CHAPTER 1

INTRODUCTION
1.1 Background of Study
Liquidity is the availability of liquid asset to a market or company it means how
quickly you can get your hands on your cash. In simple way, liquidity is to get your
money whenever you need it. liquidity might be your emergency saving account or
the cash lying with you that you can access in case of any foreseen happening or
financial setback. It allows you to size your opportunities.Liquidity refers to the
convertibility assets into cash. It means how fast the assets can be change into cash.
There are many assets which are easily converted into cash by the bankLiquidity is
also defined as the position or capability of a bank to meet the current obligation of
customers such as payment of cheque.Liquidity describes the degree to which
an asset or security can be quickly bought or sold in the market at a price reflecting its
intrinsic value. In other words: the ease of converting it to cash.

Liquidity analysis uses several ratios to determine the ability of an organization to pay
its bills in timely manner. This analysis is especially important for lender and
creditors, who want to gain some idea of financial situation of borrower or customer
before granting them credit. There are several ratios available for this analysis, all of
which use the same concept of comparing liquid assets to short term liability. They
are:

 Quick Ratio
The quick ratio is an indicator of a company’s short-term liquidity position and
measures a company’s ability to meet its short-term obligations with its most
liquid assets. It indicates the company’s ability to instantly use its near-cash assets
(that is, assets that can be converted quickly to cash) to pay down its current
liabilities, it is also called as the acid test ratio.

 Current ratio
The current ratio is a liquidity ratio that measures a company's ability to pay short-
term obligations or those due within one year. It tells investors and analysts how a
company can maximize the current assets on its balance sheet to satisfy its current
debt and other payables.

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1.1.1 Profile, events and activities

A bank is a depository institution, which accepts deposits and grants loan. It is a

financial intermediary which facilitates transferring of deposits from surplus unit of
the economy to the deficit unit of the economy. There are various types of banks.
Banks are divided into various groups according to their motive, capital etc. A Bank is
an institution which deals with money and credit. It accepts deposits from the public
and mobilizes the deposits to productive sectors. It also provides remittance facility to
transfer money from one place to another. Generally, Bank accepts deposit from
business institution and individual which is mobilized into productive sectors mainly
business and consumer lending. Bank is known as dealer of money. At present
context, Bank is not only confined to accepting deposit and distributing loan. In
addition to this, bank may be engaged in different types of functions such as
remittance, exchange currency, joint ventures, underwriting, bank guarantee,
discounting bills, etc. Banks are the principal source of credit for millions of
individuals and families and for many units of government. They are among the most
important financial institutions in the economy. Moreover, for small local businesses
ranging from grocery stores to automobiles dealers, banks are often the major source
of credit to stock the Helves with merchandise. Banks grant more installment loans to
consumer than any financial institutions.

Siddhartha Bank Limited

Siddhartha Bank Limited (SBL) is one of the largest private Commercial
Bank in Nepal which is 18th commercial bank to be licensed by Nepal Rastra Bank. It
started operation in Dec 2002 and has 197 branches all across the nation with its head
office in Kathmandu which provides entire commercial banking services and
remittance services.

The bank's shares are publicly traded as an 'A' category company in the Nepal Stock
Exchange.

Siddhartha Bank Limited is committed to providing its customers with excellent

service, innovative products, and state-of-the-art technology. The bank has a strong
focus on corporate social responsibility and is actively involved in various social and
environmental initiatives.

2
Siddhartha Bank Limited has received several awards and recognitions for its
performance and contribution to the banking industry in Nepal. It has been awarded as
the 'Bank of the Year' by The Banker, a leading financial magazine, and has also been
recognized by various organizations for its contribution to the economy and society.

Vision

To be a Leading Commercial Bank with Pan Nepal presence and become a household
name, providing wide range of financial products and services fewer than one roof.

Mission

Growth through Banking for ALL

1.2 Statement of the Problem

Problem statements are widely used by businesses and organizations to execute
process improvement projects. A simple and well-defined problem statement will be
used by the project team to understand the problem and work toward developing a
solution. The main purpose of the problem statement is to identify and explain the
problem. This includes describing the existing environment, where the problem
occurs, and what impacts it has on users, finances, and ancillary activities.
Additionally, the problem statement is used to explain what the expected environment
looks like.

A problem statement is a clear concise description of the issues that need to be

addressed by a problem solver or researcher. A problem statement is a concise
description of an issue to be addressed or a condition to be improved upon. It
identifies the gap between the current (problem) state and desired (goal) state of
research work. The first condition of solving a problem is the understanding the
problem, which can be done by way of a problem statement.

