................18

2.1 Data Presentation ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .18
2.2 Findings .. ... ... ... ... ... ... ... ... ... ... ... .. ... ... ... ... ... ... ... ... .25

CHAPTER III: SUMMARY AND CONCLUSION... ... ... ... ... ... ... ..28
3.1 Summary... ... ... ... ... ... .... ... ... ... ... ... ... ... ... ... ... ... ... . ..28
3.2 Conclusion... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .29
BIBLIOGRAPHY

vi
 LIST OF TABLES

Table 2.1: Net Profit Margin of Sanima Bank ...............................................19

Table 2.2: Return on Assets of Sanima Bank..................................................20

Table 2.3: Return on Shareholder’s Equity.....................................................21

Table 2.4: Dividend Per Share of Sanima Bank..............................................23

Table 2.5: Earnings Per Share of Sanima Bank...............................................24

vii
 LIST OF FIGURES

Figure 2.1: Net Profit Margin of Sanima Bank ................................................ 19

Figure 2.2: Return on Assets of Sanima Bank...................................................20

Figure 2.3: Return on Shareholder’s Equity......................................................22

Figure 2.4: Dividend Per Share of Sanima Bank..............................................23

Figure 2.5: Earnings Per Share of Sanima Bank..............................................24

viii
 ABBREVIATIONS

% - Percentage

ASBA - Application Supported by Blocked Amount

ATM - Automated Teller Machine

BFI - Banks and Financial Institutions

DPS - Dividend Per Share

EPS - Earning per Share

Etc - Etcetera

FD - Fixed Deposit

FY - Fiscal Year

FOM - Faculty of Management

i.e. - That is

Ltd - Limited

NPAT - Net Profit after Tax

NTB - Nepal Rastra Bank

NRs - Nepalese Rupees

ROA - Return on Asset

ROE - Return on Equity

FIG - Figure

ix
 1

Chapter I

INTRODUCTION

1.1.Background of the Study

In the context of Nepal, there is different types of banking sector. It has mainly four

categories of banks and financial institutions in Nepal which are Class 'A', Class 'B',

Class 'C' and Class 'D' institutions. Class 'A' refers to commercial banks, Class 'B' refers

to Development Banks, Class 'C' refers to Finance Companies and Class 'D' refers to

Micro Finance Companies. And then, the term commercial bank refers to a financial

institution that accepts deposits, offers checking account services, makes various

loans, and offers basic financial products like certificates of deposits (CDs) and

savings accounts to individuals and small businesses. A commercial bank is where

most people do their banking.

Commercial banks make money by providing and earning interest from loans such as

mortgages, auto loans, business loans, and personal loans. Customer deposits provide

banks with the capital to make these loans. Commercial banks have traditionally been

located in buildings where customers come to use teller window services

and automated teller machines (ATMs) to do their routine banking. With the rise in

internet technology, most banks now allow their customers to do most of the same

services online that they could do in person including transfers, deposits, and bill

payments. (investopedia,2021 AD).

 2

Profitability is a measure of an organization’s profit relative to its expenses.

Organizations that are more efficient will realize more profit as a percentage of its

expenses than a less-efficient organization, which must spend more to generate the

same profit. In order to perform a profitability analysis, all costs of an organization have

to be allocated to output units by using intermediate allocation steps and drivers. This

process is called costing. When the costs have been allocated, they can be deducted

from the revenues per output unit. The remainder shows the unit margin of a product,

client, location, channel or transaction. After calculating the profit per unit, managers

or decision makers can use the outcome to substantiate management decisions.

Managers can decide to stop selling loss making products, to reduce costs for loss

making customers or to increase sales in profitable locations.

(wikipedia/profitability_analysis,2019AD).

The Profitability Score is a relevant measure for the assessment of a stock

attractiveness. SANIMA BANK shows a Profitability Score of N/A. The Profitability

Score for SANIMA BANK is lower than its peer group's. This means that SANIMA

BANK has a lower profitability than its peer group. Sanima Bank is committed to

provide one window financial solutions to the different customer segments and to

achieve healthy growth in profitability consistent with the bank's risk appetite. The

Bank has been dedicated to maintain the highest level of ethical standards, professional

integrity, corporate governance and regulatory compliance. As a result, Sanima is

perceived as a Strong and Reliable player in the banking industry. Sanima has been

committed to meet customer expectations in all areas of its business through

continuous improvement for overall benefit of the economy. Sanima Bank offers a

wide range of banking products and financial services to corporate and retail customers

through full-fledged branches from Mechi to Mahakali(coursehero, 2022AD).

 3

1.1.1 History of Banking Sector

Banking began with the first prototype banks of merchants of the ancient world, which

made grain loans to farmers and traders who carried goods between cities. This began

around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the

Roman Empire, lenders based in temples made loans and added two important

innovations: they accepted deposits and changed money. Archaeology from this period

in ancient China and India also shows evidence of money lending activity.

The origins of modern banking can be traced to medieval and early Renaissance Italy,

to the rich cities in the center and north like Florence, Lucca, Siena, Venice and Genoa.

The Bardi and Peruzzi families dominated banking in 14th-century Florence,

establishing branches in many other parts of Europe. One of the most famous Italian

banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397. The

earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was

founded in 1407 at Genoa, Italy.

