Chapter 1 INTRODUCTION 1.1 Background Today’s world is the world of global economy. Economy is the backbone of any country and financial institutions. Banks are the major institutions that affect the economy of a country. Being a finance student, we should be aware with current scenario of the bank and their performance and as a part of it, I would like to prepare a report on the financial position of Standard Chartered Bank. A bank is an institution, which deals in money, receiving it on deposit from customers, honoring customer's drawing against such deposit on demand, collecting check for customers and lending or investing surplus deposits until they are required for repayment. In the present days, various types of banks are established, for instance, industrial bank, commercial bank, agriculture bank, joint-stock bank, co-operative bank and development bank. Modern banks are more advanced than the ancient ones. Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987 when it was initially registered as a joint-venture operation. Today the Bank is an integral part of Standard Chartered Group having an ownership of 75% in the company with 25% shares owned by the Nepalese public. The Bank enjoys the status of the largest international bank currently operating in Nepal.
1.2 Statement of Problem There are various multinational banks in Nepal which are operating since decade and their performances are even better comparing to other local banks. Standard Chartered, being one of the renowned multinational is showing an excellent performance comparing to other multinational bank and local. However with the increase in the number of financial institution, competition in this sector is also neck to neck, but standard chartered is being able to maintain its standard and reputation among its customer. Hence, at this scenario when more and more financial institution are emerging, I would like to find out how standard chartered is being able to maintain its level by analyzing its financial position.
1.3 Purpose and Scope of Work The purpose of this study is to find out the financial position of Standard Chartered Bank Nepal and to know is it its financial performance. Breaking down the goals of this study provides us with following objectives:
To assess the impact of various financial ratios of Standard Chartered Bank Nepal
To know the financial position of Standard Chartered bank Nepal in the banking industry
To apply the theoretical concept in the real scenario
Chapter 2 Literature Review In order to better understand the topic various literature were reviewed that were related to banking and finance.
2.1 Introduction In 1920s, interest in ratio analysis increased dramatically. Many publications on the topic of ratio analysis published during this period. Different credit agencies trade unions, universities and individuals seeking analyses compiled industry data on ratio analysis. Justin (1924) argued that the method of gathering industry data and calculates averages were called “Scientific ratio analysis”. The word “scientific” in this title was not entirely correct because no evidence had been found that the hypothesis formulation and hypothesis testing actually carried out. Horrigan (1968) says ratios analysis has come into existence since early ages and the main reason of the development of ratio analysis was its use in the analysis of the properties of ratios in 300 B.C. in recent time it is used as a standard tool for the analysis of financial statement. In nineteenth century main reasons of using ratio analysis are power of financial institutions and shifting of management to professional managers. Ratio analysis used for two purposes that are credit and managerial. In managerial approach profitability and in credit approach capacity of firm to pay debts is the main point of focus. Generally, ratio analysis is used credit analysis.
Bollen (1999) conducted a study on Ratio Variables on which he found three different uses of ratio variables in aggregate data analysis: (1) as measures of theoretical concepts, (2) as a means to control an extraneous factor, and (3) as a correction for heteroscedasticity. In the use of ratios as indices of concepts, a problem can arise if it is regressed on other indices or variables that contain a common component. For example, the relationship between two per capita measures may be confounded with the common population component in each variable. Regarding the second use of ratios, only under exceptional conditions will ratio variables be a suitable means of
controlling an extraneous factor. Finally, the use of ratios to correct for heteroscedasticity is also often misused. Only under special conditions will the common form forgers soon with ratio variables correct for heteroscedasticity. Alternatives to ratios for each of these cases are discussed and evaluated.
