Impact of capital structure on profitability in nepalese commercial banks

Present research was carried out to analyze and establish the interrelationship of capital structure (debt, equity and assets) on profitability in Nepalese commercial banks. For the study purpose two “A” class banks were chosen with purposive sampling method. The major component of a capital structure i.e., debt, equity and assets are taken as dependent variable whereas profitability is regarded as dependent variable. This study is based on five years data ranging from 2014–2015 to 2018–2019 and considered for financial analysis to establish the relationship among the study variable. Descriptive analysis i.e., statistics such as mean, standard deviation, and ratios and inferential statistics such as correlation and regression analysis has been carried out. It was found that Nepalese banks are highly levered and the trend of debt ratio is increasing over the period. Further the study revealed that return on equity tends to increase significantly with increase in total debt to total asset. Return on equity tends to decrease insignificantly with increase in total debt to total equity ratio. This study found a strong one-to-one relationship between capital structure variables and profitability variables with significant influence on profitability. Increase in use of debt fund in capital structure tends to minimize the net profit of the banks. Hence, this study suggest to minimize composition of debt on their capital structure in Nepalese commercial banks.