ABSTRACT
This chapter overviews the Sri Lankan macroeconomic context and banking system to illustrate its transition over previous decades. It highlights the nature and degree of banking system stagnation and questions the suitability of conventional bank rent literature in explaining the shallow financial depth in Sri Lanka. The chapter discusses the effects of inflation and political turbulence as core elements of macroeconomic rent opportunities on financial development. It also discusses the availability of price rent opportunities, in terms of interest spread, and its consequences on the bank branch network and credit expansion. The chapter then discusses the operating rent opportunities available to Sri Lankan banks, given the ownership of banks. It further discusses the nature and effects of macroeconomic rent opportunities prevailing in terms of economic and political stability. The chapter emphasizes the inappropriateness of the interest spread as a proxy for the overall bank rent opportunities.
