Determinants of profitability in the banking sector : a study with special reference to private commercial banks in Sri Lanka

Abstract

Profitability of the bank has become vital for financial stability. In this study, internal variables namely capital ratio, activity mix, size, overheads and liquidity are considered as variables which have impact on banks’ profitability. The results reveal capital ratio, size and liquidity have positive impact on banks’ profitability whereas activity mix and overheads have negative impact. Our results shows that the banks’ profitability can be increased by increasing banks’ asset base, and size of the banks, and by managing the overhead efficiently to promote financial stability in Sri Lanka