Impact of Exchange Rate Policies on Bank Performance in Nigeria

Abstract

To address inconsistencies in existing literature, this study examines how real exchange rate (RRATE), trade balance (TBALA), foreign direct investment (FDINV), and economic growth (ECGRO) influence bank profitability (BAPRO) in Nigeria. A quantitative approach was used, as it suits the analysis of macroeconomic variables and their measurable effects on banking performance. The study population includes all commercial banks in Nigeria, with Census Sampling applied to include all available aggregate data points from 2000 to 2022. Data were sourced from the World Bank Database and the Central Bank of Nigeria (CBN) Statistical Bulletin. Regression analysis revealed that only economic growth had a positive impact on bank profits during the period. In contrast, exchange rate fluctuations, trade balance, and foreign direct investment negatively affected profitability. Furthermore, the model’s F-statistic showed low significance, explaining just 29% of the variation in bank performance. Based on these findings, the study recommends that the Nigerian government prioritize policies that ensure exchange rate stability, encourage trade activities that result in trade surpluses, and maintain healthy foreign reserves. These steps are essential to improve the financial performance of commercial banks and foster long-term economic resilience.