On the profitability of commercial banks: the Sri Lankan case |
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| Authors: | Chatura Ariyadasa E. A. Selvanathan M. A. B. Siddique |
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| Affiliation: | 1. UWA Business School, The University of Western Australia, Crawley, Australia;2. Economics and Business Statistics, Griffith Business School, Nathan Campus, Griffith University, Nathan, Australia |
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| Abstract: | This study determines the factors affecting the profitability of licensed commercial banks (LCBs) in Sri Lanka, including the effect of the prolonged conflict which ended in 2009. Using an error correction model together with data for the period 2006–2014 of 10 major LCBs, the results reveal that, in the short run, capital and liquidity have a positive effect on bank profitability and default loans, interest margin (IM), operating cost, and interest rates (IRs) have a negative effect. In the long run, bank profitability is significantly impacted by default loans, IM, real GDP, inflation, IRs, capital, operating cost, and conflict. The ending of the prolonged conflict has significantly contributed to improved bank performance. |
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| Keywords: | Commercial Bank error correction model operating cost profitability real GDP |
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