Abstract:
The financial intermediary is one of the most important financial functions of an
economy. Among all financial intermediaries commercial banks are the most
important intermediaries. Because they provide various services to lenders and
vendors. The main focus of this study is to investigate the impact of bank specific and
macroeconomic factors on the profitability of commercial banks in Sri Lanka. Eleven
domestic commercial banks were selected as sample of this study and annually data
were collected during the period of 2008 to 2017. Bank specific factors include bank
size (SZE), operating cost (OC), capital adequacy (CA), liquidity ratio (LR) and asset
quality (AQ) while GDP growth rate (GDP) and Inflation rate (IFR) selected as macro
specific factors. The profitability measured by Return on Assets (ROA) selected as
dependent variables. The multiple panel repression model were used to find out the
explanatory power of independent variables on dependent variables and data were
collected from annual reports of selected commercials banks and central bank reports.
The finding of this study reveal that bank size and capital adequacy ratio positively
impact on bank profitability while operating cost, liquidity ratio and asset quality
negatively impact on bank profitability. And also Macro specific determinants, GDP
growth rate and inflation rate found a significant positive impact on the bank
profitability which measured by ROA. Substantive findings of this study will may
guide in policy makers, investors, shareholders, employee to have better decisions
when their decision making
