Exchange Rate Fluctuation and Financial Performance of Nigerian Deposit Money Banks (2012–2023)

This study examined the effect of exchange rate fluctuation on the financial performance of Nigerian Deposit Money Banks (DMBs) over the period 2012–2023. The study is anchored on the Purchasing Power Parity (PPP) Theory and the International Fisher Effect (IFE), and is guided by four specific objectives: (i) to determine the effect of exchange rate fluctuation on Return on Assets (ROA); (ii) to ascertain the effect of exchange rate fluctuation on the Average Liquidity Ratio (ALR); (iii) to determine the effect of exchange rate fluctuation on the Non-Performing Loan (NPL) ratio; and (iv) to determine the effect of exchange rate fluctuation on the Capital Adequacy Ratio (CAR) of Nigerian DMBs. The study adopts an ex-post facto research design and relies exclusively on secondary time-series data sourced from the World Bank Databank and the World Development Indicators, covering the period 2012 to 2023. The independent variable, exchange rate fluctuation, is proxied by the Real Effective Exchange Rate (REER), while the dependent variables of financial performance are operationalized through ROA, ALR, NPL, and CAR. The data are analyzed using descriptive statistics and the Ordinary Least Squares (OLS) multiple regression technique with the aid of E-Views 12 statistical software. Pre-estimation diagnostic tests, including the Augmented Dickey-Fuller (ADF) unit root test, the Variance Inflation Factor (VIF), the Breusch-Godfrey LM test for autocorrelation, the Breusch-Pagan-Godfrey test for heteroscedasticity, and the Ramsey RESET test for model specification — are conducted to ensure the validity of the estimates. The empirical results reveal that exchange rate fluctuation has a positive but statistically non-significant effect on ROA (β = 0.0042, p = 0.4138), a negative and statistically non-significant effect on ALR (β = –0.0028, p = 0.5721), a negative and statistically non-significant effect on NPL (β = –0.0156, p = 0.3014), and a positive and statistically significant effect on CAR (β = 0.0347, p = 0.0412). The findings suggest that while exchange rate fluctuation does not materially affect the short-term profitability, liquidity, or asset quality of Nigerian DMBs, it has a statistically meaningful positive effect on capital adequacy, possibly reflecting regulatory capital buffer accumulation in response to exchange rate volatility. The study concludes that Nigerian DMBs should strengthen currency-risk management frameworks, diversify foreign-currency revenue sources, and proactively adjust capital positions to mitigate the adverse effects of exchange rate volatility on financial performance