Does bank ownership matter in performance? Experience and lessons from Sri Lanka.

Abstract

Theoretical predictions concerning the ownership-performance relationship remain ambiguous. Despite substantial changes in ownership in the Sri Lankan banking system less has been done to analyze performance differences amongst various ownership groups. Drawing upon the experience of the Sri Lankan banking system during the period 2000-2007, this study first provides quantitative estimates of revenuebased performance using Data Envelopment Analysis (DEA). Secondly, it evaluates the influence of ownership on performance using regression techniques. The study finds strong evidence to suggest that foreign banks perform better than domestic banks. Moreover, the evidence suggests that state-owned banks perform better than domestic private banks though this evidence is weak. Furthermore, all domestic banks have experienced substantial performance gains in recent years. The findings of the study imply that promotion of foreign bank ownership and creation of public confidence with regard to the credibility of private and foreign banks can be employed as important policy measures to enhance performance.