IMPACT OF OWNERSHIP STRUCTURE ON BANK PERFORMANCE; EVIDENCE FROM SRI LANKA

Abstract

The banking sector in Sri Lanka plays a dominant role in the financial system that facilitates the development of the economy. The participation of private banks has been increased together with a series of financial reforms that have substantially reshaped the banking system in the country. This study investigates the impact of private and state ownership on banks’ performance efficiency based on a balanced panel of 11 commercial banks for the period of 2005 to 2014. The study has employed the Minitab and SPSS statistical software to analyze the data calculated by using ten efficiency ratios. The findings revealed that state owned banks have outperformed private banks in return on equity, expenses to income, provisions to total loans, overhead cost and non-interest revenue ratios while private banks have outperformed in interest margin, non-performing loans, return on assets and employment cost ratios. These results signify that, the level of efficiency of state and domestic private banks does not significantly vary across these two ownership types. The mean value of the differences in most of the ratios where domestic private banks have recorded a higher level of efficiency compared to state owned banks is not very significant. However, in the cases where state owned banks have recorded a greater efficiency level, the differences are significant. Therefore it indicates that state banks have outperformed domestic private banks in several aspects.