Modern banking practices, including fractional reserve banking and the issue of

banknotes, emerged in the 17th and 18th centuries. Merchants started to store their

gold with the goldsmiths of London, who possessed private vaults, and charged a fee

for that service. In exchange for each deposit of precious metal, the goldsmiths issued

receipts certifying the quantity and purity of the metal they held as a bailee; these

receipts could not be assigned; only the original depositor could collect the stored

goods. Gradually the goldsmiths began to lend the money out on behalf of the

depositor, which led to the development of modern banking practices; promissory

notes (which evolved into banknotes) were issued for money deposited as a loan to the

goldsmith. The goldsmith paid interest on these deposits. Since the promissory notes
 4

were payable on demand, and the advances (loans) to the goldsmith's customers were

repayable over a longer time period, this was an early form of fractional reserve

banking. The promissory notes developed into an assignable instrument which could

circulate as a safe and convenient form of money backed by the goldsmith's promise

to pay, allowing goldsmiths to advance loans with little risk of default. Thus, the

goldsmiths of London became the forerunners of banking by creating new money

based on credit. The Bank of England was the first to begin the permanent issue of

banknotes, in 1695. The Royal Bank of Scotland established the first overdraft facility

in 1728. By the beginning of the 19th century a bankers' clearing house was established

in London to allow multiple banks to clear transactions. The Rothschilds pioneered

international finance on a large scale, financing the purchase of the Suez canal for the

British government. (wikipedia.org)

1.1.2 History of Banking Sector in Nepal

According to the history, it is found that people of our country have been involved in

business and trade since long time ago. Though the production of copper utensils had

been started during the 7th century, business relationship could not be established with

India since India was involved in the production of copper utensil. However, the craft

concerned with copper, wood and metal in our country did attract the Chinese and the

Tibetan a lot, thus resulting in the establishment of business relationship with China

and Tibet.

In 12th century there was silver coin called 'Dam'. Later on in 14th century

'TANKADHARI' one is that dealt with the lending money to the public. Its remain

objective was to earn profit, so they used to change high interest rate. To control

interest rate 'TEJARATH ADDA' was established in 19th century. It provides loans to
 5

the people working in government offices on the basis of the security and to public on

the basis of collateral they deposit. It charges only 5% interest rate per annum. It only

provides loans but does not accept deposit.

Nepal bank Ltd. is the first modern bank of Nepal. It is taken as the milestone of

modern banking of the country. Nepal bank marks the beginning of a new era in the

history of the modern banking in Nepal. This was established in 1937 A.D. Nepal Bank

Ltd. remained the only financial institution of the country until the foundation of Nepal

Rastra Bank is 1956 A.D.

In 1957 A.D. Industrial Development Bank was established to promote the

industrialization in Nepal, which was later converted into Nepal Industrial

Development Corporation (NIDC) in 1959 A.D. Rastriya Banijya Bank, was

established in 1965 A.D. as the second commercial bank of Nepal. As the agriculture

is the basic occupation of major Nepalese, the development of this sector plays in the

prime role in the economy. So, separate Agricultural Development Bank was

established in 1968 A.D. This is the first institution in agricultural financing.

(wikipedia, 2022AD)

There are various types of bank working in modern banking system in Nepal. It

includes central, development; commercial, financial, co-operative and Micro Credit

(Grameen) banks. The NRB will classify the institutions into “A”, “B”, “C”, “D”

groups on the basis of the minimum paid-up capital and provide the suitable license to

the bank or financial institution. Group ‘A’ is for commercial bank, ‘B’ for the

development bank, ‘C’ for the financial institution and ‘D’ for the Micro Finance

Development Banks. There are 23 commercial banks, 17 development banks, 17

 6

financial companies, 64 micro finance financial institutions (licensed by Nepal Rastra

Bank) are established so far in Nepal. (http://nrb.org.np/)

1.2. Brief Introduction of Sanima Bank Ltd

Sanima Bank Ltd. is one of the latest commercial banks in the Nepalese banking

industry. It is promoted by prominent and dynamic Non-Resident Nepalese (NRNs)

businessmen. It started its operation as a National level development bank in 2004. In

2012, the bank upgraded itself from a ‘B class’ development bank to ‘A-class’

commercial bank. It increased its paid-up capital from Rs. 80 crores to Rs.2 Arab by

issuing 1:1.5 right shares and received the license from Nepal Rastra Bank to operate

as a commercial bank. The bank’s head office is located at ‘Alakapuri’, Naxal,

Kathmandu, Nepal. The management team seems capable to grow the business at a

steady pace and also management team has done a good job in the past to bring the

bank at this level so quickly. And we can trust and believe that they will continue to do

so in the future. And, the decision to invest in shares of Sanima bank lies solely in the

nature of the individual. If you are a short-term investor, you will likely do well if you

avoid this. The continuously depressive stock market, the recurring credit crunch and

higher interest rates in the banking industry have hit the entire share market. The market

recovery seems like a distant dream. On the other hand, if you are a long-term investor

and do not concern yourself with the current predicament, then Sanima bank is a good

company to include in your portfolio. If you can see beyond the current clouds of

uncertainty and hold the shares for the long run, you will be able to reap the rewards

that this promising company will offer you in the future. So that the bank team is
 7

committed to providing the good quality of products and services to its valued

customers with utmost courtesy and care.

