EFFECTS OF EXCHANGE RATE ON THE PERFORMANCE OF COMMERCIAL BANKS IN NIGERIA

EFFECTS OF EXCHANGE RATE ON THE PERFORMANCE OF COMMERCIAL BANKS IN NIGERIA

ABSTRACT

The study investigates the effects of exchange rate on the performance of commercial banks in Nigeria. The main objective of the study is to investigate the effect of exchange rate on the performance of commercial banks in Nigeria. The variables of nominal exchange rate, real exchange rate, interest rate and exchange rate fluctuations were regressed on return on asset over the period 1985 to 2015. Econometric techniques, including Augmented Dicker Fuller and Philip Perron tests for unit roots and ordinary least square (OLS) were used. The result of the unit root indicates that (ROA, NER, RER and ERF) attained stationarity at 1st difference while interest rate (INTR) attained stationarity at second difference.  The result of regression indicates that nominal exchange and real exchange rate, had positive and significant effect on return on asset while interest rate and exchange rate fluctuation had negative and insignificant effect on return on asset within the period under study. The study therefore concludes that exchange rate has adverse effect on the performance of commercial banks in Nigeria and has not helped to improve the rate of investment in Nigeria within the period under study. The study recommends that Banks should increase their deposit interest rates in order to mobilize deposits from the surplus units of the economy.  Since savings is the main source of funds to commercial banks, banks should give due emphasis to its savings mobilization and strive to increase their savings by providing excellent services for their customers.