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War and peace times, interest margin and commercial bank operations: A case of the Sri Lankan banking sector

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  • Seelanatha, Lalith
  • Ihalanayake, Ranjith

Abstract

The civil war in Sri Lanka, which lasted over 30 years, concluded in 2009. As well as causing enormous pain and disruption to everyday life, the war had a lasting impact on socio-economic and political activities in Sri Lanka. It deprived Sri Lankans of many opportunities, and thus hindered the true potential of economic development in the island nation. The conclusion of the war has added a new dimension to Sri Lankan society; Sri Lanka has embarked on an ambitious journey of economic expansion to regain wartime losses.Against this background, this paper analyses the impact of the civil war on the operations of the financial services sector, with specific reference to the commercial banking industry in Sri Lanka. It uses a longitudinal graphical analysis coupled with panel data regression. The former is used to understand banking operations during peacetime and wartime, while the latter is used to analyse the impact of the civil war on the net interest margin (NIM) and interest rate spread between lending and deposit rates of commercial banks. The results reveal that the civil war has significantly undermined the development of the commercial banking industry and its economic performance and widened the interest rate spread. Moreover, the results confirm that the conclusion of civil war has brought some relief to the economy, with commercial banks able to reduce the NIM.

Suggested Citation

  • Seelanatha, Lalith & Ihalanayake, Ranjith, 2019. "War and peace times, interest margin and commercial bank operations: A case of the Sri Lankan banking sector," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 9(2), pages 122-141.
    • Handle: RePEc:gok:ijdcv1:v:9:y:2019:i:2:p:122-141
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    Cited by:

    1. Lalith Seelanatha, 2021. "Political Instability, Civil War and Cost Efficiency of Banking Firms: A Case Study in Sri Lanka," Asian Economic Journal, East Asian Economic Association, vol. 35(3), pages 294-316, September.

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