1.2.1 Banking Service and Product provided by Sanima Bank

A) Product

-Home Loan

- Education Loan

-Auto Loan

- Personal Loan

B) Services

-Mobile and Internet Banking

-ATM machines in every district

-Cash Deposit/Withdrawal service for 365 days

-Foreign currencies purchase and sales(as per NRB policy)

-Remittance, etc

1.2.2 Problem Statement

The number of bank and financial institutions are increasing rapidly in Nepalese

market. There already twenty-six commercial bank in operation, consequences of

which the liquidity position of banks is weak and nearly to breach the regulatory

requirement (CCD ratio). This is an attempt made to analyze the efficiency of Nepalese

commercial bank based on the profitability ratio analysis made by the sample bank.

Therefore, there are two main statement of the problem in SANIMA Bank. They are as

follows:

•What is the position of different Profitability Ratio in Sanima Bank Limited ?

•What is the relation of Profitability ratio on total earning of Sanima Bank Limited ?
 8

1.3. Objectives of the Study

The main objectives of study is to explore the condition of different Profitability ratio

of Sanima Bank Limited. The specific objectives are:

•To assess the position of different profitability ratio of Sanima Bank Limited.

•To analyze the relation of Profitability ratio on total profit of Sanima Bank Limited.

1.4. Rationale/Significance of the Study

Generally, the study gives emphasis on the welfare of students while preparing research

report; they gain knowledge through their own experience enabling them to deal with

problems relating to their studies. The study also intends to let students know about

required information by them. The following are the few points that highlights of the

significance of proposal:

• It helps to increase the practical knowledge.

• It can be used as guideline while preparing a small project proposal.

• By analyzing the problem, it provides chances to improve.

• It makes the student more creative.

1.5. Literature Review

This chapter is basically concerned with the review of literature relevant to the topic

profitability analysis. Thus, the determinants of bank profitability can be split between

those that are internal and external. Internal determinants of bank profitability can be

defined as those factors that are influenced by the bank’s management decisions and

policy objectives. And also to evaluate the profitability ratio of a firm, the analyst needs

a certain parameters of the company by which the quantitative relationship and its
 9

position come out. The most widely and effective used tool of the profitability ratio is

the ratio analysis. The profitability ratio is the measurement of relationship between

two accounting figures, expressed in mathematical way or the numerical relationship

between two variables expressed as (i) percentage or, (ii) fraction or (iii) in proportion

of numbers.

1.5.1 Conceptual Review

The modern financial evaluation has greatly affected the Profitability ratio of banks’.

Nowadays, finance is best characterized as ever changing with new ideas and

techniques. Only efficient manager of the company can achieve the set up goals. If a

bank does not maintain adequate equity capital, it makes the bank more risky. If a bank

has inadequate equity capital, it must be used more debt that has high fixed cost. So any

firm must have adequate equity capital in their capital structure. The main objectives of

the bank are to collect deposits as much as possible from the customers and to mobilize

into the most profitable sector. If a bank fails to utilize its collected resources than it

cannot generate revenue. Resource mobilization management of bank includes resource

collection, investment portfolio, loans and advances, working capital, fixed assets

management etc. It measures the extent to which bank is successful to utilize its

resources. To measure the bank profitability in many aspects, we should analyze its

indicator with the help of financial statements. Profitability ratio is the process of

identifying the financial strength and weakness of the concerned bank. It is the process

of finding strength and weakness of the concerned bank.

 10

Financial Analysis

Financial statement analysis generally begins with the calculation of set of financial

ratios designed to reveal the relative strength and weaknesses of a company as

compared to other companies in the same industry and to show weather the firm's

position has been improving or deteriorating over time.

Ratio Analysis

Ratio analysis is the systematic use of profitability ratio information of the firm’s

strength and weakness as its historical performance, and current condition can be

determined. After calculating various ratios, we need to compare with the certain

standard and draw out the conclusion of the result. The comparison classified by

Weston and Brigham into six types viz; (i) Liquidity ratios, (ii) leverage ratios, (iii)

Activity ratios, (iv) Profitability ratios, (v) Growth ratios and (vi) Valuation ratios.

Profitability Ratio

Profitability ratios are related to profit. These ratios are designed to highlight the end

result of business activities. The operating efficiency of a firm and its ability to ensure

adequate return to its shareholders depends ultimately on the profits earned by it. In this

regards, profitability ratios are the measure of efficiency and the search for. These ratios

measure the overall effectiveness of management. It provides an incentive to achieve

efficiency. In this report, the following profitability ratios are used:

A) Margin Ratios

Gross profit margin – compares gross profit to sales revenue. This shows how much
a business is earning, taking into account the needed costs to produce its goods and
services. A high gross profit margin ratio reflects a higher efficiency of core operations,
 11

meaning it can still cover operating expenses, fixed costs, dividends, and depreciation,

while also providing net earnings to the business. It is calculated by

Net Sales−COGS
Gross Profit Margin=
Net Sales

Where, COGS: Cost of Goods Sold

Operating profit margin- looks at earnings as a percentage of sales before interest

expense and income taxes are deduced. Operating profit margin is frequently used to

assess the strength of a company’s management since good management can

substantially improve the profitability of a company by managing its operating costs. It

Operating Profit
is calculated by Operating Profit Margin =
Total Revenue

where,

Operating Profit = Sales – COGS – Operating Expenses – Depreciation & Amortization

B) Net Profit Margin

Net profit margin is the bottom line. It looks at a company’s net income and divides it

into total revenue. It provides the final picture of how profitable a company is after all

expenses, including interest and taxes, have been taken into account. A reason to use

the net profit margin as a measure of profitability is that it takes everything into account.

