BANCASSURANCE: A PERCEPTUAL STUDY AMONG THE

BANKERS

Rupesh Nyaupane

Apex College

Exam Roll No: 14220471

PU Registration No: 2014-2-22-0170

Section: AVANISH

A Graduate Research Project Submitted to

Apex College

Pokhara University

Submitted for the degree of

Master of Business Administration (MBA)

Kathmandu

February, 2017
 APPROVAL SHEET

Recommendation for Approval

This GRP report prepared and submitted by Mr. Rupesh Nyaupane for the partial
fulfillment of the requirement for the degree of Master in Business Administration
(MBA) has been supervised by me and recommend it for acceptance.

Name and signature of the Advisor

Date:

Acceptance of the External Examiner

I approve the GRP submitted by Mr. Rupesh Nyaupane, the grade sheet has been
submitted to the Dean, School of Business, Pokhara University through the college on a
separate evaluation sheet.

Name and signature of the External Examiner

Date:

Viva Examination

The candidate has successfully defended the GRP. We recommend it for acceptance. The
grade sheet has been submitted to the Dean, Pokhara University through the college on a
separate evaluation sheet.

External Examiner:

GRP Advisors:

Other members:

Date:

i
 CERTIFICATE OF AUTHORSHIP

I hereby declare that this submission is my own work and that, to the best of my
knowledge and belief. It contains no materials previously published or written by another
person nor material which to substantial extent has been accepted for the award of any
other degree of a university or other institutions of other higher learning, except where
due acknowledgement is made in the acknowledgements.

………………………

Rupesh Nyaupane

Date:

ii
 ACKNOWLEDGEMENT

The Graduate Research Project entitled “Bancassurance and financial performance of

Nepalese commercial banks” has been prepared to fulfill the partial requirement for MBA
degree of Pokhara University.

I wish to acknowledge my deep sense of gratitude to Office of Dean Faculty of

Management, Pokhara University and Apex College for giving me such a valuable
opportunity to explore my abilities via this project.

I would like to record my sincere appreciation and gratitude towards my research

supervisor, Mr Bharat Singh Thapa, Senior Assistant Professor, Apex College, without
whose kind assistance, this project could not have been completed.

I would like to thank Prof. Dr. Prem Raj Pant for the encouragement and support
throughout the process, and for offering me the cooperation to get to this point of
completion.

I would also like to express my gratitude towards all the respondents who cooperated in
filling up my questionnaire and responding to my queries without any hesitation.

I am also very thankful and grateful towards my seniors, colleagues and authorities of
Apex College for their support, encouragement, and valuable suggestions as well as for
the generosity and co-operation for the completion of this project.

Last but not the least, I would like to express my sincere thanks to all my family, friends
and well-wishers for their immense support and best wishes throughout the project.

Rupesh Nyaupane

February, 2017

iii
 TABLE OF CONTENTS
APPROVAL SHEET ........................................................................................................... i

CERTIFICATE OF AUTHORSHIP................................................................................... ii

ACKNOWLEDGEMENT ................................................................................................. iii

LIST OF TABLES ............................................................................................................. iv

LIST OF FIGURES ............................................................................................................ v

ABBREVIATION.............................................................................................................. vi

EXECUTIVE SUMMARY .............................................................................................. vii

CHAPTER I INTRODUCTION ......................................................................................... 1

1.1 Background of the study ...................................................................................... 1

1.2 Statement of the Problem ..................................................................................... 3

1.3 Objectives of the study ......................................................................................... 5

1.4 Research Hypothesis ................................................................................................. 5

1.5 Importance of the study ............................................................................................ 5

1.6 Research question ..................................................................................................... 6

1.7 Limitations of the study ............................................................................................ 7

1.8 Organization of the study .......................................................................................... 7

CHAPTER II ....................................................................................................................... 9

LITERATURE REVIEW AND THEORETICAL FRAMEWORK .................................. 9

2.1 Conceptual Review ................................................................................................... 9

2.1.1 Insurance products marketed through bancassurance ...................................... 16

2.1.2 Bancassurance for Customer............................................................................ 19

2.1.3 The Historical development of bancassurance ................................................ 20

2.1.4 Review of basic bancassurance Models ........................................................... 21

 2.1.5 Review of distribution channel ........................................................................ 24

2.1.6 Recent trends in bancassurance ....................................................................... 28

2.1.7 Bancassurance prospective in Asian region ..................................................... 28

2.1.8 Bancassurance issue in Nepal .......................................................................... 30

2.1.9 Review of related Research: ............................................................................ 31

2.1.10 Influence of Capital Adequacy on Financial Performance ............................ 34

2.1.11 Influence of Asset Quality on Financial Performance ................................... 35

2.1.12 Influence of Liquidity on Financial Performance .......................................... 36

2.2 Theoretical framework: ........................................................................................... 37

CHAPTER III ................................................................................................................... 40

RESEARCH DESIGN AND METHOLODOGY ............................................................ 40

3.1 Research Design...................................................................................................... 40

3.2 Sources of Data ....................................................................................................... 41

3.3 Data collection procedure ....................................................................................... 41

3.4 Data Analysis .......................................................................................................... 42

3.5 Validity and Reliability ........................................................................................... 43

3.6 Analysis Plan .......................................................................................................... 44

CHAPTER IV ................................................................................................................... 46

RESULTS AND DISCUSSION ....................................................................................... 46

4.1 Respondents profile ................................................................................................ 46

4.1.1 Gender of Respondents .................................................................................... 47

4.1.2 Marital status of Respondents .......................................................................... 48

4.1.3 Qualification of the Respondents ..................................................................... 49

4.1.4 Age group of Respondents ............................................................................... 49

4.1.5 Position of Respondents ................................................................................... 50

 4.2 Descriptive Analysis ............................................................................................... 51

4.2.1 Employees prospective of Bancassurance ....................................................... 52

4.2.2 Bancassurance and liquidity ............................................................................ 54

4.2.3 Bancassurance and capital adequacy ............................................................... 55

4.2.4 Bancassurance and asset quality ...................................................................... 56

4.3 Inferential Analysis ................................................................................................. 57

4.3.1 Correlation Analysis ........................................................................................ 57

4.3.2 Relation between bancassurance and liquidity. ............................................... 57

4.3.3 Relationship between bancassurance and capital adequacy. ........................... 58

4.3.4 Relationship between bancassurance and Assets quality................................. 59

4.4 Regression Analysis ................................................................................................ 60

4.4.1 Bancassurance and liquidity: ........................................................................... 60

4.4.2 Bancassurance and capital adequacy: .............................................................. 62

4.4.3 Bancassurance and Assets quality ................................................................... 64

4.5 Discussion ............................................................................................................... 65

CHAPTER V .................................................................................................................... 67

SUMMARY AND CONSULATION ............................................................................... 67

5.1 Summary of the findings ......................................................................................... 67

5.2 Conclusion .............................................................................................................. 70

5.3 Recommendation for Future Research.................................................................... 71

BIBLIOGRAPHY .................................................................................................................
 LIST OF TABLES

Table 3.1: Reliability Test 44

Table 4.1: Gender of Respondents 47
Table 4.2: Martial status of the Respondents 48
Table 4.3: Educational Qualification of the Respondents 49
Table 4.4: Age Group of Respondents 50
Table 4.5: Position of Respondents 51
Table 4.6: Bancassurance 53
Table 4.7: Liquidity 54
Table 4.8: Capital adequacy 55
Table 4.9: Assets quality 56
Table 4.10: Relationship between Bancassurance and liquidity 58
Table 4.11: Relationship between Bancassurance and Capital adequacy 58
Table 4.12: Relationship between Bancassurance and Assets quality 59
Table 4.13: Model summary: Bancassurance and liquidity 60
Table 4.14: Anova Analysis for Bancassurance and liquidity 60
Table 4.15: Coefficient Analysis for Bancassurance and liquidity 62
Table 4.16: R Model summary: Bancassurance and Capital adequacy 62
Table 4.17: Anova Analysis: Bancassurance and Capital adequacy 63
Table 4.18: Coefficient Analysis: Bancassurance and Capital adequacy 63
Table 4.19: Model summary: Bancassurance and Assets quality 64
Table 4.20: Anova Analysis: Bancassurance and Assets quality 64
Table 4.21: Coefficient Analysis: Bancassurance and Assets quality 64
Table 5.1: Summary of descriptive findings 68
Table 5.2: Correlation between bancassurance and different components of financial
performance 69

iv
 LIST OF FIGURES

Figure 2.1: Bancassurance sales model 14

Figure 2.2 Theoretical framework 37
Figure 4.1: Gender of Respondents 47
Figure 4.2: Martial status of Respondents 48
Figure 4.3: Qualification of the Respondents 49
Figure 4.4: Age group of Respondents 50

v
 ABBREVIATION

ANOVA Analysis of Variance

LIC life insurance Corporation

N Number of Respondents

NRB Nepal Rastra Bank

SPSS Statistical Package for Social Scientists

vi
 EXECUTIVE SUMMARY

The term Bancassurance is a combination of two words “banc” and “assurance” which
refers to banks selling insurance products. Bancassurance, also known as “allfinanz”
describes a package of financial services that can fulfill consumers banking and
insurance needs. In fact, financial institutions can offer a combination of both banking
and insurance services at the same time. Bancassurance as a way of financial
conglomeration has appealed widespread attention in the world of academics and
business. According to IRDA Bancassurance refers to banks acting as corporate
agents for insurers to distribute insurance products. Bank and insurance companies
both can earn more profit since the banks get their commission for selling the
insurance products and in the same way the insurance companies get the wide spread
networking of their branches.

This graduate research project entitled “Bancassurance and financial performance of

Nepalese commercial banks” is survey based research study. The major objective of this
study is to analyze the influence of bancassurance on financial performance of
commercial banks in Nepal. A comprehensive literature review was conducted in which
the necessary information related to bancassurance and conceptual framework were
reviewed and discussed. For the purpose of this study, a survey study was conducted to
find out on relationship between independent variable bancassurance and dependent
variable such as liquidity, capital adequacy and Assets quality. The research is descriptive
and explanatory in nature. The overall research method is conducted through the
collection of primary data.

With reference to the demographic profile, the study focused on four components:
gender, age, marital status and educational qualification. Out of total 96 respondents in
this survey, 72.9 % were male and 27.1 % were female. Similarly, among the respondents
in this survey, 47.92 % were from 20-25 years of age, 45.83 % were 25-30 years, 6.25 %
were from the age of 30 and above. And 16.7% respondents were married and 83.3%
were unmarried. 2.1% had intermediate level education, 58.3% were bachelor degree
holders and 39.6% were master degree holders and above.

vii
Data collected from the questionnaire were analyzed and interpreted through the help of
different statistical tools and results were graphically presented with the use of tables and
figures. The first part of the study deals with respondents such as age, gender and
educational qualification. The second part of the study deals with the descriptive study of
all the factors associated with financial performance. The last part deals with the
inferential analysis in which person correlations tests were used to infer the results of the
study.

The descriptive findings suggest that among various dependent variables, liquidity has
the highest mean of 4.345 with standard deviation of 0.9415. This shows that rather than
other independent variables liquidity has a greater influence of bancassurance. The
overall descriptive findings indicate a good bancassurance market in the Nepalese
commercial banks.

viii
 CHAPTER I
INTRODUCTION

1.1 Background of the study

World over the idea of separation of roles between banks and other financial activities
has become redundant. Even in the United States which was known for strict separation
of banking and non-banking activities during the Glass-Steagall Act regime broke the
dividing wall. The post Gramm-Leach-Bliley (GLB) Act, 1999 scenario, it is stated to
have indicated increased preference for banks conterminously dealing with other non-
banking financial products, including the insurance products. In Asian countries (e.g.,
Taiwan, Singapore, Japan, etc.) to the trend has been set towards financial supermarket.
The financial liberalization and financial innovations have drawn the worlds banking and
insurance closer together, disseminating the financial industry and spurring competition.
Therefore, banks dealing in insurance products have increasingly become accepted norm
rather than exception. Banks, in particular, stride into several new areas and offer
innovation products, viz., merchant banking, lease and term finance, capital market
equity market related activities, hire purchase, real estate finance and so on. Thus,
present-day banks have become far more diversified than ever before. Therefore, their
entering into insurance business is only a natural corollary and is fully justified too as
‘insurance’ is another financial product required by the bank customers.
(Allbankingsolutions.com, 2015).

Nepalese commercial banks and insurance companies are collaborating together for the
improvement of the financial position. From the bancassurance both banks and insurance
are able to take advantage in different ways. Insurance company have opportunities to use
the different distribution channel and banks have opportunities to increase the products.
So there is definitely influence of bancassurance on financial performance of banking
sectors in Nepal.

1
Nepal Rastra Bank (NRB) being the regulatory authority of the banking system,
recognizing the need for banks to diversify their activities at the right time, permitted
banks to sell the insurance product as well. Furtherance to this line, there is not such
especial guideline set by the NRB regarding selling insurance product through banking
channels. In the insurance sector, the Beema Samiti (BS) avowed to regulated and
develop the insurance sector in Nepal through calibrated policy initiatives. Given
Nepalese size as a continent it has, however, a very low insurance penetration and low
insurance density is about 5 percent of insurance is consumed by the population. As
opposed to this, Nepalese bank has a wide branch network of banking system than the
insurance sector. It is against insurance sector. It is against this backdrop an attempt is
made in this paper to explore the ‘Bancassurance practices in Nepalese commercial
banks’ which integrates banking and insurance sector to harness the synergy and its
allied problems and prospects in the Nepal context. (Nepal Rastra Bank, 2014)

The organized history of bank and insurance in Nepal begins one decade interval (the
first bank was established in 1937 and the first insurance company was established in
1947). However, banking industry is become many folds larger then insurance industry.
The number of life, non-life and composites insurers reached to 8, 16 and 1 respectively.
The insurance market is concentrated within Kathmandu and few cities outside the
Kathmandu valley. Nepalese insurance industry in Nepal for a fairly longer period relied
heavily on traditional agency distribution network. Most of the insurers have institutional
agents. The portion of bank agents are significantly higher than non-banking institution.
(Ghemiree, 2014).
Bancassurance is a system where banks and insurance company collaborating together
for achieving some objectives. There is different objectives of banks for selling insurance
products and insurance companies have their own objectives but this collaboration
definitely affect the financial position of banking sectors. Therefore this studies try to
analysis of the impact of bancassurance on commercial banks in Nepal.

