RISK AND RETURN OF JOYTI BIKASH BANK LIMITED

A Project Work Report

By:
Aayushma Luitel
T.U Regd. No: 7-2-1077-2-2020
Symbol No.
Brooklyn College

Submitted to:
The Faculty of Management
Tribhuvan University,
Kathmandu

In Partial Fulfillment of the Requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu
May, 2025
 TABLE OF CONTENTS

1. Background of the Study 1

2. Profile of Organization 2

3. Objective of the Study 3

4. Rational of Study 3

5. Literature Review 3

6. Research Methodology 9

7. Limitation of the Study 13

8. Organization of Study 13

Bibliography
 Bibliography

Adhikari, D. R. and Pandey, D. L. (2017). Business Research Methods. Kathmandu: Samjhana

Publication (P) Ltd.

Joshi, P.R. (2073 BS). Business Research Methods. Minbhawan, Kathmandu: Samjhana
Publication (P) Ltd.

Kansakar, S. B. S. (2019). Risk and return analysis of common stock investment (Unpublished
master‟s thesis). Central Department of Management, Tribhuvan University
Kathmandu.
Md. Zobaer et al., (2012). Analyzing and estimating portfolio performance of Bangladesh stock
market. American Journal of Applied Sciences, 10 (2): 139- 146DOI:10.3844/
ajassp.2013.139.146
Poudel, N.P. (2022). Investing in Shares of Return and Risk Elements With Special References to
Eight Commercial Banks.Development Finance Department. Kathmandu: Nepal Rastra
Bank.

Poudel, R. B., Baral, K. J., Joshi, P. R., Gautam, R. R. & Rana, S. B. (2017).
Fundamentals of Investment. Kathmandu: Asmita Books Publishers and
Distributors (P) Ltd.

Poudel, R. B., Baral, K. J.et al 2016). Fundamentals of Financial Management.

Kathmandu: Asmita Books Publishers and Distributors (P) Ltd.

Sharma, R. (2012). Risk and return analysis of commercial bank in Nepal (Unpublished
master‟s thesis). Prithvi Narayan Campus, Pokhara, Tribhuvan University.

Timilsina, Y. ((2017). Capital Market Development and stock price behavior in Nepal
(Unpublished master‟s thesis). Central Department of Management, Tribhuvan
University Kathmandu.

Website: Annual Report

 1

1. Background of the study

The term “risk and return” refers to the potential financial loss or gain experienced through
investments in securities. An investor who has registered a profit is said to have seen a “return”
on his or her investment. The “risk” of the investment, meanwhile, denotes the possibility or
likelihood that the investor could lose money. In an investor decides to invest in a security that
has a relatively low risk, the potential return on that investment is typically fairly small.
Conversely, an investment can be measured by nominal rate or real rate (money earned after the
impact of inflation has been figured into the value of the investment).

The concept of risk and return are the determinant for the valuation of securities. However, risk
means that we do not know what is going to happen even though we occasionally have a good
idea of the range of possibilities that we face. In general sense, risk can be defined as the change
of loss. Assets having greater changes of loss. Assets having greater changes of loss are viewed
as more risky than those with lesser change of loss. More finally, the term risk is used
interchangeably with uncertainty to refer to the variability of returns associated with a given
assets. Most of the investors are risk averse. Investors must seek to identify the stocks having
low risk which results high returns. A rational investor wants to maximize his/her return at
minimum risk.