Revenue−Cost
It is calculated by Net Profit Margin =
Revenue

C) Dividend Per Share (DPS)

Dividend Per Share (DPS) is the total amount of dividends attributed to each individual

share outstanding of a company. Calculating the dividend per share allows an investor

to determine how much income from the company he or she will receive on a per-share
 12

basis. Dividends are usually a cash payment paid to the investors in a company,

although there are other types of payment that can be received like property dividends,

stock dividends, scrip dividends, etc.

Total Dividends Paid

DPS= 𝑂𝑟 EPS ∗ Dividend Payout Ratio
Share Outstanding

D) Return on Assets

Return on assets (ROA), as the name suggests, shows the percentage of net earnings

relative to the company’s total assets. The ROA ratio specifically reveals how much

after-tax profit a company generates for every one dollar of assets it holds. It also

measures the asset intensity of a business. The lower the profit per dollar of assets, the

more asset-intensive a company is considered to be. Highly asset-intensive companies

require big investments to purchase machinery and equipment in order to generate

Net income
income. It is calculated by Return on Assets(ROA) =
Total Assets

E) Return on Equity

Return on equity (ROE) – expresses the percentage of net income relative to

stockholders’ equity, or the rate of return on the money that equity investors have put

into the business. The ROE ratio is one that is particularly watched by stock analysts

and investors. A favorably high ROE ratio is often cited as a reason to purchase a

company’s stock. Companies with a high return on equity are usually more capable of

generating cash internally, and therefore less dependent on debt financing. It is

calculated by

Net Income
Return on Equity(ROE) =
Shareholder′ s Equity
 13

F) Earnings per Share

Earnings per share (EPS), also called net income per share, is a market prospect ratio

that measures the amount of net income earned per share of stock outstanding. In other

words, this is the amount of money each share of stock would receive if all of the profits

were distributed to the outstanding shares at the end of the year. It is the ratio of net

profit after tax between numbers of common share. It is calculated by

Net income− Preferred Dividend

EPS =
Weighted Average Number of Shares Outstanding

(CFI Team,2022AD).

1.5.2 Empirical Review

An empirical literature review is more commonly called a systematic literature review

and it examines past empirical studies to answer a particular research question. The

empirical studies we examine are usually random controlled trials (RCTs).

Sayers. R.S.(1976) argued that Ordinary banking business consist of changing cash for

bank deposits and bank deposits from one person to corporation (one depositor to

another) giving bank deposits in exchange for bill of exchange, government banks,

recurred and unsecured promises businessmen to repay.

Pandey. I.M.(2005) suggest that A firm should ensure that it does not suffer from lack

of liquid. And also that it is not too much highly liquid. The failure of a company to

meet its obligations, due to lack of sufficient liquidity will result in bad credit image.

Loss of creditor’s confidence, or even in low suits resulting in the closure of the

company. A very high degree of liquidity is also bad; idle assets earn nothing. The

firm’s funds will be unnecessarily tied up in current assets. Therefore, it is necessary to

 14

strike a proper balance between liquidity and lack of liquid. Liquidity is measured by

the speed with which a bank’s assets can be converted into cash and other current

obligations. It is also important in view of survival and growth of a bank.

Drury and Tayles(2006) suggest that Recent research into management accounting

practices suggests that companies are now placing considerable emphasis on

profitability analysis and consider it to be one of the most important management

accounting practices. In particular, it focuses on the nature, content and role of

profitability analysis carrying out some exploratory analysis and testing various

propositions to explain the divergence in observed practices.

Ali et. al (2011)examined the profitability indicators of public and private commercial

banks of Pakistan explored in 2006-2009. The return on assets (ROA) and return on

equity (ROE) are used as profitability measures to determine the affect of bank-specific

and macroeconomic indicators on profitability. The descriptive, correlation and

regression analysis results are derived with the help of SPSS. The efficient asset

management and economic growth establish positive and significant relation with

profitability in both models (measured by ROA & ROE). The high credit risk and

capitalization lead to lower profitability measured by return on assets (ROA). The

operating efficiency tends to exhibit the higher profitability level as measured by return

on equity.

Rouniyar (2013) studied on liquidity and profitability analysis of four listed commercial

banks (with reference to NABIL, SCBNL, EBL and SBI). The study has made

objectives to assess the profitability and liquidity position of the commercial banks and
 15

to evaluate the relationship between selected dependent and independent variables

regarding liquidity and profitability of the banks. The study has covers the data of ten

fiscal year i.e. fiscal year 2001/02 to 2010/11.The finding made by study were that the

return on equity was highest of SCBNL and lowest of SBI among the four sample

banks. SBI has more risky than other sample banks. In the same way, return on capital

fund or employed to risked assets for SBI was more volatile than other sample banks.

