Efficiency and productivity in Sri Lanka’s banking sector: Evidence from the post-conflict era

After the end of the 26-year armed conflict between the Sri Lankan government and the ethnic Tamil rebels in 2009, Sri Lanka experienced a favourable macroeconomic environment with an improvement in security conditions, resettlement and the revival of economic activities in the Northern and Eastern regions of the country. The banking sector also recorded significant expansion with respect to the volume of transactions as well as geographical dispersion of banking services during this period, stimulated by the overall economic growth. The aim of this thesis is to conduct a thorough analysis of the technical efficiency and productivity of the Sri Lankan banking sector encompassing the period of post-conflict economic expansion beginning in 2009. To achieve this aim the thesis focuses on five main areas. First, it compares banking sector efficiency in the periods immediately before and after the end of the armed conflict in Sri Lanka. Second, it compares the efficiency of three mutually exclusive bank groups, namely foreign commercial banks, domestic commercial banks and domestic specialised banks. Third, it evaluates the potential determinants of banking sector efficiency, including the contribution of branch network expansion and the geographical dispersion of branches. Fourth, it evaluates productivity changes across the two periods (before and after the end of the armed conflict) for the three abovementioned banking groups. Fifth, it analyses disparities in banking sector efficiency across the nine regions of Sri Lanka, and the contribution of socio-economic factors to their efficiency.