Post on 14-Apr-2018
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Comparative Analysis on Financial
Performance of Sunrise Bank and Prime Bank
Under CAMEL Framework
Presented by: Arjun Niroula
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Background
Financial sector is the backbone of a countrys economy
More than 70% of Total Assets of Nepalese Financial
Institutions is held by Banks.
Innovation, Deregulation and Globalization has made banking
sector riskier and more complex.
CAMEL framework has been used to analyze the health of
financial institutions.
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Objectives of the Study
To analyze Capital Adequacy, Liquidity Position of SUNRISE
and PRIME and compare with regulatory requirements.
To analyze comparative quality of assets in terms of NPL of
these banks.
To evaluate the level, trend and stability of SUNRISEs earning
and compare it with PRIME.
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Components of CAMEL Capital Adequacy
Core Capital Adequacy ratio
Tier 1&2 to Total Risk Weighted Assets
Debt Equity Ratio
Advances to Assets Government Securities to Total Investment
Asset Quality
Assets Composition
NPL ratio
Net NPA to Net Advances
Total Investment to Total Assets
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Management Effeciency
Total Advances to Total Deposits Return on Net Worth
Business per Employee
Profit per Employee
Earning Quality
ROA
Operating Profit to Average Working Fund
Spread to Total Assets
Net Profit to Average Assets
Interest & Non Interest Income to Total income
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Liquidity Ratio
Liquid Assets to Total Assets
Government Securities to Total Assets
Liquid Assets to Demand Deposits
Liquid Assets to Total Deposits
Approved Securities to Total Assets
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Findings of the Study
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Findings
Proportion of Core capital is high on total capital fund as compared to that of
supplementary capital. This means both banks have focused more on permanent
source of capital in their overall capital fund to mitigate the risks of their risky
assets.
Both banks Sunrise and Prime are able to maintain minimum capital fund
requirement as prescribed by NRB. Sunrise Bank increased its Capital fund in2009/10 after falling short of minimum capital requirement in 2008/09 of 10% of
its risk weighted assets.
NPL of both banks were found to be in increasing trend with SUNRISE Bank having
greater proportion of NPL than that of PRIME Bank. This shows efficient credit
management and recovery efforts are required for both the banks.
Both Banks has maintained good level of Advances to Deposits providing leverage
for their institutions. PRIME Bank's utilized more of its Deposits in the form of
Loans and Advances than that of SUNRISE. On an average, SUNRISE Bank had
80.33% of Advances to Deposits while that of PRIME had 82.15%.
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The Mean Return on Net Worth of SUNRISE was 6.43%. This ratio is fluctuating. It
shows inefficiency of management and average earning quality of the institution.
The average Return on Net worth of PRIME is 14.97% which is higher than that of
SUNRISE but has declining trend.
The mean ratio of Net Interest Margin to Total Assets is found to be low for both
banks. This is due to continually decreasing spread for both banks as depicted fromappendix.
Interest Income as for all banks, has been the major source of income for both the
banks. It was found that average interest income out of total income of SUNRISE
was 91.58% while that of PRIME was 91.46% whereas average non-interest income
of SUNRISE and PRIME was 8.42% and 8.54% respectively.
It is found that SUNRISE Bank had more liquidity than that of PRIME Bank. PRIME
Bank had lower liquidity than that of SUNRISE, as its Advances to Deposits was
found to be more than its contemporary bank.
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Recommendations
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Recommendation
It is found that both banks have maintained the minimum requirement capital
fund requirement of NRB. Yet it is recommended that both banks should increase
the space between the minimum threshold of 10% capital fund of risk weighted
assets to secure its depositors and investors.
Higher Advances to Assets of SUNRISE Bank is not enough to say that it has
efficiency in fund utilization. This better side is neutralized by higher andincreasing trend of NPA. So, SUNRISE should focus more on qualitative deployment
of its funds.
Although PRIME Bank has lower proportion on non-performing loans to total loans
and advances during the study period, the bank requires checking this tendency
before they are ultimately written-off from the books of accounts.
Return on net worth of sunrise bank has a fluctuating trend and is lower than that
of its contemporary competitor. So, it needs to work hard by decreasing its
operational cost. It is also due to increasing operational expenses of sunrise bank
and greater amount of loan being default year by year.
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Net interest margin of sunrise bank is seen to be less than 4% in most of the years.
That is to say it is generating funds by providing higher interest rate to its
depositors. Confidence of customers thus needs to be built up in the context of
large number of commercial banks in Nepal. As it is a young bank in the industry, it
needs to provide more awareness in the financial market to attract more funds.
Although spread of sunrise bank seems to be on a higher side, this might be due togreater interest charged on its loan customers. As a general rule higher the risk,
higher the returns. Sunrise loan and advances seem to be concentrated on those
customers who are bound to pay higher interest as they don't get loan facility form
big banks. So, management team should try to scrutinize the credit information
from other big and contemporary banks.
Profitability base of sunrise bank is always lower than that of prime bank. As both
banks were established during same period, profitability of sunrise however, has
always shown ups and downs revealing inconsistency in performance. Therefore it
is suggested for SUNRISE to reduce its operational cost which has been increasing
rapidly in recent years. Efficiency in materials and stationery handling should be
prime focus to reduce the overall cost.
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Both the banks are suggested to invest more on small and medium level clients
more, viewing the present scenario of Nepalese market, whereby large projects
and business house are running on loss due to political instability. So, greater
investment on those sectors poses credit risk to banks portfolio if those big
investment do not yield good return.
The banks should adapt themselves quickly to the changing norms of NRB tosafeguard itself from the risk from the external environment.
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Thanking You!