Executive Summary
The main goal of this report is to comprehensively analyse the external environment of banking industry of Sri Lanka. Accordingly, a PESTEL analysis has been carried out. In addition, to identify the industry attractiveness, Porter`s five force model has been used. CBSL annual report, research reports, industry reports and other academic journals have been utilized to develop the report. It was identified that the existing rivalry in the industry is quite high since the product portfolio of all the competitors looks alike. This emphasized the importance of innovation and technology to succeed in the future.
 
1.0 Introduction
Sri Lankan banking industry could be identified as one of the strongest in the region which is closely linked with the financial and economic environment of the country. Accordingly, the industry is faced with various threats and challenges that increase the overall risk and uncertainty. Sri Lankan banking industry has 25 licensed commercial banks from which 5 large banks own 70% of the overall industry. Given the high risk and the nature of the business, banking industry is subjected to tight controls and monitoring by the Central Bank which acts as the bank of the banks which leave little room for the individual players in the industry to roam freely.
Ad-hoc nature of recent policy implementation (e.g. introduction of 5% levy on foreign earnings) supported by the uncertain tax regime in the country has a direct influence over the operational sustainability of the banking industry as well as the profitability structure. This has intensified the competition level of the industry since most of the products and services provided by each individual competitor is similar in nature and the brand loyalty of the customers also seems to be large in the banking industry.