OHLSON'S MODEL AS A TOOL TO PREDICT PERFORMANCE: A COMPARATIVE STUDY BETWEEN COMMERCIAL BANK OF CEYLON PLC AND BANKING INDUSTRY

The Banking Industry provides a substantial contribution to the Sri Lankan economy. This research aims to compare the forecast performance indicators of the Commercial Bank of Ceylon PLC with the Banking industry. The researcher has selected the Commercial Bank of Ceylon PLC as a sample since it is ranked 1st in the Banking Sector on Colombo Stock Exchange and the only Sri Lankan bank to be ranked for the 10th consecutive year by "The Banker". In this study, the researcher has used statistical software named R to analyze the data considering Profitability, Liquidity, and Capital Adequacy indicators. Data has been gathered over ten years from 2009 to 2018, and the predictions were made adopting Ohlson's Forecasting Model for the subsequent years 2019 and 2020. The Commercial Bank PLC is on track with the industry norms except in areas, especially Net Interest Margin, Liquidity, and Core Capital Ratio, where significant improvements are needed to bring their performance on track, the findings reveal. The Ohlson model's robustness was tested using Mean Absolute Percentage Error (MAPE). It


INTRODUCTION
Commercial Bank of Ceylon, a public limited company that belongs to the Banking Industry of Sri Lanka, is the largest private bank in the country with total assets of over 1 trillion. It has 266 branches and 830 ATMs throughout the country. The bank has expanded its operation across Sri Lanka, Bangladesh, Maldives, Myanmar, and Italy. Sri Lanka's best bank has a big story dating back to the pre-independence era (Annual report, 2020). In the 1920s' during British colonial time, the commercial bank was born. However, in 1969, the Commercial Bank of Ceylon became an independent entity. The bank had been established with the adoption of the second constitution in 1978. It established its foreign currency banking unit to promote its offshore banking business in 1979. The Commercial Bank of Ceylon expanded its business with two associate companies named Commercial Insurance Service Pvt (Ltd) and Commercial Leasing Ltd. The Commercial Bank uses a state-of-the-art core banking system and ATM system at all its branches. This bank is the largest ATM provider in Sri Lanka, with ATMs installed across the country. Moreover, it provides the service such as utility bill payments, funds transfer between accounts, and many other functions in addition to cash withdrawals.
The Commercial Bank of Ceylon is the largest lender in Sri Lanka to SMEs for the past five years, with a total disbursement of Rs. 952 Bn. The US $ 790 Mn's market capitalization accounted for 4.31% of the Colombo Stock Exchange's total market capitalization (Annual report, 2019). The Commercial Bank of Ceylon is the first private bank to exceed Rs.1000 Bn regulatory capital. Moreover, the Commercial Bank of Ceylon is the first Sri Lankan bank to be included in the top 1000 banks globally and has maintained this status over the past ten consecutive years. According to the above information, it is clear that the Commercial Bank of Ceylon provides a substantial contribution to the Sri Lankan economy. So, it is imperative to compare the Commercial Bank of Ceylon's performance with the industry average since it can be used as an essential piece of information to identify the Commercial Bank of Ceylon PLC's contribution to the banking industry and eventually to the nation.
During the British colonial period (1802 -1948), banking was introduced to the Sri Lankans as branches of foreign banks. In 1950, the Central Bank of Sri Lanka had been established under the Monetary Law Act No. 58 of 1949. The banking industry, which belongs to the service sector, provides a valuable service to the Sri Lankan economy. The banking sector provides 60% of the contribution to the gross domestic product of Sri Lanka. Commercial banks expanded their service from traditional to different kinds of new sectors. Investment, banking, finance, marketing advisory service, leasing, insurance, etc., can be identified as examples for new sectors.
In the early years, banking activities had been conducted manually. The development of technologies led to all the activities becoming controllable through computers and the internet, known as e-banking. New rules and regulations have been introduced to the banking sector owing to the vast competition among different private and state banks, locally and internationally.
The Banking Industry of Sri Lanka has been thriving amidst challenges. The last decade witnessed a surge in the services provided by the financial institutions, despite the setbacks. The country has twenty-six commercial banks now, operating as regulated by the Central Bank of Sri Lanka. Ten of them were formed locally, whereas the rest are functioning as foreign banks' branches. Most businesses in the country, both big and small, find the banking sector their staple source of financing.
The basic presumption, which supports a large part of the financial performance research and discussion, is that growing financial performance will improve organizations' capacities. The subject of financial performance and research into its estimation is well advanced within management and finance fields. If organizations need to confront the rivalry effectively, it is vital to accomplish powerful and productive financial performance. In this study, the researcher has selected one bank from the Banking Industry to analyze the financial performances with the banking sector's industry performance.
This study proposes discussing and comparing Profitability, Liquidity, and Capital Adequacy, which are financial performance indicators, to study the Commercial Bank of Ceylon's performance. It will help fulfil the need for a wide range of internal and external users to make their business decisions. To evaluate the Commercial Bank of Ceylon's internal performance, financial indicators are constructed from its financial statements. Through financial analysis, the company's performance can be predicted, leading to face future business threats successfully. On the practical dimension, this study may help decision-makers in the banking sector to focus on the critical financial movements that may expand the bank positioning and performance positions compared with other banks. Such information should assist commercial banks with making suitable financial stratagems to achieve the planned performance.
This research intends to identify any trends between the Commercial Bank of Ceylon and the Banking Industry's performance metrics. In this context, the research objective is to compare the forecast performance metrics of the Commercial Bank of Ceylon PLC with the Banking Industry. Management can overcome their problems and determine what strategies could be used to achieve their financial goals through such information. Similarly, by comparing the selected bank's performance, current investors can know about their investment yield, whereas prospective investors can choose the best opportunity for their investment among possible alternatives. Further, the study seeks to contribute to multiple stakeholders by providing them with a clearer understanding of the future direction in the wake of unfolding megatrends.