Even the investors can‟t increase the return; substantially they can reduce the risk by
diversification of investment in different securities making a portfolio. Making a portfolio of
common stock, an investor can‟t eliminate all the risk. Risk is of two types, i.e. systematic risk
and unsystematic risk. Unsystematic risk can be eliminated by diversification. Business risk and
financial risk is the component of unsystematic risk. But, the systematic risk can‟t be avoided
through portfolio of stock. Therefore, the study tries to measure risk and return of commercial
bank with the purpose of to evaluate the risk and return associated with the common stock
investment and to study the risk and return.
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2. Profile of Banks

Jyoti Bikash Bank Limited is a national level development bank engaged in commercial banking
activity with category "Kha" license from Nepal Rastra Bank.The Bank started its operation from
9th Shrawan 2065. Established by a core group of promoters coming from the employees of
Nepal Electricity authority among other businessmen, professionals and common citizens, the
bank had an original focused vision of promoting hydropower sector through lending credit
facilities to potential hydro projects. Continuously assessing the needs of the common citizens
and economy of the country on the whole, the Bank has by now established itself as a financial
institution catering to a large segment of the society with the cause of the citizens' needs at the
centre.
With the growing economy and a change in the demographic mix, more and more people are
getting engaged into commercial and financial activities and the need of credit and other banking
facilities has been on a tremendous rise. From personal financial needs to the financial needs of
small and medium size businesses to the needs of big corporates, the Bank has been at the
forefront of supporting the national goal of bringing about prosperity in the lives of the citizens.
Starting with an initial paid up capital of Rs. 259 Million, the Bank has reached a paid up capital
of Rs. 4.26 billion. In the journey of past 13 years, the Bank merged with Jhimruk Bikas Bank
Limited (FY 2073/74) and has acquired 2 more regional level development banks in, Raptiveri
Bikas Bank Limited (FY 2074/75) and Hamro Bikas Bank Limited (FY 2075/76).
The Bank currently has 121 branches across the county including 3 extension counter. The Bank
has also been providing services from network of ATM machines (75) and is in the process of
extending its reach through both branch and ATM expansion apart from reaching the growing
techno-friendly customers with wide range of digital banking products.

3. Objectives of the Study

 To Assess the level if Average return, required return of Joyti Bikash bank
 To the level of total risk, systematic risk and relatives risk of Joyti Bikash Bank
 To evaluate the relationship between risk and return
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4. Rationale of the Study

Bank is playing vital role in the economic development of the country. Efficient development of
banking sector in nation has helped to improve the living standard of the people and their
society. Return plays imperative part in the efficient development of banking sector. As well as,
investors should consider about investing in those securities that minimize risk and maximize
return. This study will explain the risk and return position of commercial banks in Nepal. It also
provides proper guidelines for making investment choices of stocks, bonds, debentures etc on the
basis of risk and return. It is also important to those people who are interested to know about risk
and return and who are looking for best sector to make investment that maximize their wealth by
reducing risk and increasing return. So, this study is expected to be useful to various concerned
persons or groups or organizations such as management, shareholders, creditors, depositors,
investors, researchers and the like.

5. Review of literature

Theoretical Review

This is the process of reviewing research studies or other relevant propositions in the related area
of the study so that all the past studies, there conclusion and deficiencies may be known and
further research can be conducted in a better way. A literature review is a text of a scholarly
paper, which includes the current knowledge including substantive findings, as well as
theoretical and methodological contributions to a particular topic. Literature reviews are
secondary sources, and do not report new or original experimental work. Most often associated
with academic-oriented literature, such reviews are found in academic journals, and are not to be
confused with book reviews that may also appear in the same publication. Literature reviews are
a basis for research in nearly every academic field. A narrow-scope literature review may be
included as part of a peer-reviewed journal article presenting new research, serving to situate the
current study within the body of the relevant literature and to provide context for the reader. In
such a case, the review usually precedes the methodology and results sections of the work.
 4