The main reason to select the topic “liquidity analysis” is to compare the liquidity
position of both the banks. The bank should maintain and forecast the liquidity need
for the period and optimum level of liquidity and equity based on the past liquidity
position.

 What is the position of current assets and current liabilities?

 What is the relation between Current Asset & Current Liabilities?

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1.3 Objective of the Study
Objective of the study is one of the important elements for conducting any research
because it helps in determining the possibility of conducting the study. The aim of the
study on the topic “liquidity management of siddhartha bank limited.” is to know the
liquidity condition and the trend of the banks.

The specific objectives of the study are as follows:

 To evaluate the liquidity position of siddhartha bank limited

 To analyze the relation between Current Asset & Current Liabilities.

1.4 Significance of the Study

This topic is selected because it is related with my study and this bank is selected
because of my convenience BBS Program. The researcher should give the proper
view about the financial position of the firm with presentation of the ratio and
graphical diagram.

Besides that the main significance of this study is that it helps to know about the
Analysis of siddhartha bank limited. Banks plays a vital role for the economic
development of the country. This study has significance to the researcher,
organization and stakeholder on the following basis:

 Helps stake holders to know about liquidity position of the organization.

 This would help the bank to observe the trend of liquidity position hold in the
period.
 This will help the bank to take corrective action.
 Shareholder can analyze the working capital of the organization.

1.5 Review of Literature

Review of literature is the process of reviewing the available material relating to the
particular research work. The review of literature is to read the related books and
other materials concerning researcher’s topic by him/her. It helps to researchers to
know what has been found about the topic and what new contribution can be made or
necessary. It supports the researcher to explore the relevant and true facts for the
reporting purpose in the field of study. In the course of research, review of existing

4
literature would be helpful to check the chances of duplication in the study. This
chapter includes the review of previous study, articles and conceptual framework for
the related studies. To present the real framework of the study, mere analysis is not
enough and review of some related materials should be dealt to give the research the
clear vision. Past study knowledge provides foundation to the present study. So
analysing and presenting the following parts define the literature review:

1.5.1 Conceptual review

Conceptual review provides the fundamental theoretical framework and foundation to

the present study. For this, various books, research paper, articles etc. dealing with
theoretical aspects of profitability is taken into consideration.

Liquidity

Liquidity is the availability of liquid asset to a market or company it means how

quickly you can get your hands on your cash. In simple way, liquidity is to get your
money whenever you need it. liquidity might be your emergency saving account or
the cash lying with you that you can access in case of any foreseen happening or
financial setback. It allows you to size your opportunities. Liquidity refers to the
convertibility assets into cash. It means how fast the assets can be change into cash.
There are many assets which are easily converted into cash by the bankLiquidity is
also defined as the position or capability of a bank to meet the current obligation of
customers such as payment of cheque.Liquidity describes the degree to which
an asset or security can be quickly bought or sold in the market at a price reflecting its
intrinsic value. In other words: the ease of converting it to cash.

1.5.2 Review of previous work

Bhaskaran Suresh (2018) concluded that recovery performance of commercial bank

continues to be unsatisfactory which contributes to the growth of commercial bank
even after the introduction of prudential regulations. They suggested legislative and
policy prescriptions to make commercial bank more efficient, productive and
profitable organization in tune with competitive commercial bank.

5
Bharti Urmila, Singh Surrender (2019) has study liquidity and profitability analysis
of commercial bank in India. The report studies the liquidity ratio and profitability
ratio from 2005 to 2012. The objective of this report is to measure and compare
performance of public, private and foreign banks by using turkeys multiple
comparison test.

1.5.3 Research Gap

Research Gap indicates the different between previous and present day in similar
field. Thus a researcher can find the research gap or different between those reports. It
is importance to find out the matters have been change in same field. Additional result
should be discovering various changes in research in short period. The review of
above relevant literature has contributed to enhance the fundamental understanding
and knowledge, which is required to make study meaningful and purposive. This
study will help to describe about liquidity condition of the Siddhartha Bank Limited.

There has been lots of article published related to various deposit mix of these banks.
There are various research conducted on financial management of these banks, but
there is few research available on "Liquidity Analysis" of Siddhartha Bank Limited.
Therefore, the researcher attempts to study in this area. The study of Liquidity
analysis of Siddhartha Bank Limited will probably be the first study in the subject
matter. So, this study will be fruitful to those interested person, parties, scholars,
professor, students, businessman and Government for academically as well as policy
perspective.

