The Impact of Capital Structure on Banks Profitability

Abstract

The purpose of the study will be to make a sequential analysis of the topic and try to understand what the things are on a larger as well as narrow aspect. First we will try to see that what actually the capital structure is, basically the weighted average cost of capital is the capital structure of the firm the (debt and equity), debt is the loans and equity is the ownership interest in the firm meaning the owners capital that’s the simple way to define the weighted average cost of capital Wacc. Now let’s have a look on the financial institutions what are the financial institutions basically financial institutions are like insurance companies, banks, trust companies and investment dealers on wider spectrum financial institutions perform loan functions, depositing money and exchange currency all come under this area of financial institutions. The study will also show some of the aspects of the economy of Pakistan .First of all let’s see what exactly the financial institution are what are their previous history and today’s standing so we can analyze the situation properly. Financial institutions of Pakistan which include the banks, insurance companies first of all if we talk about banks and how privatization changed its horizon it would be interesting to know first the privatization in 1990 in the banking sector was to increase its efficiency. The point what here we want to establish is that invertors confidence is established when we have good and strong culture in corporate governess when investors fells confident they will pool more money and the sector or that industry makes good profit. Now what we try to link here with our topic is the capital structure of the firm is also linked with the equity of the firm and more equity is there where investor’s confidence is high and default risk is very low. (Ramiz Ur Rehman, 2007)