The fluctuation return on equity of commercial banks in Nigeria over the years has been a source of concern. This is largely due to the vital roles of commercial banks in the economic growth and development of the country. The study sought to assess the effect of price levels, exchange rates and interest rates on return on equity of commercial banks in Nigeria. The study applied annual panel data for the period 2010 to 2017. Correlation analysis indicates that price levels, exchange rates and interest rates had significant correlation with return on equity of commercial banks in Nigeria. Based on the panel regression analysis, the study found that price levels had insignificant effect on return on equity (β=0.0027, p=0.0660). The study findings indicate that exchange rates had insignificant effect on return on equity (β=-0.0002, p=0.0560). Interest rates had a significant effect on return on equity (β=0.0139, p=0.0110) of commercial banks in Nigeria. The study therefore recommends that price discrimination can be employed by banks so as to apply different interest rates on loans to different customers which can be guided by their credit history. Additionally, the Central Bank should put in place effective monitoring mechanism in line with floors and ceiling for lending rates so as to protect customers from exploitation by commercial banks. Further studies can be done on the effect of price levels and exchange rates on return on equity of commercial banks in Nigeria due to the unique results obtained in this study.
The profitability of commercial banks in Nigeria has been characterized by fluctuating trend over the years. Due to the significant roles carried out by commercial banks, this scenario has brought about concerns in the financial sector of Nigeria. The study sought to establish the effect of price levels, exchange rates and interest rates on return on assets of commercial banks in Nigeria. The period 2010 to 2017 was the time scope of the study. The study was based on descriptive, correlation and panel regression analyses which focused on the period 2010 to 2017. The study established that price levels had a significant effect (β=0.003, p=0.0170) on return on assets of commercial banks in Nigeria. The study findings indicate that exchange rates had a significant effect on return on assets (β=-0.0002, p=0.0440). Interest rates had a significant effect on return on assets (β=0.0136, p=0.0090) of commercial banks in Nigeria. The study recommends that the managers of commercial banks in Nigeria should always be in the know of the prevailing economic conditions of the country and that of other countries which they have operational branches. Commercial banks can engage in foreign exchange hedging practices where the fixed forward exchange rates can be used. This will cushion against the potential adverse effect of exchange rates on the assets of commercial banks. The study further recommends that policy makers and regulators (government) should implement policies that will lower the exchange rates which in turn will enhance the value of the local currency. This can be done by upholding restriction policies by government on importation of similar goods which are already manufactured locally in Nigeria. The study further recommends that in periods of high demand for loans, bank managers can take advantage of such periods by charging higher interest rates on loans, however moderately. Price discrimination can also come into play so as to apply different interest rates on loans to different customers which can be guided by their credit history.
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