2
1.2 Statement of the Problem
The difference in working style and culture of the banks and insurance sector needs
greater appreciation. Insurance is a ‘business of solicitation’ unlike a typical banking
service, it requires great drive to ‘sell/market the insurance products. It should, however,
be recognized that ‘bancassurance’ is not simply about selling insurance but about
changing the mindset of a bank. Moreover, in Nepal since the majority of the banking
branches are of public sector and which has been widely distributed throughout the
country disparaged for the lethargic attitude and poor quality of customer service, it needs
to refurbish the blemished image. Else, the bancassurance would be difficult to succeed
in these banks. Studies have revealed that the basic attitudinal incompatibility on the part
of employees of banks and insurance companies and the perception of customers about
the poor quality of banks had led to failure of bancassurance even in some of the Latin
American countries. (Singh, 2009)

There are also glitches in the system of bancassurance strategy in the form of ‘conflict of
interests’, as some of the products offered by the banks, such as ‘Fixed deposits’ and
other products which are mainly aimed at long term savings/investments can be very
similar to that of the insurance products. Banks could as well feel apprehension about the
possibility of substitution effect between its own products and insurance products and
more so, as a number of insurance products of Nepal come with an added attraction of tax
incentives. In case the bancassurance is fully integrated with that of the banking
institution, it is suitable only for larger banks; however, it has other allied issues such as
putting in place ‘proper risk management techniques’ relating to the insurance business,
etc. (Kumar, 2008)

As there is a great deal of difference in the approaches of ‘selling of insurance products’

and the usual banking services- thorough understanding of the insurance products by the
bank staff coupled with extra devotion of time on each customer explaining in detail of
each product’s intricacies is a prerequisite. Moreover, insurance products have become
increasingly complex over a period of time, due to improvisation over the existing
products as well as due to constant innovation of new products, emanating from the
excessive competition adding too even more difficulties in comprehension of the

3
products and marketing by the bank staff. These can result in resistance to change and
leading to problems relating to industrial relations. Unlike, the banking service, there is
no guarantee for insurance products that all efforts that a bank staff spends in explaining
to a customer would clinch the deal due to the very nature of the insurance products. This
frustration of the bank staff has the danger of spillover effect even on their regular
banking business. Bankers in Nepal are extremely naïve in insurance products as there
were no occasions in the past for the bankers to deal in insurance products, therefore they
require strong motivation of both monetary and non-monetary incentives. This would be
more so in the emerging scenario due to complex innovations in the field of
insurance/pension products at a rapid pace with the entry of a foreign insurance
companies with vast experience in the developed countries’ framework. (Thapa, 2015).

In view of the above, reorientation of staff in the public sector banks in particular, to be
less bureaucratic and more customers friendlier would indeed be a challenging task,
albeit it is a prerequisite for the success of bancassurance. With the financial reforms and
technological revolution embracing the financial system, there has been a great deal of
flexibility in the mind set of people to accept change. The above outlined problems need
not, however, deter the banking sector to embark on bancassurance as any form of
resistance from the bank employees could be tackled by devising an appropriate incentive
system commensurate with intensive training to the frontline bank staff. These training
needs to be provide to overcome the traditionally used selling method and marketing
strategy by the insurance companies. Thus, bancassurance is the best way now a day to
sell the insurance product. Intense competition gave rise to innovative products and
new channels of distribution for the marketing of insurance products. The entry of
private players in the insurance market resulted in severe competition between the
working of public sector and private sector insurance companies in order to capture the
market. This work focuses on how Bancassurance is gaining recognition and the role
of bank in selling the insurance products. So, the present study is analyzing the
recent trends of Bancassurace, its impact on banking sector, marketing and
distribution and the problems of bancassurance. (Aiavudeen & Rosa, 2015).

4
1.3 Objectives of the study
The main objective of the study is to analyze the influence of bancassurance on financial
performance of commercial banks in Nepal. Specific objectives are as follows:

 To evaluate the influence of bancassurance on capital adequacy of commercial

banks in Nepal.
 To determine the influence of bancassurance on assets quality of commercial
banks in Nepal.
 To examine the influence of bancassurance on liquidity of commercial banks in
Nepal.

1.4 Research Hypothesis

A research hypothesis is the statement created by researchers when they speculate upon
the outcome of a research or experiment. It is a specific statement of prediction. It
describes in concrete (rather than theoretical) terms what you expect will happen in your
study. Not all studies have hypotheses. Sometimes a study is designed to be exploratory.
There is no formal hypothesis, and perhaps the purpose of the study is to explore some
area more thoroughly in order to develop some specific hypothesis or prediction that can
be tested in future research. A single study may have one or many hypotheses (Trochim,
2006). Following are the hypotheses associated with this study:

H01: There exist positive relationship between bancassurance and liquidity.

H02: There exist positive relationship between bancassurance and capital adequacy.

H03: There exist positive relationship between bancassurance and assets quality

1.5 Importance of the study

Bancassurance is an alternative strategy and distribution channel of insurance product
through banking channel which has direct impact on the economy of the nation. There
have been numerous benefits to the bank, insurance and customer for having

5
bancassurance product in bank. A benefit to the bank is that it is risk free income and one
stop shop of services products. For insurance company administrative cost will be
decrease it mean that cost for developing branch in various area are saved by having bank
branches. And for the customer it is one stop shop which will save their time. So,
bancassurance is completely a new phenomenon in Nepal as there have been only few
banks which have been fully using bancassurance products to their customers. The
current market scenario for bancassurance is characterized by

 Most of the people unknown, that banks are selling insurance product.
 Banks are aggressive on selling their banking product and less focused on
insurance product.
 Both bank and insurance company need to educate the people about benefits that
gain from purchase of insurance product.

Most of the experts are of the opinion that the both bank and insurance company need to
educated people to increase the insured people from 5 percent to around double figure in
total population. So, in the present context, the bancassurance is very important for
Nepalese banking and insurance industry to increase the number of the insured people
and to gain risk free income as banking sector interest spread income in decreasing due to
competition, for that banking sector need to use various alternative strategy and
distribution channel to increase the insured people.

1.6 Research question

Specifying research question is a methodological point of departure of scholarly research
in both the natural and social sciences. The research will answer the question posed. The
answer to a research question will help address a "Research Problem" which is a problem
that readers think is worth solving. Following are the research questions incurred with
this study:

 Is there any relationship between bancassurance and liquidity?

 Is there any relationship between bancassurance and capital adequacy?
 Is there any relationship between bancassurance and assets quality?

6
1.7 Limitations of the study
This thesis has several delimitations and it will give more specified and interesting areas
that can be discussed in-depth to focus on and to find the most suitable answer for the
research question. There are several limitations that hinder the successful implementation
of the study. First and foremost, it is a quantitative analysis and doesn’t cover the
qualitative analysis regarding how effective the study is. At the same time, the proposed
framework is not practically tested by means of surveys, focus group, discussions,
interviews, etc. Added to this, the study only focuses on certain variables that guarantee
the cent percent effectiveness of the financial performance. So, there is a need for future
research to be conducted with other variables in hand and much better approaches to
make increase the level of effectiveness.

1.8 Organization of the study

Chapter I: Introduction
This chapter includes the introduction of the entire thesis work, such as overview of the
main area of the study i.e. it describes the general background of bancassurance. Beside
these things it includes the objectives, statement of the problem, research objectives,
research questions and hypothesis, significance of the study and limitations of the study.

Chapter II: Literature Review and Conceptual Framework

It includes the main introductory contents of the topic on which we have focused our
work so that it can explain what the theoretical concepts are on the thesis will be carried
out. Similarly, this chapter includes review of articles related to the study, reviews of
various related books, journals, research papers and other relevant past studies.

Chapter III: Research Design and Methodology

It includes all the topics describing how the entire data have been collected and designed
to carry out the entire tasks of the thesis report work. This chapter is followed by research
design, population, statistical analysis, research strategies, data collection method, sample
collection, data analysis and measurement of variables of the study.

7
Chapter IV: Results and Discussion

It contains the entire contents related to data presentation and analysis. Cronbach’s alpha
has been applied on the data collected through questionnaires to check its reliability.
Simple descriptive analysis of frequency distribution of relevant information
supplemented by percentage and compared means have been used. The test results help in
concluding the research and interpreting results of the research.

Chapter V: Summary and Conclusion

It includes the latest contents of the entire report. It comprises of summary, conclusions
based on the research question and the chapter is ended with the recommendations. This
chapter is based on the interpretation and findings of results. The implication and purpose
of the research is included in this chapter. The chapter also includes a review of the future
importance of the study.

8
 CHAPTER II
LITERATURE REVIEW AND THEORETICAL
FRAMEWORK
This chapter is focused on literature review and analysis of past studies related to
bancassurance. It helps to understand about the bancassurance as a whole. This chapter
also includes the theoretical and empirical review from past studies.
This section contains the definition, history, and distribution channel, models of
bancassurance and review of related literature.

2.1 Conceptual Review

The term Bancassurance is a combination of two words “banc” and “assurance” which
refers to banks selling insurance products. Bancassurance, also known as “allfinanz”
describes a package of financial services that can fulfill consumers banking and
insurance needs. In fact, financial institutions can offer a combination of both banking
and insurance services at the same time. Bancassurance as a way of financial
conglomeration has appealed widespread attention in the world of academics and
business.

According to IRDA Bancassurance‟ refers to banks acting as corporate agents for

insurers to distribute insurance products. Bank and insurance companies both can
earn more profit since the banks get their commission for selling the insurance
products and in the same way the insurance companies get the wide spread networking
of their branches. Bancassurance is a subject of continuing interest to the financial
services industry worldwide. Over the years, regulatory barriers between banking and
insurance have diminished by creating a climate friendly to bancassurance. (Ghimire,
2014).

For the first time, the term “bancassurance” has been used in France, where cooperation
between banks and insurance companies started earlier than in other European countries.
This world was originally coined to indicate simple distribution of insurance products by
bank branches, while at present it is used to describe all kinds of relationship between the
banking and the insurance industries (Quagliarello, 2004). The convergence between

9
different sectors of financial intermediation (conglomeration) has been encouraged by the
deregulation process started at the end of the Eighties. In Europe the 1989 Second
Banking Directive allowed universal banking and unlimited reciprocal participations with
investment and insurance firms. In USA regulatory hedges between financial institutions
have been removed later, by the 1999 Gramm‐Leach‐Bliley Act: nowadays financial
conglomerates are present in all developed countries. Bancassurance, however,
cannot be view simply as a result of the deregulation process: as pointed out by
Locatelliet al. (2003), changes in financial services needs have been particularly
determinant. Household saving has moved from deposits to more remunerative
investments determining a dramatic drop in traditional banking profitability. Banks have
tried to compensate the decrease in their interest margin by entering investment banking
or insurance. Life business has appeared as a particularly interesting opportunity for
various reasons as the progressive ageing of population in all developed countries
and the decrease in welfare state protection offered by governments, other than the
existence of some similarities and complementariness between the banking and the
insurance activities, especially for life products. The cooperation between banks and
insurance companies, initially limited to the distribution of life products through
bank branches, has gradually become a more strict relationship aiming to operate the
financial market in a more integrated way; despite the existence of some differences
between countries, it is possible to sustain that simple distribution agreements during the
Seventies and the Eighties became a mix of partnerships and share exchanges in the early
Nineties.(Frordelisi & Ricci, 2009)

The appearance of more complex and integrated models has not determined the
disappearance of the previous ones: we can currently observe several forms of
bancassurance, more or less successful depending on institutional and economic
framework, type of business mix and objectives of the firms involved. Following existing
literature (Hoschka, 1994; Van der Berghe and Verweire, 2001; Voutilainen, 2005;
Staikouras, 2006) we can distinguish between various models. The first model is the
cross selling agreement: thanks to a simple partnership, banks sell insurance products
through their branches, on behalf of a single company or several companies. This kind of
agreement has many advantages: it is simple and reversible, not implying any change in

10
the ownership structure or in the organizational model of the firms involved, that remain
absolutely independent. On the other hand, we have to consider the existence of some
drawbacks: for example, conflicts of interest between banking and insurance
products sharing the same distribution channel are more likely in absence of
coordination between two different managements. It is also important to notice that banks
can only offer simple and standardized insurance products, not requiring consulting
services by highly specialized resources. The second model is the cooperation between
two independent partners, realized through strategic alliances (often reinforced by cross
ownerships in the form of minority stakes) or joint ventures. Surely, a joint venture is a
stronger form of cooperation, aiming to exploit in the best way the skills of every
participants, enforcing their specializations: generally insurance companies take care of
product design, while banks realize distribution. These alliances can reach significant
synergies concerning know how, human capital, cross selling and scope For a detailed
analysis of the bancassurance historical development see Hoschka, 1994; Genetay and
Molyneux, 1998; Locatelli et al., 2003. Economies, but it is necessary that the two
partners share the same strategy and the same engagement in resources. The third model
is the control by ownership: the banking and the insurance activities are managed as
completely integrated, under the direction of the same ultimate owner. The bank
establishes a subsidiary completely dedicated to the insurance business, or buy an
insurance company already operating on the market. This “captive” model allows the
bank to use information at its disposal, designing products suitable for well-known
customers’ needs and avoiding the danger of “cannibalization” (Berghendal, 1995), but it
appears as the less flexible and reversible.

