Asset Quality of Nigerian Deposit Money Banks: The Influence of Exchange Rate and Other Macroeconomic Variables.

Abstract

This study examines the effect of exchange rates and other macroeconomic variables on the asset quality of deposit money banks (DMBs) in Nigeria. The analysis encompasses data from five major Nigerian banks—First Bank of Nigeria, United Bank for Africa, Zenith Bank, Access Bank, and Guaranty Trust Bank—over the period from 2005 to 2023. Key financial indicators analyzed include the non-performing loans (NPL) ratio, exchange rates, interest rates, and GDP growth rates. Using multiple regression analysis, the study identifies significant relationships between these macroeconomic variables and the asset quality of the banks. The study concludes that exchange rates, interest rate changes, and GDP growth rates significantly impact the NPL ratio, thereby affecting the asset quality of DMBs. The study recommends that stable exchange rate policies, prudent interest rate management, and sustainable economic growth should be prioritized in maintaining the financial health and enhancing asset quality of deposit money banks in Nigeria.