Selected Macro-Economic Variables and Financial Performance of Commercial Banks in South Sudan
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Date
2023-11
Authors
Adhuong, Yai Ngor
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Banks have not appropriately presented stable financial performance for the past years which is accredited to political meddling, misuse of funds, poor instituting of internal control practices and prudential auditing values. Banks are essential in every country’s economy due to their contribution in the economy. However, the intermediation provided by banks depends on the efficiency of the bank. Commercial banks in South Sudan have continued to experience poor performance. This has been a significant source of concern for the South Sudan’s financial sector over the years. Studies on financial performance and macroeconomic factors have largely not been based on South Sudan Banks. The general objective of the study was to establish the effect of selected macro-economic variables on financial performance of commercial banks in South Sudan. The specific objectives of the study were to determine the effect of interest rate, gross domestic product, inflation rate and exchange rate on financial performance of commercial banks in South Sudan. Theory of Arbitrage pricing, Interest Rate Parity theory, Deflation theory and Efficient Markets theory supported the study. The research may be important to micro finance institutions, SACCOs and other players in the financial sector can give sufficient knowledge on how macro-economic factors affect financial performance, potential investors and the already existing ones could also find the study useful in undertaking investment decisions to make investment targets and portfolios better, researchers as well as scholars may find the study valuable since it can be used for reference for future research. The study adopted explanatory research design. A census of 29 commercial banks listed in South Sudan that were in operation from 2012 to 2020 were targeted. The audited financial statements of the listed commercial banks served as the source of secondary panel data. Data collection was by use of a document review guide. Data analysis for the study was by use of regression model and correlation. The study was based on Vector autoregressive (VAR) model to assess relationship between macro-economic variables and financial performance of commercial banks. Prior to carrying out the regression analysis, diagnostic tests namely normality test, stationarity test, heteroscedasticity, autocorrelation and cointegration were conducted. The results of the analysis were presented in tables. The vector Autoregression reported that inflation was not statistically significant. From the findings of the study, it was established that interest rate has no significant effect on financial performance of commercial banks in South Sudan; Gross domestic product has no significant effect on financial performance of commercial banks in South Sudan; inflation rate has no significant effect on financial performance of commercial banks in South Sudan and exchange rate has no significant effect on financial performance of commercial banks in South Sudan. The study suggests that commercial banks' management committees continuously monitor inflation rates in order for them to adjust their loan products and services in line with the inflation rate; commercial banks should design dynamic interest rate policies that would lead to growth by attracting many customers; and commercial banks should ensure that the business environment is favorable in order to encourage investment in them since they have the ability to offer a variety of financial services.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Business Administration (Finance Option) of Kenyatta University, November, 2023
Keywords
Macro-Economic Variables, Financial Performance, Commercial Banks, South Sudan