The same types of research was conducted in Taiwan in 2015, the research conclude that
bancassurance can improve bank efficiency, not only through an increase in commission
income, but also through non-monetary benefits, such as increasing the faith of customers
in the banks. However, due to data restrictions, there is insufficient empirical
evidence to clearly identify the overall effect of bancassurance on the banking industry.

The evidence presented there reveals that involvement in bancassurance business

has had significantly positive impacts on the efficiency and profitability of banks,

11
and that it plays an important role in terms of a non-interest source of income for the
banks. These results provide strong support for the notion that bancassurance offers
banks with real benefits, whilst also increasingvalue for bank shareholders. The
analysis also sheds further light on the financial consolidation between banks and
insurance companies.

Consistent bancassurance advantages are identified from two sets of results. Firstly,
involvement in bancassurance business is found to have significantly positive effects on
profitability performance, as measured by accounting returns and risk- adjusted returns.

Secondly, the evidence shows considerable improvements in efficiency amongst banks

engaging in more bancassurance business. The research using DEA approach for
financial intermediaries reveals enhancements in cost efficiency, technical efficiency and
pure technical efficiency. One possible explanation for such efficiency improvements is
that banks may utilize their networks and other fixed costs better, thereby raising their
overall cost efficiency, with resultant improvements in the skills of employees, thereby
raising their technical efficiency.

Overall, this empirical results suggest that bancassurance business can provide
banks with higher profits and efficiency improvements, such that increased cooperation
with insurers would appear to be a viable bancassurance strategy; banks may
therefore wish to consider further flexible forms of cooperation with other insurance
companies. (Jin-Lung Peng, 2015).

Bancassurance is an arrangement in which a bank and an insurance company form a

partnership so that the insurance company can sell its products to the bank's client base.
This partnership arrangement can be profitable for both companies. Banks can earn
additional revenue by selling the insurance products, while insurance companies are able
to expand their customer bases without having to expand their sales forces or pay
commissions to insurance agents or brokers. (investopedia, 2015)

12
Banks act as corporate agents
Instead of running after individual agents for business, insurance companies invented the
concept of bancassurance. Bancassurance helped them in motivating their customers to
buy insurance products with the help of banks. Here, bankers act as a corporate agent for
the insurance companies. The agent banker gets high commission on the first premium
paid by the customer and later a marginal commission on renewal premium tills the
maturity of the policy for regular premium plans. A onetime commission is also paid in
case of single premium policies.

Win-win model
Under bancassurance, banks can develop strong relationship with their customers and sell
insurance products. Insurance companies confirm that marketing ‘risk products’ through
banks is a cost effective proposition. Bancassurance is a successful model for both
insurance companies and banks in international financial market but in Nepal it is not
more successive because of various reasons. Currently, insurance companies are tying up
with various commercial banks to sell their products and attract more customers.

Additional revenue
There are various advantage of bancassurance. For the banks, income from
bancassurance is non interest based income. Interest is market driven and its movement
depends on market conditions. At present, banks are unable to get margins as a result of
acute competition and this is making it difficult for them to retain their customers. Hence,
to meet the overhead costs and to improve their incomes, more banks are getting into
bancassurance with existing infrastructure.

Benefits to banks

It encourages customers of banks to purchase insurance policies and further helps in

building better relationship with the bank. The people who are unaware of and/or are not
in reach of insurance policies can be benefitted through widely distributed banking
networks and better marketing channels of banks. It Increase in number of providers
means increase in competition and hence people can expect better premium rates and
better services from bancassurance as compared to traditional insurance companies.
13
Reduced costs:

Banks play a significant role in building up a feasible healthcare program in Nepal and
other develops countries. The demand for healthcare products, which banks can
distribute, is growing. Bancassurance helps in lowering distribution costs of their
insurers. It is imperative to discuss with financial advisers before an insurance products is
introduced in the market. Hence, acquisition cost of insurance through banks is low.
Selling insurance to existing mass market of banking is less expensive than selling it to a
group have a lower expense ratio. This benefit could go to the insured public, by way of
lower premiums.

Bancassurance—How It Works

The typical Bancassurance sales model is not complex. A customer finds he or she is
going to a bank for a solution to a problem, commonly the need for finance to help with a
purchase or a development. The bank’s customer adviser is face to face with the
consumer. The customer’s request is for a loan or other form of financial review. It is an
obvious and convenient thing for the bank’s customer adviser to be able to offer a range
of insurance products to assist with the loan transaction or otherwise enhance the
consumer’s financial position.

Bank customer
Consumer Insurance product
advisor

Figure 2.1 Bancassurance Sales Model

The distinctive advantage here is that the customer in many cases does not know or

Realize how much an insurance product is going to improve his or her situation. In the
typical non-Bancassurance sales model, the stimulus to look at an insurance product

as a solution comes from a mixed range of drivers—the need to have a motor

14
certificate to drive a car, the encouragement to buy travel insurance from a travel

agent or an airline, the at-point-of-sale transaction in a shop to buy Warranty and

Breakdown insurance with a physical product such as a car or electronic goods. Most
consumers have only a very limited grasp of what insurance can do, and they often feel it
as a kind of taxation, especially with Motor insurance. The situation in which the
consumer is talking with the bank’s customer adviser about a financial need is a powerful
moment of sales opportunity. From the bank’s viewpoint, the insurance sale is only one
of four main lines of sales possibilities (figure 2.1), so the client meeting has multiple
possibilities for sales. This undoubtedly makes the Bancassurance attractive because the
marginal costs of making the insurance sale are far lower than would be the case for the
pure insurance adviser. (Gonulal, Goulder, & Lester, 2012)

Why should banks enter insurance?

There are several reasons why banks should seriously consider Bancassurance, the most
important of which is increased return on assets (ROA). One of the best ways to increase
ROA, assuming a constant asset base, is through fee income. Banks that build fee income
can cover more of their operating expenses, and one way to build fee income is through
the sale of insurance products. Banks that effectively cross-sell financial products can
leverage their distribution and processing capabilities for profitable operating expense
ratios. By leveraging their strengths and finding ways to overcome their weaknesses,
banks could change the face of insurance distribution. Sale of personal line insurance
products through banks meets an important set of consumer needs. Most large retail
banks engender a great deal of trust in broad segments of consumers, which they can
leverage in selling them personal line insurance products. In addition, a bank’s branch
network allows the face to face contact that is so important in the sale of personal
insurance. Another advantage banks have over traditional insurance distributors is the
lower cost per sales lead made possible by their sizable, loyal customer base. Banks also
enjoy significant brand awareness within their geographic regions, again providing for a
lower per-lead cost when advertising through print, radio and/or television. Banks that
make the most of these advantages are able to penetrate their customer base and markets

15
for above-average market share. Other bank strengths are their marketing and processing
capabilities. Banks have extensive experience in marketing to both existing customers
(for retention and cross selling) and non-customers (for acquisition and awareness). They
also have access to multiple communications channels, such as statement inserts, direct
mail, ATMs, telemarketing, etc. Banks' proficiency in using technology has resulted in
improvements in transaction processing and customer service. By successfully mining
their customer databases, leveraging their reputation and 'distribution systems’ (branch,
phone, and mail) to make appointments, and utilizing 'sales techniques’ and products
tailored to the middle market, European banks have more than doubled the conversion
rates of insurance leads into sales and have increased sales productivity to a ratio which is
more than enough to make Bancassurance a highly profitable proposition.

2.1.1 Insurance products marketed through bancassurance

Through bancassurance, 3 to 5 times more insurance policies can be sold as compared to

the number of policies sold through standard sales procedure. Products of life and non-
life insurance are sold through bancassurance, but non-life insurance products are less
important for the placement by bancassurance. The main reason for this is that both types
of life insurance and banking products are directed toward the accumulation of funds and
their management. For this reason, it is easier for banks to sell products of life insurance
than non-life insurance products. Another reason is a good understanding of the financial
situation of clients and their needs, which allows bank officials to sell life insurance
policies more easily, while this aspect is less important in the distribution of non-life
insurance.

Simple standardized insurance products, such as car liability insurance, comprehensive

coverage, household insurance, travel-health insurance and others, are sold individually
or packaged with a banking product and are mostly represented in the initial phase of
introducing bancassurance. More complex insurance products can be sold at a later stage
of the implementation of bancassurance as a sales channel. This is primarily the case of
insurance types linked to investments in mutual funds, life insurance, accident or health
insurance, income protection insurance, medical expense insurance, voluntary pension
insurance, consumer loan and credit card protection insurance, etc.

16
Standardized insurance products can be sold by bank tellers without any special training.
However, sophisticated products that are, for example, sold to corporate clients require
specialized knowledge and, therefore, specially trained staff. These are usually the
employees of the insurance company which is a partner in bancassurance. The time that a
counter clerk can dedicate to a potential policyholder is confined to his banking
responsibilities, where he is focused exclusively to bank clients. Bank officials who are
only passive sellers (sell only if asked for a product) have a limited domain, but if they
are active and direct agents and insurance advisors to their potential customers, they can
be valuable assistants.

As a rule, bancassurance is introduced through the banking sales channel in two phases.
The first phase - a sales combination of banking and insurance products or individual
sales of simple insurance products (travel insurance, supplementary health insurance,
household insurance, etc.): the best results are expected if banking products get integrated
with insurance products.

The second phase - direct sales by the bank clerks of insurance products independently of
banking products: after having settled insurance selling into routine, the ability to sell
individual insurance products, through adequately defined system of motivating bank
employees who deal with insurance selling, by establishing a system of bonuses and
commissions that would be paid over the fixed salary in accordance with the results
achieved (Borko & Vojvodic, 2011).

As a source of fee income

Banks’ traditional sources of fee income have been the fixed charges levied on loans and
advances, credit cards, merchant fee on point of sale transactions for debit and credit
cards, letter of credits and other operations. This kind of revenue stream has been more or
less steady over a period of time and growth has been fairly predictable. However
shrinking interest rate, growing competition and increased horizontal mobility of
customers have forced bankers to look elsewhere to compensate for the declining profit
margins and Bancassurance has come in handy for them. Fee income from the
distribution of insurance products has opened new horizons for the banks and they seem
to love it. From the banks’ point of view, opportunities and possibilities to earn fee

17
income via Bancassurance route are endless. A typical commercial bank has the potential
of maximizing fee income from Bancassurance up to 50% of their total fee income from
all sources combined.

Product Diversification

In terms of products, there are endless opportunities for the banks. Simple term life
insurance, endowment policies, annuities, education plans, depositors’ insurance and
credit shield are the policies conventionally sold through the Bancassurance channels.
Medical insurance, car insurance, home and contents insurance and travel insurance are
also the products which are being distributed by the banks. However, quite a lot of
innovations have taken place in the insurance market recently to provide more and more
Bancassurance-centric products to satisfy the increasing appetite of the banks for such
products. Insurers who are generally accused of being inflexible in the pricing and
structuring of the products have been responding too well to the challenges (say
opportunities) thrown open by the spread of Bancassurance. They are ready to innovate
and experiment and have setup specialized Bancassurance units within their fold.
Examples of some new and innovative Bancassurance products are income builder plan
critical illness cover, return of premium and Takaful products which are doing well in the
market.

Building close relations with the customers.

Increased competition also makes it difficult for banks to retain their customers.
Banassurance comes as a help in this direction also. Providing multiple services at one
place to the customers means enhanced customer satisfaction. For example, through
bancassurance a customer gets home loans along with insurance at one single place as a
combined product. Another important advantage that bancassurance brings about in
banks is development of sales culture in their employees. Also, banking in India is mainly
done in the 'brick and mortar' model, which means that most of the customers still walk
into the bank branches. This enables the bank staff to have a personal contact with their
customers. In a typical Bancassurance model, the consumer will have access to a wider
product mix - a rather comprehensive financial services package, encompassing banking
and insurance products.

18
2.1.2 Bancassurance for Customer

The most immediate advantage for customers is that, in insurance business the business
of trust plays a greater role, especially due to the inbuilt requirement of a long term
relationship between the insurer and the insured. In Nepal, for decades, customers were
used to the monopolistic attitude of public sector insurance companies, despite there were
many drawbacks in their dealing, they enjoyed customer confidence, this trend continues
even now mainly due to their government ownership. The customers to move over to
private insurance companies that are collaborated with foreign companies which are less
known to the Nepalese public would take little more time. The void between the less
known newer private insurance companies and the prospective insured could be
comfortably filled by the banks because of their well established and long cherished
relationship. Under these circumstances, any new insurance products routed through the
bancassurance channel would be well received by the customers. Above all, in the
emerging scenario, customers prefer to have a consolidation and delivery of all financial
services at a single window in the form of ‘financial super market’, irrespective of
whether financial or banking transactions, because such availability of wide range of
financial/banking services and products relieves the customers from the painstaking
efforts of scouting for a separate dealer for each service/ product. Even internationally,
the trend is towards the ‘one-stop-shop’. Customers could also get a share in the cost
savings in the form of reduced premium rate because of economies of scope, besides
getting better financial counseling at single point. Even in the case of developed countries
the financial literacy and financial counseling has been increasingly stressed in recent
years, these become essential especially when decision involves long term investments.
In India, recently Reddy (2006) has been emphasizing on the importance and necessity
for financial counseling and financial literature. In that context too the bankers are better
placed in extending such counseling or financial advisers to the customer because of their
well-established long cherished relationship. The relationship between insurer and
insured and bank and its client are different, the former involves taking decisions for long
term parting of money, in such cases counseling is necessary, here too the bancassurance
can be of reassuring for the customer.

19
2.1.3 The Historical development of bancassurance

The first recorded settlement of bancassurance was in 1860, when the CGER
savings bank from Belgium started to sell mortgage-linked insurances. Bancassurance
as a term first appeared in France in 1980, to define the sale of insurance products
through banks ‟ distribution channels. It is the arrangement whereby branches of a bank
distribute insurance products by an insurance company owned wholly or partially
by the bank, or the branches distribute products developed by other insurance
companies with which the banks have entered into selling arrangement.