Common Stock
Common stock is a security that represents ownership in a corporation. Holders of common
stock exercise control by electing a board of directors and voting on corporate policy. Common
stockholders are on the bottom of the priority ladder for ownership structure; in the event of
liquidation, common shareholders have rights to a company's assets only after bondholders,
preferred shareholders and other debt holders are paid in full. Organized stock exchange in
Nepal is NEPSE. Currently 226 companies‟ common stocks are listed for secondary market
trading. OTC is also the market for trading common stock in Nepal. It is the main financial
instruments for investment to the investors.
Preferred Stock
A preferred stock is a class of ownership in a corporation that has a higher claim on its assets
and earnings than common stock. Preferred shares generally have a dividend that must be paid
out before dividends to common shareholders, and the shares usually do not carry voting
rights. It is a hybrid financial instrument, which provides a fixed rate of return to investors and
assumed to be less risky than common stock. In Nepal, 13 companies has issued preferred
stock.
Bond / Debenture
In context of Nepal, bonds are largely inactive and occupy lesser portion of the total capital
market. Bonds (government and corporate) constitute of 12.76 percent of the paid up capital of
listed securities; equity being the highest in proportion (87.23 percent) and remaining in
mutual funds (0.00583 percent) and preferred stock (0.00093 percent), (NEPSE, 2013). With
high concentration of banks and financial institutions in financing the debt needs, the
importance of bond market is even more eminent considering the need to invest for
infrastructure development projects like hydropower, real estate, construction, transportation,
etc. (Vaidya, 2015)
Treasury Bills

Treasury bill, popularly known, as T-bill is one of the most widely used short-term money
market instruments in Nepal. A treasury bill is a short-term money market security issued by
the Public Debt Department of the Nepal Rastra Bank (NRB) on behalf of the Nepalese
government, to fulfill its short-term financial requirement. It has term to maturity ranging from
 5

Risk

Risk The term risk is used interchangeably with uncertainty, it refer to the variability of
expected returns associated with a given asset. "The observe difference in both the levels and
variability of the rates of return across securities are indicative of the underlying risk and
return relation in the market” (Loric, Dodd and Kimpton, 1985). Two measure developments
from the probability distribution have been used as initial measure of return and risk. There are
the mean and the standard deviation of the probability distribution (Weston and Brigham,
1982). There are many ways to measure risk. The following three models are commonly used
(Van Horne, 1998).

Systematic Risk
Systemic risk varies substantially and encompasses a broad range of features. This means that
a financial instrument, institution, market, market infrastructure, or segment of the financial
system may be the source of systemic risk, the transmitter of it, as well as be affected by it. It
is not easy to determine whether the scale of an event is (will become) systemic, since in
turbulent periods, assessing the extent to which it affects other parts of the system may be
subject to dynamic changes and the assessment might be prone to an underestimation bias.
Systemic risk can have its source in or outside the financial system or it can result from the
interconnectedness of particular financial institutions and financial markets and their exposure
to the real economy (Szpunar & Glogowski, 2019).

Unsystematic Risk
Unsystematic risk is due to the influence of internal factors prevailing within an organization.
Such factors are normally controllable from an organization's point of view. It is a micro in
nature as it affects only a particular organization. It can be planned, so that necessary actions
can be taken by the organization to mitigate (reduce the effect of) the risk (Akrani, 2020).

Madhusoodanan (1997) tested the choice of index as an influence factor to determinethe beta of
the scrip. The study used both sensex and Natex for the purpose of calculating beta. There was
no much evidence to the result of the beta and the choice of market index. Further the study
found that there was no positive relation between beta and the return and also showed that
 6

maximum risky portfolio gave the minimum return while the minimum risky portfolio yielded
comparably higher returns

Empirical Review

Paudel (2022) has studied on investing in share of commercial banks in Nepal. He had found out
that development of shares trading is not organized. The investors are not very conscious about
the risk and return characteristics of common stock in Nepal. They do not seem to be reasonable
for Nepalese share. The share with higher standard deviation however, produced higher return
the portion of unsystematic risk for that share is very large. Although they have low systematic
risk, they distribute high return to investors. The beta efficient of such types of share was seemed
to be negative. The risk per unit of return as measured by CV is less than of market as a whole. It
was found that most of the shares of Nepal are defensive stocks having beta less than 1.
Theoretically, the market price of over shares will fall in order to increase the expected return or
the market price underpriced shares will rise to decrease expected return, so the equilibrium
condition would have met.

