EXCHANGE RATE VOLATILITY AND FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study investigated the relationship between exchange rate volatility (ERV) and the financial performance of listed Deposit Money Banks in Nigeria, as measured by Net Profit Margin (NPM). The Study utilized secondary source of data from audited annual reports and accounts of selected listed deposit money banks in Nigeria and exchange rate data were sourced Oanda FX Data Services spanning from 2019 to 2023. It utilized ex-post facto research design, and the Purchasing Power Parity (PPP) theory was utilized to guide the study. The findings revealed a moderate positive correlation (r = 0.399) between ERV and NPM, with a statistically significant p-value of 0.015. The regression model shows approximately 15.9% of the variance in NPM, with an R² of 0.159, indicating that while ERV has an effect; other factors likely contribute to the variation in NPM. The results show that a unit increase in ERV leads to a 128.857 increase in NPM, suggesting a positive influence. The model’s F-value of 5.290 and p-value of 0.029 further confirm the significance of ERV as a predictor of NPM. However, the study recommends that as model’s explanatory power is limited, indicating the need for further research with additional predictors to fully understand the determinants of bank profitability in the context of exchange rate fluctuations.