This form of a complete financial conglomeration has rapidly grown since the 1980s
when interest margins on loans decreased steadily and banks started exploring new
sources of revenue. As from the early 1990s, bancassurance has become a major
distribution channel in many insurance markets. Europe is the epicenter of bancassurance
practices. It has been a successful model in the European countries contributing 35% of
premium income in the European life insurance market. It contributes over 65% of the
life insurance premium income in Spain, 60% in France, 50% in Belgium and
Italy. In the Asian markets, bancassurance has a limited share of the total sales
primarily because of the near monopoly of the life agents in Japan, which is the largest
life market. The development of bancassurance is closely related to the regulatory
climate of a country, helping to explain differences in its importance across different
countries. (Cummins et al.2006)

In some countries, bank insurance is still largely prohibited, but it was recently legalized
in countries such as the United States, when the Glass–Steagall Act was repealed after the
passage of the Gramm -Leach-Bliley Act. But revenues have been modest and flat in
recent years, and most insurance sales in U.S. banks are for mortgage insurance, life
insurance or property insurance related to loans. But China recently allowed banks to
buy insurers and vice versa, stimulating the bancassurance products and some major
global insurers in China have seen the bancassurance product greatly expand sales to
individuals across several product lines.

20
History of bancassurance in Nepal is as old as the Europe. Agriculture Development
Bank launched a project "Small Farmers Development Project" (SFDP) since 1970
targeting to uplift small and low income farmers.

Most of the farmers used the loan to purchase the cow and buffalo. Insurance against the
risk of livestock was provided to farmers since 1987. However, the insurance scheme was
initiated by the project implemented by bank but there was no link with insurance
companies.

Daniel divided the evolution of bancassurance products into three periods.

In the first period, prior to 1980, banks sold insurance guarantees that were a direct
extension of their banking activities, but were not associated with life insurance. For
example, credit insurance was not regarded as bancassurance.

After 1980, savings products that benefited from advantageous tax regimes associated
with life insurance flourished in the banking markets.

Around 1990, the supply of insurance products by banks became much more diversified
in both life and general insurance categories.

2.1.4 Review of basic bancassurance Models

Bancassurance is the selling of insurance and banking products through the same
channel, most commonly through bank branches. Selling insurance means distribution of
insurance and other financial products through Banks. Bancassurance concept originated
in France and soon became a success story even in other countries of Europe. In India a
number of insurers have already tied up with banks and some banks have already flagged
off bancassurance through select products.

Bancassurance has become significant. Banks are now a major distribution channel for
insurers, and insurance sales a significant source of profits for banks. The latter partly
being because banks can often sell insurance at better prices (i.e., higher premiums) than
many other channels, and they have low costs as they use the infrastructure (branches and
systems) that they use for banking. Bancassurance primarily rests on the relationship the
customer has developed over a period of time with the bank. And pushing risk products
through banks is a much more cost-effective affair for an insurance company compared

21
to the agent route, while, for banks, considering the falling interest rates, fee based
income coming in at a minimum cost is more than welcome.

Various Models for Bancassurance

Various models are used by banks for bancassurance.

(a) Strategic Alliance Model: Under this Model, there is a tie-up between a bank and
an insurance company. The bank only markets the products of the insurance company.
Except for marketing the products, no other insurance functions are carried out by the
bank.

(b) Full Integration Model: This model entails a full integration of banking and
insurance services. The bank sells the insurance products under its brand acting as a
provider of financial solutions matching customer needs. Bank controls sales and insurer
service levels including approach to claims. Under such an arrangement the Bank has an
additional core activity almost similar to that of an insurance company.

(c) Mixed Model: Under this Model, the marketing is done by the insurer's staff and the
bank is responsible for generating leads only. In other words, the database of the bank is
sold to the insurance company. The approach requires very little technical investment.
(Allbankingsolutions.com, 2015)

(d) Distribution Models

Bancassurers have developed three basic distribution models: Integrative, Specialist and
Financial Planning model.

Integrative / Generalist Model:

The integrative model distributes products through existing bank channels, and in its
most well-known European version, branch bankers themselves sell insurance products to
customers. Theoretically, this offers “One Stop Banking” and requires extensive training
to branch staff. Bank staff are supposed to know the details of all the insurance products
on offer. Telemarketing and direct mail are also examples of integrative approaches.

22
Specialist Model:

The specialist model distributes investment or other complex insurance products through
product experts who are generally employees or representatives of the insurance
company. Platform bankers help identify prospects who are then contacted by an
insurance professional. This process requires less training bur requires higher
compensation to support the referral process. This model may not meet all of customers’
needs since it lengthens the process of sale of even a simple insurance product which can
otherwise be sold across the counter.

Financial Planning Model:

The “financial planning” model is the only “team” approach. This method offers each
customer and prospect a full financial planning package addressing all of the individual's
financial concerns, risk tolerances and location in the cycle of life. This process is
beneficial for the customer, the bank and the insurer, as the customer is viewed “outside
the numbers”. Bancassurers convey the message that they want to know all about the
customer in relation to their current and future financial needs and want to assist them on
all those aspects of their life.

To move a bank in the direction of becoming an effective user of the financial planning
model, the bank’s sales force first has to be taught how to qualify prospects and make
referrals and properly approach the customer/prospect. This process will include and
actively involve the bancassurer’s project in charge who is best acquainted with pertinent
federal and state regulations for the bank’s geographic market area.

Insurers' bank partners must then learn how to spot existing depositors/borrowers' “life
triggers,” i.e., milestones in a life that represent insurance opportunities. Although bank
representatives have always done this in conjunction with bank products, it is new to
them to apply this concept to insurance products as well. For example, a younger
depositor mentions he is withdrawing part of his savings to purchase his first car.
Knowledgeable bank representatives or platform bankers would immediately understand
the requirement for the car insurance and may be personal accident insurance. These bank
staff functioning now as financial services representatives can provide such sound
practical advice, i.e., an insurance product to fit customer current and future needs.

23
In general, a well-trained sales person can always count on certain “life triggers” -birth,
death, divorce, career change or other catastrophic event—to lead his or her regular bank
customers to new insurance products. If the bank’s personnel are shown how to capitalize
upon these triggers using insurance products, they will automatically provide referrals to
the insurance group and insurance sales will follow.

Either of these distribution models works under the right circumstances. What's most
important is whether the model is compatible with the bank's customer base and the
insurance company's strategic objectives. European bancassurance experience shows that
the Financial Planning Model is an extremely productive way to reach a large number of
bank customers. (Allbankingsolutions.com, 2015)

2.1.5 Review of distribution channel

One of the most significant changes in the financial services sector over the past few
years has been the growth and development of bancassurance. Banking institutions and
insurance companies have found bancassurance to be an attractive and profitable
complement to their existing activities. Distribution is the key issue in bancassurance and
is closely linked to the regulatory climate of the country. Over the years, regulatory
barriers between banking and insurance have diminished and has created a climate
increasingly friendly to bancassurance.

Traditionally, insurance products have been promoted and sold principally through
agency systems in most countries. With new developments in consumers’ behaviors,
evolution of technology and deregulation, new distribution channels have been developed
successfully and rapidly in recent years.

Bancassurers make use of various distribution channels:

 Career Agents
 Special Advisers
 Salaried Agents
 Bank Employees / Platform Banking

24
  Corporate Agencies and Brokerage Firms
 Direct Response
 Internet
 e-Brokerage
 Outside Lead Generating Techniques

Career Agents:

Career Agents are full-time commissioned sales personnel holding an agency contract.
They are generally considered to be independent contractors. Consequently an insurance
company can exercise control only over the activities of the agent which are specified in
his contract. Despite this limitation on control, career agents with suitable training,
supervision and motivation can be highly productive and cost effective. Moreover their
level of customer service is usually very high due to the renewal commissions, policy
persistency bonuses, or other customer service-related awards paid to them.

Many bancassurers, however avoid this channel, believing that agents might oversell out
of their interest in quantity and not quality. Such problems with career agents usually
arise, not due to the nature of this channel, but rather due to the use of improperly
designed remuneration and/or incentive packages.

Special Advisers:

Special Advisers are highly trained employees usually belonging to the insurance partner,
who distribute insurance products to the bank's corporate clients. Banks refer complex
insurance requirements to these advisors. The Clients mostly include affluent population
who require personalized and high quality service. Usually Special advisors are paid on a
salary basis and they receive incentive compensation based on their sales.

Salaried Agents:

Having Salaried Agents has the advantages of them being fully under the control and
supervision of bancassurers. These agents share the mission and objectives of the
bancassurers. Salaried Agents in bancassurance are similar to their counterparts in

25
traditional insurance companies and have the same characteristics as career agents. The
only difference in terms of their remuneration is that they are paid on a salary basis and
career agents receive incentive compensation based on their sales. Some bancassurers,
concerned at the bad publicity which they have received as a result of their career agents
concentrating heavily on sales at the expense of customer service, have changed their
sales forces to salaried agent status.

Platform Bankers:

Platform Bankers are bank employees who spot the leads in the banks and gently suggest
the customer to walk over and speak with appropriate representative within the bank. The
platform banker may be a teller or a personal loan assistant and the representative being
referred to may be a trained bank employee or a representative from the partner insurance
company. Platform Bankers can usually sell simple products. However, the time which
they can devote to insurance sales is limited, e.g. due to limited opening hours and to the
need to perform other banking duties. A further restriction on the effectiveness of bank
employees in generating insurance business is that they have a limited target market, i.e.
those customers who actually visit the branch during the opening hours.

In many set-ups, the bank employees are assisted by the bank's financial advisers. In both
cases, the bank employee establishes the contact to the client and usually sells the simple
product whilst the more affluent clients are attended by the financial advisers of the bank
which are in a position to sell the more complex products. The financial advisers either
sell in the branch but some banks have also established mobile sales forces.

If bank employees only act as "passive" insurance sales staff (or do not actively generate
leads), then the bancassurer's potential can be severely impeded. However, if bank
employees are used as "active" centres of influence to refer warm leads to salaried agents,
career agents or special advisers, production volumes can be very high and profitable to
bancassurers.

Set-up / Acquisition of agencies or brokerage firms:

In the US, quite a number of banks cooperate with independent agencies or brokerage
firms whilst in Japan or South Korea banks have founded corporate agencies. The
advantage of such arrangements is the availability of specialists needed for complex

26
insurance matters and -in the case of brokerage firms - the opportunity for the bank
clients to receive offers not only from one insurance company but from a variety of
companies. In addition, these sales channels are more conceived to serve the affluent
bank client.

Direct Response:

In this channel no salesperson visits the customer to induce a sale and no face-to-face
contact between consumer and seller occurs. The consumer purchases products directly
from the bancassurer by responding to the company's advertisement, mailing or telephone
offers. This channel can be used for simple packaged products which can be easily
understood by the consumer without explanation.

Internet:

Internet banking is already securely established as an effective and profitable basis for
conducting banking operations. The reasonable expectation is that personal banking
services will increasingly be delivered by Internet banking. Bancassurers can also feel
confident that Internet banking will also prove an efficient vehicle for cross selling of
insurance savings and protection products. It seems likely that a growing proportion of
the affluent population, everyone's target market, will find banks with household name
brands and proven skills in e-business a very acceptable source of non-banking products.

There is now the Internet, which looms large as an effective source of information for
financial product sales. Banks are well advised to make their new websites as interactive
as possible, providing more than mere standard bank data and current rates. Functions
requiring user input (check ordering, what-if calculations, credit and account
applications) should be immediately added with links to the insurer. Such an arrangement
can also provide a vehicle for insurance sales, service and leads.

E-Brokerage:

Banks can open or acquire an e-Brokerage arm and sell insurance products from multiple
insurers. The changed legislative climate across the world should help migration of
bancassurance in this direction. The advantage of this medium is scale of operation,
strong brands, easy distribution and excellent synergy with the internet capabilities.

27
Outside Lead Generating Techniques:

One last method for developing bancassurance eyes involves "outside" lead generating
techniques, such as seminars, direct mail and statement inserts. Seminars in particular can
be very effective because in a non-threatening atmosphere the insurance counselor can
make a presentation to a small group of business people (such as the local chamber of
commerce), field questions on the topic, then collect business cards. Adding this
technique to his/her lead generation repertoire, an insurance counselor often cannot help
but be successful.

To make the overall sales effort pay anticipated benefits, insurers need to also help their
bank partners determine what the “hot buttons” will be for attracting the attention of the
reader of both direct and e-mail. Great opportunities await bancassurance partners today
and, in most cases, success or failure depends on precisely how the process is developed
and managed inside each financial institution. This includes the large regional bank and
the small one-unit community bank.

2.1.6 Recent trends in bancassurance

Bancassurers have not only targeted the mass market but have also carefully begun to
segment the market which has resulted in the tailor‐made or rather perfect products for
each segment. Some bancassurers focus exclusively on distribution. In some markets,
face‐to‐face contact is preferred which proves to be a favorable arrangement for
the development of bancassurance business. Initially banks opt for either referral models
or corporate agency. Banks are offering space in their own premises to
accommodate the insurance staff for selling the insurance products or giving access
to their clients database. Insurance companies can use this opportunity to increase their
sale. Nowadays banks are campaigning and marketing the insurance products across the
globe. Number of banks in India act as corporate agents to insurance company. (K.D.,
Alavudeen, & Rosa, 2015)

2.1.7 Bancassurance prospective in Asian region

The conditions that have produced a boom in international acquisitions by Asian insurers
are set to continue, but the rationale for continued bancassurance deals could face greater
scrutiny. In Europe, where the concept of bancassurance first developed, it is increasingly

28
becoming a much more regulated market and, in many respects, is a declining channel. In
the UK, it has almost been killed off entirely due to costs, compliance issues and the
resulting effect this has had on return on capital. “The product just doesn’t add up,” said
Ian Brimecome, senior managing executive officer and executive chairman international
at Tokio Marine, during a panel on M&A at the FT Insurance Summit in Hong Kong on
Thursday. “Bancassurance may disappear in the UK.” This contrasts with Asia, which
remains a growing bancassurance market. With the big multinational and even regional
banks increasingly tied up, particularly on the life side, the latest trend has been for deals
to happen at the country level with domestic banks, “some of which you may never have
heard of”, as Edwin Northover, international counsel at Debevoise & Plimpton, put it.

