Abstract:
In this study, analysis the efficiency and profitability of Sri Lankan banking industry
from 2010-2014. It uses a non-parametric approach, the data envelopment analysis
(DEA) to measure bank’ efficiency to analyze the technical efficiency of the Sri
Lankan banks. This research has used only secondary data for the purpose of
analysis and the sources of data include the annual publications of the Central Bank
and the annual reports of listed domestic commercial banks and listed foreign
commercial banks. In order to obtain yearly figures of listed commercial banks this
study have selected fourteen domestic commercial banks and two foreign
commercial banks. The reason behind the selection of the banking industry in Sri
Lanka is mainly due to the reasons of competition among the banking sector and the
key role they play in the country to protect the stability of the financial system. The
efficiency of the banking industry is important when determining stability of the
payment and settlement system of the economy. Therefore, objective of the study is
to find the efficiency of the banking industry by using DEA as a new approach for
measuring efficiency. The problem of the study is to find whether profitable banks
are efficient. Results indicate that banks are operating at a higher level of efficiency
recording an overall technical efficiency of 84.46 percent. In accordance with the
regression result, there is a positive relationship between bank profitability, efficiency
and loan diversification factors.
