Impact of Inflation and Exchange Rate on the Financial Performance of Commercial Banks in South Africa

Abstract

The study examines the impact of inflation and exchange rate on the financial performance of commercial banks in South Africa. The study covers four largest commercial banks in South Africa, namely; Standard bank, Nedbank, Capitec Bank and Firstrand Bank for the period 2003-2019. To measure the financial performance, return on equity was used as the dependent variable and inflation and exchange rate as the independent variables. To achieve the objective of the study, the ARDL, FMOLS and DOLS models are used. The findings illustrated that there is a significant inverse relationship between inflation and the return on equity and there is a weak relationship between exchange rate and the return on equity.Copyright© 2020 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.