Abstract:
The main objective of this study is to find out the causality relationship between banking sector financial
performance on Srilankan economic growth. In order to reach this objective, in this research Granger
causality test is used to examine the causality relationship between the variables. The GDP, return on
equity, credit to the private sector, money supply, trade balance, and the FDI are the variables used in this
research. The analysis was carried out with secondary data for the period from 1998 to 2019 and the
software of E-views 10 and Ms Excel are used to analyze the data. The Granger causality test indicates
that there is uni-directional causation between the banking sector and the economic growth of Sri
Lanka. According to these results, this research emphasizes that the return on equity by banks should
be increased to drive the economic growth in Sri Lanka. Additionally, policymakers should encourage a
competitive market environment in order to improve the banking sector's financial performance in Sri
Lanka.
