The Impact of Assets Liability Management on the Financial Performance: Evidence from Licensed Commercial Banks in Sri Lanka

Abstract

The banking sector in Sri Lanka is one of the most dynamic and vibrant sectors of the economy. The banks are influenced by various types of risks and discrepancies which have a direct impact on the profitability of their short-term & long-term operations and sustainable capacity of earnings. The effective Assets Liability Management process will closely monitor and equalize both assets and liabilities and focus on the stability of adverse influences of both risks and discrepancies. The study aims to examine the significant impact of ALM on the financial performance of the licensed commercial banks in Sri Lanka from the financial year 2011 to 2020. Capital Adequacy Ratio (CAR), Non-Performing Loan Ratio (NPLR), Income Diversification Ratio (IDR), Liquidity Ratio (LR) and Operational Efficiency Ratio (OER) were used as asset liability indicators while Return on Assets (ROA) and Return on Equity (ROE) used as financial performance indicators. This study used secondary sources to collect data, such as published annual reports of licensed commercial banks and a central bank web site and selected all 24 licensed commercial banks in the population as the sample. The study used descriptive statistics, correlation analysis, and regression analysis to establish the relationship and effect of the ALM on the financial performance of the commercial banks in Sri Lanka. The findings indicate a significant negative relationship between NPLR and both ROE and ROA. The income diversification had a significant positive relationship with the ROA and also the ROE. Operational efficiency had a significant negative relationship with both ROE and ROA. The level of liquidity had a significant negative relationship with both ROA and ROE. The level of capital adequacy had a significant negative relationship with ROE. There is no significant relationship between CAR and the ROA. Based on the findings, which have the greatest implications for the policymakers who govern the financial performance of the banking sector, regulators who make regulatory requirements related to the banking sector, potential investors who invest in the banking sector and all other stakeholders & future researchers who are interested in the banking sector.

The Impact of Information Technology Systems on Internal Control Effectiveness: A Case Study of Norman Ranch Limited

“…The growth of Norman Ranch Limited underscores the need for robust accounting systems. Madhushani & Jayasiri (2021) assert the critical necessity of accounting management for any business, especially to ensure stable cash flow. The ranch faces considerable difficulties in safely storing processed data and converting this data into valuable information.…”

Financial Performance and Stock Price: Evidence from Listed Manufacturing Companies in Sri Lanka

“…Even though ROA has no effect on stock price as a standalone indicator, ROA and EPS together have an impact on stock price since greater ROA denotes higher profit, which in turn implies higher EPS (Idawati & Wahyudi, 2015;Sudarman & Diana, 2022). In comparison, according to Menaje (2012), ROA only has a marginally negative correlation with the stock price, whereas ROE and ROA have a negative effect on stock price, particularly in Sri Lanka (Madhushani & Perera, 2022). Overall, the profitability of the company does not significantly affect the stock price in the non-bank financial industry (Karamony & Tulung, 2020).…”