Exchange Rate Fluctuations and Its Impact on Deposit Money Banks Returns in Nigeria: 1991-2019

Abstract

This study assesses the impact of exchange rate fluctuations on deposit money banks returns in Nigeria from 1991 to 2019.  It specifically aimed at finding out the relationship that exist between movements in exchange rates and deposit money banks return on assets. Other proxies that serve as independent variables were external reserve, lending rate and inflation rate.  Expost research design was adopted. Twenty-four (24) existing deposit money banks in Nigeria were used. Data were collected from CBN statistical bulletin and NDIC annual report. In other to comprehensively analyze the quantitative data to be used for the purpose of this study Ordinary Least Square method, Augmented Dickey Fuller, Johansen Co integration and Error correction model were employed. Findings revealed that exchange rate has positive relationship with deposit money banks' returns on assets but insignificant. It equally found that external reserve has negative but significant relationship with return on assets. In addition, inflation and lending rate both have negative and insignificant relationship with return on assets. It concludes that exchange rate stability has become a necessity to ensure deposit money banks have better returns in Nigeria.  It therefore recommends that CBN pursue policies that strengthen the value of Nigeria currency. The depletion of external reserve should urgently be addressed while caution must be taken at its effect on deposit money banks stream of revenue.