Impact Of Exchange Rate Fluctuations On Financial Performance Of State-Owned Commercial Banks In Bangladesh: An Empirical Study

The study aimed at investigating the effects of exchange rate fluctuations on financial performance of financial institutions in Bangladesh. The study reviewed theoretical and empirical studies on exchange rate and financial performance. Secondary data was collected from the banks’ consolidated financial statements as well as World Bank database website. The study is carried out by using the measures of central tendency as descriptive statistics to describe the data. This study also adopted correlation analysis to explain the association between Return on Assets (ROA), inflation rates, interest rates spread, and exchange rates. A multiple linear regression model has been employed. Return on assets was the dependent variables and exchange fluctuations variables as the independent variables.  The study found that exchange rate fluctuations and financial performance had a weak negative association. The study observed that the inflation rates have been increasing yearly over the entire study period. The relationship however between inflation and returns on assets was positive and hence it positively impacted performance. The study demonstrated that interest rates especially lending rates have been increasing over time whereas the same observation was not eminent in deposit rates by banks. The results of the study therefore concludes that the interest rates spread has been increasing in the recent years since borrowing had become expensive thus profitable whereas deposits rates were very small. The Central Bank of Bangladesh should adequately put measures to safeguard the value of the domestic currency.