Abstract
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. Keywords: Price levels, Exchange Rates, Interest Rates, Return on Assets and Commercial Banks DOI: 10.7176/EJBM/12-15-12 Publication date: May 31 st 2020
Highlights
Specific ObjectivesTo establish the effect of price levels on return on assets of commercial banks in Nigeria
Introduction and BackgroundCommercial banks all over the world perform significant roles in the allocation and distribution of economic resources in countries (Sheefeni, 2015)
The study established that price levels significantly predict the return on assets of commercial banks in Nigeria
Summary
To establish the effect of price levels on return on assets of commercial banks in Nigeria. The results of the study revealed that exchange rates had significant positive effect on return on assets of commercial banks in Nigeria. Multiple regression analysis was applied and the outcome indicated that exchange rates www.iiste.org had a significant negative effect on return on assets The former focused on twelve (12) largest banks in Nigeria while the latter was based on commercial banks in Kenya. Research findings indicated that exchange rates have positive and significant relationship with return on assets As such the findings may not be applicable to commercial banks in Nigeria due to the different economic conditions of countries. The descriptive analysis provides statistics includes the minimum and maximum values; mean and standard deviation of the study variables namely price levels, exchange rates, interest rates and return on assets (ROA) for the period 2010-2017. This was done because the presence of heteroscedasticity violates the assumptions of Gauss Markov that are required for rendering OLS the best linear unbiased estimator (BLUE)
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