IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF COMMERCIAL BANKS IN NEPAL

Abstract

The study looked at the connection between profitability and capital structure through an analysis of commercial banks in Nepal. Based on secondary data collected for five commercial banks between 2013/14 and 2022/2023, the conclusions have been drawn. The study adds to the body of knowledge about the impact of the cash reserve ratio, non-performing loan, loan to deposit ratio, and bank size on the profitability of Nepalese commercial banks. Eighty observations were acquired as a sample. The websites of the relevant banks and the NRB provided the secondary data for this investigation. Bank performance is one of the study's two dependent variables. The outcome demonstrates that the profitability of Nepalese commercial banks as determined by ROE is positively correlated with CRR, NPL, and bank size. Similarly, the outcome demonstrates that the profitability of Nepalese commercial banks as determined by ROE is negatively correlated with both CRR and LDR. The study comes to the conclusion that while CRR and LDR have no discernible effects on the profitability of Nepalese commercial banks as assessed by ROA, bank size, nonperforming loans, and loan to deposit have a major influence. The study also finds that the most important factors driving changes in Nepalese commercial banks' profitability are bank size, loan to deposit ratios, and non-performing loans. The study's result highlights the importance of capital structure factors in determining Nepalese commercial banks' profitability. These results offer banks, regulators, and policymakers in Nepal useful information that helps them decide what capital structure requirements to set and how those decisions will affect the financial stability and performance of the banking sector. Keywords: Return on Assets, Return on Equity, Capital Adequacy Ratio, Cash Reserve Ratio, Non-Performing Loans Ratio, Bank Size