Purpose-The purpose of this study is to examine the the key determinants of profitability of Nepalese commercial banks. Methodology-This study employs descriptive statistics to describe the profitability of Nepalese banks and its determinants. Further, the degree of correlation among different indicators of profitability and its determinants has been assessed by calculating correlation coefficient. Finally, this study has adopted a panel data regression model (Fixed Effect Model and Random Effect Model) to investigate the determinants and their impact on profitability of Nepalese commercial banks. Findings-The analysis reveals that the bank pofitability measured by ROA of Nepalese commercial banks is significantly affected by concentration ratio, banking sector development, GDP growth, inflation and exchange rate significantly in opposite direction rather it is not significantly affected by the internal factors like bank size, capital base, deposit, loan, off-balance sheet activities and number of branches. Another indicator of bank profitability; NIM is significantly affected only by capital adequacy, absolute number of branches and inflation rate. Conclusion-This study concluded that the profitability of Nepalese commercial banks measured by return on assets is significantly influenced by the external factors. Among external factors, industry specific factors have high degree of impact on return on assets whereas macroeconomic variables have quite a weak degree but significant impact on profitability of Nepalese commercial banks as measured by return on assets. Further, the profitability measured by net interest margin (NIM) is significantly influenced only by capital adequacy, absolute number of branches and annual inflation rate.

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This study has made an attempt to assess the degree of competition (or market structure) in Nepalese commercial banking. For the purpose, both of structural (n-bank concentration ratio and Herfindahl-Hirschman Index) and non-structural measures (Panzar-Rosse H-statistics) have been used. Data of ten years have been abstracted from various sources for the analysis purpose. Study shows that the market structure of Nepalese commercial banks is characterized by the monopolistic competition. Further, it is observed that the banks other than government owned and joint-venture banks have been facing highest degree of competition where as joint-venture commercial banks face lowest degree of competition. Finally, the study suggested that the degree of competition among government owned, joint-venture and other Nepalese commercial banks slightly vary but overall market structure of all set of banks have the feature of monopolistic competition.