Financial position of banking sector: A comparative study between state and private sector banks in Sri Lanka

Financial system of a country is broadly the mechanism in the financial market which deals with the business or transactions in money. The financial sector in every country has become the deciding factor of the economy. The implementation and achievement of the government policies, let it be developing/developed depends on the financial market. There should be a steady financial policy of the government, furthermore, financial stability be maintained by the state. Today banking sector plays a significant role in the economic development of the country. Many Studies are conducted in different countries to judge the performance of their banking system using different statistical methods such as Data Envelopment Analysis (DEA), Stochastic Frontier Approach (SFA) and CAMELS rating system. The present Study is initiated an efficiency analysis of banking sector in Sri Lanka using bankometer approach from Financial year 2006–2010. Bankometer ratios are derived from both the CAMELS and CLSA stress test parameters with some modifications. The changes in the selected ratios are made only to synthesize the measurement of banks soundness. On the basis of the Bankometer results it is found that state banks are in sounder solvency position in comparison to private sector banks.