IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF BANKS IN PAKISTAN

Abstract

Purpose- Major Aim of this study was to evaluate the impact of capital structure on profitability of banks in Pakistan. The puipose is to determine the optimal level of debt and equity which can help to give banks the maximum return which they can achieve. Methodology/sample- . For this study three big banks of Pakistan has taken which is listed on Karachi stock exchange (KSE) Habib Bank Limited, MCB, United bank Limited and 10 years of data is selected from 2004 to. 2013. Regression models ANOVA and Correlation tests were applied to check the relationship between the capital structure and profitability of banks of Pakistan. Profitability is measured by Return on asset (ROA), return on Equity (ROE) and Net profit. Capital structure is determined by Short term debt (STD), Long term debt (LTD) and Equity. Data of these three banks of Pakistan was collected from their annual reports. Findings- The analysis and findings of this study is that there is positive and significant relationship between determinants of capital structure and profitability of banks except Long term debt (LTD). Practical Implications- The outcomes of the research might help the decision makers of banks capital structure to understand the impact of debt and equity level on profitability of banks in Pakistan and it will also help to increase banks profit levels.