IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 10 NO. 3 2025
DOI: 10.56201/ijefm.v10.no3.2025.pg114.127

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Impact of Exchange Rate on The Profitability of Commercial Banks in Nigeria

Idris Aliyu, Iyere Samuel IHEONKHAN

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Abstract

This study examines the impact of exchange rate volatility on the profitability and performance of commercial banks in Nigeria from 2015 to 2024. Using a quantitative research approach and explanatory design, it analyzes how exchange rate fluctuations influence key metrics such as return on equity (ROE) and non-performing loan (NPL) ratios. The findings reveal a significant negative effect of exchange rate volatility on profitability and a positive link to loan defaults. Secondary data from the Central Bank of Nigeria (CBN) and bank financial statements were analyzed using descriptive and inferential statistics, with a multivariate regression model validating the results. The study highlights that GDP growth positively impacts profitability and reduces loan defaults, while inflation has mixed effects. It emphasizes the importance of exchange rate stability and effective risk management strategies, such as hedging and portfolio diversification, for Nigerian banks. Policymakers are urged to adopt measures like economic diversification and maintaining foreign reserves to mitigate adverse effects. This research offers valuable insights into macroeconomic factors affecting financial institutions and provides guidance for stakeholders in Nigeria's banking sector.

keywords:

Exchange rate volatility, Non-performing loans (npls), Return on equity (roe), Risk

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