1.6 Research Methodology

Research Methodology refers to the various sequential steps to be adopted by a
research in studying a problem with certain objective in view. It is the research
method used to test the hypothesis. It describes the method and process applied in the
entire subject of the study.

1.6.1 Research Design

It is the plan, structured and strategy of investigation conceived so as to obtain answer

to research question and to control variance. Research Design indicates the plan of
action to be carried out in connection with proposed research work. It is purely and
simply the framework or plan for a study that guides the collection and analysis of
data. A true research design is concerned with various steps to collect the data for

6
analysis and draw a relevant conclusion. It is arrangement of condition for collection
and analysis of data that aims to combine relevance to the research purpose with
economy in producer. To achieve the objective of this study, descriptive and
analytical research design has been used. Some financial and statistical tools have
been applied to examine facts and descriptive techniques have been adopted to
evaluate liquidity analysis of the Siddhartha Bank Limited and Siddhartha Bank
Limited.

1.6.2 Population

Population refers to the entire collection of all observation of interest i.e. people,
objects or events as define by the researcher. A researcher must specifically define the
target population or the entire group on which they want to make the judgment.
Among the different financial institutions in Nepal, 21 commercial banks and 40
development banks are population of this study.

1.6.3 Sample

It is costly and time consuming for the study of universe or entire population. Thus, to
make easier to the study, representative portion of the population is selected for the
study that is known as sample. Therefore, from the list commercial banks, Siddhartha
Bank Limited are the sample for this study.

1.6.4 Methods of Data Collection

This study is conducted on the basis of secondary data. The data relating to analyse
the liquidity condition and trend of Siddhartha Bank Limited is collected from the
annual reports of concern banks. Supplementary data and information are collected
from number of institution and regulating authorities like Nepal Rastra Bank, annual
reports of concern banks and others. All the secondary data are compiled, processed
and tabulated in the time series as per the needs and objectives. In the other judge, the
reliability of data provided by the banks and other sources, they were compiled the
annual reports of auditors. Similarly, various data and information are collected from
the economic journals, periodic, bulletins, magazines and others published and
unpublished reports and documents from various sources.

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1.6.5 Methods of Data Analysis

Various statistical and financial tools are used in this study. Wide varieties of
methodology have been applied according to the reliability and consistency of data.
Before using the analytical tools to compare the results, the data containing in the
financial statement have been grouped re-ranged so as to make the comparison easy.
Data are collected from the various sources for the purpose of research and they are of
presented and analyzed which is the core part of the research work. The collected data
are first presented in a systematic manner and are then analyzed by different financial
and statistical tools to achieve the research objectives. Besides these, some graph,
charts and tables have been presented to analyze and interpreted the findings of the
study. The applied tools are:

1.6.5.1 Financial tools

A financial tool helps to analyse the financial strength and weakness of the firm.
Financial ratio is the mathematical relationship between two accounting figures. Ratio
analysis is one of the important financial tools that have been used in the study. A
ratio is simply on number expressed in term of another and such it expresses the
quantitative relationship between any two numbers. Ratio can be expressed in terms
of percent and proportion. Ratio analysis is a part of the whole process of analysis of
financial statements of any business or industrial concern especially to take output and
credit decision. Even though, there are many ratios to analyse and interpret the
financial statement, only those ratio are calculated and interpreted that are related to
the investment operation of the Bank have been covered in this study. The following
types of ratios have been used in this study:-

 Liquidity Ratio

Liquidity ratios are used to judge the ability of a firm to meet its short-term or
liabilities that are likely to mature in the short period. It measures the speed of firms
to convert the firm's asset into cash. This is quick measure of the liquidity and
financial strength of the firm. From them, much insight can be obtained into present
cash solvency of the Bank and its ability to remain solvent in the event of adversities.

The following are the liquidity ratios to identify the liquidity position:

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a. Current Ratio
Current assets
Current ratio = Current liabilities

b. Quick Ratio
Quick assets
Quick Ratio = Current liabilities

1.6.5.2 Statistical Tools:

For supporting the study, statistical tool such as Mean and Trend Analysis are used in
the study.

 Arithmetic Mean

Arithmetic Mean (Average) is statistical constants which enables us to comprehend in

a single effort of the whole. It represents the entire data by a single value. It provides
the gist and gives the bird’s eye view of the huge mass of unwieldy numerical data. It
is calculated as:

X=
∑X
N

Where,

X =Arithmetic mean

N=Number of observations

∑ X=¿ ¿Sum of observations

X = Data

1.7 Limitation of the Study

This study is only partial fulfilment of BBS program due to which there are some
limitation in the study which narrowed the generalization that is inadequate coverage
of the industry, study in the field, reliability of data and other variables. The study is
based on the secondary data. Therefore the output may not be accurate since the
secondary data induces various limitations. For the completion of the study, some
facts are to be considered as limitation of this research work:

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 Data contains mostly of the annuals reports of Siddhartha bank Limited through
fiscal year 2074/75 to 2078/79.