2.2 Empirical analysis of financial ratios: Pinches and Mingo (1973) evaluate the structure of ratios and found that ratios can be divided into different groups. Present general classification of financial ratios on logical basis. Results concluded that the ratios can be divided into four groups that are financial leverage, short-term capital intensiveness, return on investment and long-term capital intensiveness. Stevens (1973) also studies the topic of ratio classification and grouped the financial ratios in four categories that include activity, liquidity, leverage and profitability. Pinches, Mingo, and Caruthers (1973) and Pinches, Eubank, Mingo, and Caruthers (1975) carry on further worked on this subject and categorized the financial ratios in seven factors that include receivable turnover, capital turnover, short-term liquidity, return on investment, inventory turnover, financial leverage and cash position. Libby (1975) also studies the division of financial ratios and condenses that division from seven to five. Five divisions include liquidity, activity, cash position, profitability and assets balance. Johnson (1979) further studies the research of Pinches (1973) and added another factor that is decomposition measure into seven factors. Chen and Shimerda (1981) deeply examined five published studies and find out that some of the twelve factors that have been presented in the studies has same and simply name is changed. Therefore, twelve factors are grouped into seven factors. Seven factors are cash position, financial leverage, inventory turnover, short-term liquidity, return on investment, receivable turnover and capital turnover. Timo Salmi and Teppo Martikainen states that financial ratios are widely used for modeling purposes both by practitioners and researchers. The firm involves many interested parties, like the owners, management, personnel, customers, suppliers, competitors, regulatory, agencies, and academics, each having their views in applying financial statement analysis in their evaluations. Practitioners use financial ratios, for instance, to forecast the future success of companies, while the researchers' main interest has been to develop models exploiting these ratios.
Chapter 3 RESEARCH METHODOLOGY 3.1 Research Research is a process in which the researcher wishes to find out the end result for a given problem and thus the solution helps in future course of action. The research has been defined as “A careful investigation or enquiry especially through search for new facts in branch of knowledge”
3.2 Research Design Redman and Mory (1923) defined research as a “systematic effort to gain new knowledge” According to Clifford Woody “research comprises defining or redefining problems, formulating hypothesis or giving solutions, collecting, organizing, evaluating the data, making deductions and reaching conclusions and at carefully testing the conclusion to determine whether they fit the formulating hypothesis” The research design used in this project is Analytical in nature the procedure using, which researcher has to use facts or information already available, and analyze these to make a critical evaluation of the performance.
3.3 Data Collection Method: 3.3.1 Primary Data: Primary data is the information collected by the researcher in first hand. This data is collected by the researcher in order to analysis the research. Primary data is collected from the field organization selected that is from the employees, customers and observing the real life situations. The main benefit of the primary data is collected only for the specific study so it is more relevant to the study. But there is disadvantage for the collection of primary data it involves more cost and time. It is not suitable for short term study. Primary data for this proposal will be collected from the employees and customers of Standard Chartered in order to know how they work with Standard Chartered bank Nepal and the financial conditions of the same bank. Primary research may be quantitative and qualitative research. Qualitative research is the method where the researcher set the questionnaire which will give to large number of respondents (Hair,
Wolfinbarger, Ortinau, and Bush, 2008, p81). Based on the responses the data will be analyzed. In this study, questionnaire will be given to the customers and employees of Standard Chartered bank to analyze the data regarding the financial ratios. 3.3.2 Secondary Data Secondary data is the information which is collected already and it is used for some other studies by different researcher. This data not only used for the current study. The sources of secondary data are books, journals, articles, newspapers, internet, government, corporate reports and library. The advantage of this data it is easily available and also very cheap compared to primary data. In this study we are using secondary data for the analyses of ratio in order to know the financial performance of HSBC bank. From the annual reports maintained by the company. Data are collected from the company’s website. Books and journals pertaining to the topic.
3.4 Research Approach: There are two types of research approaches Inductive and Deductive approaches. Inductive approach is the approach that starts with specific objectives and become generalized. It begins by identifying the issue by observation or being informed. Deductive approach is the approaches where the conclusions derived from the situation. It begins with general situation and ends by identifying the specific issue. Arguments based on the rules, laws and regulation will be using deductive approaches and the argument based on the observations will be using the inductive approaches.
3.5 Tool for Data Collection Questionnaire will be used as a tool for data collection as it provides the advantages of allowing the respondents to answer at their convenience and faster data collection. The questionnaire explicitly stated the purpose of study as academic and assured confidentiality of information solicited from the respondent.
Chapter 4 Conclusion This dissertation proposal starts with the introduction of bank, and helps to know the importance of financial ratios for banking sector. The researcher will work towards the financial ratios of Standard Chartered Bank Nepal from the sources of annual reports, financial statements like balance sheet in order to know the financial position of Standard Chartered Bank Nepal by getting the data from the bank customer and employees.
Financial ratios are used to measure the profitability, liquidity and assets management performance of any company. The study will show that overall bank performance of the current year.
Finally, Standard Chartered Bank Nepal is one the most renowned bank in a country. At these phase where more and more bank are going through complications, Standard Chartered Bank Nepal is one of those Bank which provide with a high security and high concern. Hence to know the success behind their success, this study is partially conducted.