SBI has not managed its profitability to maintain capital adequacy than other sample

banks. NABIL was more uniformity which has less CV than others. Net profit to total

deposit ratio for the bank was satisfactory i.e. well management in earning profit. Net

profit to total loan and advances ratio was highest of SCBNL.

Regmi (2015) argued that Performance of Public Sector Banks analyzed the

profitability of NIC Asia bank by analyzing the relationship between EPS, DPS and

MPS of the bank. The study, however, did not deal with the profitability forecasting

through capital budgeting techniques.

Begum (2016) investigated the relationship between banks' liquidity and profitability

and the impact of liquidity on bank's profitability. The paper applies the ordinary least

square (OLS) method for the sample period from 1997 to 2014 to examine the impact

of liquidity on banks' profitability. The paper finds that the advance deposit ratio

positively impacts banks' profitability while profitability is defined as return on asset

(ROA). Call money rates, non performing loans (NPLs), and excess liquidity impact

banks' profitability in a negative fashion. The negative relationship between NPLs and

ROA has been a major concern for the policymakers in the banking industry of
 16

Bangladesh since NPLs in the banking sector have increased during the last three years

in the post 2011 period.

Shah (2016) suggest that Commercial banks of Nepal stated that banks’ financial

performance not only benefits its shareholders but also plays a crucial role in handling

the economy of the country.

Erich A. H.(2017) argued that Profitability ratio is both an analytic and judgmental

process that helps to answer the questions that have been properly posed to and

therefore, it is a mean to an end. We can stress enough that financial analysis is an aid

that allows those responsible for results to make sound decisions. Liquidity is other

financial indicator of the business enterprises.

1.6. Methods of Study

Evaluating the profitability analysis of SANIMA BANK LIMITED in a micro level

and to highlight the efforts of the profitability analysis of these banks in the economy

at the macro level forms for the basic objective of this research.

1.6.1 Research Design

Keeping in mind the objective of the study, descriptive research design has been

followed. The study is based on the wide range of variables and factors influencing

profitability ratio of the bank. Comparative data banks are presented in such a way to

make the report informative to the reader.

1.6.2 Population and Sample

Among 23 commercial banks, SANIMA Bank Limited have been selected for the

present study. The recommendation and suggestions, which are derived from the study,
 17

by taking the above commercial banks as samples, will be equally useful for the other

commercial banks in Nepal.

1.6.3 Nature & Sources of Data

This study is based on quantitative secondary data. Secondary data can defined as the

data collected earlier for a purpose other than one currently being pursued. And the

main secondary data are collected from annual report of SANIMA Bank Limited.

1.6.4 Techniques of Analysis

In the course of analysis, data gathered from the various sources will be inserted in the

tabular form, according to their homogeneous nature. They are table, graph, mean,

standard deviation ratio and percentage.

1.7.Limitations of Study

The major limitations of the study are as follows:

• Though there are 23 commercial banks, this study covers only on SANIMA Bank Ltd.

• Limited variable has been selected.

• Simple techniques has been used in analysis.

• The study is mainly based on secondary data.

• The study covers only five fiscal years, i.e. from the fiscal year 2017/18 AD to 2021/22

AD.
 18

CHAPTER II

RESULTS AND ANALYSIS

2.1 Data Presentation

Presentation and data analysis of data is the main body of the study. Introduction,

review of literature and research methodology is presented in the previous chapter that

provide the basic inputs to analyze and interpret the data. In this chapter, data are

presented and analyzed.

2.1.1 Financial Analysis

Financial statement analysis generally begins with the calculation of set of financial

ratios designed to reveal the relative strength and weaknesses of a company as

compared to other companies in the same industry and to show weather the firm's

position has been improving or deteriorating over time. It helps the concerned parties

to spot out the financial strength and weakness of the firm.

2.1.2 Ratio Analysis

Ratio analysis is the systematic use of profitability ratio information of the firm’s

strength and weakness as its historical performance, and current condition can be

determined. It provides the trends of organization's financial performance. Ratios are

very useful, essential and powerful tools to interpret the financial performance of the

company. In this report, following ratios are used:

A) Net Profit Margin

The net profit margin, or simply net margin, measures how much net income or profit

is generated as a percentage of revenue. It is the ratio of net profits to revenues for a

company or business segment. It is calculated by

NPAT
Net Profit Margin = ∗ 100
Total Operating Revenue
 19

Table 2.1: Net profit Margin of Sanima Bank

F/Y NPAT Total Operating Revenue NPM (%)

2017/18 1,697,503,224 4,009,133,567 42.34

2018/19 2,258,067,506 5,357,619,093 42.15

2019/20 1,776,234,524 5,289,807,151 33.58

2020/21 2,317,821,580 5,817,551,633 39.84

2021/22 2,093,115,828 6,029,701,884 34.71

Source: Annual Report of SBL

Net Profit Margin
45
40
35
30
25
20
15
10
5
0
2017/18 2018/19 2019/20 2020/21 2021/22

F/Y

Figure 2.1: Trend Line Showing Net Profit Margin (NPM)

Table and figure 2.1 shows net profit margin of the bank from FY 2017/18 to 2021/22.

