Abstract:
Despite remarkable developments that took place in recent decades, Sri Lankan banking system
has failed to achieve its true potential. The size of the banking system relative to GDP, for
example, remains low and declining overtime in contrast to growing banking systems in other
countries like India. Drawing upon the experiences in recent decades this paper argues that
prolonged civil war has deprived Sri Lankan banking system from attaining its potential growth.
Further, the findings show how the banking system has achieved rapid expansions during
relatively peaceful time periods and immediately after ending of the civil war. The discussions
provide explanations on why banking systems in some countries endowed with advanced
financial infrastructures and substantially higher interest spreads have failed to expand
sufficiently.
