EFFECTS OF NON-OPERATING INCOME AND BANK SIZE ON PROFITABILITY AND LIQUIDITY; A STUDY ON SRI LANKAN COMMERCIAL BANKING SECTOR

Abstract

The study explores the complex interplay between bank size, profitability, liquidity, and non-operating income (NOIM) in the context of Sri Lanka's commercial banking industry. Prior research has frequently disregarded NOIM and bank size as direct predictors of profitability and liquidity, despite their importance in financial success. Through an examination of the banking environment in Sri Lanka, this study seeks to clarify how NOIM and bank size have a unique bearing on profitability (as determined by ROA) and liquidity (as determined by liquidity ratio). This research uses secondary data and a positivist quantitative analysis to reveal the distinct roles that bank size and NOIM play in affecting the financial health of Sri Lanka's commercial banks. The findings are significant because they will help shape regulatory frameworks and strategic decision-making in the industry. In order to examine the relationship between NOIM, bank size, profitability, and liquidity, this study uses a deductive research methodology and a quantitative approach based on positivism. The relationships between these variables are investigated through the use of panel data regression analysis, correlational analysis, and descriptive statistics, all of which are performed using the statistical program SPSS. The findings of this analysis show that bank size is a strong predictor of liquidity but not profitability and that NOIM has no discernible effect on either profitability or liquidity. The study shows that, although bank size and NOIM have no bearing on profitability, bank size and NOIM have a significant impact on liquidity. These revelations offer significant implications for regulatory concerns and strategic management by deepening the grasp of the variables influencing financial performance and liquidity in the banking industry. The discussion was used to compare the findings of the present study with the findings of the existing studies. The impact of NOIM has a mixture of results some scholars found that there is a significant impact while in some studies there was not a significant impact. However, as the present study also found, the band size significantly determines the profitability and liquidity of banks.