Md. Zobaer et al., (2012) conducted a study on “Relationship between Risk and Expected
Returns: Evidence from the Dhaka Stock Exchange”. They presented the evidence that from the
CAPM empirical analysis for the individual stocks, it is observed that intercept term is
significantly different from zero and slope is not equal to the excess return on the market
portfolio. But, the CAMP‟s prediction for the intercept is that it should equal zero and the slope
should equal the excess return on the market portfolio. So, the results of the study refute the
above hypothesis and offer evidence against the CAPM is not a suitable indicator of asset prices
in Bangladesh over the chosen sample periodSingh (2008) examined betas of 159 stocks for the
period 1991 to 2002 to study the computational effects of the intervals between the data points,
the time period over which the beta is calculated and the size of the portfolio. Considerable
variations were found according to the methods used for calculation.

Pradhan, in 2022 carried out a study entitled “Stock market behavior on small capital market; a
case study in Nepal” This study was based on the data collected for seventeen enterprises from
1986 to 1990. One of the major objectives, which are related to this study, was to assess the
stock market behavior in Nepal. Similarly, another study was carried out by Narayan Prasad
 7

Poudel (2003) in the topic of “Investing in shares in Commercial Banks in Nepal. The study by
Yogendra Timilsina (2017) on “Capital Market Development and stock price behavior in Nepal”
has come with the conclusion that the market price of share depends on EPS as well as on DPS,
but DPS is more price sensitive and it will have direct and immediate response in the market.
However market values of share computed on the basis of EPS are near to the observed values.
Therefore the observed market prices of equity shares reveal that the stock market is not
inconsistent. A study conducted by Prof. Dr. Radhe Shyam Pradhan and Mr. Surya B. Blampaki
(2004) in the topic of “Fundamental of stock returns in Nepal” is taken into consideration. This
study is helpful to analyze the stock‟s return from different aspects.

Kansakar (2019) has conducted a study on a study on risk and return analysis of common stock
investment. This study is based on primary data as well as secondary, from FY 1996/97 to
2001/02. Financial and statistical tools were used for the analysis of the data.The main objectives
of the study are to assess the risk associated with return on commonstock investment with special
references to manufacturing companies in Nepal. The major finding of the study is expected
return on the common stock of Nepal Lever Limited had the highest and lo west of Arun
Vanaspati Ghee Udyog Ltd. With negative return. Risk is measured in terms of standard
deviation. From this point of view, Nepal lever Ltd. Is theriskiest assets and Bottler Nepal Ltd.
(Balaju) is the least risky assets. All stocks of manufacturing companies are underpriced except
the Arun Vanaspati Ghee Udhyog is overpriced.

Guhadeb and Misra (2011)found that there was evidence of instability of betas especially in the
shorter time period and the instability was reduced when the beta estimation period increased. In
addition to that the extreme betas showed the higher stability than the intermediate range of
betas.

Bijukchhe (2021) has conducted a study on risk and return analysis on common stock of listed
commercial banks. She has analyzed the systematic risk and return in the frame work of CAPM
model. For the study, the researcher has used 5 years data from 2017 to 2021. The researcher has
used financial and statistical tools to calculate the annual return, average rate of return, standard
deviation, coefficient of variation, beta coefficient and expected rate of return. The major
findings of her study are the average rate of return of NIBL, EBL, NABIL, SCBNL and HBL are
26 percent, 57 percent 71 percent 45 percent and 25 percent respectively. Among this sampled
 8

banks NABIL has the highest return and HBL has lowest return. From the study in terms of risk
or on the basis of coefficient of variation EBL is thelower risk and NIBL is the highest risk
among the all sampled banks.

