Sri Lankan Banking Research Articles

The Relationship between Knowledge Management Processes and Workforce Agility in the Sri Lankan Banking Sector

The knowledge asset was highlighted as the key strategic weapon in the postindustrial societies to achieve the competitive edge. Sri Lanka is gradually moving towards a post-industrial society context, which will increase the domain value centered on knowledge management and knowledge worker’s agility. Nonetheless, this study serves as a prelude to investigating the relationship of knowledge management practices on worker agility in the Sri Lankan banking sector. Workforce agility has received much interest in the manufacturing industry, but it has been overlooked in the service industry. As a response, the authors develop research questions to assess the relationship between proactive agility and flexible agility in knowledge management processes (knowledge creation, acquisition, sharing, and application) in the banking industry. The banking industry was chosen specifically because it is prone to change on a daily basis, and employees were expected to adjust their agile behavior. Two hypotheses were constructed for this purpose, and both hypotheses were failed to reject based on the correlation analysis and thus the findings of the study confirmed that knowledge management has a significant positive relationship with proactive agility and flexible agility. For this quantitative, deductive study, a systematic literature review was conducted. Existing knowledge was used to create a conceptual framework that addresses in the gaps in current research. The findings of the study emphasize the significance of top management’s involvement and strategic direction in fostering a strong knowledge management culture, which has a significant important role in the long run to sustain an agile workforce.

The mediating role of competitive orientation in determining self-construal in unethical decision-making

PurposeThe ethics literature has focused on the influence of self-construal dimensions on unethical decision-making. However, the literature is unclear about why these self-construal dimensions (Independent-self, Relational-self, Collective-self) impact differently on unethical decision-making. Based on the theory of cooperation and competition, this study empirically examines the mediating role of competitive orientation and addresses the theoretically unexplained question of why self-construal dimensions influence differently on unethical decision-making.Design/methodology/approachBased on the deductive approach, a quantitative research study was conducted on the Sri Lankan banking industry because there have been many instances of unethical behavior reported in this sector lately. Data were collected from 305 bank branch managers using a structured survey questionnaire.FindingsThe findings revealed that competitive orientation mediates the self-construal dimensions and explained that competitive orientation is one reason why independent-self, relational-self and collective-self influence differently on unethical decision-making.Originality/valueThis paper addresses the unanswered question of why self-construal dimensions relate to unethical decision-making differently.

Political Instability, Civil War and Cost Efficiency of Banking Firms: A Case Study in Sri Lanka*

This paper investigates the effects of political instability resulting from successive regime changes and the 30‐year civil war on the cost efficiency of local banks in Sri Lanka. A translog cost function was used to estimate bank cost efficiency, and a multivariate regression model was used to investigate the determinants of bank cost inefficiency. On average, the cost efficiency of banks in Sri Lanka during the study period was relatively high. Sri Lankan banks performed more efficiently during the second political regime (2001–2004), which had more liberal political and economic policies to promote the private sector compared with other regimes. During this period, the government was involved in peace talks, leading to a ceasefire agreement that temporarily stopped the violence. Furthermore, the positive coefficients for the dummy variables representing the third and fourth political regimes showed that more restrictive economic policies can increase bank cost inefficiencies. The results also indicate that immediately following the civil war, Sri Lankan banks recorded a decline in cost efficiency. Cost inefficiency was positively associated with banks' risk aversion, credit risk, market share, interest rate risk and increase in GDP and negatively associated with non‐earning assets, liquidity, bank size and concentration.

The Impact of Corporate Brand Identity on Employee Satisfaction: Application of Coleman’s model in Sri Lankan Banking Sector

Journal of Business & Technology (JBT) is an open-access journal published by the Department of the Commerce and Financial Management of the University of Kelaniya, Sri Lanka. The journal follows a double-blind peer-review process and is published bi-annually (January, July). JBT aims to publish scholarly research, critical reviews, case studies, practitioner reviews and technology reviews in the fields of business and technology.

