Macroeconomic Variables and Financial Performance of Commercial Banks in South Sudan

Abstract

The banking institutions in South Sudan have been experiencing challenges due to various factors affecting their performances. There has been little research on the causes of bank profitability in South Sudan, and since different studies elsewhere demonstrate disparities in the impact of macroeconomic variables on bank performance, this study has been taken.The primary purpose of this research was to determine the effect of Macroeconomic Variables on the financial performance of commercial banks in South Sudan: Specifically, the study aimed: toassess the effect of exchange rate on the financial performance ofcommercial banks in South Sudan; to examine the influence of interest rate on the financial performance of commercial banks in South Sudan; to examine the effect of inflation rate on the financial performance of the commercial bank in South Sudan.  The study was anchored onthe International Fisher Effect (IFE) theory. The target population for this study were the 30 commercialbanks in South Sudan. A purposive sampling method was used to select 28 out of the 30 commercial banks for the study. The researcher considereda longitudinal cohort research design. A panel of data for the period of 2014 to 2020 collected from the Central Bank of South Sudan, the world bank data bank, and the commercial bank's websites were used in the study. Face validity was used for the measurement of the validity of the data. To show the reliability of the data, the researcher used data source triangulation to incorporate various sources of the data in an investigation. Data analysis included descriptive statistics and multiple regression analysis. The Pooled OLS with Panel Correlated Standard Error results suggested that of the macroeconomic factors analyzed, the exchange rates had no significant effect on the financial performance of commercial banks at a 5% level of confidence (  = -1.862119, p-value = 0.212 > 0.05). The interest rate had a significantly positive influence on commercial banks performance in South Sudan at a 5% confidence level(β = 41.31904, p-value = 0.000 < 0.05). The inflation rate had no significant effect on the financial performance of commercial banks in South Sudan at a 5% level of confidence (β = 2.256533, p-value = 0.116 > 0.05).  The following recommendations were made in the context of the results and conclusions.Commercial banks should pay special attention to interest rate changes, which have a significant impact on the financial success of South Sudanese commercial banks.The government should implement regulations and an exchange rate regime that would allow banks to profit from the exchange rate sector. The inflation rate should be monitored to ensure that it is always within control.