In FY 2017/18 the percentage of NPM is 42.34%. It slightly decrease in FY 2018/19

which is 42.15%. And again NPM of the bank is drastically falls in FY 2019/20 which

is 33.58%. But in next FY 2020/21 , the NPM is increased to 39.84 and then in FY

2021/22 the NPM is decreased which is 34.71%. The NPM of the bank is in fluctuating

situation. In some fiscal year, NPM of the bank is highly increased and in some fiscal

year, it is highly decreased. It shows that the NPM may goes upward in next fiscal year.

The increase and decrease in NPM of the bank due to the change in NPAT and Total

Operating Revenue.
 20

B) Return on Assets (ROA)

The term return on assets (ROA) refers to a financial ratio that indicates how profitable

a company is in relation to its total assets. Corporate management, analysts, and

investors can use ROA to determine how efficiently a company uses its assets to

NPAT
generate a profit. It is calculated by Return on Assets(ROA) = ∗ 100
Total Assets

Table 2.2: Return on Assets of Sanima Bank

F/Y NPAT Total Assets ROA (%)

2017/18 1,697,503,224 91,821,952,303 1.85

2018/19 2,258,067,506 109,064,487,965 2.07

2019/20 1,776,234,524 123,310,981,152 1.41

2020/21 2,317,821,580 160,750,584,166 1.44

2021/22 2,093,115,828 192,511,092,727 1.09

Source: Annual Report of SBL

ROA
2.5

1.5

0.5

0
2017/18 2018/19 2019/20 2020/21 2021/22

F/Y

Figure 2.2: Trend Line Showing ROA

Table and figure 2.2 shows the return of assets of Sanima Bank Limited. There is no
any high difference between the minimum and the maximum point of the ROA. It
slightly fluctuate in small difference. In FY 2017/18, ROA of the bank is 1.85%
 21

whereas in FY 2018/19 is slightly increase to 2.07%. But in FY 2019/20 ROA is again

decreased to 1.41%. The ROA is slightly increase in FY 2020/21 which is 1.44% and
again it decrease in FY 2021/22 i.e. 1.09%. The return on assets ratio measure how
effectively a company can earn a return on its investment in assets. In other words,
ROA shows how efficiently a company can convert the money used to purchase assets
into net income or profits. The ROA of the bank is in fluctuating situation . Analyzing
the return on assets of the bank , the ratio is 1.6% means, every rupees that bank invested
in assets during the year produced Rs.1.6 of net income. Depending on the economy,
this can be a healthy return rate no matter what the investment is. The bank return on
assets is very low in each year as it is commercial bank.

C) Return on Equity(ROE)
Return on equity (ROE) is the measure of a company's net income divided by its

shareholders' equity. ROE is a gauge of a corporation's profitability and how efficiently

it generates those profits. The higher the ROE, the better a company is at converting its

equity financing into profits. It is calculated by

NPAT
Return on Equity(ROE) = x 100
Equity

Table 2.3: Return on Equity of Sanima Bank

F/Y Shareholder’s Equity NPAT ROE(%)

2017/18 10,787,885,501 1,697,503,224 18.67

2018/19 11,989,548,059 2,258,067,506 23.20

2019/20 12,818,604,934 1,776,234,524 16.09

2020/21 14,923,413,378 2,317,821,580 18.57

2021/22 16,911,170,411 2,093,115,828 14.13

Source: Annual Report of SBL

 22

ROE
25

20

15

10

0
2017/18 2018/19 2019/20 2020/21 2021/22

F/Y

Fig 2.3 Trend Line Showing Return On Equity (ROE)

Table and figure 2.3 shows the return on shareholder’s equity of Sanima Bank Limited.

The ROE of the bank is 18.67 in FY 2017/18. Similarly, the ROE of the bank is slightly

increase to 23.20 in FY 2018/19 and highly decreased in FY 2029/20 i.e. 16.09. But in

FY 2020/21 the ROE is slightly increase to 18.57. And again, it decrease to 14.13 in

FY 2021/22. Analyzing the ROE of the bank it decrease in first fiscal year but slightly

increase in second fiscal year. And then again, it decrease in next fiscal year. As it

analyzing the overall ROE of the bank , the ROE is in fluctuating trend as the year

increases.

