Abstract:
The purpose of this study is to examine The Impact of capital adequacy on the
profitability of commercial banks in Sri Lanka. The return on assets ratio (ROA) used
as profitability measures and measures the capital adequacy by using capital adequacy
ratio and risk-weighted assets ratio. This study used panel data consisting of 20
commercial banks in Sri Lanka out of 33 commercial banks as a sample for the period
of 2014-2018. This research is conducting based on secondary data. Data will be
obtained from the financial reports and websites of sample banks and information
from annual reports of the central bank in Sri Lanka and also gathered from the
website of CSE from 2014 to 2018. STATA used to analyze data. The random-effect
model was chosen to examine the impact of capital adequacy on Profitability.
The findings of the study are the capital adequacy ratio and risk-weighted assets ratio
contributes to negative significance to the profitability of commercial banks in Sri
Lanka. The results of the study proved that a slightly significant impact of capital
adequacy on profitability. It means the capital adequacy ratio and risk-weighted asset
ratio are significantly affecting the profitability of the banking sector. Also, it is
identified that profitability will not depend on capital adequacy in commercial banks.
This indicates that the nature of the capital adequacy affects to determine its direction
and impact on the profitability of commercial banks in Sri Lanka. There are no
sufficient studies in Sri Lanka to identify the impact of capital adequacy on banking
profitability. This research will help to fulfill this research gup. Stakeholders and bank
managers will be able to use the results and findings from the results of this study and
they can make more reliable and effective decisions.
