Abstract
Generally ownership of banks in developing countries is dominated by the state of respective countries. Some researchers claim that that nearly 42 percent of the equity of top ten banks belonged to the state while few researchers contend that such government ownership of banks is detrimental to the growth. However, some studies show that developing countries continued to maintain high share of equities in top banks. However, the gravity of criticism against these banks, according to some empirical studies, had been lessened by the high profit abilities of these banks. Since there are majority of countries governed by democratically elected governments few governed by monarchical rule of governments, this study attempt to explore the structure of financial performance of state owned banks in respective governing mechanisms raising the research question, ‘ does form of governing mechanism influence the structure of financial performance of state owned banks’. To address this question, this study selects two leading state owned banks in respective countries; Sri Lanka (democratic form of government) and Bhutan (monarchical form of government) to examine financial performance of banks using CAMEL framework for five years (2009 to 2013 ). Analysis of financial performance which was extracted from Annual Reports of last five years shows that there is no significant difference between capital adequacy ratios. But profitability ratios of Bank of Bhutan are much higher than that of Bank of Ceylon. Although liquidity and asset quality were not compared due to non-availability of data in Bank of Bhutan Annual Reports, management quality is much higher in state bank in Bhutan. Although Bank of Bhutan has comparatively shorter years of experience (47 years), the Bank has utilized financial resources more efficiently than Bank of Ceylon which has comparatively longer history (75 years). Therefore this study concludes that intervention of democratically elected government in Sri Lanka may have greater influence on fund utilization/investment decisions.
Highlights
Ownership of banks in developing countries is dominated by the state
Analysis of financial performance extracted from Annual Reports of last five years (2009 to 2012) shows that there is no difference between ratios of financial performance but there is difference in financial resource utilization efficiency
Managing efficiency which measured from ratio of operating profit to interest income shows that Bank of Bhutan (BoB) is far ahead of Bank of Ceylon (BoC)
Summary
Ownership of banks in developing countries is dominated by the state. La Porte et al (2002) contends that 42 percent of the equity of top ten banks belonged to respective governments. Some researchers state that such government ownership of banks has been empirically found to be detrimental to growth (Shleifer and Vishny, (1994); La Porta et al, (2002) Irrespective of these findings, majority of governments, according to above authors continued to maintain high share of equities in top banks. The purpose of this study is to explore whether there is a variation of financial performance with respect to the governing mechanism with regard to the research question ‘does the form of governing mechanism influence the financial performance of state owned banks’. To address this question, this study selects two leading state owned banks in respective countries; Sri Lanka (democratic form of government) and Bhutan (monarchical form of government). Bank of Bhutan has comparatively shorter years of experience it has utilized financial resources more efficiently than that Bank of Ceylon which celebrated its 75th year of existence recently
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