Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD

Exchange Rate Fluctuations and Selected Deposit Money Banks Performance in Nigeria

AJAYI Lawrence Boboye, ADEBAYO Abiodun Oluwafemi, OSUNKUNLE Usman, Adesola

Abstract

This study investigated the impact of exchange rate fluctuations on the financial performance of selected deposit money banks in Nigeria from 2010 to 2023. The research employed descriptive statistics, regression analysis, and diagnostic tests to examine the relationship between exchange rate variability and bank performance. Financial performance was measured using Return on Shareholders’ Funds (RSF), while inflation and exchange rates served as indicators of macroeconomic fluctuations. The analysis revealed that the inflation rate had a negative but statistically insignificant effect on bank performance (IFR = -0.974498, p-value = 0.3629 > 0.05), whereas the exchange rate exhibited a positive yet also statistically insignificant influence on bank performance (EXR = 1.357444, p-value = 0.0806 > 0.05). The coefficient of determination (R²) indicated that approximately 29% of the variation in RSF was explained by inflation and exchange rate movements, while the remaining 71% was attributed to other unobserved factors. Furthermore, the Durbin–Watson statistic of 2.052585 suggested minimal risk of autocorrelation, implying no major omission of significant explanatory variables. Based on these results, it is recommended that the Central Bank of Nigeria (CBN) focus on maintaining inflation at low and stable levels, preferably within single digits to mitigate its adverse effects on bank performance. Although the exchange rate demonstrated a marginally positive impact, excessive volatility could adversely affect credit access in the real sector and hinder overall economic growth. Therefore, sound and consistent monetary policies are essential for ensuring exchange rate stability and supporting sustained economic development.

Keywords

InflationExchange RateNigerian Deposit Money BanksReturn on Shareholder

References

Abebe, T. (2014). An empirical analysis of factors influencing financial performance in Ethiopian commercial banks [Doctoral dissertation, Jimma University]. Adetayo, J. O. (2013). Managing foreign exchange risk in a Nigerian commercial bank. Journal of Social Science, 8(3), 207–213. Aguinis, H. (2009). Performance management (2nd ed.). Dorling Kindersley India Pvt. Ltd. Almumani, M. A. (2017). Managerial factors and profitability in Jordanian commercial banks: An empirical assessment. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(3), 298–310. Anowor, O. F., Anigbo, G. C., Chibuzo, A. C., & Ogwuru, H. O. R. (2022). The monetary model of exchange rate and macroeconomic dynamics: Theoretical implications for Nigeria. [Journal name not provided]. Ani, W. U., Ugwunta, D., & Okanya, O. (2013). Impact of foreign exchange policy reforms on financial sector deepening in Nigeria. American Journal of Business and Management, 4(10), 32–39. Anna, P. I. V., & Hoi Si, C. (2008). Key profitability drivers in Macao's banking sector. University of Macau, Faculty of Business Administration. Anshu, O., & Ghakhar, K. (2019). Macroeconomic variables and their impact on the financial performance of Indian banks. International Journal of Engineering Applied Sciences and Technology, 4(3), 259–265. Armitage, J. C., Wold, P. J., & Weissler, R. (2022). Adjustments for changes in exchange rates during an advance pricing agreement term [Unpublished thesis]. Athanasoglou, P., Brissimis, S., & Delis, M. (2005). Bank-specific, industry-wide, and macroeconomic factors shaping profitability. Working Paper, 25. Augustine, E., & Olufemi, A. (2022). Evaluating exchange rate fluctuations and macroeconomic variables on Nigerian multinationals' financial performance. ACTA Universitatis Danubius, 18(5), 160–181. Azeez, B. A., Kolapo, F. T., & Ajayi, L. B. (2012). Exchange rate volatility and its macroeconomic impact in Nigeria. Interdisciplinary Journal of Contemporary Research in Business, 4(1), 149–155. Ayodele, T. D. (2014). Assessing the impact of exchange rate movements on the Nigerian economy. Journal of Economics and Sustainable Development, 5(8). Berger, A., & Bouwman, C. (2010). Bank capital and performance during financial crises. Wharton Financial Institutions Center Working Paper, 11–22. Ejem, C. A., Ogbonna, U. J., & Ogbulu, O. M. (2020). Can macroeconomic indicators forecast Nigerian bank performance? International Journal of Accounting, Finance and Risk Management, 5(3), 128–140. Fernando, J. (2022). Understanding inflation and its effect on purchasing power. Investopedia. https://www.investopedia.com/terms/i/inflation.asp

More Articles from JOURNAL OF ACCOUNTING AND FINANCIAL MANAGEMENT

Cashflow Management and the Performance of Commercial Banks in Nigeria

Author: Jeffrey Ayas Iyakonbogha, Clement E. Ozele

The Nigerian Code of Corporate Governance and Financial Performance of Deposit Money Banks in Nigeria

Author: i, Eneaniofu Daniel Mmaduakonam, ii, Azolike Nkiru Nkechi, iii, Emeter Patrick Okechukwu, iv, Okwor Emmanuel Ejimnkonye