IMPACT OF CAPITAL STRUCTURE ON THE PROFITABILITY OF COMMERCIAL BANKS IN NEPAL

Abstract

This study investigates the impact of capital structure on the profitability of commercial banks in Nepal. the primary objective of the study is to assess the impact of capital structure (debt equity ratio, debt ratio, loan to deposit ratio, size, liquidity ratio and capital ratio) on the profitability of selected commercial banks in Nepal. and also, examines the existing position of capital structure and the profitability of commercial banks in Nepal. The main purpose of this study is to analyse the relationship between capital structure (debt equity ratio, debt ratio, loan to deposit ratio, size, liquidity ratio, and capital ratio) and the profitability of selected commercial banks in Nepal. The descriptive and causal research design was employed in this study. This study covers ten years of data collected from annual reports of sampled organizations. The collecte d data has been analyzed by using some statistical tools such as mean, standard deviation, correlation analysis, ANOVA and regression analysis. The collected information and the numerical data have been analyzed by using the Excel 2016 version to show the data and results clearly. From the regression analysis, t he value of the R square of return on assets and return on equity is 0.5318 and 0.5710 respectively which indicates 53.18% and 57.10% of the systematic variation in return on assets and return on equity can be explained by independent variables such as debt equity ratio, debt ratio, loan to deposit ratio, liquidity ratio, bank size, and cap ital ratio. The remaining percentage is due to the effect of other factors. The analysis suggests that certain financial ratios, particularly the Debt Equity Ratio, Loan to Deposit Ratio, and Size, have a statistically significant negative impact on ROA. Other variables in the model do not appear to have a statistically significant effect on ROA. The standard error shows the deviation between the actual value and the estimated value of dependent variables. The Debt Equity Ratio, Loan to Deposit Ratio, and Size are statistically significant predictors of ROE, with negative coefficients indicating that increases in these variables are associated with decreases in ROE. The Debt Ratio, Liquidity Ratio, and Capital Ratio do not show statistically significant rel ationships with ROE in this model, suggesting that their effects on ROE may not be substantial or distinguishable from random variation.