Impact of Capital Structure of Nepalese on Profitability of Nepalease Commercial Banks

Abstract

This research aims to investigating the impact of capital structure on profitability of Nepalese commercial banks by selecting five commercial banks Agriculture Development Bank Limited, Nepal Investment Bank Limited, Nepal SBI Bank Limited and Siddhartha Bank Limited. The study considers analytical and descriptive methodology are used to find the result. The study considers annual reports for statistical analysis. Descriptive analysis has conducted by collecting data from the annual report and analytical analysis including correlation, multiple regression analysis, hypothesis testing has been done by using annual data for the reliable result from related websites of the concerned banks NRB websites and publications as well. The study has considers annual of 2012-2018. In this study return on equity, return on assets and earnings per share are used as profitability indicators representing dependent variables and long term debt to total assets ratio, short term debt to total assets ratio, total debt to total assets ratio and total debt to total equity ratio are used as capital structure indicators representing independent variables. Both SPSS and excel are used to analyze these variables. The empirical results that GIBL has higher level of mean value of STDTA and NIBL has higher level of mean of ROE. There is no statistically relationship of ROE with STDTA, LTDTA and TDTE. EPS has very weak negative relationship with STDTA. ADBL has higher level of EPS which is highest among others. GIBL has lowest level of EPS because, its risk and return tradeoff between capital composition is weak than other bank. Composition of capital of GIBL bank leads to lower level of EPS due to high using of equity and low level of income as well as it also leads to lower level of ROA. So, with analysis, GIBL is recommended to increases its proportion of debt to finance assets in coming year.