IMPACT OF EXCHANGE RATE ON PERFORMANCE OF COMMERCIAL BANKS IN NIGERIA (1996-2023)

Abstract Commercial banks are significantly exposed to exchange rate risks due to the increasing integration of financial markets, the prevalence of foreign currency-denominated assets and liabilities, and the growing sophistication of cross-border banking operations. The main objective of this study is to investigate the examine the impact of exchange rate on performance of commercial banks in Nigeria. The study covered a period between 1996-2023. This study made used of ex-post facto research design. Various pre and posit estimation test were conducted to ensure that the data of the study is good and fit for purpose. The study made used of ARDL model as the main estimation technique based on the unit root test result which was both stationary at levels and 1st difference order of integration. The study found that in the long-run exchange rate has negative and significant effect on return on assets of commercial banks in Nigeria, inflation rate has positive and significant effect on return on assets of commercial banks in Nigeria. The study also found that in the long-run interest rate has negative and insignificant effect on return on assets of commercial banks in Nigeria. The study concluded that exchange rate affects performance of commercial banks in Nigeria. The study recommended that Central Bank of Nigeria (CBN) should adopt a more stable and predictable exchange rate regime. CBN must balance inflation targeting with the need to ensure macroeconomic stability, using a well-calibrated mix of monetary tools to prevent runaway inflation while supporting financial sector growth. Monetary authorities should avoid excessively high lending rates that discourage productive borrowing and weaken banks’ loan portfolios.