Don’t Forget to Include that Camera in the Threat Model: Vulnerability of ATM Systems due to Surveillance Cameras

Video Surveillance Systems (VSS) that are used to provide physical protection to assets and personnel of organizations open up new information channels, but they are often not considered an integral part of the organization's information system. Therefore, more often than not, VSS is not considered when designing and evaluating organizations' information security. Hence, a VSS may weaken the information security of an organization while strengthening physical security. We present such a threat that the VSS used in ATM kiosks of Sri Lankan banks can severely weaken the ATM PIN security due to the ad hoc placement of cameras. While we have observed that in some installations, the video camera directly captures the PIN-pad, we show that forearm movements' visibility is sufficient to infer PINs with a significant level of accuracy. We used a mock-up of an ATM kiosk for our analysis, and we show that a human observer can guess a PIN with 22.5% accuracy within 3 attempts without the PIN Pad's visuals. A computer can infer the PIN using the same footages with an accuracy of 50% using a straightforward algorithm. Critical processes in the banks, such as authentication, are built around the assumption of the confidentiality of the PIN thus invest heavily in the PIN generation process. This well-protected PIN is exposed to the VSS when entering the PIN, thus violating a crucial assumption. However, this violation has hitherto gone unnoticed by the banks' security audits because VSS is not considered an inalienable component of the information system.

Effect of Inflation on Sri Lankan Banks’ Performance: Mediation Effect of Interest Income and Expenses

This study hypothesizes that the inflationary effects on bank performance are not straightforward but mediates through interest income and expenditure. This hypothesis is tested in the Sri Lankan context, referring to 17 licensed banks from 2011 to 2019. Findings were obtained using the Seemingly Unrelated Regression (SURE) model, and the results were tested for robustness by applying Three-Stage Least Squares Regression (3SLS) model. Results indicated that interest expenses negatively significant as a mediator between inflation and banks’ performance. In contrast, the effect of interest income is positive. Therefore, a significantly negative overall effect can be expected because interest expenses are relatively more substantial than the influence of interest income on the banks' performance. Furthermore, although banks with excess savings can grant loans to the customers, customers are reluctant to gain the loans because they have to spend more interest in an inflationary situation.

Examining the competitiveness of banking sector in Sri Lanka

The banking sector in Sri Lanka has been portrayed by significant changes in the past few decades. It is widely perceived that competition in the Sri Lankan banking sector has improved since the introduction of the financial sector reforms in the 1990s. By applying Panzar-Rosse (PR) approach to test the degree of competitiveness, this paper assesses the validity of this claim in the context of the Sri Lankan banking sector during 1996-2018. The sample covers a broader set of bank-level panel data of the whole commercial banking sector which comprised of 25 licensed commercial banks. The EGLS procedure applied in this study revealed that during the stated period, the Sri Lankan banking sector had been moderately competitive. Further analysis also disclosed that there is no significant difference between the state-owned banks and private banks regarding their degree of competitiveness, as well as their temporal dynamics. Another striking observation revealed in this analysis is the lower level of competitiveness among foreign banks compared to the competitiveness of local banks. The Competitiveness of the Sri Lankan banking sector however is characterized by non-price competition, as on many occasions the interest rate depends on government policies. Hence, this study provides new insight into the nature of financial sector competitiveness in underdeveloped countries. The outcome of the research implies the necessity of attempts of all banks towards re-aligning their strategies to attract and retain customers. This would be the major challenge that banks face in accomplishing a higher level of competition in the banking industry in the future.

Credit Risk and Profitability of Banking Sector in Sri Lanka

This paper aims to investigate the impact of credit risk on the profitability of the banking sector in Sri Lanka. The profitability is measured with and Return on Assets. At the same time, credit risk is quantified with four indicators: Non-performing loan Ratio (NPLR), Loan to Deposit Ratio (LDR), Net Charge off Ratio (NCOR), and Capital Adequacy Ratio (CAR). Data from thirteen banks over eight years from 2010 to 2017 was analyzed using panel data regression analysis. The finding shows that the Profitability of the Banking Sector in Sri Lanka has been determined by important determinants such as credit risk. The study further finds that non-performing loans have negative and significant return on assets. However, the net charge-off ratio and the loan to deposit ratio are not important variables for expanding the bank's profitability. On the other hand, the CAR positively impacts returns on assets. The study suggested the need to strengthen the management of credit risk in order to preserve Sri Lankan banks' current profitability.

Banking sector competitiveness

Despite core banking, banks also engage in off-balance-sheet (OBS) market activities. In many developed banking industries, OBS activities have grown to be significant during the last two decades. This paper provides rather scarce evidence on the competitiveness among banks for OBS activities and its impact on the degree of banking sector competition in Sri Lanka. Panzar-Ross H statistic approach employing in this study to estimate bank competition used a comprehensive set of bank-level data of the whole commercial banking sector in Sri Lanka covering the period 1996-2018. The first-round analysis of the study uncovers substantial differences among banks concerning the OBS activities. EGLS panel estimation procedure applied in this study provides evidence for a lower level of competitiveness among Sri Lankan banks for OBS activities. More interestingly, the findings further reveal that the degree of competitiveness for OBS activities has a significant positive impact on the overall competitiveness of the banking sector in Sri Lanka. These results suggest banking institutions re-visit their business models with greater emphasis on nonconventional banking activities in enhancing bank-level efficiency and hence positively contributing to the overall competitiveness of the banking sector.