D) Dividends Per Share(DPS)

Dividend Per Share (DPS) is the total amount of dividends attributed to

each individual share outstanding of a company. It is calculated by

Total Dividend
DPS: No.of Common Share x 100
 23

Table 2.4: DPS of Sanima Bank

F/Y Total Dividend No. Of Common Share DPS

2017/18 11,201,758 80,012,554 14.00

2018/19 16,842,343 80,012,554 21.05

2019/20 11,969,878 88,013,810 13.60

2020/21 17,320,238 96,815,191 17.89

2021/22 12,437,460 113,273,773 10.98

Source:Annual Report of SANIMA Bank

DPS
25

20

15

10

0
2017/18 2018/19 2019/20 2020/21 2021/22

F/Y

Fig 2.4: Trend Line Showing Dividend Per Share (DPS)

Table and figure 2.4 shows the dividend per share of Sanima Bank Limited. It shows

the fluctuating situation of DPS during this study period. The DPS in FY 2017/18 is

14.00 but in FY 2018/19 is highly increased to 21.05. And again it highly decreased to

13.60 in FY 2019/20. Similarly , in FY 2020/21 DPS of the bank is slightly increases

to 17.89. And again it decrease to 10.98 in FY 2021/22. Analyzing the DPS of the bank

in first fiscal year is decreased but in second fiscal year, it highly increasing and vice:

versa. Analyzing in overall DPS of the bank is in fluctuating situation. Therefore, DPS
 24

of the bank is slightly decreasing year by year due to the change in total dividend and

common share.

E) Earning per Share(EPS)

Earnings Per Share (EPS) is a financial metric calculated by dividing the Net income

by the total number of outstanding common shares. Investors use EPS to assess a

company’s performance and profitability before investing. Higher EPS means the

NPAT
company is more profitable. It is calculated by EPS =
No of Common Share

Table 2.5: EPS of Sanima Bank

F/Y NPAT No. Of Common Share EPS

2017/18 1,697,503,224 80,012,554 21.22

2018/19 2,258,067,506 80,012,554 28.22

2019/20 1,776,234,524 88,013,810 20.18

2020/21 2,317,821,580 96,815,191 23.94

2021/22 2,093,115,828 113,273,773 18.48

Source: Annual report of SBL

EPS
30

25

20

15

10

0
2017/18 2018/19 2019/20 2020/21 2021/22

F/Y

Fig 2.5: Trend Line Showing Earning Per Share (EPS)

 25

Table and figure 2.5 shows the earning per share of Sanima Bank Limited. The EPS of

the bank is 21.22 in FY 2017/18. Similarly, EPS of the bank is increases to 28.22 in FY

2018/19. Again the EPS of the bank is decrease in FY 2019/20 i. e. 20.18 whereas in

next FY 2020/21, it slightly increase to 23.94. But again in FY 2021/22, EPS of the

bank is decreased to 18.48. Analyzing the EPS of the bank in second fiscal year, EPS

is increased but in next fiscal year it decreases. Similarly EPS of the bank is increasing

and decreasing year by year which means it is in fluctuating situation.

2.2. Findings

In this project work report, we study about the profitability analysis of Sanima Bank

Limited. And found that their ratio are in fluctuation situation due to change in all types

of materials and other information like total assets, total share, change in total profit in

every year, dividend and other components. In compliance with analysis, the following

findings as made:

• In table and figure 2.1 shows net profit margin of the bank from FY 2017/18 to

2021/22. In FY 2017/18 the percentage of NPM is 42.34%. It slightly decrease in FY

2018/19 which is 42.15%. And again NPM of the bank is drastically falls in FY 2019/20

which is 33.58%. But in next FY 2020/21 , the NPM is increased to 39.84 and then in

FY 2021/22 the NPM is decreased which is 34.71%. The NPM of the bank is in

fluctuating situation. In some fiscal year, It shows that the NPM may goes upward in

next fiscal year. The increase and decrease in NPM of the bank due to the change in

NPAT and Total Operating Revenue.

• In table and figure 2.2 shows the return of assets of Sanima Bank Limited. There is

no any high difference between the minimum and the maximum point of the ROA. It
 26

slightly fluctuate in small difference. In FY 2017/18 ROA of the bank is 1.85% whereas

in FY 2018/19 is slightly increase to 2.07%. But in FY 2019/20 ROA is again decreased

to 1.41%. The ROA is slightly increase in FY 2020/21 which is 1.44% and again it

decrease in FY 2021/22 i.e. 1.09%. The return on assets ratio measure how effectively

a company can earn a return on its investment in assets. In other words, ROA shows

how efficiently a company can convert the money used to purchase assets into net

income or profits. Analyzing the return on assets of the bank , the ratio is 1.6% means,

every rupees that bank invested in assets during the year produced Rs.1.6 of net income.

Depending on the economy, this can be a healthy return rate no matter what the

investment is. The bank return on assets is very low in each year as it is commercial

bank.

• In table and figure 2.3 shows the return on shareholder’s equity of Sanima Bank

Limited. The ROE of the bank is 18.67 in FY 2017/18. Similarly, the ROE of the bank

is slightly increase to 23.20 in FY 2018/19 and highly decreased in FY 2029/20 i.e.

16.09. But in FY 2020/21 the ROE is slightly increase to 18.57. And again, it decrease

to 14.13 in FY 2021/22. Analyzing the ROE of the bank it decrease in first fiscal year

but slightly increase in second fiscal year. And then again, it decrease in next fiscal

year. As it analyzing the overall ROE of the bank , the ROE is in fluctuating trend as

the year increases.

• In table and figure 2.4 shows the dividend per share of Sanima Bank Limited. It shows

the fluctuating situation of DPS during this study period. The DPS in FY 2017/18 is

14.00 but in FY 2018/19 is highly increased to 21.05. And again it highly decreased to

13.60 in FY 2019/20. Similarly , in FY 2020/21 DPS of the bank is slightly increases

 27

to 17.89. And again it decrease to 10.98 in FY 2021/22. Analyzing the DPS of the bank

in first fiscal year is decreased but in second fiscal year, it highly increasing and

vice:versa. Therefore, DPS of the bank is slightly decreasing year by year due to the

change in total dividend and common share.

