Market structure, efficiency and performance of banking industry in Sri Lanka

Abstract

During the period of 1977-2005, reforms in the financial-services sector, development in information and communication technologies (ICT) and globalization of the industry have drastically changed the market structure of banking industry in Sri Lanka. Financial reforms commenced in late 1970s were the main driving force of those changes. The reforms aimed to enhance both the productivity and efficiency and the degree of competition of banking market as a way of improving overall operational performance of the financial services sector in Sri Lanka. This paper reviewed how the banks’ efficiency and market structure affect the overall performance of the banking firms measured in terms of profitability and net interest margin using structure conduct performance literature. The study findings suggest that traditional structure conduct performance argument is not held in the banking industry in Sri Lanka and the banks performance does not depend on either market concentration or market power of individual firms but on the level of efficiency of the banking units.

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