Assessing the Impact of Macroeconomic Variables on the Financial Performance of Commercial Banks in Nigeria
DOI:
https://doi.org/10.61143/umyu-jafr.6(1)2024.001Keywords:
macroeconomic variables, exchange rate, interest rate, return on assetsAbstract
This study examines the impact of macroeconomic variables on the financial performance of commercial banks in Nigeria using an annual panel dataset from 2000 to 2022. A sample of seven banks is considered, and four macroeconomic variables are examined: interest rate, exchange rate, inflation rate, and the ratio of money supply to GDP. The panel ARDL model is applied to assess the long-run and short-run relationships between these variables and the banks' financial performance, measured by Return on Assets (ROA). The findings indicate that interest rates have a positive and significant effect on bank performance, while the exchange rate has a negative and significant impact. Inflation rate is not found to be a significant determinant, and a significant negative relationship is observed between the money supply-to-GDP ratio and bank performance. These findings have implications for policymakers, regulators, and commercial banks, emphasizing the need to consider interest rates, exchange rates, and money supply-to-GDP ratio in formulating monetary policies and managing risks to ensure long-term financial stability and performance.
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