Macroeconomic Variables and Financial Performance of Deposit Money Banks in Selected African Countries.

ABSTRACT

This study examined the effect of macroeconomic variables on financial performance of Deposit Money Banks (DMBs) in selected African countries. Due to the increasing effect of some macroeconomic variables on the banking system, the study was conducted to investigate how these macroeconomic variables influence the financial performance of DMBs in some selected countries in Africa. The macroeconomic variables considered were exchange rate, inflation rate, gross domestic product, money supply and interest rate. The study used yearly data covering 2003 to 2022 for eight countries in Africa which are Nigeria, South Africa, Ghana, Egypt, Kenya, Morocco, Namibia, and Ethiopia. Using ARDL, the study found out that exchange rate, inflation rate and interest rate have significant and positive effect on the return on assets of these DMBs in selected African countries, while gross domestic product and money supply do not have significant effect on the return on asset of DMBs in selected African countries. The study concluded that macroeconomic factors significantly affect the financial performance of DMBs in selected African economies. The most significant factors that affect DMBs’ return on assets are the exchange rate, inflation rate and interest rate which speak to the structural weaknesses of the money market in the financial system. The study recommended that there should be sufficient control of the financial market for foreign exchange stability, and that DMBs should hedge against risks of fluctuation in the foreign exchange market. It also recommended that non-monetary policy intervention should be pursued by government to stem rising prices and encourage production in the economy, which will in-turn lead to a boisterous economy for enhanced  performance of the DMBs in selected African Countries.