power point presentation on study of sunrise bank

7/30/2019 power point presentation on study of sunrise bank

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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!

power point presentation on study of sunrise bank

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