Needless to say, investment banks have been keen to encourage such deals and the
persistence of low penetration rates throughout the region suggest there is still plenty of
room for growth, but some insurers are now looking at bancassurance with greater
scepticism, particularly when investment bankers are driving a deal that is focused on the
economics rather than the potential long-term partnership.

“There is enormous benefit to banks,” said Brimecome. “The trade-off is whether they
think really strategically or whether they are driven to think too much about the upfront
fee. There’s a better outcome if it’s really an alignment of interests in the long term. As
an organisation, we tend to not participate when there’s too much obsession with the
upfront fee.”

Alex Kimura, chief strategy officer at Aviva Asia, agreed that alignment with the bank is
key. “It’s about really exciting the bank on the potential of bancassurance,” he said. “The
bad news is that not all access to customers is the same. Some banks, some regulations
don’t allow insurers to have direct access, some of it’s a referral model, so not all
bancassurance is created equal.”

As such issues do begin to be talked about more often in Asia, it is possible that
regulators will start to clamp down on banks selling insurance, just as they are doing in
Europe, but all the panel lists agreed that there was still plenty of runway left for
bancassurance deals in the region. (Ferguson, 2017).

29
2.1.8 Bancassurance issue in Nepal
The difference in working style and culture of the banks and insurance sector needs
greater appreciation. In today financial market, banks and insurance companies are
collaborating together in Nepal. Insurance is a business of solicitation unlike a typical
banking service; it requires great drive to market the insurance products. It should,
however, be recognized that bancassurance is not simply about selling insurance but
about changing the mindset of a bank. Moreover, in Nepal since the majority of the
banking sector are private sector which has been widely provided active attitude and
good quality of customer service whereas its opposite in public sector and needs to
refurbish the blemished image. Else, the bancassurance would be difficult to succeed in
these banks.

There are also glitches in the system of bancassurance strategy in the form of conflict of
interest, as some of the products offered by the banks, viz, term deposits and other
products which are mainly aimed at long term saving and/or investments can be very
similar to that of the insurance products. Banks could as well feel apprehension about the
possibility of substitution effect between its own products and insurance products and
more so, as a number of insurance products in Nepal come with an added attraction of tax
incentives. In case the bancassurance is fully integrated with that of the banking
institution, it is suitable only for larger banks; however, it has other allied issues such as it
is in place proper rick management techniques relating to the insurance business, etc.

As there is a great deal of difference in the approaches in selling insurance products and
the usual banking services through understanding of the insurance products by the bank
staff coupled with extra devotion of time on each customer explaining in detail of each
products intricacies is a prerequisite. Moreover, insurance products have become
increasingly complex over a period of time, due to improvisation over the existing
products as well as due to constant innovation of products, emanating from the excessive
competition adding to even more difficulties in comprehension of the products and
marketing by the bank staffs.

30
2.1.9 Review of related Research:

The related research was conducted in Kenya on a topic of Influence of bancassurance on

financial performance of Commercial banks in Kenya. The research concluded that banks
ventured into bancassurance because they were inadequately capitalized and took up
bancassurance since adequate capital provided the ultimate protection against insolvency
and liquidation arising from the risk in banking business. Similarly, it was concluded that
higher asset quality levels had enhanced their customer product portfolio and thus
enhanced their level of financial performance. The study concluded that liquidity
significantly influenced financial performance of banks though the influence was
negative in nature. And it was concluded that management quality played a key role in
enhancing financial performance of banks since they ensure smooth day to day
operations, handling of risks and provision of stewardship.

The Bancassurance model generally adopted in Mexico is based on the relationships

established between a bank and an insurance company. Insurers that belong to financial
groups take advantage of that relationship by distributing insurance products through
bank branches. However, some insurance companies do not belong to financial
groups, and they have been able to sell insurance products through the banking
system as a result of specific commercial agreements. The bank branches are the point of
sale for simple insurance products that, mostly, are bundled within existing offers of
banking products. The bank’s sole responsibility is the distribution, and policy
administration and risk management are the responsibility of the insurance partner. In
recent years, banks have played an increasing role in the commercialization of
insurance products in Mexico. The main lines of business in which banks have
participated are Life, P&C, and Motor insurance. In the case of Life insurance
products, in addition to traditional insurance, Bancassurance has had an important
participation in the sale of insurance products with saving components (flexible Life
policies). Banks sell various types of P&C products, many of which are related to
credits and mortgages. In general, the largest insurance distribution channels in
Mexico are agents and brokers. Nevertheless, Bancassurance activity has increased its
relevance as a distribution channel for insurance products. Bancassurance is particularly
active in the Life insurance market in terms of premiums and policies. In the case of P&C

31
and A&H insurance, Bancassurance is notably strong in terms of policies issued;
this suggests the importance of this distribution channel. In terms of premiums,
Bancassurance holds the fourth position, but in terms of number of policies issued it
holds the second position, with a 25 percent share. Bancassurance has increased its
importance in the Mexican insurance market significantly. It has been used both by
insurance companies that belong to financial groups and by other insurers. Both have
taken advantage of the interface offered by the banking infrastructure to reach a large
number of clients. The large participation of Bancassurance in the insurance policies
issued indicates an important potential for growth in most lines of business. Although
traditional channels are still the main mechanism of insurance distribution, sales through
bank branches are a market practice that represents a distribution channel with a
high potential to increase market penetration, being able to reach population segments in
Mexico that still remain with little or no access to insurance products. (Serpa, Nick, &
Rodney, 2012).

There is no doubt that the high level of community-oriented culture in France has
made individuals particularly comfortable to accept products distributed through
banks. This perhaps more than anything else explains the success of Bancassurance in
France. However, many reasons may be given to regard the French success as
something that can readily be replicated. These include the willingness of the banks to
invest in training, the sympathetic tax regime, and the reality for banks that service based
income streams have an independence from their core systemic weaknesses. Banks
can only see those independent income streams as desirable. The challenges ahead for
Bancassurance in France certainly include a range of capital issues, the possible
backlash of increased privacy and data protection concerns, the advent of
increasing consumer comfort with Internet-based sales processes, and the possible
secular shift to consumers asking much more forceful questions about whether they
want to buy so much through their bank. These challenges nevertheless cannot prevent
the observer from concluding that Bancassurance in France has been an outstanding
success and looks set to continue to be so.

The insurance industry in India has been progressing at a rapid speed since the inception
of this sector. There is a bright future for bancassurance in the Indian insurance market.

32
Growth rate of insurance income is remarkable in some of the banks so there is very good
scope for further development in the selling of bancassurance products by the banks in
the long run. (Alavudeen & Rosa, 2015).

There are natural synergies between banks and insurance companies. In India, with the
deliberate expansion policies of banks in remote areas, a large number of bank branches
indeed reach even the remote areas. Banks also a huge “Trusted Brand” advantage.

Bancassurance brings many benefits in the times of increasing competition among

participants in the financial market, both to banks and to insurance companies. Common
benefits are reflected in: increasing sales/profits; expanding the base of clients; retaining
the existing clients; as well as improving the supply through a creation of new products
according to the structure and needs of clients. Serbian financial market will be facing an
increase in the insurance market, but also an intensifying competition, as the number and
quality of insurance companies increase from year to year (26 insurance companies are
currently operating in Serbia). In the banking sector, a keen competition already exists
among the large number of banks. All this will cause an inevitably stronger integration of
banks and insurance companies in order to prevent the outflow of clients and retain
deposits. Former weak results of the implementation of bancassurance in Serbia were
primarily induced by a small interest of banks in the development of this sales channel.
This is conditioned by the structure of their revenues, where return interest is still
dominating.

However, in the future, according to global trends, we expect a significant reduction in

interest margins, which will direct banks toward a greater development of those types of
services that will result in increased income from fees and commissions. For successful
implementation of bancassurance in Serbia, it is necessary to fulfill some other
conditions, such as:

 Higher living standards of the population;

 Greater awareness and changed financial culture of citizens;
 Legal approval of tax incentives to the buyers of life insurance policies;
 Top-quality education and continual trainings; as well as

33
  Motivating factor, in the form of bonuses and commissions over the fixed salary
for the banking sector employees who will be responsible for the implementation
of this sales channel.
The development of bancassurance, as a channel of distribution, is closely associated
with the growth of the insurance market in Serbia, of which the state can have long-term
benefits. Money raised through the sales of life insurance policies should be invested by
insurance companies in long-term government bonds that would finance infrastructure
projects. (Borko & Vojvodic, 2011)

2.1.10 Influence of Capital Adequacy on Financial Performance

According to Olalekan and Adeyinka (2013), adequate capital is regarded as the

amount of capital that can effectively discharge the primary capital function of
preventing bank failure by absorbing losses. Adequate capital provides the ultimate
protection against insolvency and liquidation arising from the risk in banking
business. Any bank with inadequate capital faces hidden constraints. Its management
time is spent on the defensive, working out how to raise capital or how to guard
against takeovers. Due to the debt-like nature of liabilities in banks, they have an
incentive to engage in risk-shifting or asset substitution. This means that they will
indulge in high risk activities to shift the downside- risk to creditors. To avoid this,
regulators require them to hold a minimum ratio of capital to assets to reduce
their sensitivity to risk (Kongiri, 2012).

In this case, capital adequacy can be measured using ratios such as capital to liabilities
and the capital to assets ratio. Earlier studies on capital adequacy as a determinant of
profitability of banks revealed that a high capital adequacy ratio should signify a
bank that is operating over-cautiously and ignoring potentially profitable trading
opportunities (Goddard et al., 2004), which implies a negative relationship between
equity to asset ratio and bank performance. Adequate capital for banks is the level at
which the deposit insuring agency would breakeven in guaranteeing the deposits of
individual banks with premium the banks pay. Various studies suggest that banks with
higher levels of capital perform better than their undercapitalized peers. Staikouras and
Wood (2003) claimed that there exists a positive link between a greater equity and

34
profitability among EU banks. Goddard et al., (2004) supports the prior finding of
positive relationship between capital/asset ratio and bank’s earnings. Again the direction
of the relationship between bank capital and bank performance cannot be unanimously
predicted in advance. It therefore calls for further empirical analysis to ascertain the
direction for this relationship. Furthermore from the empirical analysis there is limited or
no evidence of critical analysis of this relationship with respect to banks that have
ventured into bancassurance. The current study therefore aimed at filling this empirical
gap majoring on the Kenyan context.

2.1.11 Influence of Asset Quality on Financial Performance

Unlike other business organizations such as the manufacturing firms that stock tangible
goods as inventory, the stock of the banking industry is money; this means that banks
trade on money (Aruwa & Musa, 2014). By its nature banks face number of challenges
within internal and the external business environment. Basically, banks operate with three
basic objectives which are profitability, growth of assets and customer base. Asset quality
entails the evaluation of firm assets in order to facilitate the measurement of the level and
size of credit risk associated with its operation. Sustaining sound assets quality involves
careful granting of loans that must be examined and compliance to banking rules.
Asset quality is a measure of the probability that the loan will either be paid or not. It is
measured using credit risk which is the risk of loss due to non-payment of debtors’ loans
(Ogilo, 2012).The failure of a debtor to pay a loan enhances the credit risk of a bank and
thus reduces its asset quality.

Kongiri (2012) noted that asset quality is measured by the ratio of net non-performing
loans to the gross loans. Furthermore, Molyneux et al., (2007) noted that the various
pointers to the deterioration in the asset value could be through using ratios such as
earnings assets to total assets and the provisioning of gross advance ratios.

Various studies globally and locally have attempted to explain the relationship
between asset quality and bank performance. For example, Abata (2014) examined
assets quality and bank performance of six largest banks quoted in Nigeria stock
exchange and revealed that assets quality has a statistically relationship and influence on
bank performance.

35
Similarly, Vighneswara (2015) examined the determinants of bank asset quality and
profitability in India using panel data techniques from the period from 1997 – 2009. The
findings reveal that capital adequacy and investment activity significantly affect the
profitability of commercial banks. Locally, Musyoki and Kadubo (2011) also found that
credit risk management is an important predictor of bank’s financial performance;
they concluded that banks success depends on credit risk management and therefore
focus should be placed on ensuring sound asset quality management. Furthermore,
Kithinji (2010) analyzed the effect of credit risk management and found that the bulk of
the profits of commercial banks are not influenced by the amount of credit and non
performing loans. The implication is that other variables apart from credit and
nonperforming loans impact on banks’ profit. It is therefore clear that the relationship
between asset quality and financial performance of banks and more so those which have
taken up bancassurance is still limited and thus the current study attempted to fill this
knowledge gap.

2.1.12 Influence of Liquidity on Financial Performance

The Central Bank of Kenya (2012) defines liquidity as “the ability of financial
institutions to fund increases in asset holdings and meet obligations as they fall due”. One
key purpose of bank managers is the management of liquidity risk which can result from
a mismatch in the maturities of assets and the ‘obligations due” in these case drawable
deposits, and whose occurrence in one institution can have systemic effects on the whole
industry. With this in view bank regulators attempt to manage bank liquidity risk by
imposing minimum liquidity ratios and also by using monetary policy.

In the Kenyan case, the statutory minimum liquidity ratio is 20%. Banks have however
managed to maintain a liquidity ratio well in excess of the minimum set by the
regulatory authorities but as Kamau (2011) argues that there is an opportunity cost
in holding high liquidity, which is characterized by loss of an opportunity to hold
onto high interest generating investments. Some studies have found a positive
relationship; some found a negative relationship while others found both results and a
few found no relationship at all. For example, Kosmidou et al., (2005) found that the ratio
of liquid assets to customer and short term funding is positively related to ROA

36
and statistically significant. Recently, Olagunju et al., (2012) found out that there is a
positive significant relationship between liquidity and profitability. Some authors found
mixed results of both negative and positive relationship. Shen et al., (2010) assert that in
market-based financial system liquidity risk is positively related to net interest margin an
indication that banks with high levels of illiquid assets receive higher interest income.
They pointed out that banks incurred higher funding cost in the market if they have
illiquid assets as they had to raise the money in the market to meet the funding gap.
Demirgüç-Kunt and Huizinga (1999) found inconclusive results; they found a positive
relationship between loans to total assets and the net interest margins.