Sharma (2012) has conducted a study on risk and return analysis of commercial bank in Nepal.
The main objective of the study was to analyze annual average rate of commercial banks in
Nepal. For the study, the researcher has used 10 years of data from 2000 to 2010. She has used
financial and statistical tools to calculate the return, standard deviation, coefficient of variation
and beta coefficient. The major findings of her study are that the average rate of return of
NABIL, HBL, NIB and EBL are 33 percent, 29.3 percent, 15.65 percent and 48.7 percent. As the
result the Everest Bank has the highest return and NIB has the lowest return. In the year 2004/05
NABIL. HBL & EBL are negative annual return but NIB has positive return. Also in 2001/02
HBL, In 2002/03, 2003/04 and 2006/07 NIB has negative return. The standard deviation of
NABIL, HBL, NIB and EBL are 0.5534, 0.442, 0.388, 0.782 and beta coefficient of NABIL,
HBL, NIB and EBL are 0.15, 0.3696, 0.195 and 0.0212 respectively.

Harish and Mallikarjunapa (2014) tested whether the betas were stable acrossthe time or not. The
study took data for 14 years from 2000 to 2014. Three portfolios were constructed to know the
stability of beta. The study adopted the Chow test to investigate the impact of subprime crisis of
2008 on beta stability. The structural break test showed that subprime crisis had an impact on
47% of the stocks whereas 53% of stocks did not undergo any impact on account of subprime
crisis. By using Chow test, the study additionally found that the portfolio betas were less
influenced in terms of subprime crisis compared to individual securities betas which were
influenced at high level. The study further explored with the help of WD max and UD max and it
was found that almost 70% of the betas had no structural break. Since the individual stock
encountered with higher structural breaks, the impact of individual stocks on portfolio was high.
Hence the beta stability on portfolio was somewhat adverse.

Risk and return analysis is concerned to identify the sustainable position of financial sectors.
Risk and return is the basic concept in the corporate finance and it guides the other modern
theories and principle as well as it assists in taking various financial and its decisions. The
relationship between risk and return can be defined by the investor‟s perception about risk and
 9

the demand for compensation. There is positive relationship between risk and return. Summing
up, the study focuses on risk and return analysis of the selected listed bank.

Research Gap

Despite extensive research on liquidity and risk and return in the wider financial sector, there
remains a significant gap in understanding the specific challenges and strategies for the Risk and
Return management of insurance company Development. The studies looked at solvency risk
and return separately, but there are no comprehensive studies that would look at the interaction
of solvency and credit risk management practices in insurance companies. In addition, there is
limited empirical evidence on the effectiveness of different liquidity management techniques and
credit risk assessment methods adapted to the context of the insurance sector. Addressing this
research gap is essential in developing a comprehensive risk management framework that
integrates liquidity and credit risk aspects and thus improves the financial stability and flexibility
of insurance companies.

6. Research Methodology

The process used to collect information and data for the purpose of making decisions is called
research methodology. It is the process of arriving at the solution of a problem through a planned
and systematic dealing with the collection, analysis and interpretation of the facts and figures.
The purpose of research methodology section is to describe the nature of the research design,
sampling and data collection and analysis procedures. The following research methodology is
used to collect information and data for this project report entitled Risk and Return Analysis of
Joyti Bikash Bank Limited.

Research Design

The most important step after defining the research problem is preparing the design of the
research project, which is popularly known as the „research design‟. A research design helps to
decide upon issues like what, when, where, how much, by what means etc. with regard to an
enquiry or a research study. A research design is the arrangement of conditions for collection and
analysis of data in a manner that aims to combine relevance to the research purpose with
 10

economy in procedure. In fact, research design is the conceptual structure within which research
is conducted; it constitutes the blueprint for the collection, measurement and analysis of data.
Thus, research design provides an outline of what the researcher is going to do in terms of
framing the hypothesis, its operational implications and the final data analysis. In the present
study, the analytical as well as descriptive research designs have been included. Analytical
research design is used to study the annual reports, financial statements and the like. Similarly,
the relationship between risk and return is evaluated by using descriptive research design.

Population and Sample

Population refers to the entire collection of all observation of interest i.e. people, object, or
events as defined by the researcher. Similarly, sample refers to the selection of representative
portion of population such as group of people, object or events to make research easier, save cost
as well as to minimize time duration. In this study, commercial banks operating in Nepal are
population and the samples is Joyti Bikash Bank Among the 17 development banks, only one
banks is taken for the study.