LITERATURE REVIEW
The Ohlson model (1995) aimed to formalize the relationship between accounting information and firm value (Silvestri & Veltri, 2012). The Ohlson model has been used to evaluate the relevance of historical accounting information, the accuracy of forecasting information and the model's efficiency in predicting a firm value and market expectations.
Multiple studies have analyzed and tested the Ohlson model to validate it with multiple variables. Martinez (2012) examined the reliability and validity of the Ohlson model to predict Latin American stock prices through an empirical application of a panel data analysis of 1,112 companies over the period from 2002 to 2009. The model can be used successfully in some countries in Latin America, the findings revealed. In these lines, Silvestri and Veltri (2012) tested the Ohlson model on the financial sector of the Italian Stock Exchange. Using multiple regression analysis, the researchers found that the relation between accounting variables and the market price is fully proved on the Italian Stock Exchange. This is one of the pioneering studies that tested the validity of the Ohlson model. Zhang (2016) examined the value relevance of historical and forecast accounting information in the Chinese market using the Ohlson model along with the Feltham-Ohlson model. The test results reveal that contrary to several previous research studies, historical information by itself is more closely related to the current firm value rather than when it is combined with forecast information, whereas forecast information might have helped to improve the accuracy of models. Rivera et al. (2018), along the lines of Zhang, conducted a study to investigate the value of Big Data for AT&T by applying the Ohlson model. The scholars intended to quantify the relevance of the relationship between accounting information and firm value. The findings reveal no statistically significant association between the constructs of the Ohlson model, big data, and firm value. The authors recommend expanding the sample size and/or examining more periods to get a vivid picture regarding the valuation of the Ohlson model and big data. Aravind and Nagamani (2013) investigated the State Bank of India's financial performance for 2000-2012. The researchers have researched different ratios like Capital Adequacy Ratios, Asset quality Ratios, Capability Ratios, Profitability Ratios, and Liquidity Ratios. The researchers have examined that the bank's financial performance has been almost progressive over the operational periods considered for the study. The analysis shows the points where the banks need to increase and sustain financial performance development. Aspal and Malhotra (2013) computed Indian public sector banks' financial performance using the CAMEL model and employing tests like Anova, F test, and arithmetic test for the data collected years of 2007-2011. They determined that the top two performing banks are Baroda and Andhra banks because of high capital adequacy and asset quality. The worst performer is the United Bank of India, owing to its management inefficiency, low capital adequacy, and inadequate assets and earning quality. The Central Bank of India secured the last position, followed by UCO Bank and Bank of Maharashtra. Jeevarajasingam (2014) has studied the liquidity and profitability of Private Banks in Sri Lanka, which showed that liquidity ratio has a strong positive correlation with return on assets. In a similar context, Thayaparan and Pratheepan (2014) studied the total factor productivity growth of commercial banks in Sri Lanka. The outcomes presumed that relatively chosen private banks are more effective than state banks in the investigation time frame in Sri Lanka.
Anojan and Nimalathasan (2014) conducted a comparative study on Financial Performance of State and Private Sector Commercial Banks in Sri Lanka. This investigation analyzes public and private business banks' financial performance utilizing the Capital Adequacy, Assets Quality, Management Soundness, Earnings, and Liquidity (CAMEL) rating framework in Sri Lanka from 2008-2012. In this investigation, the CAMEL rating framework used to analyze banks' financial performance is one of the quantitative methods, and it is generally utilized in the current world. CAMEL rating framework affirmed that the Commercial Bank of Ceylon PLC was one or stable. Bank of Ceylon (BOC) was two or more satisfactory, Hatton National Bank (HNB) PLC was rated as three or reasonable, and People's Bank rated as four or negligible. As indicated by the CAMEL framework results, as scholars endorse, HNB PLC and People's Bank should expand financial performance through effective plans to contend and successfully uphold the business in the Sri Lankan banking area.
Velnampy and Anojan (2014) conducted a study on private and state banks' financial performance during and after the post-war period from 2007 to 2012 in Sri Lanka. The outcome has shown that private banks' financial performance is higher than the state banks' financial performance during this time. The state banks attempt to improve the financial performance to survive, and private banks attempt to accomplish the planned financial performance for long haul endurance. (2015) conducted a research in which they explained that by enacting onerous regulations for the capital market, banks had reduced their credits, leading to the collapse of productive investments. They discussed that in terms of society, the best degree of capital for the financial framework should be resolved through the focuses where the latter results of the bank capital are accurately equivalent to the latter expenses of the bank capital.

