Published Online:August 2026
Product Name:The IUP Journal of Bank Management
Product Type:Article
Product Code:IJBM020826
DOI:10.71329/IUPJBM/2026.25.3.21-43
Author Name:Edward Annan and Mensah Marfo
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:21-43
The banking sector depends on sound financial decisions and a stable macroeconomic environment to sustain profitability and growth. However, the moderating role of monetary policy rate (MPR) in the relationship between capital structure (CS) and bank profitability (BP) remains underexplored in emerging economies. This study examines the effect of CS on BP and the moderating influence of MPR, using data from 23 commercial banks in Ghana for the period 2013 to 2023. Secondary data were obtained from audited financial statements and regulatory sources and analyzed using fixed effects regression to estimate direct and interaction effects. The results indicate that higher leverage and debt ratios negatively affect profitability, while stronger equity positions enhance bank performance. The findings show that MPR has a significant negative effect on profitability and moderates the relationship between CS and BP, indicating that bank performance is sensitive to changes in interest rate policy. The study highlights the importance of equity-based financing and flexible CS adjustments in response to macroeconomic conditions. It contributes to the literature by providing empirical evidence from Ghana and by modeling the moderating role of MPR in the CS-BP nexus, an area that remains limited in emerging banking markets.
Capital structure (CS) has long been the central issue in corporate finance literature due to its influence on firms' financing decisions and performance outcomes. In banking institutions, CS reflects the proportion of debt and equity used to finance assets and support intermediation activities. Debt mainly includes deposits and borrowings, while equity consists of share capital and retained earnings. This financing mix affects cost of capital, risk exposure, and profitability, commonly measured through return on assets (ROA) and return on equity (ROE) (Ayalew, 2021; Barak & Sharma, 2023).