A study on Liquidity and Profitability of Private Banks in Sri Lanka.

Abstract

The recent crisis has underlined the importance of sound bank liquidity management. In response, regulators are devising new liquidity standards with the aim of making the financial system more stable and resilient. Liquidity is most significant discipline of Banks’ Profitability. Liquidity maintenance is an operational tool that helps to determine ‘how does a bank choose their liquidity assets?’ bank liquidity maintenance is then the composition or structure of its liquidity assets. This Study aims to examine the impact of liquidity on profitability of banking sector in Sri Lanka from 2008 to 2012. To conduct this research, samples were selected from all commercial banks in Sri Lanka. After data were collected from secondary sources of those samples, these data were presented and analyzed by using correlation and regression tools. In this research, the researcher concluded about the hypothesis providing, then clarify the research findings, after that the researcher formed a final conclusion. Some important suggestions also were given for the future studies. According to the analyses, showed that liquidity ratio has strong positive correlation with return on assets. Otherwise there is no relationship between liquidity and banks’ profitability. There is no significant impact of liquidity on profitability of banking sector in Sri Lanka.

Keywords: Liquidity ratios, Net Profit Ratio, Private Banks, Return on Assets, Return on equity.