Browsing by Author "Gunawardhana, C. S."

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Determinants of Risk-taking Behavior of Licensed Commercial Banks: A Case of Licensed Commercial Banks in Sri Lanka
(Faculty of Commerce and Management Studies, University of Kelaniya Sri Lanka, 2023) Damayanthi, N. M. M.; Gunawardhana, C. S.
Although being a widely researched area elsewhere in the world, the determinants of risk-taking behavior of Sri Lankan banks remain unexplored and important area considering the systemic importance of banks in the financial sector. Therefore, this study examines the relationship between risk-taking factors and its various determinants of banks. The study employs a panel data analysis using quarterly financial data of selected licensed commercial Banks (LCBs) in Sri Lanka for a period of 10 years, i.e., 2013Q1 to 2022Q4. The test results revealed that the size and corporate age of the banks have a negative relationship with the standard deviation of the net interest margin. NPL ratio, cost to income ratio and the diversification indicator reflected weak positive relationships with risk-taking behavior of LCBs. The outcome of the study may utilize for preparation of a risk-based supervision framework that can be used by the Central Bank of Sri Lanka (CBSL). Further, the study stress CBSL to analyze the possibility of introducing stringent control mechanisms for newly licensed banks to be followed during the initial years of banking operations, considering the accumulation of excessive risks by such entities.
Factors Influencing the Capital Adequacy Ratios of Sri Lankan Banks- A Panel Data Analysis
(Faculty of Commerce and Management Studies University of Kelaniya, Sri Lanka., 2020) Gunawardhana, C. S.; Damayanthi, N. M. M.
Regulations of banking industry are being changed from time to time through the international standards and thereby the regulators. The important aspects of the banking sector regulations started with the introduction of Basel accords which successfully help to face the financial crisis at present and in the future. When introducing such regulations, there were more discussions on the banks’ capital. Even though the capital is more significant factor of a bank, Basel guidelines stressed to maintain higher capital ratios for a bank. Basel I, Basel II, Basel III and discussions for Basel IV, capital is the main target as a resolution factor for any financial crisis. Hence, this paper examines the factors influencing the capital adequacy ratio (CAR) of ten largest domestic commercial banks in Sri Lanka during the period from 2010 to 2019. CAR is an important ratio which protects banks against excess leverage, insolvency and protects them out of difficulty. This study employs ten bank’s specific variable i.e., bank size (BS), Loan to Asset Ratio (LAR), Return on Equity (ROE), Deposit Asset Ratio (DAR), Risk Asset Ratio (RAR), Return on Assets (ROA) and Equity Ratio (EqR) whereas dependent variable is the CAR of domestic licensed banks in Sri Lanka. The results show that many factors affect towards the CAR which is the main factor of absorbing losses in a bank. In this study, linear regression model uses to test the relationship between variables and to test how banks’ specific factors influence on CAR, the research further employees the panel data analysis with fixed effect model. The results from the panel regression revealed that banks’ specific factors such as EqR, RAR, ROE and ROA are influencing factors for the changes of CAR in domestic licensed banks in Sri Lanka. Further, it is required to strengthen the supervisory mechanism of banks by the regulator as these factors are very crucial and affect to maintain financial system stability of the county.
Impact of Industry-Specific and Macroeconomic Factors on Non-Performing Loans of Licensed Banks in Sri Lanka
(Faculty of Commerce and Management Studies, University of Kelaniya., 2022) Damayanthi, N. M. M.; Gunawardhana, C. S.
This study aims to examine the factors affecting to non-performing loans (NPLs) covering 30 licensed banks (LBs) in Sri Lanka. The selected variables affecting to NPLs considered as industry-specific and macroeconomic variables which can easily identify the internal and external influenced to the position of NPLs of LBs. The study covers the data from 2000 to 2019 exploring autoregressive distributed lag model and checking the robustness of the results using Vector Error Correction Model. The test results revealed that both industry-specific and macroeconomic variables significantly influenced on NPLs in LBs in Sri Lanka. Some industry-specific factors such as loan growth of LBs, net operating profits and deposit rates show the significant positive relationship with NPLs. Among the macroeconomic factors, gross domestic product and unemployment rate had a negative effect on NPLs. However, domestic credit and exchange rate included into macroeconomic variables revealed that positive relationship with NPLs in LBs. The study recommends when releasing loans to businesses including micro, small and medium scale enterprises, need more concentrate about both industry specific and macroeconomic factors due to main constraint of a LB is NPL which may increase or decrease at any time. The findings of this study may use for casting and measuring of NPLs in the future scenarios and to take decisions on all financial sector related industries in Sri Lanka. The research recommends further to maintain higher level of provisions for bad loans if high NPLs are observed in the books of accounts in LBs.