Leveraging the Capital Structure for the Financial Performance of the Banking Industry in Bangladesh

This study examines the impact of capital structure on the profitability of commercial banks in Bangladesh, analyzing the role of various financial metrics such as leverage, liquidity, capital adequacy, and firm size. Using data from a sample of 30 banks, we assess key indicators including the debt-to-equity ratio (DE), total debt to total assets (TDTA), current assets to current liabilities (CACL), and capital adequacy ratio (CAR), exploring their influence on return on equity (ROE) and earnings per share (EPS). Statistical tools, namely correlation analysis and regression analysis have been employed to analyze the data. The findings reveal that Bangladeshi banks rely heavily on debt financing, with high TDTA and DE ratios, indicating that leverage is a critical factor in enhancing profitability. However, the analysis also suggests a trade-off, as excessive debt may elevate financial risks. Liquidity management emerges as a vital aspect, with high liquidity associated with lower returns on equity, possibly due to underutilized assets. Firm size positively correlates with profitability, suggesting that economies of scale may contribute to higher earnings. The study provides actionable recommendations, emphasizing a balanced approach to leverage, efficient liquidity deployment, and strategic scaling, while also recommending further refinement of financial models to better capture the complexity of profitability drivers. Overall, this research contributes to a deeper understanding of the financial structure-profitability relationship in Bangladeshi commercial banks, offering insights for more effective financial management and sustainable growth in a developing economy.