• In table and figure 2.5 shows the earning per share of Sanima Bank Limited. The EPS

of the bank is 21.22 in FY 2017/18. Similarly, EPS of the bank is increases to 28.22 in

FY 2018/19. Again the EPS of the bank is decrease in FY 2019/20 i. e. 20.18 whereas

in next FY 2020/21, it slightly increase to 23.94. But again in FY 2021/22, EPS of the

bank is decreased to 18.48. Analyzing the EPS of the bank in second fiscal year, EPS

is increased but in next fiscal year it decreases. Similarly EPS of the bank is increasing

and decreasing year by year which means it is in fluctuating situation.

 28

CHAPTER III
SUMMARY AND CONCLUSION

3.1. Summary

Nepal is one of the least developed countries of the world. For most of the developing

process, it is financially depending upon the foreign countries. It is economically too

weak. Thus, the economic condition of the people is weak. In Nepal 85% of the people

are depended upon agricultural sector which is unable to provide full employment to

the people. Nepal government has to activate people in the nation’s development

through overall industrialization of nation. For this purpose, development of sound

banking system is essential.

The commercial banks are of foremost importance to a country because of their roles

as a strong pillar for the economic development of a nation. With the wave of the

globalization and advancement in technologies, without the strong base of commercial

banking platform, the economic development of a nation is bound to be paralyzed.

Thus, it would be very legitimate to say that the commercial banks are of a more

importance to a developing country like Nepal and SANIMA Bank Ltd. being the

pioneer financial institutions of Nepal, has undouble filled such gap to a great extent.

Sanima Bank has been committed to meet customer expectations in all areas of its

business through continuous improvement of overall benefit of the economy. Sanima

Bank Limited is a national level commercial bank promoted by highly prominent

business personalities groups and reputed individuals of the region who have excelled

in their field of business/ profession with very good integrity and social standings.
 29

The main objective of the study is to analyze the profitability position the the ratio

analysis of the bank. The ratios includes: NPM, ROA, ROE, DPS and EPS. The ratio

has been calculated as per the objective of the study. The bank is continuously

developing its capacity and extending its business area, for this the bank needs to well

equip and motivate its staff to do their work. The bank has invested in learning and

commercials programs so that it can add to the skill of employees to face future

challenges. It continuously looks for the opportunity for adding value to the

shareholders. The ratio is decrease because the market value per share of the bank is in

decreasing order and EPS also in decreasing order. Analyzing overall ROA of the bank

, ROA is decreasing in every year due to that bank makes less profit. Here, the ROA is

in fluctuating situation. It means the net profit of the bank is also fluctuating . The NPM

of the bank is also in fluctuation over the period.

3.2. Conclusion

With some commercial banks and development banks operating in Nepal, the market

seems over crowed and the banks are now finding a tough competition among

themselves. Since the entry barriers are not so high due to the government’s liberal

policy, this competition is expected to be more intense in the near future, as there is

always the possibility of a new player entering this sector. SANIMA Bank has not

maintained a balanced ratio among its deposit liabilities. Consequently, the bank does

not seem to be able to utilize its high cost resources in high yielding investment

portfolio. The investment portfolio of the bank has not been managed so efficiently as

to maximize the returns there from. The operational efficiency of the bank is found
 30

unsatisfactory because of the series of operational loss over the period. Lower market

value is a reflection of a weaker profitability ratio of the bank.

On the basis of this study, the following conclusion can be made:

• The NPM of the bank is in fluctuating situation. In some fiscal year, NPM

is highly increased and in some fiscal year, it is highly decreased.. The

increase and decrease in NPM of the bank due to the change in NPAT and

Total Operating Revenue.

• The ROA of the bank is downward in every fiscal year due to change in

NPAT and total assets of the bank.

• The ROE of the bank , it increases in second fiscal year and again it starts

to decreased in next three fiscal year.

• In FY 2028/19 and FY 2020/21, DPS of the bank is increase as compared to

other fiscal year because it increases with the decreasing rate. So its DPS is

in decreasing trend.

• Analyzing the overall earnings per share of the bank , the EPS in FY 2018/19

is highly increased and other fiscal year EPS is slightly increasing and

decreasing. It means that EPS of the bank is in fluctuating trends as the year

increases.
 31

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Drury, Colin & Tayles, Mike.(2006). Profitability analysis in UK organizations: An

exploratory study, The British Accounting Review, 38(4), 405-425.

Financial Analysis of Sanima Bank(2022). Financial Analysis of Sanima Bank.

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Hayes, A.(2022). Profitability Ratios of Commercial Bank. Research on economic,

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Oxide, C.(2022). Background of Commercial Bank: Sanima Bank Limited. Banking:

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Poudel, R.B., Baral, K. J., Joshi, P.R., Gautam, R.R, Rana, S.B.(2016). Fundamentals

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https://en.m.wikipedia.org/wiki/Profitability_analysis.