Abstract:
Bank-specific and Macroeconomic factors have substantial repercussions on
the performance of commercial banking sector in Sri Lanka, the favorable
macroeconomic environment seems to stimulate higher profits.
(Weerasainghe V.E.I.W & Perera T.R, 2013).The return on Assets which is a
major measure of performance of commercial banks is a function of bankspecific
determinants and macroeconomic determinants. A proper functioning
of banking system facilitates a rapid economic growth enhancing savings and
investments. The performance of the Sri Lankan commercial banks, measured
by the Return on Assets (ROA) appeared to be stronger in the recent past
without facing any significant fluctuations. This paper examined the impact of
bank-specific and macroeconomic determinants on the profitability of licensed
commercial banks. The study uses quarterly data from 2010-2015 relating to
the bank-specific and macroeconomic indicators of commercial banking
profitability by carrying out a multiple panel regression. According to
empirical results, Macroeconomic determinants, gross domestic production
rate and inflation rate found to be having a significant impact on the bank
profitability with a positive relationship between the Return on Assets of a
bank. The results further show that bank-specific factors of past period
performance, net interest margin, bank size, liquidity risk, credit risk and
capital adequacy have contributed significantly to the profitability of the
commercial banks. The implication of the study is that efficient management
of the bank-specific factors and implementation of favorable economic
policies lead to an economic growth can contribute immensely to uplift the
performance of the banking industry in Sri Lanka.
