Exchange Rate Fluctuations and Its Impact on Deposit Money Banks Returns in Nigeria: 1991-2019

IntroductionOver the years, various economies around the world have had to grapple with the attendant effect of their exchange rate on their economies.Exchange rate is generally referred to as the value of the money of one country when compared to the money of another country Oladipupo & Onotaniyohuwo, 2011).This implies a unit price of a nation's currency as it compares with another nation's currency.It has been argued that various countries adopt various forms of exchange rate policy, which is aimed at strengthening the value of the currency at the international market (Yakub, Sani, Obiezue & Aliyu, 2019).Obadan (1994) provides more in-depth exposition on the importance of exchange rate as serving as the pivot of investment environment and argued that a sustained period of exchange rate misalignment (over-valuation or under-valuation) can result in macroeconomics disequilibrium which spells doom for the country's economy .Every economy has a financial system, which is dominated by the banking sector (Solomon, 2018).The banking industries in any financial system across the globe are the most important financial sector because of their ability to mobilize funds from the savings sector to the deficit sector of the economy.They have been documented to mobilize the largest amount of fund due to their ability to accept all form of deposits from the public, government and its agencies while using such fund to create credit facilities in the form of loans, overdraft and investment (Onoh, 2002).Thus, the environment in which banks operates can adversely affect their performance.Banks revenue performance have been measured by Return on assets (ROA), Return on capital employed (ROCE) or Net profit margin (NPM).Most banking operations are now link with global environment.Therefore, fluctuations in exchange rate, which affects banking customers can also affect, banks themselves.Profitability is essential for any bank to remain in business and to instill confidence on investors.It is also a sign that the bank's statement of financial position shows more revenue than expenses as well as solvency under any environment.Fluctuations in exchange rate or exchange rate volatility have been described as periods of domestic currency appreciation or depreciation (Jongbo, 2014).The exchange rate is therefore an important relative price as Victor (2017) decried that exchange rate fluctuation mounts pressure on activities of the economy such as inflation and international competitiveness of domestic goods.The combination of these factors can affect deposit money banks profitability.Studies have shown that exchange rate has an inducing factor on production of cost as a result of changes in domestic and international prices of goods and services.Consumers therefore bear the burden either in form of loss or gain while banks who are linked with these customers are also affected (Gatobu, 2012; Olabisi, Afolabi, Kajola & Ariyibi, 2019).Osuagwu (2014) noted banks profitability is a function of their credit risks, that is, when Naira rate continues to depreciate, the liquidity position of the banks is at risk which in turn will reflect on their revenue position.Takatoshi and Kiyotaka (2008) argued in line with the traditional school of thought that exchange rate volatility brings uncertainty in profits and reduces