On the profitability of commercial banks: the Sri Lankan case

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Authors

  • Chatura Ariyadasa
  • E. A. Selvanathan
  • M. A B Siddique
  • Saroja Selvanathan

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Abstract

This study determines the factors affecting the profitability of licensed commercial banks (LCBs) in Sri Lanka, including the effect of the prolonged conflict which ended in 2009. Using an error correction model together with data for the period 2006–2014 of 10 major LCBs, the results reveal that, in the short run, capital and liquidity have a positive effect on bank profitability and default loans, interest margin (IM), operating cost, and interest rates (IRs) have a negative effect. In the long run, bank profitability is significantly impacted by default loans, IM, real GDP, inflation, IRs, capital, operating cost, and conflict. The ending of the prolonged conflict has significantly contributed to improved bank performance.

Peer-reviewedYes
Original languageEnglish
Pages (from-to)2106-2116
Number of pages11
JournalApplied Economics
Volume49
Issue number21
DOIs
StatePublished - 3 May 2017

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