THE EFFECT OF EXCHANGE RATE FLACTUATIONS ON BANK PROFITABILITY IN ZIMBABWE
The economic well-being of any economy is based on the effective functioning of the financial sector, however the profitability of banks is based mainly upon their intermediation duty in the financial system, which exposes banks to various risks. In Zimbabwe, banks are exposed to exchange rate ri...
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| Main Authors: | , , , , |
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| Other Authors: | |
| Format: | research article |
| Language: | English |
| Published: |
GSJ
2022
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| Subjects: | |
| Online Access: | https://cris.library.msu.ac.zw//handle/11408/5267 |
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| Summary: | The economic well-being of any economy is based on the effective functioning of the
financial sector, however the profitability of banks is based mainly upon their intermediation duty in
the financial system, which exposes banks to various risks. In Zimbabwe, banks are exposed to
exchange rate risks due to the continual weakening of the Zimbabwean currency. The general objective
of this study was to determine the effects of exchange rate fluctuations on banks' profitability. The study
sample included 13 commercial banks and 1 savings bank in Zimbabwe for the period 2016 to 2021.
Panel data was analyzed using E-views package. The research established a significant negative
relationship between exchange rates and banks profitability that is the depreciation of the Zimbabwean
currency has a negative significant relationship with bank profitability. The study further concluded
that deposit to assets ratio has a negative significant relationship with bank profitability. Economic
growth represented by (GDP) had a positive significant relationship whilst inflation had a negative
significant relationship with bank profitability. These results were consistent with literature.
Implementation of exchange rate risk hedging policies is recommended for the central bank and banks.
Banks are recommended to employ robust liquidity management techniques and good corporate
governance because diseconomies of the scale were found to exist. |
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