Business Mathematics and Statistics

Statistical Analysis of Money, Banking and Finance Sector in Sri Lanka

Introduction
The financial sector in Sri Lanka, reflect a broad range of reforms introduced since1977 that includes most of the institutional elements of a modern financial system. The two state owned commercial banks namely Bank of Ceylon & Peoples Bank dominate the market in terms of assets. However there is a wide range of other institutions offering similar financial services. In addition to these financial intermediaries, market intermediation has been developed with the capitalisation of the Colombo Stock Exchange (CSE). The banks are active in virtually all aspects of financial services; with most having subsidiaries or affiliates engaged in insurance and capital markets activities. The key to financial sector development in Sri Lanka is continuation with the broad thrust of reforms begun in 1977s to strengthen the government infrastructure and institutional framework, while decreasing direct government intervention. Significant progress has been made, and considerable technical assistance has been provided by the international community on this direction. The quality of banking supervision has been improved remarkably with all banks now being examined on-site at least once in 2 year cycle. Together with increased depth in off-site analysis, this has greatly improved the ability of the Central Bank of Sri Lanka to identify weaknesses in banks, although the implementation of remedial measures seems still lacks decisiveness and effectiveness. Sustainable progress is dependent on further improvements in the legal framework for financial services and commercial transactions more generally, building infrastructure, and strengthening and

enforcing prudential norms. Equally important is the reform of the state owned institutions which consume resources through their own inefficiency and also provide an umbrella to shield other institutions from full competition, contributing to the high cost of credit. Prudential standards have been strengthened. Capitalisation of the banking sector has actually been improved because of prudential standards extended to include foreign banking units (FBUs) that account for 20 to 25% of banking sector assets, and loan loss provisioning, while still inadequate, has been improved. Further, the high cost of credit remains a significant policy concern as this hamper economic development in all dimensions. The spread between deposit and lending rates has been widened as interest rates have declined over the last couple of years. However, the improved margins are essential for the weaker banks to earn enough to cover their accumulated loan losses and high operating expenses. Sri Lankan individuals and businesses have not been benefited from the operational cost savings and efficiency gains arising from the electronic payment system. The state-owned banks such as Peoples Bank, Bank of Ceylon and National Savings Bank having the largest branch networks and numbers of deposit accounts are not fully computerized and networked. Furthermore the competition that was created by opening up the economy for private sector was a huge challenge for hither to leading public sector financial institutes. The customers who previously did not have an alternative but to be satisfied with the bureaucratic approach of public sector banks now got an opportunity to enjoy service quality of private sector service providers that resulted due to healthy competition. As such customers now enjoy benefit of competitive lending rates offered by service providers in order to grab business.