Investment Portfolio of Nepalese Banks

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Chapter – 1

1.1Background of Study
The economy of nation depends on the uses of available resources in efficient way. The proper utilization of assets appreciates in wealth position of individual and country as well. To mobilize available resource, there should be proper planning, efficient management, far sighting strategy, good financial management and up-to-date information. Integrated and speedily development of the country is possible only when competitive banking and financial service reaches nook and corners of the country. To grow financial activities, it requires the banking habit of the community as well as potentially strong lending opportunities. Simply, Bank is an institution whose main function is to accept deposit and invest it. Bank collects money from public by providing attractive sound interest and can earn profit by lending it on mainly in business organization, industrial, agricultural sectors etc. So, we can say the main task of commercial bank is to mobilize idle resources in productive areas by collecting it from scattered sources and generating profit. Banking plays significant role in the economic development of country. Banks role as intermediaries channeling between saving and investment and fulfill the credit needs of customer as well as investment requirement of savers. It is clear that efficient and stable banking systems are crucial for an orderly economic growth. The pace development of country largely depends on the level of financial development.

Successfully formulation of investment policy and its proper utilization or implementation is the prime requisite for the development of performance of banks and other financial institution. Good Investment policy has positive impact on economic development of the country and vice-versa. A healthy development of any banks depends heavily upon its investment policy. A sound and viable investment policy is one of the major effective for the economy to attain the economic objectives directed towards the acceleration of the pace of development. Bank should attract to its customer by implementing best or competitive investment policy. It helps to increase the quality of banking services as well as volume of quality deposits, loan and investment. Investment management of bank is operating as per investment policy adopted by bank. The best investment policy helps to minimize risk, to make profit and to increase efficiency of investment operation.

Economic development is the important factor for development of any country. Nepal is a least developed country; economic growth and economic sector development is essential for developing the country. Capital formation and its proper utilization play a paramount role for rapid economic development. A key factor in the development of the country is the mobilization of domestic resources and their investment for productive use to various sectors. Investment portfolio is one such tool that helps for proper utilization of resources. A portfolio is usually defines as a combination of assets. It is a collection of securities. Portfolio means the lists of holding in securities owned by an investor or institution.[1] Portfolio theory deals with the selection of optimal portfolios: that is portfolio provides the highest possible return for any specified degree of risk or the lowest possible risk for any specified return. Portfolio theory has been developed for the financial assets. Thus making investment from the selected optimal portfolio i.e. the portfolio that provides the highest rate of return with least possible amount of risk is the real investment portfolio.

Investment portfolio is one which the income or profit of the bank depend upon directly. Commercial banks formulate sound investment policies, which helps maximize quality and quantity of investment and eventually to the economic growth of a country. Commercial banks must follow the rules and regulation as well as directions...
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