The main aim of this study is to determine the elements that have an impact on the capital structure of Islamic banks in the SAARC region. Islamic banks are unique since they operate under the oversight of financial regulatory organizations such as state banks and Shari’ah compliance which are governing their financial activities and expected to influence Islamic banks’ capital structure decisions in comparison to their conventional counterparts. For this study, we built an empirical model to account for the interplay between our independent variables and leverage. From 2011–2021, 17 Islamic banks (IBs) in the SAARC area were used to evaluate the empirical model utilizing a panel data approach and GLS regression analysis with correlated disturbance. This study's empirical findings indicate that the leverage ratio of IBs is positively insignificant when controlling for profitability and non-debt tax shields. The leverage ratio of IBs is positively impacted by tangibility, liquidity, and the size of the bank. However, GDP per capita and growth are negatively insignificant to the leverage ratio. Future studies are suggested in certain ways, in terms of samples other regions and countries could be considered and it is also recommended to take into consideration other financial and non-financial institutes to check their capital structure decisions. Another suggestion is to explore other variables such as; artificial intelligence and corporate governance. Specifically targeting Islamic banks in the SAARC area, this research contributes to the current body of knowledge by offering empirical proof of the critical variables impacting the capital structure of these institutions.