The Effect of Corruption and Money Laundering on Banking Profitability and Stability of Licensed Commercial Banks in Sri Lanka

Abstract

This study investigated the impact of corruption and money laundering on banking profitability and stability of licensed commercial banks in Sri Lanka, by using the panel data of 24 licensed commercial banks from 2015-2021 in Sri Lanka. The data for this study was collected from secondary data sources. In the study, corruption and money laundering data were obtained from Transparency International and Basel Institute of Governance, respectively. The analysis of the study followed the multiple regression analysis. Further, this study used fixed effect and random effect regression techniques for analyzing the data. The result of the study found evidence consistent with previous studies indicating that corruption has a negative and money laundering has a positive relationship with the banking profitability. Further, this paper also found that bank size and management efficiency also have positive impact on banking profitability and stability. Based on the findings of the study Government can take necessary actions to uplift the knowledge of Corruption and Money Laundering in accordance with the findings of this research. Moreover, findings of this study will be useful for future researchers to enhance their knowledge on this area of study.