Effect of Exchange Rate Volatility on Performance of Commercial Banks in East Africa Community
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Date
2023-04
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Abstract
The performance of commercial banks indicates their capacity to generate profits sustainably. As a sector, commercial banking in- Kenya has been experiencing fluctuating performance, which could be detrimental to their survival, The current study will seck (o determine the effect of the risk associated with exchange rate volatility on the profitability of commercial banks in the East African Community. This investigation will specifically seck o establish the level of exchange rate volatility hence estimating the risk: and also analyse the effect of e change rate volatility on commercial banks’ performance. The study was grounded on (he monetary theory with sticky prices to develop the volatility and foreign exc nge exposure theory in dclcnnining how risk associated with exchange rate volatility affects the profitability of commercial banks in East Africa. It will employ explanatory research design. The study will cover the period 1990 to 2020 and utilized time series data sourced from Central Banks and World Bank, The study employed a panel estimation procedure, since the data was collected in panel series. the study concludes that volatility exists as a risk to the profitability of commercial banks in East Afiican Community. Using the coefficient of variation, the study found that Uganda performed better than Tanzania. As a result, Tanzania and Kenya saw greater currency rate volatility than Uganda. Further the results showed that the volatility influenced commercial banks performance proxied by Return on Assets for the period between 2000 to 2020. The relationship was however found to be weak and negative.
Description
A Research Proposal Submitted to the Department of Applied Economics in Partial Fulfilment of the Requirement for the Award of Master of Economics (International Trade and Finance) Degree of Kenyatta University
April 2023
Supervisor
1. Nzai, Charles