Exploring the impact of risk on profitability of the Sri Lankan banking sector

Banking sector can be identified as the main backbone of the economy of any country despite the economic standards which is one of the main mechanism to control the money inflows and outflows to the economy. This study focused on the risk factors consist with indicators which could be affect to the profitability of the banking sector of Sri Lanka. Main objective of this research is to identify the main risk factors which could affect the profitability of the banking sector of Sri Lanka. Accordingly Industry risk(IR), business risk(BR), Management risk(MR) and Financial risk(FR) has been decided as the independent variable, Profitability(P) has been the dependent variable. Later the study was extended to find the relationship through Pearson correlation and measure the significance of the impact through multiple regression analysis. Study has identified the 383 amount of sample through Morgan calculator for the sample selection out from the population of the corporate banks in Sri Lanka and data collection were collected through questionnaire targeting the employees above executive level position. This study found that the all independent variables are having the strong correlation with the profitability of the banking sector. This study concludes that the there is a strong relationship of determined risk factors which are industry risk, business risk, management risk and financial risk accordingly with the profitability as the dependent variable. Also it proved that all the independent variable factors’ impact are significantly affect to the profitability. Accordingly this study was able to accept all the alternative hypothesis proving the significant relationship of the independent variable with the dependent variable. This study can be referred by all the users which might interested in the banking sector studies in Sri Lanka irrespective of the macro economic impacts. This research may assist the further researches to determine the more risk categories when measuring the impact and relationship with the profitability of the banking sector of Sri Lanka.