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2019•European Journal of Economic and Financial ResearchOpen access

MAJOR DETERMINANTS ON THE PROFITABILITY OF SRI LANKAN LOCAL COMMERCIAL BANKS

D. S. P. Nishantha De Silva, Karuthan Chinna, S. M. Ferdous Azam

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Abstract

The main purpose of this study is to investigate the relationship between bank-specific factors and the profitability of local commercial banks in Sri Lanka. Thus, finding the main internal characteristics for achieving higher profitability. In this research, OLS regression analysis is used to examine the relationship between bank-specific characteristics and bank’s profitability for a sample of 11 major Sri Lankan local banks during 12 years period from 2006 to 2017. The findings reveal that assets base and size of branch network are the main determinants of bank’s profitability, by showing a significant relationship with all measures of profitability. Net profits of banks show a significant relationship with size of branch networks and total assets, but insignificant with deposit interest ratio. However, loan interest ratio and deposit interest ratio together have a significant effect on net interest margin thus leading an impact on banks’ profitability. This study is an extension and a country application to the research carried-out by Kassem N.M. & Sakr A (2018) on Commercial Banks in Egypt. JEL: G20; G21 Article visualizations:

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What this paper is about

The main purpose of this study is to investigate the relationship between bank-specific factors and the profitability of local commercial banks in Sri Lanka. Thus, finding the main internal characteristics for achieving higher profitability. In this research, OLS regression analysis is used to examine the relationship between bank-specific characteristics and bank’s profitability for a sample of 11 major Sri Lankan local banks during 12 years period from 2006 to 2017. The findings reveal that assets base and size of branch network are the main determinants of bank’s profitability, by showing a significant relationship with all measures of profitability. Net profits of banks show a significant relationship with size of branch networks and total assets, but insignificant with deposit interest ratio. However, loan interest ratio and deposit interest ratio together have a significant effect on net interest margin thus leading an impact on banks’ profitability. This study is an extension and a country application to the research carried-out by Kassem N.M. & Sakr A (2018) on Commercial Banks in Egypt. JEL: G20; G21 Article visualizations:

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Available abstract

The main purpose of this study is to investigate the relationship between bank-specific factors and the profitability of local commercial banks in Sri Lanka. Thus, finding the main internal characteristics for achieving higher profitability. In this research, OLS regression analysis is used to examine the relationship between bank-specific characteristics and bank’s profitability for a sample of 11 major Sri Lankan local banks during 12 years period from 2006 to 2017. The findings reveal that assets base and size of branch network are the main determinants of bank’s profitability, by showing a significant relationship with all measures of profitability. Net profits of banks show a significant relationship with size of branch networks and total assets, but insignificant with deposit interest ratio. However, loan interest ratio and deposit interest ratio together have a significant effect on net interest margin thus leading an impact on banks’ profitability. This study is an extension and a country application to the research carried-out by Kassem N.M. & Sakr A (2018) on Commercial Banks in Egypt. JEL: G20; G21 Article visualizations:

Key concepts: Profitability index, Net interest margin, Business, Net interest income, Loan, Interest rate, Sri lanka, Sample (material)

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