 Analysis is based on the only profit part of the Siddhartha bank Limited.

 Only the secondary data is used.

1.8 Report Structure

Chapter-1: Introduction

Introduction and background of the study, also statement of problem, importance,

limitation, literature review and research methods etc. will be shown.

Chapter-2: Results and Findings

This chapter will show the result with help of using ratio and their trend analysis and
findings of the project work.

Chapter-3: Summary and Conclusion

This chapter will mention the summary and conclusion of the study.

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 CHAPTER 2

RESULTS AND FINDINGS

2.1 Data Presentation and Analysis

The basic objective of this chapter is to analyze and evaluate the collected data
following conversion of unprocessed data to an understanding presentation. Thus this
chapter is devoted to the presentation, analysis, interpretation and scoring the
empirical findings from the study through definite course of methods of the study.

In this section, raw data were collected from various sources and changed to an
understandable presentation using tools as mentioned in the previous chapter i.e.
methods of the study. The analysis of data consists of organization, tabulation of
liquidity conditions of banks.

2.2 Analysis of Liquidity Ratios

2.2.1 Current Ratio

The current ratio compares the amount of cash and investment to short term liabilities.
This ratio includes inventory, which is not especially liquid, and which can therefore
mis-represent the liquidity of a business. This ratio is calculated as:

Current Assets
Current Ratio =
Current Liabilities
Table 2.2.1
Current Ratio of Siddhartha bank Limited.
Fiscal year Current Assets Current Liabilities Ratio

2075/76

2076/77

2077/78

2078/79

2079/80

Mean

Source: Appendix-1

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 Figure 2.2.1

Current Ratio

1.14

1.13

1.12

1.11

1.1

1.09

1.08

1.07

1.06

1.05
2074/75 2075/76 2076/77 2077/78 2078/79

The above figure shows that the current ratio of SBL had increased to 1.13 in
year2078/79 then decreasing to 1.12 in year 2074/75 and remaining the same in year
2075/76 and again decreasing to 1.09 in year 2076/77. The current ratio of SBL had
decreased up to year 2074/75 to 1.09 and had increased to 1.13 in year 2076/77.

2.2.2 Quick Ratio

The quick ratio is an indicator of a company’s short-term liquidity position and

measures a company’s ability to meet its short-term obligations with its most liquid
assets. It indicates the company’s ability to instantly use its near-cash assets (that is,
assets that can be converted quickly to cash) to pay down its current liabilities, it is
also called as the acid test ratio. It is calculated as:

Quick Ratio = Current Assets

Current Liabilities

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 Table 2.2.3

Quick Ratio of Siddhartha bank Limited.

Fiscal year Quick Assets Current Liabilities Ratio

2075/76 32,783,146,630 91,677,077,700 0.36

2076/77 26,595,674,052 94,273,542,734 0.28

2077/78 32,295,170,501 115,588,989,953 0.28

2078/79 13,172,782,867 62,478,713,914 0.21

2079/80 25,116,482,060 83,443,319,579 0.30

Mean 14.478

Source: Appendix-2

Figure 2.2.2

Quick Ratio

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2074/75 2075/76 2076/77 2077/78 2078/79

The above figure shows that the quick ratio of SBL had increased up to year 2074/75
by 0.36 then decreased up to 2076/77 by 0.28. The quick ratio of SDBL had decreased
up to 2073/74 by 0.23 and increased to 0.30 by year 2076/77.

2.3 Major Findings of the Study

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 In an average, SBL maintain 1.108 CR
 In an average, SBL maintain 0.286 QR

 The current ratio of SBL had increased to 1.13 in year2078/79 then decreasing
to 1.12 in year 2074/75 and remaining the same in year 2075/76 and again
decreasing to 1.09 in year 2076/77.

 The quick ratio of SBL had increased up to year 2074/75 by 0.36 then
decreased up to 2076/77 by 0.28.

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 CHAPTER 3

SUMMARY AND CONCLUSION

3.1 Summary
In this last chapter of the study "Summary and conclusion" we have discussed and
explored the facts and matters we have found in last two chapters. Having completed
the basic analysis required for the study, the researcher must point out the mistakes
and error and also correct them by giving suitable suggestions for further
improvement. Therefore, this summarized and recommended tasks of the researcher
of the study would be meaningful to the top management of the bank to initiate the
action and achieve the desired result.