Santamero and Watson
Moudud-Ul-Huq (2017), in his research, examined the financial performance of the banking industry of Bangladesh for the period of 2013-2014. According to the composite rating system, in which the researcher ranked them, ten private commercial banks have been considered. CAMEL model has been used to evaluate the financial performances of these banks. The research disclosed that most banks rely more on the managerial capability in formulating strategic plans and the competent execution of their strategies. Upholding asset quality is the major challenge seen in the paper and is forecast to remain so. Kobika (2018) investigated the financial performance of the banking sector in Sri Lanka, the purpose being the comparison of financial performance of state and private sector banks. The study compares state and private commercial banks' financial performance with the use of Capital Adequacy, Assets Quality, Management Soundness, Earnings, Liquidity (CAMEL) rating system in Sri Lanka from 2013-2017. Private sector banks fare better than state banks in terms of capital adequacy, earnings, and liquidity position of the banks, the findings demonstrated.

Spotting the Gap
The development of the banking industry will be a boost to a country's economy. However, in Sri Lanka, there is a lack of comparative information relating to the banking industry's performance. Various researches conducted by the Sri Lankan researchers relating to the banking industry have compared the state banks with private sector banks and disclosed the banks, which showed better performance in different periods. It is indispensable to compare a single bank's performance with the industry to give the stakeholders a deeper look of the areas in which the bank concerned outperforms the mainstream Banking Industry. Comparing the Commercial Bank of Ceylon's performance with the industry's performance will fill the lacuna created in the Banking industry of Sri Lanka due to lack of comparative information. Great deal of research has been done using the Ohlson Model for western countries, but no such research exists concerning Sri Lanka and, more specifically, the Banking industry. This has led to the researcher initiating the study, concentrating on this particular interest in these relatively less researched areas.

Sample and Data Collection
For any research study, data collection is the most crucial factor. The collection of data for the study directly affects the results which the researcher wants to achieve through the study. In this study, secondary data has been used throughout the research. The data was gathered from the banks' financial statements published by both CSE and the Commercial Bank of Ceylon to achieve the research's objective. By calculating vital financial ratios, the researcher obtained the research's annual data, from 2009 through 2018, of the Commercial Bank of Ceylon and Banking Industry. To evaluate industry data, Central Bank data were used.

Forecasting Model
The Ohlson model has been used in this study to evaluate historical accounting information's relevance in estimating future performance metrics. The Ohlson model (1995) is the best-known models of value relevance aimed at formalizing the relationship between accounting values and firm value. This model constitutes a solid theoretical framework for market evaluation based on fundamental accounting variables and other kinds of information that may be relevant in predicting firm value. The accounting information used in this study is based on the selected financial performance metrics as ROA, ROE, NIM, Liquid Assets Ratio, Core Capital Ratio, and Total Capital Ratio.

