Abstract:
Banking sector can be considered as a monopolized segment in the economy. Banks are
profit motive and the bank profitability is an important ingredient of financial
development through macroeconomic stability. The purpose of this study is to analyze
the effect of interest rate fluctuation and performance of banking sector in Sri Lanka.
The study conducted to investigate whether there is an impact of deposit interest rate
and lending interest rate on the bank’s performance of licensed commercial bank in Sri Lanka. The study considered central bank annual data on the lending interest rate (LR)
and deposit interest rate (DR) for the 05-year period from 2019 to 2023. The results
show that the interest rate affect on both ROA and ROE in commercial banks. The
results obtained from the regression model shows that there is a significant positive and
negative relationship financial performance of commercial banks in Sri Lanka.
Therefore, the banks should prudently manage their interest rates to improve their
financial performance. As well bank must maintain their determinants correctly. There
is a limited number of researches regarding this topic in Sri Lankan context and the
reason for obtaining the findings of this research is to fill the knowledge gap that
existing in current knowledge. This intended to help strategy makers through
successfully completion of this investigation.
