The Impact of Intellectual Capital on the Financial Performance of Licensed Commercial Banks in Sri Lanka with the Moderating Impact of Sustainable Competitive Advantage.

Abstract

A sound financial system is crucial for a country's economy, as it provides financial and non-financial services to both the public and private sectors. Banks play a significant role in the Sri Lankan financial system, sustaining the confidence and performance of other financial and non-financial entities, and strengthening the economic health of the country. The banking industry has encountered significant challenges stemming from global pandemics, economic crises, political shifts, evolving policies and regulations, and intense competition. These circumstances reveal the importance of determining the strategic sources for enhancing the industry as a whole. It underscores the critical role of intellectual capital (IC) in achieving financial performance, encompassing knowledge, experience, technology, and relationships. With the turbulent economic environment, adopting a competitive perspective further emphasises the importance of IC as a cornerstone for strengthening financial success. This study investigates the influence of intellectual capital (IC) on the financial performance of licensed commercial banks in Sri Lanka, focusing on the moderating role of sustainable competitive advantage (SCA). The sample consists of 13 licensed commercial banks registered with the Central Bank of Sri Lanka, with data collected from their annual financial reports for the period 2019–2023. Data analysis was primarily conducted using multiple regression analysis. The findings reveal that structural capital, human capital, and capital employed significantly affect the financial performance of the banking industry, whereas relational capital does not. Overall, IC significantly impacts financial performance, and SCA is shown to moderate the relationship between IC and financial performance in Sri Lanka's banking sector.