Description of Variables Used in The Study
The Table 1 shows the constructs, variables, and measurement indicators for operationalizing the study.   In virtually every decision they make, managers of today consider different types of forecasts. In this context, the researcher has followed the Ohlson's forecasting method using annual data from 2009 to 2018 to predict the Commercial Bank of Ceylon and Banking Industry's performance for 2019 and 2020. As it is apparent from table 2, the point estimates of Return on Assets of Commercial Bank of Ceylon were forecast to be at 1.3 in 2019 and 1.22 in 2020, while the estimates for Banking Industry were expected to be at 1.28 in 2019 and 1.26 in 2020. In interval estimates, the forecast values were expected to be within a minimal range for the Banking Industry than Commercial Bank of Ceylon. For instance, predictions of the interval estimate for Return on Assets for 2019, were between 0.33 and 2.28 for the Commercial Bank of Ceylon and between 0.67 and 1.9 for the Banking Industry, at 95% confidence interval.     As a critical component of profit, the researcher has predicted the NIM ratio for 2019 and 2020 at 95% significance level. For the year 2020, the Banking Industry's predicted value is 2.68, while the Commercial bank of Ceylon's is 1.0. The NIM of CBC remains between -2.15 to 4.17, while the banking industry's value remains between 2.68 to 4.11 in 2020. It is evident from the table that the Commercial Bank of Ceylon's performance as proxied by NIM is inferior to the Banking Industry for both years.   The Commercial Bank of Ceylon shows 24.14 as forecast value for 2020. When it comes to the banking industry, it is revealed to be 28.31. The interval estimates for Liquidity ratio were projected to be between 15.12 and 33.17 for the Commercial Bank of Ceylon and between 20.77 and 35.85 for the Banking Industry for the year 2020 at 95% confidence interval. The point forecast values impart that Commercial Bank of Ceylon PLC is far behind the industry norms in both the years.    Even though it is preferable to set +/-10% error term as threshold. The firm with the lowest error probably has the data that is easiest to forecast.

Conclusion
Financial performance is crucial to almost every bank to remain well in the industry. It comprises a wide range of dimensions, namely Capital Adequacy, Assets Quality, Profitability, and Liquidity. Forecasting data plays a crucial role in defining the way the banks are functioning and are of utmost importance to the current and prospective investors. Commercial Bank of Ceylon PLC is no exception to it. Its development determines the growth of the Banking Industry of the country. The Commercial Bank of Ceylon PLC is the largest private bank in Sri Lanka, providing a substantial contribution to the Sri Lankan economy. It is crucial to predict CBC's performance and the entire industry since investors can use that information to make prudent investment decisions.
As it is evident from the forecast results, the CBC remains well above the industry in terms of profitability as defined by ROE and ROA except for the point forecast value of ROA, which was comparatively low in the year 2020. The investors can decide by observing and depending on these results because the CBC has remained at a considerable profit level. On the other hand, as a single organization, the CBC has the profitability performance above the industry most of the time; regulators can increase the industry's performance by making the other banks encourage looking at the CBC. To stimulate the industry's liquidity position, the CBC should try to increase current assets via recovery of the loan and advances, reduce the investment in non-current assets, and reduce short-term borrowings.
The predictive effectiveness of Ohlson's model tested using MAPE reveals that the model is best in forecasting the variables, especially CCR and TCR since they have the MAPE values, which are found to be less than 10%. According to Lewis (1982), MAPE value of < 10 signaling highly accurate forecasting followed by 10 to 20 -Good forecasting; 20 to 50 -Reasonable forecasting; and > 50 -Inaccurate forecasting. The model inaccurately forecasts the ROE for the Banking Industry and the Commercial Bank of Ceylon PLC in 2019 and 2020 respectively, and NIM for the Commercial Bank of Ceylon for 2019 and 2020.

Directions for Future Researches
1. Since the research is a comparative study involving the performance metrics of Commercial Bank of Ceylon PLC against the industry average, findings would not assist the broader stakeholders.
2. There is a notion that past performance is not indicative of future results. It implies that forecast information might not reflect the actual picture of the Commercial Bank of Ceylon PLC and the Banking industry. Therefore, future researchers can take the study to the next level by broadening the techniques from the model used in the study to predict performance. Technical analysis could be one such technique, among others.
3. The study has utilized only six performance indicators of Commercial Bank of Ceylon PLC and compared them with the industry average. Therefore, future researchers could bring forward this idea by incorporating more variables into the study to get to a more analytic ground of performance.
4. As the study is a positivist approach to predicting performance, the interpretive approach can substantially shape the results since corporate performance is a composite term that encompasses financial and nonfinancial performance.