SUMMARY, CONCLUSION AND RECOMMENDATIONS

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1Summary

A Commercial Bank means the bank which deals with exchanging currency, accepting deposit, giving loans doing other various commercial transactions. Therefore, the major function of Commercial Bank is to accept deposits and provide loans.

There is not so long history of Commercial Bank in Nepal. Nepal Bank Limited established in 1994 B.S. was the first Commercial Bank of the Nepal. But now there are twenty five Commercial Banks all over the country and they have been expanding their services by establishing branches in every corner of the country.

The assets of Commercial Bank indicate the manner in which the funds entrusted to the bank are employed. The successful working of the bank depends on ability of the management to distribute the fund among the various kinds of investment known as assets outstanding loan advance of the hank. These assets constitute primary source of income to the bank. As being a business unit a bank aims at making huge profit since loan and advances are more profitable than any other assets of the bank, it is willing to lend as much as its fund as possible. But the bank has to be careful about the repayment of loan and interest giving loan. If the bank is too timid, it may fail to obtain the adequate return on the fund, which is confined to it for use. Similarly, if the bank is too liberal, it may easily impair its profits by bad debts. Therefore, bank should not forget the reality that most of the bank failures in the world are due to shrinkage in the value of the loan and advances.

Despite of being loan and advances, more profitable than other assets, it creates risk of non repayment for the bank. Such risk is known as credit risk or default risk. Therefore like other assets, the loan and advances are classified into performing and non performing assets on the basis of overdue aging schedule. If the dues in the form of principal and the interest are not paid, by borrower within a  maturity period, that amount of principal and interest is called non performing loan or assets. Performing assets have multiple benefits to the company as well as to the society while non performing assets erode even existing capital of the bank. So, the proper management of credit in commercial has been key for the success.

Credit administration involves the creation and management of credit and advances. Portfolio rnanagemen helps to minimize or manage the credit risks by spreading over the risk to various portfolios. Bank earns interest on credits and advances, which is one of the major sources of income for bank.

5.2 Conclusions

NBL has sufficient liquidity. It shows that bank has not got investment sectors to utilize their liquid money. Now, in Nepal, many banks and other financial institutions are functioning to collect deposits and invest money somewhere in invest able sectors. Therefore, monetarization have been increased since liberalization policy taken by the government. Heavy remittance has also help to increase the amount of deposits in bank. On the other hand, due to political crisis, economic sectors have been fully damaged. Most of the projects have been withdrawn due to security problem. Therefore, bank has maximum liquidity due to lack of safety investment Sectors.

·        Due to economic crisis in the country, credit takers are not getting good return from their investment sectors. On that situation, credit customers do not return money of the bank in the stipulated time period, therefore, the non-performing credit of the bank increases. As the non-performing credit increases, bank should increase its provision for credit loss.

·        Credit related financial indicators demonstrate the quite poor situation in Nepal Bank Limited. Therefore, Financial Sector Reform Program is below the level and still much needs to be done, It can also be concluded that there has been almost similar procedures and policies while granting the loan, not much change from its conventional methods.

5.3 Recommendations

The present study can b e a valuable piece of research works in liquidity management. It explored the existing Situation and identified the various components for further improvement in liquidity management. Secondary sources of information are used for fulfilling the objectives. Based in the findings of the study, the researcher recommended highlighting the guidelines to put forward for further improvement.

Corporate structure of bank plays key role in the effective loan management. Being loan a risky asset. efforts should be made to have proper control in every steps of loan management. The banks should establish separate department for credit appraisal, documentation, disbursement, inspection and recovery of loan which have possibility of finding mistakes of one department by the others so that the effectiveness can be achieved.

·        Loan must he given if the banker is satisfied that the borrower ca repay money from the cash flow generated from operating activities. However, the banks want to ensure that their loan is repaired even in case of failure of business. To prevent banks from such happenings. the bank take collateral is disposed for the recovery of loan. Therefore, the bank should take proper valuation of collateral so that the bank at least will be able to recover its principle and interest amount in case of failure of the borrower to repay the loan.

