How Exchange Rate Affects Performance: A Case Study of Ethiopian Private Commercial Banks
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Date
2019-06
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Addis Ababa University
Abstract
The banking industry in Ethiopia faced uncertainties that pose a threat for the success of banks.
Among the major threats, exchange rate is the one which influence banking financial
performance.The aim of this study is to examine how exchange rate affects performance of
private commercial banks in Ethiopia by using panel data of eleven sample private commercial
banks over the period of 2009/10-2017/18.The secondary data analyzed using descriptive
statistics, correlation matrix and random panel regression model.The internal factors used in
this study include loan growth, lending interest rate, Bank size whereas; the external factor is
foreign exchange rate, real GDP growth and inflation rate. Moreover, Return on asset
(ROA)was used to measure the banks performance.The empirical finding of this study reveals
that at 5% level of significance exchange rate depreciation and loan growth has positive and
statistically significant influence on the performance of private commercial banks in Ethiopia.
On the other hand, lending interest rate, bank size, GDP growth and inflation have statistically
insignificant influenceon the performance of private commercial banks. Based on the finding of
the study, the study extends the following recommendations: the issues related to foreign
exchange trading should always be taken into account in efforts to improve banks’ foreign
exchange transactions and financial performance. The banks management should adopt
strategies so as to mitigate foreign exchange risk since depreciation has influence in determining
the performance of the private commercial banks. Furthermore, private commercial banks
should give adequate weight for foreign exchange risk management.
Description
A thesis submitted to department of accounting and finance, college of business and economics, Addis Ababa university in partial fulfillment
Of the requirement for the degree of Master of Science in Accounting and Finance
Keywords
Exchange rate deprecation, Performance, Private commercial banks