They also established an inverse relationship between the net interest margin and
before tax profits. Significantly, bancassurance has been found to increase bank
liquidity and therefore conclusions about the influence of banks’ liquidity on their
profitability remain ambiguous and further research is required. (Kenyatta, 2016)

2.2 Theoretical framework:

Research on bancassurance is effective only proper theoretical framework. There are
main three variables which are affected from bancassurance. Basically this section tries to
explain the different independent and dependent variables that helps to proper find out
the influence of bancassurance on financial performance of commercial banks.

Independent variables dependent variables

Liquidity

Assets quality
Bancassurance

Capital adequacy

37
Fig 2.2 Theoretical framework

Liquidity

Liquidity describes the degree to which an asset or security can be quickly bought or sold
in the market without affecting the asset's price. Bancassurance and the liquidity are
interrelated to each other. When customer buy insurance policies from banks then level of
cash is increases (Ogilo, 2012). One key purpose of bank managers is the management of
liquidity risk which can result from a mismatch in the maturities of assets and the
‘obligations due” in these case withdrawable deposits, and whose occurrence in one
institution can have systemic effects on the whole industry.

Assets quality

Asset quality entails the evaluation of firm assets in order to facilitate the measurement
of the level and size of credit risk associated with its operation. Sustaining sound assets
quality involves careful granting of loans that must be examined and compliance
to banking rules. Asset quality is a measure of the probability that the loan will either
be paid or not. It is measured using credit risk which is the risk of loss due to non-
payment of debtors’ loans (Ogilo, 2012).The failure of a debtor to pay a loan enhances
the credit risk of a bank and thus reduces its asset quality. Kongiri (2012) noted that asset
quality is measured by the ratio of net non-performing loans to the gross loans.
Furthermore, Molyneux et al., (2007) noted that the various pointers to the deterioration
in the asset value could be through using ratios such as earnings assets to total assets and
the provisioning of gross advance ratios (Komen, Keith, & Daniel, 2016)

Capital adequacy
adequate capital is regarded as the amount of capital that can effectively discharge
the primary capital function of preventing bank failure by absorbing losses. Adequate
capital provides the ultimate protection against insolvency and liquidation arising
from the risk in banking business Molyneux et al., (2007). Any bank with inadequate
capital faces hidden constraints. Its management time is spent on the defensive,
working out how to raise capital or how to guard against takeovers. Due to the
debt-like nature of liabilities in banks, they have an incentive to engage in risk-

38
shifting or asset substitution. This means that they will indulge in high risk activities to
shift the downside- risk to creditors.

39
 CHAPTER III
RESEARCH DESIGN AND METHOLODOGY

After the background for the research topic is established through the literature review
with the knowledge gap identified, the next logical step is to draw a route map for
answering the research questions including the identified research proposition. Therefore,
this chapter will discuss the research approach, research strategy and data collection
methods as directions to finding the answers for the research topic. Concerning the time
horizon element, this research is of cross-sectional design in which data relevant to
alternative strategy and distribution channel of insurance product through bancassurance
are collected more or less simultaneously. Both quantitative and qualitative data is
valuable and relevant for this research. Moreover, both quantitative and qualitative
methods are combined and primary data are collected in order to increase the validity of
our findings. More specifically, a self-completion questionnaire method associated with
the quantitative research strategy social survey has been employed.

3.1 Research Design

Survey method through questionnaire administration has been used to generate the
primary data. The exploratory and descriptive research design has been adapted to make
the research more relevant. The descriptive approach has been utilized in the sense that
the concept of the alternative strategy and distribution channel of bancassurance has been
described and analytical approach has been used to describe and analyze the situation. As
this research deals with the subject matter that is fairly new in the context of the nation,
many new aspects have to be explored and analyzed. Thus, an explorative research
design had to be adopted using the self-completion questionnaire method. The data
collected during the research process are rearranged, tabulated, analyzed and interpreted
according to need of study.

40
3.2 Sources of Data
Both the primary and secondary nature data has been utilized as per the requirement of
the research. Journals, periodicals, books, published and unpublished reports, discussion
paper, seminar, computer records, website, manuals, encyclopedia etc. have been the
major source of the secondary data. The self-completion questionnaire has been used to
collect the primary data.

3.3 Data collection procedure

A self-completion questioner has been used as a primary means to obtain the valuable
data. The questioner is designed with a focus on obtain more inside into the present
bancassurance business scenario of Nepalese bank. With a self-completion questioner all
respondents answer the same set of question by completing the questioner themselves.

Population and sampling

Sampling respondents includes the experienced professional having wealth of expertise in
the bank insurance sector of Nepal. For more relevant data those bank which were selling
insurance product y its bank. The respective companies’ website and the profile of
possible respond available in the website were browsed and then random respondents
email address was selected. The researcher being the part of the Nepalese bank, having
close friends involved in the bank insurance helped in gaining access to the desired
respondents.

There is two types of questionnaire are distributed to customer as well as employees of

the banks. Basically, primary data have been collected by using the questionnaire
method. The questionnaire has been distributed to Banking professionals who have the
complete knowledge and experience regarding the Bancassurance in Nepal. Beyond
questionnaire, interview and observation are other sources of primary data, which has
been collected via corporate visits and subsequent discussion with the Banking
professionals. Primary data also collected through customer by providing questionnaire to
analysis about customer perception and awareness about bancassurance. Secondary data
are collected from the published source; the data collection procedure for secondary data
is quite simple. Review of articles, journals, magazines, books from libraries, web,

41
accessing to publicly available figures of banking and insurance, and other similar
sources are some of the secondary data collection procedure adopted in the study. Both
the primary and secondary data relevant to the study have been collected within a time
span of 25 days including amendments in the published sources (secondary) affecting the
contents of study and questionnaire collection period.

3.4 Data Analysis

The goal of data analysis is to handle the evidence fairly, to produce convincing logical
conclusion and to rule out the alternative interpretation. Data analysis involves turning a
series of recorded observation onto descriptive statement (Yin, 1994). Therefore, after the
data is collected from different sources the next step is to process, analyze and interpret
the data to derive meaningful conclusion.

The study here is mainly focused on survey through questionnaire. The data are analyzed
using the percentage method, simple average method and trend analysis. Questionnaire
collected and arranged to make them applicable for presentation and analysis. Data are
logically presented using diagrams, tabular form, pie charts, and semantic difference
scales. Some statistical and descriptive tools are used to present and analyze the
complicated task of measuring opinions and views. These statistical tools are mostly
executed of the respondents on different issues.

The statistical methods are mathematical techniques used to facilitate the analysis and
interrelation of numerical data secured from group of individuals or groups of
observation from a single individual. The deliberation provides the detail description and
tabulation as well as objective analysis.

 Percentage: It is the mathematical tool which represents the proportion of any

variable in terms of its total. Percentage method has been applied in this research
to present the findings of the primary data.
 Pie chart: A pie graph (or pie chart) is a specialized graph used in statistics. It is a
circular chart in which the circle is divided into sectors. Each sector visually
represents an item in a data set to match the amount of the item as a percentage or
fraction of the total data set. It is used to compare different part of whole amount.

42
 Here, in order to easily understand and interpret the data collected from
questionnaire, the pie chats have been effectively used.
 Descriptive Statistics, Pearson Correlation, Cronbach alpha, Multiple Regression
are used by this studies.

3.5 Validity and Reliability

In this research primary sources are considered for the study and primary sources of data
are questionnaire and interview, the data validity may be affected by the degree of
consciousness of the respondents on the subject and their degree of zeal in the subject
matter. Published journals, articles, books and magazines, validated websites are some of
the sources of secondary data, thus, as these sources are authenticated by the publishers,
the data and sources of information are considered to be valid and can be trusted upon.

Similarly, as secondary sources of data are authenticated and already accepted in many
fields, the reliability of secondary data is relatively higher compared to primary data.
Respondent are the sole source of information and the reliability of information vary
upon their interest and seriousness towards the subject.

In the process of selling insurance product through bancassurance various distribution

channels and alternative strategy were used. Reasons behind the use of distribution
channels and alternative strategy by the bank and insurance sector are considered.
Considering the genuineness of secondary and primary data collected, all the published
sources of information and standardized analysis tools, the validity and reliability of the
study and its findings are assumed to be very high and useful to many scholars, students
and related stakeholders in the discipline.

Reliability refers to the correlation of an item, scale or instrument with a hypothetical one
which measures what it is supposed to. P value is compared in terms of 0.01. If p value is
less than 0.01, the null hypothesis is rejected else if it is equal to or more than 0.01, the
null hypothesis is accepted. Means were also compared to assess the reliability of scales.
The value ranges between 1 to 6 and mean is 3.5. Generally, it is thought that the mean
value more than 3.5 is positive response, the mean value 3.5 means adequate and less

43
than 3.5 is negative response. If the values are above 3.5 it can be concluded that the
scales are reliable.

Cronbach’s Alpha was calculated for the reliability test. If the calculated Cronbach’s
alpha is above 0.7 then collected data are reliable. From the test, it can be inferred that the
questionnaire prepared was reliable for the study as each Cronbach’s alpha is more than
0.7. The result of the reliability test is shown in Table
Table 3.1: Reliability test
Variables Number of items Cronbach’s alpha
Bancassurance 7 0.829
(independent)
Liquidity (dependent) 4 0.880
Capital Adequecy 4 0.954
(dependent)
Assets quality (dependent) 4 0.916

3.6 Analysis Plan

After gathering all the questionnaires from the respondents, SPSS and excel were used
for the analysis of the data. Total responses collected from the respondent were coded
and tabulated into SPSS. All the different questions like multiple response and Likert
scale was coded as per the rule and appropriated analysis was done on the data collected.

The data obtained from the research was analyzed by using SPSS software. For
identifying the reliability of the data, Cronbach’s alpha was calculated. After identifying
the data reliability, data were analyzed using different tools. Mainly statistical tools such
as frequencies, descriptive analysis and correlation were used for the purpose of
generating findings. For testing the hypothesis, multiple regression between the
dependent and independent variables were calculated and evaluated on the basis of p-

44
value. The recommendation and conclusion were totally based upon the findings of the
study.

Various tools were used to draw inferences from the collected responses namely:

 Descriptive Statistics
 Pearson Correlation
 Cronbach alpha
 Multiple Regression.

To test the proposed hypotheses, statistical analyses were carried out using the following
methods: first, descriptive statistics of the variables (both dependent and independent)
were calculated over the sample period. Since the descriptive statistics methods helps the
researcher in picturing the existing situation and allows relevant information. Then,
regression analyses between dependent and independent variables were made to test the
significance level and then data collected from different sources were analyzed by using
SPSS software package.

Descriptive analyses were based on the following tools: Tables, charts, Mean, median,
mode, dispersion, probability, percentage test, etc. inferential analysis would be
performed by the help of regression and chronbach alpha.

45
 CHAPTER IV
RESULTS AND DISCUSSION

This chapter contains the analysis, discussion, and interpretation of the result based in
data collected. The analysis is mainly based on primary data which were collected
through the questionnaire filled by respondents. The data is analyzed with the help of
SPSS. The data are presented with tables and diagram to make it convenient possible to
interpret. The mean, standard deviation and frequencies has also done to examine the
significant relationship between different variables. Tables and figures are extensively
used to analyze the data.
The data collected from the procedure as stated in chapter three were further taken for
analysis and presentation. The analysis of data was performed with the help of SPSS and
MS-Excel. This analysis part consists of details of the respondents’ profile, descriptive
analysis of respondents’ answers on bancassurance and financial performance of
commercial banks and the respective correlation among the dependent and independent
variable.
The main purpose of this section is to test relationship of bancassurance and financial
performance of commercial banks along with the presence of independent variable
which is bancassurance and dependent variables such as liquidity, assets quality and
capital adequacy.
This section is sub-divided into four parts. The first part deals with the respondents’
profile. It gives detail information regarding the respondents’ gender, age, and academic
qualification, position. The second part analyses and interprets the collected data through
descriptive analysis and third section deals and interprets the collected data through
correlation between dependent and independent variables. And the final part is the
discussion of results obtains through analysis.

4.1 Respondents profile

This section deals with the demographic analysis and interpretation of primary
data collected through questionnaires. It gives an insight into the demographic

46
characteristics of the respondents under study. The respondent profile includes age,
gender, income level, and type of service organization.

4.1.1 Gender of Respondents

The questionnaire was distributed to both male and female respondents. The objective
was to determine the percentage of distribution of respondents by gender. The following
table describe detail.

Table 4.1 Gender of the Respondent

Gender Frequency Percent

Male 70 72.9
Female 26 27.1
Total 96 100

27.10%

Male
Female

72.90%

Figure 4.1 Gender of the Respondents

Table 4.1 and Figure 4.1 show the gender distribution of respondents. They show that the
participation of male respondents was more than that of female respondents in the sample
size of 96. The percentage of male and female respondents was 70% and 26%
respectively.

47
4.1.2 Marital status of Respondents
The questionnaire was distributed to both married and unmarried respondents. The
objective was to determine the percentage of distribution of respondents by married. The
following table describe detail.

Table 4.2 Marital status of Respondents

Marital status Frequency Percent

Married 16 16.7
Unmarried 80 83.3

Total 96 100

16.70%

Married
Unmarried
83.30%

Figure 4.2 Marital status of the Respondents

Table and Figure show the marital status of respondents. They show that the participation
of Unmarried respondents was more than that of Married respondents in the sample size
of 96. The percentage of married and unmarried respondents was 16.70% and 83.3%
respectively.

