This study assesses changes in the technical efficiency of commercial banks in Sri Lanka following the end of armed conflict in 2009. The weighted aggregate-efficiency technique, based on a group-wise heterogeneous subsampling bootstrap approach, is employed to compare efficiency levels during the periods 2007-2009 and 2010-2013. This technique allows for heterogeneity in environmental and regulatory conditions between the two periods while assuming homogeneity within each period. Our results reveal that the banking sector experienced a significant efficiency improvement post-conflict even with unprecedented branch expansion. The findings, therefore, controvert the mainstream view that bank efficiency declined with rapid industry expansion. Further, we conclude that geographical expansion of the banking sector is a viable and effective policy tool to achieve broad-based and inclusive growth for emerging economies like Sri Lanka, particularly in a period of post-conflict recovery.

This paper aims to explore the changes in efficiency of state-owned, domestic private and foreign banks in Sri Lanka after the ending of the 26 year long armed-conflict between the government and ethnic Tamil rebels in 2009. (The Liberation Tigers for Tamil Eelam (LTTE) fought for a separate state called "Tamil Eelam" from 1983 to 2009. Government forces defeated the LTTE rebels in mid-2009 through military operations and capturing all the land belonging to their de facto state for more than a decade.) Data Envelopment Analysis (DEA) along with the bootstrap simulation technique is employed to derive bank-wise efficiency scores. Two approaches, namely the intermediation and operating approaches, are used to measure the efficiency of banks and to analyse banking performance from multiple perspectives. The results show that, under the intermediation approach, in general state-owned banks were less efficient than domestic private banks in 2009 and 2010, but the relative efficiency of state-owned banks improved in 2011 and 2012 surpassing both domestic private and foreign banks. In contrast our results reveal that under the profit-oriented operating approach, state-owned and foreign banks show superior average efficiency than domestic private banks. The findings reflect the strong positioning of state-owned banks, in line with the post-conflict economic expansion of Sri Lanka, in providing efficient banking services.