The Relationship Between Bank Ownership and Performance Evidence From NDB Bank, Sri Lanka

Abstract

The banking sector plays a vital role in contributing towards the national economic development. This paper defines bank performance based on its profitability and operating efficiencies, which are measured through several Key Performance Indicators (KPIs).The study primarily investigates whether such KPIs are affected by the change of ownership in a company and secondly by several other factors such as the size of the company, capital risk, credit risk and real GDP growth rate. To fulfill this purpose, NDB Bank Sri Lanka is taken as a model, as the bank had undergone a change in ownership from government owned to private, in the year 1993.Five years prior to and after its ownership change are analyzed to understand whether there is a significant change in the financial performance. The study focuses on two other banks as well in order to understand the market/industry trends. One of these is a private owned and the other is state owned since inception. The KPIs are calculated based on available data. The t-test shows that there is no statistically significant impact on the KPIs as a result of change in ownership. In addition an adjusted coefficient of determination (adjusted R²) is also calculated for the change in KPIs, with a 90% threshold to adhere with preceding research. As the adjusted R² results with a value less than 90% have been identified for all the KPIs, a multiple regression analysis is conducted, among the KPIs and ownership together with the other variables mentioned above. In conclusion the findings suggest that not only privatization, but all factors collectively have significantly affected the profitability and operating efficiencies of NDB Bank, Sri Lanka from 1994 to1998.