In the first chapter, the background and profile of the study consisting statement of the
problem, Significance and limitation of the study has been dealt. The relevant review
of literature has been made in terms of theoretical background of banking principles
as well as journals, articles and previous thesis have been reviewed and research
methodology that has been used to evaluate the liquidity analysis of Banks under
study. In this second chapter, the data and information are presented, analysed and
interpreted by the help of financial and statistical tools. Finally, in the third and last
chapter, summary, conclusion and implications have been made regarding the entire
study.

The data that have been analysed by such financial and statistical tool includes from
FY2076/77 to FY 2075/76. This study is mainly conducted on the basis of primary
secondary data. Therefore, the study has inherent limitation of the secondary data. All
the information gathered through primary sources has been assumed to true and
correct. The authenticity of the study depends on the authenticity of the data provided
and collected. For the systematic analysis of study, chapter plan has been made.

15
3.2 Conclusions and Implication

In Nepalese, banking sector, commercial banks including ventures banks are

operating at present in the absences of modern banking any country cannot develop
the economic activity. Therefore, it is essential to find out whether or not the banks
are serving and important contribution to develop sectors of economy. There is a
direct effect of current state of political instability of our country in the field of
commercial and financial sector. Due to the violating environment in the country,
people have not been able to mobilize and utilize the resources. Most of the
commercial banks have been struggling against the economic crisis. Despite such
conditions, it is found that bank under this study are running on profit. Thus, Banks
should be appreciated for their banking transactions inspire of the present critical
situation.

For partial fulfilment of the requirement of degree of Bachelor of Business Studies,

the researcher is selected to do thesis on analysis of financial performance of EBL and
SDBL. The researcher has used financial and statistical tools. Financial tools consist
of return on assets, net profit margin and return on equity. Similarly statistical tools
consist of mean, standard deviation and coefficient of variance.

After analysis of financial data of NMBBL and SBL the researcher has found that:

 The current ratio of SBL had increased to 1.13 in year2078/79 then decreasing
to 1.12 in year 2074/75 and remaining the same in year 2075/76 and again
decreasing to 1.09 in year 2076/77.

 The quick ratio of SBL had increased up to year 2074/75 by 0.36 then
decreased up to 2076/77 by 0.28.

 The average performance of Siddhartha Bank Limited is good regarding

current ratio and quick ratio.

Bibliography
16
Adhikary, D. (2016), Research Methodology, Kathmandu: Asmita Publication.

Rawal D. (2073), Commercial Bank Management, Kathmandu: Samjhana Publication

Bhandari, A.(2016), “Liquidity means the whole money or stock of money.”

D.W. Pearce, “Availability of cash and of assets readily convertible into Cash to meet
immediate obligations, this means, process, time and cost of conversion of
liquid assets should be little.”

Bhaskaran,S. (2014) recovery performance of commercial bank continues to be

unsatisfactory which contributes to the growth of commercial bank even after
the introduction of prudential regulations.

Bharti U, and Singh S.(2015) liquidity and profitability analysis of commercial bank
in India. The report studies the liquidity ratio and profitability ratio from 2005
to 2012.

Shrestha, (2014)“Liquidity management is the part of risk management framework of

the financial services industry, which concerns all financial institutions
whether they are commercial banks or development banks or finance
companies or other financial institutions.”

Website

 www.google.com

 www.wikipedia.com

 www.iddharthabank.com

17
 Appendix 1

Current Ratio of Siddhartha bank Limited.

Fiscal year Current Assets Current Liabilities Ratio

2074/75 102,305,959,614 91,677,077,700 1.12

2075/76 105,582,397,483 94,273,542,734 1.12

2076/77 126,477,418,097 115,588,989,953 1.09

2077/78 67,248,992,843 62,478,713,914 1.08

2078/79 94,701,621,482 83,443,319,579 1.13

Mean 20.486

Calculation of Mean ( X ) =
∑X
N

20.486
=
5

= 4.0972

Appendix 2

Quick Ratio of Siddhartha bank Limited.

Fiscal year Quick Assets Current Liabilities Ratio

2074/75 32,783,146,630 91,677,077,700 0.36

2075/76 26,595,674,052 94,273,542,734 0.28

2076/77 32,295,170,501 115,588,989,953 0.28

2077/78 13,172,782,867 62,478,713,914 0.21

2078/79 25,116,482,060 83,443,319,579 0.30

Mean 14.478

Calculation of Mean ( X ) =
∑X
N

14.478
=
5

= 2.8956