Amengor (2010) defines liquidity in commercial banks as the ability to finance all

contractual obligations which includes lending and customers’ withdrawal of deposits

and maturity of liabilities which occur in the normal course of banks’ activities. According

to Koranteng (2015) banks’ liquidity is dependent on its liquid assets, the bank’s ability

to acquire cash through deposits and finally, its ability to reinvest as and when needed.

One of the popular financial ratios used in the measurement of the liquidity

positions of commercial banks is liquidity ratios which measures the ability of the bank

to meet its current obligations. The liquidity ratios are composed of current ratio and

quick ratio. Current ratio is a measure of a commercial bank's short-term solvency and

is calculated by dividing current assets by current liabilities incurred. The magnitude of

this ratio expresses high liquidity of the company, thus a greater capacity to meet the

short-term liabilities. If the ratio (1) means that current assets equal to current liabilities

(Robinson et al., 2015).

Bowman (1980), proposed risk and return theory, which led to the use of

accounting ratios to quantitatively measure profitability. Banks’ profitability is usually

measured by ROE, ROA and Net profit margin. (Nickel & Rodriguez, 2002; Miller &

Bromiley, 1990).

ROA measures the efficiency of using total assets to produce profit, it was

calculated as

net income divided by total assets, the higher ROA indicates higher profitability of

banks.

ROA=Net Income/ Total Assets

 Another similar ratio for measuring profitability is ROE, unlike ROA, ROE

measures the efficiency of using shareholder’s equity to produce profit, which is the

most concerned indicator for shareholders, banks with high ROE is normally viewed as

profitable and promising by shareholders.

ROE=Net Income/Shareholder’s Equity

NPM (Net Profit Margin) measures the efficiency of translating revenue into

profit, which indicates bank’s management ability of cost control, higher NPM is viewed

as a favorable signal for good capability of cost management of banks.

Net Profit Margin=Net Profit/ Revenue