IMPACT OF MACRO ECONOMIC VARIABLE ON BANK PERFORMANCE
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IMPACT OF MACRO ECONOMIC VARIABLE ON BANK PERFORMANCE
Chapter One: Introduction 1.1 Background of the Study
In Nigeria, several sectors contribute to the economy. In this study, we will focus on the financial transactions sector (the banking sector), which plays an important role in the process of a country’s economic growth by acting as an intermediary in the financial process.
The strength of financial institutions is crucial in promoting economic development and growth, attracting foreign and domestic investment, reducing poverty, and creating jobs.
Banking in Nigeria, and financial services in general, have been highlighted as a major pillar in achieving Vision 2030’s goal of transforming Nigeria into a middle-income country by facilitating macroeconomic stability for long-term growth.
Because banks are such vital entities in an economy, several parties, including the national government through the Central Bank of Nigeria, pay close attention to their stability and success as going concerns by establishing necessary laws.
Scholars studying the current issue have focused on the relationship between macroeconomic conditions and corporate performance. It is frequently concluded that a firm’s success is determined by several key macroeconomic variables, such as interest rates, GDP, inflation, and the currency rate.
According to financial media reports, investors frequently believe that fiscal rules and macroeconomic events have a significant impact on profit volatility.
As a result, macroeconomic variables influence people’s investment decisions, prompting countless researchers to investigate the relationship between investment returns and macroeconomic variables (Gan et al., 2006).
Nigeria’s financial industry is predominantly bank-centered because the primary market is still seen as constrictive and light (Ngugi et al, 2006).Nigerian banks manage this sector. As a result, the country’s financial intermediation mechanism is heavily reliant on banks, particularly commercial banks (Kamau, 2009).
According to Oloo (2009), there is a link that embraces the country’s economy in the Nigerian banking subsystem. Agriculture and manufacturing, both large segments, rely heavily on this sector for survival and growth.
Over the last ten years, the banking industry’s performance has gradually improved, with only three banks failing to meet the CBN statutory requirement and being placed under it, as opposed to a large number of banks in the previous period, when 37 banks were placed under CBN statutory between 1986 and 1998.
1.1.1 Macroeconomic Variables.
Macroeconomic variables are elements that have a significant impact on the economic condition of countries at the regional or national level.These factors affect a substantial section of the population.
These elements include economic output, unemployment, inflation, savings, and investment.They are closely monitored and verified by governments in place since they are a vital indicator of economic activity performance (Khalid et al., 2012).
Microeconomics is a large field of study, particularly understanding how these components connect to one another and how their interactions affect the economy, as depicted by Fischer (1993).
Macroeconomics is a comprehensive examination of the economy as a whole, while microeconomics is concerned with the expounding person.
,group or corporate level, resulting in an impact on decision-making processes.
Macroeconomic factors are constantly scrutinised by businesses, governments, and consumers, but because of their impact on the banking industry, they have become focal focuses of commercial interest.
Kwon and Shin (1999) agree that the most important macroeconomic factors are GDP, currency exchange rate, interest rates, inflation, and market risk.
Sharma and Singh (2011) discovered that there is a good association between how they carry out investments over an extended length of time because the variables stabilise over time, which is beneficial to the banks’ everyday operations and has a positive influence.
GDP is the most quantitative measure of a country’s overall economic activity and precisely captures all commodities and services monetary value created over a specific time period inside its geographical borders. Inflation is defined as an increase in the rate of price change over time.
Price increases are caused by constituents that typically influence it, such as fiscal rules and policies, the consumer price index, commercial banking, and credit availability, all of which play a role in motivating its rise or decline.
Unemployment estimates the number of residents who are actively seeking work but are not currently employed. According to Mishkin (2004), individual macroeconomic variables have a considerable influence on economic growth zones. These variables include banking, the Consumer Price Index, and changes in government laws.
1.1.2 Financial Performance.
Financial performance is an objective evaluation of a company’s efficient use of resources to generate income in its principal mode of operation. The term performance refers to the overall quantifier of a firm’s general monetary status over a certain time period, and it is widely used to compare the performance of organisations in the same industry or industries in aggregates.
Individual elements in the same line, such as total income from a company’s daily operational activity, operational cashflow, and operating income, can all be used.
Furthermore, an interested party, such as a financial analyst, utilises financial data to analyse the growth rate margin and reducing debt (Maria et al., 2002).
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