Bank Competition and Economic Growth

This paper provides rather scares evidence on the nexus between bank competition and economic growth in a unique developing economy; Sri Lanka for the period 1996-2018. The effect of competition in the Sri Lankan banking sector on economic growth, and the mechanisms through which competition affects growth are analyzed in the present paper. The VEC model used in this study was aimed at capturing independently the short and long-term effect of bank competition on economic growth. The competition is measured with Pazar-Ross H- Statistics. Contrary to the common wisdom, the study found evidence for negative effects of bank competition, on economic growth in the short run. However, in the long run, this effect is strong and positive. Further, the statistical results of this paper revealed that higher bank competition channels economic growth through interest rate and bank efficiency. These findings have important policy implications as it gives great insight into the complexity of competition related conduct in developing countries.

The Mediating Role of Social Media in the Relationship between Perceived Leadership Support and Employee Engagement in Banking

Purpose: The present study endeavors to concentrate on the role of perceived leadership support in fostering employee engagement. Specifically, the study considers the social media contribution in this relationship. The mediating role of social media and the links between perceived leadership support and employee engagement are also discussed. Design/methodology/approach: The investigation begins with a review of literature in the context of organizations. The data are based on a cross-sectional structured questionnaire for a cohort of 167 respondents form the Polish and Sri Lankan banking sector and was used to verify the research hypotheses. The responses were examined using mediation analysis with bootstrapping. Findings: Results from the study indicate that social media partially mediates the relationship between perceived leadership support and employee engagement. The study demonstrates the growing need for better use of social media in developing a positive perception of leadership support to build employee engagement. Implications: Implications of these findings for organizations are discussed. The study contributes to the understanding and value of how leadership perception affects organizational outcomes. Originality/value: This study provides insight into the role of social media in facilitating leadership support to enhance employee engagement.

Internal Audit Function and Financial Reporting Quality: Study of the Sri Lankan Banking Industry

Internal Audit Function and Financial Reporting Quality: Study of the Sri Lankan Banking Industry

Impact of Strategic Human Resource Management Practices on Performance: Study on Employees in the Sri Lankan Banking Sector

This work explores the effect of strategic human resource management (SHRM) activities on organizational performance, mediated by employee retention in the Sri Lankan banking sector. The data consisted of 238 workers using a selfgoverning survey and analyzed using structural equation modeling.The results suggest that the three SHRM practices of capacity enhancement, skill enhancement and motivation enhancement have a significant indirect impact on organizational performance. The relationship between SHRM activities and organizational success is often influenced by employee retention. This study provides SHRM specialists in the banking sector with a useful guide on which SHRM practices are significant to employee retention and organisational performance and hence, should be given consideration. SHRM theory has been largely developed in traditional functional manufacturing organisations but not in service-oriented organisations. This study fills the gap by examining the causal relationship between the SHRM practices and organisational performance through the mediating effect of employee retention in a service-oriented industry, i.e. the banking sector. A model that incorporates SHRM strategies is being used in the study to provide a realistic image of its relationship with employee retention and organizational performance.

Determinants of Capital Structure; A Study of Listed Banks in Colombo Stock Exchange in Sri Lanka

This study examines the determinants of capital structure of listed banks in the Colombo Stock Exchange in Sri Lanka. Nine listed banks were taken as samples from the Colombo Stock Exchange for the period of 2007 to 2019. The leverage as dependent variable and GDP growth rate, inflation, size of the banks, Return on Assets, tax, profitability and total debt to equity ratio as independent variables are used to find the relationship between dependent and independent variables. In order to investigate these relationships, panel data least square method was adapted with random effect mode. The findings show that debt to equity ratio tax paid of the listed banks is important as determinants of capital structure of banks in Sri Lanka. However, GDP growth, inflation, size of the banks, Return on Assets, and profitability are found to have no statistically significant impact on the capital structure of the listed banks in Sri Lanka. In addition, the results of the analysis indicate that Pecking Order Theory is pertinent theory in the Sri Lankan banking industry, whereas there is little evidence to support Static Trade-off Theory and the Agency Cost Theory. Therefore, the banks should consider factors appropriately to determine their optimum capital structure in a prudent manner against potential shocks in terms of the regulation stipulated by regulator.

