Abstract:
After a series of financial and economic reforms, the ownership structure in the Sri
Lankan banking system has been reshaped. More precisely, the market share of the stateowned
banks has been decreased while the shares of domestic private banks and foreign
banks have been increased. Concurrently, the Sri Lankan banking system has attained a
substantial development in terms of technological edge, geographical spread and financial
stability. However, due to inconsistency of the findings in the literature and lack of
substantial number of recent studies conducted in the Sri Lankan context, the effect of
the changes in ownership structure on the performance of banks in Sri Lanka remains
unclear. Therefore, this study investigated the impact of ownership on the performance
of banks drawing upon the experiences of ten selected commercial banks during the
period 2005-2011. Performance was measured using a CAMEL based approach using
profitability, asset quality, liquidity and capital adequacy as key performance indicators.
This remains as a salient feature of this study since most of the other studies have measured
performance using only one or two aspects of performance. Further, the use of most recent
quarterly data distinguishes this study from the few available studies in the context of Sri
Lanka. OLS regression models were used mainly to analyze the effect of ownership on
performance. The findings suggest that the performance of foreign banks are well above
other two groups in terms of all performance aspects while the performance of domestic
private banks is relatively better than that of state-owned banks. However, due to limited
presence of foreign banks, their contribution to economic development of Sri Lanka seems
to be trivial.