48
4.1.3 Qualification of the Respondents

The qualification of the respondents is categorized into four groups as S.L.C,

intermediate, bachelors and masters and above. Among the four groups, masters and
above level are highly fascinated towards humorous advertisements and its effect on the
consumer brand perception. It is then followed by bachelor’s level.

The frequency distribution and percent composition of respondents’ qualification is

depicted in table below:

Table 4.3 Qualification of the Respondents

Qualification Frequency Percent
Intermediate 2 2.1

Bachelor degree 56 58.3

Master and above 38 39.6

Total 96 100

2.10%

39.60% Intermediate
Bachelor degree
Masters and above
58.30%

Figure 4.3 Qualification of the Respondents

4.1.4 Age group of Respondents

The questionnaire was distributed among the different age group of respondents. The
concept and thinking about the bancassurance among the different age group may be
different. The following table and figure describe details.

49
 Table 4.4: Age group of Respondent

Age Frequency Percent

20-25 46 47.92
25-30 44 45.83
30 and above 6 6.25
Total 96 100

6.25%

20-25
47.92%
25-30
45.83% 30 and above

Figure 4.4 Age group of Respondents

Out of the 96 respondents, large number of respondents belongs to age group 20-25 years
consisting 47.92% of the total respondents. In addition to this, 45.83% respondents were
of age group below 25-30 years, 6.25% respondents were of age group 30 and above
years.

4.1.5 Position of Respondents

In this studies there are 96 respondents are involve. There is different position of
respondents, therefore the perception about the bancassurance may be different. The
following table and figure describe details.

50
 Table 4.5: Position of Respondents

Position Frequency Percent

Assistant 26 27.1
Assistant officer 2 2.1
Branch manager 4 4.2
Cashier 2 2.1
Clerk 6 6.3
IT Consultant 2 2.1
IT/ Communication 2 2.1
Officer
Junior Assistant 18 18.8
Junior officer 2 2.1
Loan manager 2 2.1
loan officer 2 2.1
Management Trainee 2 2.1
operation incharge 8 8.3
senior assistant 2 2.1
Supervisor 2 2.1
Technical officer 2 2.1
Trainee 4 4.2
Trainee Assistant 8 8.3
Total 96 100.0

Out of the 96 respondents, large number of respondents from Assistant consisting 27.1%
of the total respondents. In addition to this, 18.8% respondents were from junior assistant,
8.8% respondents from operation incharge.

4.2 Descriptive Analysis

In order to present descriptive scores for each of the variables used in the survey,
descriptive analyses were performed. The main aim of this analysis is to describe the
importance of each variable in order of importance given to it by the survey respondents.
Descriptive statistics summarizes the sample and observations that have been made. In

51
this study, descriptive analysis incorporates the calculation of statistical measures such as
mean and standard deviation.

4.2.1 Employees prospective of Bancassurance

Questionnaire was designed to base on employees view point towards the bancassurance.
There are different seven questions are distribute to the different 96 respondents.

Customer interest about bancassurance

Respondents were asked to details about the customer interested towards bancassurance.
How the bank customer are asked about the bancassurance to the employees and quarisity
about the Bancassurance is the base of this questions.

Bancassurance increase the number of customer

Respondent were also asked about the impact of bancassurance in case of increase
number of customer in commercial banks in Nepal. The responses of the above
questionnaire are presented below.

Good to banks, to sales insurance policies

Bancassurance helps to adding the value to banks so to clarify this thinking, this studies
asked this questionnaire towards the 96 respondents. Respondents were ranked their
views in six different scale.

Banks effectively distribute/sold insurance policies

Respondents were asked to details how they were selling insurance products at or through
banks. The respondents were asked to rank the questionnaire based on different six
leaked scale. Respondent asked based on their banks distribution policies of insurance
policies.

Customer attraction is the main reasons to sales insurance policies

There are different reasons of selling insurance product of banks. Respondents rank by
analyzing their bank strategies of selling insurance policies.

52
Bancassurance added value to bank
Respondent were fill the given questionnaire by analyzing the impact of bancassurance
towards their banks. Bancassurance may increase the bank image and added value of
banks, if they feel like this they ranked higher in their questionnaire.

In future, market of bancassurance will be growing

The answer of this questions is based on the forecast of respondents.

Based on above questions, the result is presented in table 4.6.

Table 4.6 Bancassurance
Std.
Mea Maximu Minimu
Statement N Deviatio
n m m
n
Customers are more interested to buy
96 4.08 1.139 2 6
insurance policies through banks.
Bancassurance increase the number of
96 4.19 0.933 2 6
customer in a banks
It is good to banks, to sales insurance
96 4.44 1.044 2 6
policies.
Banks effectively distribute/sold the
96 3.94 1.094 1 6
insurance policies
Attract new customer is the main reasons
96 4.19 1.190 1 6
for banks to distribute insurance policies.
Insurance policies added the value of banks,
96 4.70 0.827 3 6
when banks sales insurance policies.
In future, I think market of Banassurance in
96 5 0.846 2 6
Nepal will be growing.

The results in Table 4.6 show descriptive statistics of an individual item and as a whole
of Bnacassurance. There are seven statements used to measure the bancassurance
practices in commercial banks. Each of the 96 respondents submitted their responses in

53
the six-point Likert scale. The Table 4.6 shows that the items have a mean value ranging
from 3.94 to 5 i.e. the response is positive.

The Table shows that last statement has the highest mean and fourth statement has the
lowest. The highest mean of 5 indicates that it is the most agreed statement, stating that in
future, market of bancassurance in Nepal will be growing. Lowest mean of 3.94 shows
that respondents are less agreed by the statement “Bank effectively sold/distribute
insurance policies.” That means commercial banks in Nepal are unable to effectively sold
insurance policies

4.2.2 Bancassurance and liquidity

To analyses the impact of bancassurance towards liquidity position of banks, there is

provided four different questionnaires to the respondents. Different questions and its
results are explained by following figure.

Table 4.7 Bancassurance and liquidity

Statement N Me Std. Maxi Mini
an Deviat mum mu
ion m
Higher levels of liquidity arising from bancassurance has 96 4.2 0.923 6 2
enhanced our level of financial performance 3
Our bank often meets its short term obligations due to 96 4.2 0.957 6 2
increased liquidity arising from Bancassurance 7
Higher liquidity levels arising from Bancassurance in our 96 4.5 0.937 6 2
bank has enhanced our customer product portfolio. 8
Bank offers Bancassurance in order to raise our liquidity 96 4.3 0.948 6 2
holdings and reduce liquidity risks.

The Table shows that second last statement has the highest mean and first statement has
the lowest. The highest mean of 4.58 indicates that it is the most agreed statement, stating
that. “Higher liquidity levels arising from bancassurance in our bank has enhanced our
customer portfolio”. Lowest mean of 4.23 shows that respondents are less agreed by the

54
statement “Higher levels of liquidity arising from bancassurance has enhanced our level
of financial performance.”

Additionally, the Table shows that second statement has the highest standard deviation
whereas first statement has the lowest standard deviation. This means respondents have
more deviation with the statement “Our bank often meets its short term obligations due to
increased liquidity arising from Bancassurance” i.e. the values in the data set are farther
away from the mean, on average.

4.2.3 Bancassurance and capital adequacy

Bancassurance and capital adequacy are related each other. To clarify the impact of
bancassurance in capital adequacy in commercial banks in Nepal, the given research
provided different four questionnaire to respondents. The result from the respondents are
presented in the following table and figure.

Table 4.8: Bancassurance and capital adequacy

Statement N Me Std. Maxi Mini
an Deviat mum mu
ion m
Bank offers Bancassurance because banks with higher 96 4.2 1.065 6 2
levels of capital tend to perform better than their 9
undercapitalized peers.
Higher capital levels arising from Bancassurance has 96 4.2 1.1 6 2
enhanced our risk mitigation process. 7
Higher capital levels arising from Bancassurance has 96 4.3 1.13 6 2
enhanced our customer product portfolio. 3
Bancassurance increase the levels of capital in a banks 96 4.3 1.108 6 2
1

The Table 4.8 shows that second last statement has the highest mean and second
statement has the lowest. The highest mean of 4.33 indicates that it is the most agreed
statement, stating that “Higher capital levels arising from Bancassurance has enhanced
our customer product portfolio. Lowest mean of 4.27 shows that respondents are less

55
agreed by the statement “Higher capital levels arising from Bancassurance has enhanced
our risk mitigation process.”

Additionally, the Table shows that second last statement has the highest standard
deviation whereas first statement has the lowest standard deviation. This means
respondents have more deviation with the statement “Bank offers Bancassurance because
banks with higher levels of capital tend to perform better than their undercapitalized
peers.” i.e. the values in the data set are farther away from the mean, on average.

4.2.4 Bancassurance and asset quality

Bancassurance also affect the assets quality of banks. This research distribute different
four questions under this topic to find out the relationship between bancassurance and
assets quality. According to the result provide by the respondents the following table is
presented here.

Table 4.9: Bancassurance and Asset quality

Statement N Me Std. Max Min
an Devia imu imu
tion m m
Bancassurance increases the level of assets quality in banks. 96 4.2 0.934 6 2
7
Higher asset quality levels arising from bancassurance in our 96 4.2 0.973 6 2
bank has enhanced our customer product portfolio. 5
We ventured into bancassurance because our bank has a 96 4.2 0.962 6 1
sound credit culture that is trusted by our customers. 1
The bank credit management system involves all 96 4.1 1.071 6 2
departments that handle customers thereby minimizing the
negative effects of bad debts.

The Table shows that first statement has the highest mean and last statement has the
lowest. The highest mean of 4.27 indicates that it is the most agreed statement, stating
that “Bancassurance increases the level of assets quality in banks”. Lowest mean of 4.1
shows that respondents are less agreed by the statement “.The bank credit management

56
system involves all departments that handle customers thereby minimizing the negative
effects of bad debts”

Additionally, the Table shows that last statement has the highest standard deviation
whereas first statement has the lowest standard deviation. This means respondents have
more deviation with the statement “The bank credit management system involves all
departments that handle customers thereby minimizing the negative effects of bad debts.”
i.e. the values in the data set are farther away from the mean, on average.

4.3 Inferential Analysis

The purpose of this section is to present the method for analyzing the empirical results,
test the hypothesis set, built in previous chapter. Inferential statistics are procedures used
that allow researchers to infer or generalize observations made with samples to the
larger population from which they were selected. It enables use of one or more
samples of observations to infer values of a population. Inferential analysis test
hypotheses to determine if observed differences between groups or variables are real or
occur simply by chance. It produces new information by making predictions and
generalizations based on samples. This section consist of two analysis tools which are:

4.3.1 Correlation Analysis

Correlations Analysis between variables were studied to find relations among
them. Pearson’s correlations analysis was carried out for variables having simple multi
option answers. Correlation matrix was computed to assess the extent or degree of
relationship in between the research variables. A positive correlation reveals that the
direction of the relationship is positive with one increasing in reaction to the other’s
increase. Meanwhile, a negative correlation reveals an inverse of the above; an increase
in one when the other decreases.

4.3.2 Relation between bancassurance and liquidity.

H1: There exist positive relationship between bancassurance and liquidity.

The relationship between bancassurance and liquidity is explain by following table.

57
 Table 4.10: Correlation between Bancassurance and liquidity

Bancassurance Liquidity

Pearson Correlation 1 .580**

Bancassurance Sig. (2-tailed) .0001

N 96 96

**. Correlation is significant at the 0.01 level (2-tailed).

Above table shows that correlation analysis between bancassurance and liquidity. Since,
the P value is less that alpha i.e. 0.00< 0.01, the correlation is significant at 0.01 level of
significance. The Pearson Correlation coefficient between the independent variable
bancassurance and dependent variable liquidity is 0.580, which implies that the two
variables are positively correlated. The positive coefficient of correlation is 0.580 at 1%
significant level.

4.3.3 Relationship between bancassurance and capital adequacy.

H2: There exist positive relationship between bancassurance and capital adequacy. The
following table shows the relationship between bancassurance and capital adequacy.

Table 4.11: Correlation between Bancassurance and capital adequacy

Capital
Bancassurance
Adequacy

Pearson Correlation 1 .502**

Bancassurance Sig. (2-tailed) .0001

N 96 96

**. Correlation is significant at the 0.01 level (2-tailed).

58
Shows that correlation analysis between bancassurance and Capital adequacy. Since, the
P value is less that alpha i.e. 0.00< 0.01, the correlation is significant at 0.01 level of
significance.

The Pearson Correlation coefficient between the independent variable bancassurance

and dependent variable capital Adequacy is 0.502, which implies that the two
variables are positively correlated. The positive coefficient of correlation is 0.502 at 1%
significant level.

4.3.4 Relationship between bancassurance and Assets quality

H3: There exist positive relationship between bancassurance and assets quality. The
relationship between bancassurance and Assets quality is explain by following table:

Table 4.12 Correlation between Bancassurance and Assets quality

Bancassurance Assets Quality

Pearson Correlation 1 .574**

Bancassurance Sig. (2-tailed) .0001

N 96 96

**. Correlation is significant at the 0.01 level (2-tailed).

Shows that correlation analysis between bancassurance and Assets quality. Since, the P
value is less that alpha i.e. 0.00< 0.01, the correlation is significant at 0.01 level of
significance

The Pearson Correlation coefficient between the independent variable bancassurance

and dependent variable Assets Quality is 0.574, which implies that the two variables are
positively correlated. The positive coefficient of correlation is 0.574 at 1% significant
level.

59
4.4 Regression Analysis

In statistical modeling, regression analysis is a statistical process for estimating the

relationships among variables. It includes many techniques for modeling and analyzing
several variables, when the focus is on the relationship between a dependent variable and
one or more independent variables (or 'predictors').