Factors Influencing the Capital Adequacy Ratios of Sri Lankan Banks- A Panel Data Analysis

Regulations of the 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 capital is a more significant factor of a bank, Basel guidelines stressed maintaining 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 the ten largest domestic commercial banks in Sri Lanka during the period from 2010 to 2019. CAR is an important ratio that 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 the CAR which is the main factor of absorbing losses in a bank. In this study, a linear regression model uses to test the relationship between variables and to test how banks’ specific factors influence CAR, the research further employs the panel data analysis with the 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.

Diversification and Performance of Sri Lankan Banks

The purpose of this study is to investigate the relationship between diversification and the performance of commercial banks, while taking into account the ownership status of these banks in Sri Lanka. Two-way relationship between diversification and performance was scrutinised by employing the 2SLS regression technique. The data consists of 17 registered commercial bank in Sri Lanka between 2001- 2016. The results show a strong significant bidirectional relationship exists between diversification and bank performance. The performance of Sri Lankan banks has been significantly improved by their diversification attempts. In other words, the banks whose incomes are more diversified from various sources, they are more profitable and successful in long-term. On the other hands, the results also reveal that bank performance positively and significantly affects diversification. This finding suggests that the banks with great profitability are more capable in diversify their operations. Furthermore, private sector banks, both listed and unlisted, are significantly more diversified than their government-owned counterparts, but their performance is not necessarily superior to government-owned banks. This may be the result of the economic environment and the perception of the public, which have allowed the government-owned banks to entertain significant market power over the private sector banks in the country.

Bank Selection Criteria and Performance of Public and Private Banks of Sri Lanka: A Comparative Study

Financial deregulation and technological advancement have led the sri lankan banking industry to highly competitive environment. In sri lanka, the competition is not only among the local banks, but also from foreign banks. To stay competitive and strong, a bank’s customer retention is crucial. In this context banking institutions would like to know how the customers select their bank and how they perceive the performance of banks in such competitive environment. The researcher selected sample of 468 banking customers from public and private banks of sri lanka. Responses were analyzed and presented through descriptive, correlation and regression analysis. The findings showed that the security and service quality were the two most crucial factors when selecting a bank in sri lanka. Significant gender and education level factors in bank selection were observed. Study concludes that sri lankan private banks perform better on those factors than the public banks in sri lanka.

The Influence of Net Interest Margin (NIM) on Profitability of Sri Lankan Banking Industry

A major assumption in much of the bank profitability literature is that banks are profit maximizers. It is in fact, one of the assumptions that are shared by all models reviewed in the area of bank profitability studies. To be sure, standard theory tells us that banks’ shareholders are aspiring maximum return (profits) for their investments and it is thereby managers as agents of shareholders’ pursue to maximize profits. Hence, banks’ primary objective is to maximize shareholders return on investment by maximizing revenues and minimizing costs. The focus of the current study is emphasized the importance of achieving a healthy Net Interest Margin (NIM), which is the main lifeline or core in the banking business. Hence, this is an empirical study based on a time series analysis of actual data published during the latest 12 years on key variables relating to NIM and Profit after Tax (PAT). The authors have attempted to describe the relationship among important variables covering the subject and finally, the latest trends between NIM and PAT. Accordingly, the objective of this study was based on verifying the general opinion on whether the NIM of the Sri Lankan Banking industry is on an undesired direction.

Employees of Different Generations and Their Motivations: Do They Differ?

Managing employees across different generations is not only a hot research topic but also a challenge faced by contemporary business organizations in any industry. Generally, it is believed that managing employees across generations is a daunting and challenging management task due to the differences in their preferences, behaviours and attitudes. The purpose of this research is to examine whether motivational drivers differ across three generations of employees working in the Sri Lankan banking sector. This explanatory study has a cross-sectional research design and follows the quantitative methodology and the deductive research approach. The results do not exhaustively support the generational stereotypes concerning motivation that is ubiquitous among management practitioners. A difference among motivational drivers across three generational cohorts was observed only for one category of motivational drivers, which were content-based drivers, but not for the process based motivational drivers. This research emphasizes the importance of managing individuals by focusing on individual differences rather than relying on generational stereotypes.

Effect of Person-organization Fit on Organizational Commitment: A Study with Special Reference to Sri Lankan Banking and Insurance Industries

Kelaniya Journal of Human Resource Management is the journal of the Department of Human Resource Management, University of Kelaniya. The objective of this journal is to disseminate knowledge of research as conducted by the academic scientists and practitioners in the field of HRM. The journal contains research and review papers.