THE UNSEEN HAND AND THE BALANCE SHEET: TRACING THE SHADOW OF CORRUPTION AND MONEY LAUNDERING ON SRI LANKAN BANK STABILITY AND PROFITABILITY

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Published: 2025-12-25
DOI: https://doi.org/10.46281/ijfb.v15i2.2786
Keywords:
Bank Profitability, Bank Stability, Corruption, Money Laundering and Management Efficiency

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Ishara Nuwan Wickramarathne
Data Analyst, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka
https://orcid.org/0009-0006-1384-1150
Himal Muthunayake
Lecturer, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka
https://orcid.org/0009-0003-0824-7120
Isuru Sandakelum
Assistant Lecturer, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka
https://orcid.org/0009-0004-7980-5668

Abstract

The resilience of the financial system depends on the stability and profitability of the banking industry, particularly in developing countries, where financial crimes and poor governance persist as ongoing problems. Concern about money laundering and corruption has grown in Sri Lanka, particularly during periods of stress in the banking industry. However, empirical data on how these illicit activities affect bank-level performance remains limited. This Study examines the stability and profitability of regulated commercial banks in relation to corruption and money laundering. Panel data from 24 licensed commercial banks from 2016 to 2024 are used. To identify institution-specific impacts over time, fixed effects regression models are used to analyse bank profitability and stability metrics, while accounting for bank size and management effectiveness. The empirical findings indicate corruption has a statistically significant negative impact on stability and profitability, and coefficient estimates show that bank performance consistently declines as corruption increases. Money laundering, on the other hand, shows a mixed relationship, with some model specifications indicating a positive, statistically significant association with stability and profitability. While managerial effectiveness is positively correlated with bank stability, bank size hurts profitability but makes a favourable, considerable contribution to stability. The Study's quantitative results show that while the effects of money laundering are context-dependent and vary across performance characteristics, corruption consistently impairs banks' financial performance and stability. Overall, the results confirm the asymmetric influence of economic crimes, including money laundering and corruption, on Sri Lankan bank stability and economic performance.


JEL Classification Codes: G21, G28, K42, E44.

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Article Details

Issue

Vol. 15 No. 2 (2025): Continuous Publication

Section

Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author Biographies

Ishara Nuwan Wickramarathne , Data Analyst, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka

Ishara Nuwan Wickramarathne is a Data Analyst in the Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka. His academic and professional work focuses on data-driven analysis in accounting and business decision-making. He is involved in applying analytical tools and quantitative techniques to support research, financial analysis, and institutional reporting. His interests include business analytics, accounting information systems, and the use of data analytics in financial and managerial contexts. Through his role, he contributes to academic research and supports evidence-based insights within the discipline of accountancy and management studies.

Himal Muthunayake , Lecturer, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka

Himal Muthunayake is a Lecturer in the Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka. He specializes in Accounting, Auditing, Taxation, Forensic Accounting, and Corporate Governance. He holds a Bachelor of Business Management in Accountancy (Special) with First Class Honours from the University of Kelaniya and an MBA from the Postgraduate Institute of Management, University of Sri Jayewardenepura. He is an Associate Member of CPA Australia and a member of CIMA (UK).

Prior to joining academia, he gained professional experience at KPMG Sri Lanka, where he worked in audit and accounting advisory services and was involved in major IFRS implementation projects, including IFRS 15, IFRS 16, and IFRS 17. His research and teaching interests include financial reporting, auditing practices, forensic accounting, and regulatory compliance.

Isuru Sandakelum , Assistant Lecturer, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka

Isuru Sandakelum is an Assistant Lecturer in the Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka. He is involved in teaching undergraduate courses in accounting and supports academic activities related to financial reporting and business studies. His academic interests include financial accounting, management accounting, and accounting education. Through his role, he contributes to student learning and assists in research and departmental academic initiatives.

How to Cite

Wickramarathne , I. N. ., Muthunayake , H. ., & Sandakelum , I. . (2025). THE UNSEEN HAND AND THE BALANCE SHEET: TRACING THE SHADOW OF CORRUPTION AND MONEY LAUNDERING ON SRI LANKAN BANK STABILITY AND PROFITABILITY. Indian Journal of Finance and Banking, 15(2), 45-52. https://doi.org/10.46281/ijfb.v15i2.2786
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