Exchange Rate fluctuations and Financial Performance of Banks: Evidence from Sudan

Abstract

This paper aims at investigating whether fluctuations in the exchange rate affect the financial performance of Sudanese banks and detecting the direction of the causal relationship relation between exchange rate and banks’ performance. The study targets a total population of 37 working banks in Sudan and covers the period 2002-2017. The sample comprises of the total set of the population. The paper depends mainly on secondary data, which is collected from consolidated financial reports of commercial banks and other official publications and documents. To test the hypotheses and accuracy and validity of models and data, a set of methods of data analysis are employed, namely, Ordinary Least Squared (OLS), Generalized Least Squares (GLS), Autoregressive Distributed Lag (ARDL) and a number of Diagnostic Tests. The study documents that foreign exchange rate fluctuations, contrary to empirical research findings, have a weak negative effect on Sudanese banks’ financial performance. This may be attributed to the tight economic embargo against Sudan during the period of this study, which isolates the country from the international financial system and adversely affects its ability to engage in cross border activities. Consequently, the banking sector in Sudan is insulated from the effect of international currency movements and its exposure to currency risk that may create unpredictable profits and losses is minimal. In addition, the continuous deterioration of the Sudanese Pound and the limited FDI flows to the country render the investment environment uncompetitive and incapable of attracting foreign funds and the banking system of completely domestic nature.

The effect of interest rates, exchange rates and capital structure on banking profitability of BUMN and Private Go Public in Indonesia

“…The second hypothesis in this study is that the Exchange Rate has a negative and significant effect on Banking Profitability as the findings of previous research by (Almaqtari et al, 2018); (Elhussein & Osman, 2019); (Yeboah & Takacs, 2019). The results of statistical tests in table 10 support the Second Hypothesis in this study.…”

Determinants of Bank Profitability: Empirical Evidence From a Pacific Small Island Developing State

“…The review of recent literature reveals that many empirical studies have been carried out to study the relationship between exchange rate risk exposure and bank profitability. Manyok (2016), Elhussein and Onsma (2019), and Hossin and Mondol (2020) found a weak and negative relationship between exchange rate and banks' financial performance, however, Farooq et al (2021) and Ozkan (2021) reported a strong negative relationship between exchange rate and return on assets. Also, Wong et al (2008), in their study on Chinese banks, found that the stronger Chinese currency reduced banks' equity resulting in poor financial performance.…”

Bank-specific performance indicators, macroeconomic variables and capital adequacy of Nigerian banking industry

“…We measured bank financing which is the minimum funds required for their short-term obligation as Capital Adequacy Ratio (Mendoza & Rivera, 2017;Abiodun et al, 2020). Apart from the DMBs ratio on profitability and performance indexes included in the model, the study uses selected macroeconomic variables that could affect the financing of the DMBs as pointed out by scholars (Poghosyan & Hesse, 2009;Taiwo & Adesola, 2013;He et al, 2014;Isaac, 2015;Hawaldar et al, 2017;Elhussein & Osman, 2019;Abiodun et al, 2020). Details on the indexes used are provided in Table 1.…”