description of data and methodology used in the study further, it provides a brief introduction used in the study. Chapter 5 gives the description of empirical results and discussions. Finally the Chapter 6 provides the conclusion and limitation of the given study.

Chapter 2 RELEVANT THEORIES AND LITERATURE REVIEW

2.1 Introduction:

The purpose of this chapter aims to provide a theoretical framework of the factors that affect bank profitability.

2.2 Bank Profitability

Like any business, the main aim of banks is by earning profits which is in turn means earning more money that what they pay in expenses. The bulk of profit earned by banks come from the fees that it charges in return for services rendered to its customers and the interest returns on its assets. The major expense is the interest paid on its liabilities.

Measures of Profitability

Traditionally the measures of profitability of any organization are its return on Assets (ROA) and Return of Equity (ROE).

Where assets are used by organizations for the generation of income, Loans and securities are assets for a bank and provide maximum of a bank’s profit. However, for the generation of loans and securities a bank must have money, which is generated primarily from bank’s owners in the form of Bank Capital, Depositors and money that it borrows from peer banks or by sale of debt securities.