It is a statistical tool for the investigation of relationships between variables. Usually, the
investigator seeks to ascertain the causal effect of one variable upon another; the effect of
a price increase upon demand, for example, or the effect of changes in the money supply
upon the inflation rate.

4.4.1 Bancassurance and liquidity:

The following table explain the percentage of variation in liquidity (dependent variables)
explain by bancassurance (independent variables).

Table 4.13: Model summary (Bancassurance and liquidity)

The table above shows that the value of R square is .337 which means that on overall
evaluation, there is 33.7% effect on liquidity due the presence of bancassurance. The
standard error of the estimate is 0.58128, which in fact is low, suggests that the test is
reliable.

Table 4.14 ANOVA for Bancassurance and liquidity

Model Sum of
Squares Df Mean Square F Sig.
1 Regression 15.430 1 15.430 45.667 .000a

60
 Residual 30.409 90 .338

Total 45.840 91

a. Predictors: (Constant), Bancassurance

From the above table, it is seen that the test appears to be significant at 1% level
of significance. Based on ANOVA, the p-value is 0.000 which is lesser than alpha
value 0.01. Therefore, the model is a good predictor of the relationship between
the dependent and independent variables. As a result, the independent variables
(bancassurance) are significant in explaining the variance in liquidity.

61
 Table 4.15 Coefficient analysis for Bancassurance and liquidity

Model Unstandardized Standardized

Coefficients Coefficients T Sig.

B Std. Error Beta

1 (Constant) 1.331 .450 2.959 .004

Bancassurance .689 .102 .580 6.758 .000

a. Dependent Variable: Liquidity

The table above shows that when bancassurance increase by one point then liquidity is
expected to increase by 0.689. Similarly, the table above also shows that the test is
significant at 0.01 level of significance.

4.4.2 Bancassurance and capital adequacy:

The following table shows the variation in capital adequacy which is explain by
bancassurance.

Table 4.16: Model summary (Bancassurance and capital adequacy)

Model Model R R Square Adjusted R Std. Error of

Summary Square the Estimate
dimension 1 .502 .252 .244 .75842
a. Predictors: (Constant), Bancassurance

The table above shows that the value of R square is .252 which means that on overall
evaluation, there is 25.2 % effect on capital adequacy due the presence of bancassurance.
The standard error of the estimate is .75842 which in fact is low, suggests that the test is
reliable.

62
 Table 4.17 ANOVA for Bancassurance and capital adequacy

Model Sum of
Squares Df Mean Square F Sig.

1 Regression 17.827 1 17.827 30.993 .000a

Residual 52.918 92 .575

Total 70.745 93

a. Predictors: (Constant), Bancassurance

b. Dependent Variable: Capital Adequacy.

From the above table, it is seen that the test appears to be significant at 1% level of
significance.

Table 4.18 Cofficient analysis for Bancassurance and capital adequacy

Model Unstandardized Standardized

Coefficients Coefficients

B Std. Error Beta T Sig.

1 (Constant) 1.331 .450 2.959 .004

Bancassurance .689 .102 .580 6.758 .000

a. Dependent Variable: Liquidity

The above table shows that when one point increase in bancassurance then capital
adequacy is expected to increase by 0.689. Similarly, the table above also shows that the
test is significant at 0.01 level of significance.

63
4.4.3 Bancassurance and Assets quality
The following table shows the variation in assets quality which is explain by
bancassurance.

Table 4.19: Model Summary Bancassurance and assets quality

Model R R Square Adjusted R Std. Error of

Square the Estimate
dimension0 1 .574a .329 .322 .59457
a. Predictors: (Constant), Bancassurance

The table above shows that the value of R square is .329 which means that on overall
evaluation, there is 32.9 % effect on assets quality due to the presence of bancassurance.
The standard error of the estimate is .59457 which in fact is low, suggests that the test is
reliable.

Table 4.20 ANOVA for Bancassurance and Assets quality.

Model Sum of Mean
Squares DF Square F Sig.
1 Regression 15.961 1 15.961 45.151 .000a
Residual 32.523 92 .354
Total 48.484 93
a. Predictors: (Constant), Bancassurance
b. Dependent Variable: Asset Quality

From the above table, it is seen that the test appears to be significant at 1% level of
significance.

Table 4.21 Cofficient analysis for Bancassurance and Assets quality.

Model Unstandardized Standardized

Coefficients Coefficients

B Std. Error Beta T Sig.

64
1 (Constant) 1.134 .460 2.467 .015

Bancassurance .700 .104 .574 6.719 .000

a. Dependent Variable: Asset Quality

The above table shows that when one point increase in bancassurance then Assets quality
is expected to increase by 0.700. Similarly, the table above also shows that the test is
significant at 0.01 level of significance.

4.5 Discussion
The major objective of this study is to determine the impact of bancassurance on financial
performance of commercial banks. The study focused on different components that affect
the financial performance of a bank and how they are affected by bancassurance. Data for
these variables were collected through questionnaires from sample size of 96 and the
findings are totally based on the answers of the respondents. Respondents mainly were
the employees from different Nepalese commercial banks. Descriptive analysis,
inferential analysis and regression analysis were very useful for the answering of research
questions and objectives.

The questionnaire was intended to find the information about the respondents’
demographic profile and research variables. Regarding the demographic profile, the study
focused on three components: gender, age and educational qualification. Out of total 96
respondents in this survey, 72.9% were male and 27.1% were female. Similarly, among
the respondents in this survey, 47.92% were 20-25 years of age, 45.83% were 25-30
years, 6.25% were from the age of 30 years and above, and 2.1% of respondents had
educational qualification of intermediate level, 58.3% had bachelor level education,
39.6% were form master’s degree and above.

Later, hypotheses were also tested in the study by finding out the correlation between the
dependent variables and independent variable. Altogether, three hypotheses were tested
and each was significant at 1% level of significance. All variables were found to be
positively correlated. Bancassurance was found to be positively and significantly related
to Liquidity, Assets quality and Capital adequacy. These components form financial

65
performance of banks so what can be said form the study is that there is a positive and
significant impact of bancassurance on financial performance of Nepalese commercial
banks.

66
 CHAPTER V
SUMMARY AND CONSULATION

5.1 Summary of the findings

Since, the main objective of the study is to understand the impact of bancassurance on
liquidity, capital adequacy, and assets quality from the employees prospective and
customer awareness and perception towards bancassurance from the customers
prospective. The very first thing that was carried out was an appropriate and thorough
literature review. Based on the literature review it is concluded that, there is a relationship
between bancassurance and (liquidity, assets quality, and capital adequacy). Hypotheses
were developed from the study of the literature review in order to find out the
relationship among the bancassurance and others variables in Nepalese context. A
conceptual framework was developed based on the literature review to find out the effect
of bancassurance on three dependent variables.

For the study of the variables, questionnaire was prepared to distribute to the employees
of commercial banks in Nepal and customers. A total of 19 questions was prepared and
distributed to 150 employees out of which only 96 respondents’ responses were collected.
SPSS was used for finding out the results of the data analysis.

In this study, research variables included three components of dependent variable such as
liquidity, capital adequacy and assets quality. Independent variable included
Bancassurance. The study was based on total of 96samples and the data was collected
through questionnaires. With reference to the demographic profile, the study focused on
three components: gender, age and educational qualification. Out of total 96 respondents
in this survey, 72.9% were male and 27.1% were female. Similarly, among the
respondents in this survey, 16.7% of respondents had married and 83.3%. And2.1% had
intermediate level education, 58.3% were bachelor degree holders and 39.6% were
master degree holders and above.

67
In order to determine the survey result, different statistical tests have been performed. At
first, descriptive analysis was done to determine the average value and standard deviation
of each variable under each hypothesis. There were at least 3 to 5 questions or variables
to measure each hypothesis. Respondents answered on a six-point Likert scale ranging
from ‘Strongly Disagree’ to ‘Strongly Agree’. The responses were collected and the data
was arranged and analyzed using Microsoft Excel and SPSS software packages.

The findings from this research document the relationship between bancassurance and
(liquidity, capital adequacy and assets quality) as documented in the literature. The
descriptive statistics study and the hypothesis test were conducted and the final
result was presented. The results obtained from descriptive statistics for the dependent
variables and independent variables are summarized as below:

 The overall mean of bancassurance is 4.3629 which shows that respondents agree
that bancassurance is important factors which affect the financial performance of
commercial banks in Nepal.
 The overall mean of liquidity is 4.345 which shows that the liquidity is an
important factors which affected from bancassurance.
 The overall mean of capital adequacy is 4.3 which shows that the capital
adequacy is influence from bancassurance.
 The aggregate mean of Assets quality 4.20 which shows that the bancassurance
affect the assets quality of commercial banks in Nepal.

Table 5.1 Summary of the descriptive findings

Variables N Mean Standard deviation
Bancassurance 96 4.3629 1.010
Liquidity 96 4.345 0.9415
Capital Adequacy 96 4.3 1.10075
Assets quality 96 4.20 0.985

The descriptive findings suggest that among various dependent variables, liquidity has
the highest mean of 4.345 with standard deviation of 0.9415. This shows that rather than

68
other independent variables liquidity has a greater influence of bancassurance. The
overall descriptive findings indicate a good bancassurance market in the Nepalese
commercial banks.

Similarly, the independent variable, bancassurance has a mean of 4.3629 and standard
deviation of 1.010. Three research hypotheses were formulated and tested to test the
impact bancassurance in commercial banks in Nepal. The significance of the
hypothesis between the variable are also analyzed from the significant value drawn
from the sample.

The following four hypotheses were tested during this study:

H01: There exist positive relationship between bancassurance and liquidity.

H02: There exist positive relationship between bancassurance and capital adequacy.

H03: There exist positive relationship between bancassurance and assets quality.

Correlation between bancassurance and the different dependent variables is explain by

following table.

Table 5.2 Correlation between bancassurance and the different components of financial
performance

Hypotheses Variables Conclusion Remarks

H1 Liquidity Pearson Correlation .580 Positive and At 0.01

Significant level of
Sig (1- tailed) 0.000 Relationship significan
ce
N 94

H2 Capital Pearson Correlation .502 Positive and At 0.01

adequacy Significant level of

Sig (1- tailed) 0.000 Relationship significan

ce
N 94

69
H3 Assets quality Pearson Correlation .574 Positive and At 0.01
Significant level of
Relationship significan
ce

Table 5.2-1 shows the correlation between bancassurance and the different dependent
variables like liquidity, capital adequacy, and assets quality. From the correlation, it is
clear that bancassurance and the liquidity has the highest correlation while bancassurance
and capital adequacy has the lowest correlation. Liquidity is mostly influenced due to the
presence of bancassurance in any commercial banks in Nepal whereas the least
influenced is the brand capital adequacy. Hence, this signifies a positive and significant
relationship between the dependent and independent variables.

5.2 Conclusion
Bancassurance is gaining popularity and is increasingly being used by bank to impress
and attract their customers in the market. It is popular in Nepali commercial banks and all
Nepalese commercial banks are selling insurance policies. Customer are more interested
to purchase the insurance policies from banks because of its trust towards the banks.
Bancassurance directly or indirectly influence the financial performance of commercial
banks. Liquidity, capital adequacy, and assets quality of commercial banks is influence
from bancassurance.

This study shows that bancassurance has a strong impact on the financial performance of
commercial banks in Nepal. Bancassurance is directly related to the components of
financial performance of commercial banks in Nepal such as liquidity, capital adequacy,
and assets quality. Customer perception towards the bancassurance is positive but they
are less aware about the meaning about bancassurance therefore banks should set the
clear meaning of bancassurance in the mind of customers.

However, in Nepalese context, bancassurance is new phenomena, there is not sufficient

research is conducted under the bancassurance topic but Nepalese commercial banks
started the bancassurance practices. So to find out the impact of bancassurance in

70
commercial banks in Nepal this research play vital role. Data for the study were collected
using questionnaire which consisted of two parts: demographic profile and research
variables. Demographic profile of the respondents consisted of gender, age, and
education qualification. Research variables include components such as liquidity, capital
adequacy, and assets quality. The reliability test was done using the Cronbach’s alpha
and from the test it could be inferred that the questionnaire prepared was reliable for the
study as Cronbach’s alpha was more than 0.7.

The hypotheses of the study were tested using Pearson’s Correlation Coefficient. From
the hypotheses testing, the p-value has been found to be significant at 1% level of
significance which indicates that the independent variable has significant and positive
relationship with the dependent variables. It conveys that the bancassurance has positive
impact in the financial performance of commercial banks in Nepal.

This study provides insight into what factors that affect the financial performance of
commercial banks in Nepal. This research takes three components of financial
performance such as liquidity, capital adequacy, and assets quality which All the factors
mentioned above has positive correlation with the bancassurance as well as all the
hypotheses have provided positive result, so it can be justified that there is a positive and
significant relation between bancassurance and all the factors of financial performance
(liquidity, capital adequacy, and assets quality).

5.3 Recommendation for Future Research

It is seen that bancassurance is able to attract different level of people which has been
able to draw the attention of researchers. The primary objective of this research is to
study the impact of bancassurance on financial performance in commercial banks in
Nepal, in light of determinants derived from extensive literature review. The
determinants derived were liquidity, capital adequacy, and assets quality. Besides these
there can be other factors that can have effect on the financial performance of commercial
banks. So, other variables can be taken into consideration for future research.

71
This research is purely an academic research, so sample size is small. For professional
research, the sample size should be increased and also this research was confined within
the reach of very few people, so it may not incorporate the opinion of all Nepalese
consumers and employees of commercial banks.

Finally, this research generates a scope for several other researchers who want to do
research in the field bancassurance practices in Nepalese commercial banks. Furthermore,
this research establishes that a financial performance of commercial banks is affected
from the bancassurance. This research only analysis of the impact of bancassurance in
commercial banks in Nepal so there is another way to analysis of bancassurance impact
on Nepalese financial sectors as a whole. Based on this study, it can be further argued
that bancassurance has impact on financial performance of commercial banks in Nepal.

72
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