Liquidity Risk of Licensed Commercial Banks in Sri Lanka

Abstract

Objective: This study is intended to investigate the impact of Liquidity Risk of licensed Commercial Banks in Sri Lanka. Methodology: In this study, four key variables such as Loan to deposits Ratio, Statutory Liquid Asset Ratio, Non-Performing Loans and Liquidity Gap have been taken as the independent variables. Return on assets, Return on equity and Net Interest Margin have been taken as the dependent variable for a period of ten years from 2011 to 2020 as convenience samples. To analyze the data Pearson’s correlation analysis and multiple regression analysis were used. Findings: There was a positive relationship between Loan to Deposit and ROA.ROE and NIM and SLAR had positive relationship with ROA and negative relationship with ROE and NIM. As well as NPL and LG showed negative relationship with ROA and ROE and positive relationship with NIM. This study is useful in understanding the factors of liquidity risk and their impact on the financial performance of the banks and based on these findings can be maintained proper liquidity position.