Sources of Data

This study is based on the secondary data of JBBL evaluate risk, return and relationship between
them of the selected banks. All the secondary data are collected from concerned commercials
bank‟s annual reports, bulletins, publication, researches, journals, articles, unpublished thesis
reports, newspapers, books, authorized websites from internet etc. It constitutes annual reports of
JBBL which includes balance sheet, profit and loss account, and other additional information
collected from published and unpublished sources.

Method of analysis

Financial Tools

The tools which are used to analyze financial statements such as balance sheet, profit and loss
account etc is called financial tools. The financial tools used in this study are:
 11

 Profit Margin
 Return on Equity (ROE)
 Return on Assets (ROA)
 Provision for Loan Loss Ratio
 Liquid Assets to Total Assets Ratio
 Credit to Deposit Ratio

i) Profit Margin

Profit margin is a profitability ratios calculated as net income divided by operating revenue. The
profit margin is used mostly for internal comparison. A low profit margin indicates a low margin
of safety. It can be calculated as

ii) Return on Equity (ROE)

Return on equity measures the rate of return earned on equity capital. It is a measure of how well
a bank uses investments to generate earnings growth. It can be calculated as:

iii) Return on Assets (ROA)

Return on assets measure the management‟s ability to utilize the real and financial resources of
the bank to generate returns. It helps to know the rate of return earned on total assets. It can be
calculated as:

iv) Provision for Loan Loss Ratio

A loan loss provision is an expense set aside as an allowance for uncollected loans and loan
payments. This provision is used to cover a number of factors associated with potential loan
 12

losses. Provision for loan losses ratio is an indicator of how protected a bank is against future
losses. A higher ratio means the bank can bear up future losses better. It can be calculated as:

v) Liquid Assets to Total Assets Ratio

Liquid assets to total assets ratio shows the relationship between liquid assets and total assets.
Higher the ratio indicates strong liquidity position. However, excessive ratio may indicate that
the bank has more unproductive assets compare to productive assets. It can be calculated as:

vi) Credit to Deposit Ratio

Credit to deposit ratio shows the relationship between loan and deposit. It is used to ensure that
any money needed is immediately available or not. If the ratio is too high, it means that the bank
may not have enough liquidity to cover any unforeseen fund requirements, and conversely, if the
ratio is too low, the bank may not be earning as much as it could be. It can be calculated as:

Statistical Tools

Statistical tools are tool which are purposively make or are use for data collection and analysis in
research methodology. The statistical tools used in this study are:

i) Average Rate of Return

Average rate of return is the summation of return for a specified period of time of any company,
bank and financial institutions. It results from summation of all annual returns by dividing
number of observations.

∑
( ̅)
 13

ii) The Standard Deviation ( )

Standard deviation is an absolute measure of risk and is calculated as the square root of variance.
It is a statistic used as a measure of the dispersion or variation in a distribution, equal to the
square root of the arithmetic mean of the square of the deviations from the arithmetic mean.

7. Limitations of the Study

Every research study has its own limitations. The present study has following limitations:

 This study has attempted to analyze the risk and return only and has not covered other
aspects of finance.
 The study has been limited with only two banks, namely Joyti Bikash Bank Limited
(JBBL)
 This study is based upon the secondary data which includes the annual report of
concerned banks.
 The study has covered only five years.
8. Organization of Study

This study is divided into three chapters such as Introduction, Results & Analysis, Summary
and Conclusions of the study. A brief outline of each of these chapters has been presented in
the following paragraphs:-
Chapter-I: Introduction
This chapter entitles introduction, and objective of the study, rationale of the study, review
literature, research method and limitations of the report.
Chapter – II: Results and Analysis
This chapter analyzes the data related with study and presents the finding of the study and
also comments briefly on them.
Chapter-III: Summary and Conclusion
On the basis of the results from data analysis, the researcher concludes about the
performance of the concerned organization for better improvement. Finally, bibliography and
appendices are presented at the end of the study.