Abstract:
The bank provides a vital role as a financial intermediary for the development of
countries’ economy. Bank performance has significant impact on investment, growth
as well as economic development. The purposes of this study therefore, are to:
investigate the relationship between internal and external factors and bank
performance; and identify which factor is most important for the banking industry in
Sri Lanka.
This study employed following independent variables in order to examine the impact
of internal and external factors on profitability of Sri Lankan banks: Bank Size (BS);
Bank age (BA); Operating Cost (OC); Capital adequacy (CA); Liquidity Risk (LR);
Total Deposit (TD); The real GDP growth (RGDP); and the yearly growth of
householders’ disposable income (YGHDI). Sample of this study consists with
twenty licensed commercial banks and specialized banks and data were gathered from
multiple sources such as annual reports, bank web sites and central bank web site over
the periods from 2009 to 2017. The data were analyzed using multiple panel
regression model. Results of the study indicated that the Bank Age, Total Deposit,
Yearly Growth of Household Disposable Income has a positive relationship with
bank profitability. Liquidity ratio, Capital Adequacy ratio and Operating Cost
negatively effect to the performance of banks in Sri Lanka. In addition, Bank Size
and GDP which have reported a positive insignificant relationship with ROA. Results
concluded that both internal and external factors contributed on the performance of
Sri Lankan Banks.