·        Lack of proper financial analysis of the borrower by the banks, is one of the major cause behind increasing NPA of Nepalese commercial banks. Therefore, proper financial analysis should be performed before giving loan to the borrower.

·        Competition is increasing day by day in banking industry. Again complete foreign bank can he established after 2010 B.S. So the bank should adopt efficient and modem management concept to make their activities quick and moving there by fulfilling the growing demand of current financial services.

·        Nepal Rastra Bank should regulate all the deposit accepting financial institution under the supervision and regulatory activity so that general people can feel the security of their deposits.

·        The customers are seeking different innovative products with quality. So, banks should modify their products. The banks should come out with new products in retail banking. Hence to retain the Customers’ banks have to come out with competitive products satisfying the desire of the customer at the click of a button.

·        Bank may go for detail market research, which will help them in knowing what their competitors are offering to their clients. This ii11 enable them to have an edge over their competitors and increase their liquidity management pie by offering better products and services.

·        Credit related financial indicators in Nepal Bank Limited seem irrelevant in comparison with the specified standard of Nepal Rastra Bank. Therefore more focus should be given to improve the liquidity management of Nepal Bank Limited such as credit granting procedures. updating the credit files, value of collateral and maintaining the loan loss provisions adequately.

·        New commercial banks are arising day by day with modern banking systems. Lending procedures have been made surprisingly short. And customers can get the loan within a maximum of a week days. So Nepal bank should also compete with them in lending procedures and other banking systems.

·        Cash and bank balance of Nepal Bank Limited is high. Bank’s efficiency should be increased to satisfy the depositors at low level of cash and bank balance. Unused cash and bank balance do not provide return to the bank. Therefore, some percentage of the cash and bank balance should be invested somewhere in profitable sectors.

·        Bank should regularly follow the credit customer to confirm that whether the customers have utilized their credit for same purpose or not, committed at the time of taking credit from the bank.

·        Bank should strictly band the policy of nepotism and favoritism. On the basis of capability and efficiency. recruitment, placement and promotion should be executed.

·        Bank should carefully examine the principle of safety as well as sources of repayment, capital structure and credit worthiness of a borrower before providing loans. In other word, credit and risk must be evaluated by considering well-known five C’s of credit viz. character, capacity, capital, collateral and condition so that the bank is able to mobilize and utilize the resources.

·        The economic Liberalization policy adopted by Government of Nepal has created environment of cutthroat competition even in the banking sector. In this context, Nepal Bank Limited bank is suggested to formulate and implement some sound and effective financial and non-financial strategies to minimize their operational expense to meet required level of profitability.

·        Nepal Rastra Bank should tighten the supervision and inspection activity towards the commercial banks and financial institution so that the accounting manipulation can be  avoided. It is because; there are huge decreases in the net profit in Nepal Bank Limited for the lack of quality credit.

·        The loss incurred by Nepal Bank Limited has decreased significantly after the implementation of financial sector reform programmed but at the same time the volume of non- performing assets is increasing. This indicates that liquidity management is not sufficient. So the Nepal Bank Limited management should generate the. real profit through credit disbursement.

·        Nepal Bank Limited has one more advantage of getting income from government transaction which other private and joint ventures bank do not have. It receives huge amount of commission from the government in return of doing government transaction. So, bank is suggested to handle government transaction properly so that no other banks except Nepal Bank Limited and Rastriya Banijya Bank get this chance continually in future.

·        Due to poor credit administration, the credit recovery process is slow as well as legal process in the recovery of credit is lengthy and ineffective. Clear-cut objective and policy of the liquidity management is lacking so that non-performing credit is going upward. To get better result in the coming future, bank should reduce the volume of non-performing credit.

·        The banks should adopt efficient and modern management concept to make their activities quick and moving there by fulfilling the growing demand of current financial services.

·        Total deposit is not correlated with the loan and advances. This is very serious matter and the main reason is the case of over liquidity that the bank has maintained so far. Thus, the bank should mobilize the deposit and try to bring the correlation between total deposit and loan and advance in an appropriate level.

·        To meet customer's requirement the bank should focus on value added tasks like making front line decisions, making actions plans, improving process reviewing progress, analyzing successes and failures, providing feedback to suppliers, reducing costs etc.