Price Levels, Exchange Rates, Interest Rates and Return on Equity of Commercial Banks in Nigeria

Abstract

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.

Credit Risk Management Can Gear Up Bank Performance – Moderating Effect of Interest Rate in Developed Countries

“…Moderation effect of IR aggravated the effect (-218.5%). Interest rate has a negative and significant relationship with ROE (-123.00%) and huge decreasing relationship with ROE is highly result oriented (Akims, Omagwa, & Mungai, 2020;Hutasoit, Toni, & Ariesa, 2022). Interactive term proved the importance (800.7%) of CRM index and IR index (288.6%) and both (-136.1%); which recommends remedial measures.…”