Conceptual Exposition of the Effect of Inflation on Bank Performance

Mohammed Umar; Danjuma Maijama’a; Mohammad Adamu

doi:doi:10.11648/j.jwer.20140305.11

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Conceptual Exposition of the Effect of Inflation on Bank Performance

Mohammed Umar, Danjuma Maijama’a, Mohammad Adamu

Published in Journal of World Economic Research (Volume 3, Issue 5)

Received: 27 October 2014 Accepted: 7 November 2014 Published: 20 November 2014

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Abstract

Despite the fact that, banks can withstand the effects of inflation in the short run, since banking system mostly operates with reference to interest rate and maturity of financial instruments with less concern about the purchasing power of money. However, the banking system cannot absorb the shocks in the long run. The objective of this paper is to conceptually expose the effect of inflation on bank performance. To accomplish this objective, the paper reviews some theoretical and empirical works on the effect of inflation on financial sector performance. The paper found two divergent views. Thus, inflation has an adverse effect on banking sector performance and its spillover effect is very harmful to the overall economy. Inflation affect the purchasing power and bank exchange rate regime, opportunity cost of holding currency in the future, worsen loans policy, disrupt business plans and the equity holding performance of banks. While the other side of the argument states that inflation leads to an increase in bank performance as long as the banks can be able to anticipate future inflation and adjust interest rate to generate higher revenue than cost which leads to higher profit and performance as a result of adjusting the rate of interest.

Published in	Journal of World Economic Research (Volume 3, Issue 5)
DOI	10.11648/j.jwer.20140305.11
Page(s)	55-59
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Inflation, Inflation Uncertainty, Monetary Authority, Bank Performance

References

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APA Style

Mohammed Umar, Danjuma Maijama’a, Mohammad Adamu. (2014). Conceptual Exposition of the Effect of Inflation on Bank Performance. Journal of World Economic Research, 3(5), 55-59. https://doi.org/10.11648/j.jwer.20140305.11

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ACS Style

Mohammed Umar; Danjuma Maijama’a; Mohammad Adamu. Conceptual Exposition of the Effect of Inflation on Bank Performance. J. World Econ. Res. 2014, 3(5), 55-59. doi: 10.11648/j.jwer.20140305.11

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AMA Style

Mohammed Umar, Danjuma Maijama’a, Mohammad Adamu. Conceptual Exposition of the Effect of Inflation on Bank Performance. J World Econ Res. 2014;3(5):55-59. doi: 10.11648/j.jwer.20140305.11

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@article{10.11648/j.jwer.20140305.11,
  author = {Mohammed Umar and Danjuma Maijama’a and Mohammad Adamu},
  title = {Conceptual Exposition of the Effect of Inflation on Bank Performance},
  journal = {Journal of World Economic Research},
  volume = {3},
  number = {5},
  pages = {55-59},
  doi = {10.11648/j.jwer.20140305.11},
  url = {https://doi.org/10.11648/j.jwer.20140305.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20140305.11},
  abstract = {Despite the fact that, banks can withstand the effects of inflation in the short run, since banking system mostly operates with reference to interest rate and maturity of financial instruments with less concern about the purchasing power of money. However, the banking system cannot absorb the shocks in the long run. The objective of this paper is to conceptually expose the effect of inflation on bank performance. To accomplish this objective, the paper reviews some theoretical and empirical works on the effect of inflation on financial sector performance. The paper found two divergent views. Thus, inflation has an adverse effect on banking sector performance and its spillover effect is very harmful to the overall economy. Inflation affect the purchasing power and bank exchange rate regime, opportunity cost of holding currency in the future, worsen loans policy, disrupt business plans and the equity holding performance of banks. While the other side of the argument states that inflation leads to an increase in bank performance as long as the banks can be able to anticipate future inflation and adjust interest rate to generate higher revenue than cost which leads to higher profit and performance as a result of adjusting the rate of interest.},
 year = {2014}
}

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TY  - JOUR
T1  - Conceptual Exposition of the Effect of Inflation on Bank Performance
AU  - Mohammed Umar
AU  - Danjuma Maijama’a
AU  - Mohammad Adamu
Y1  - 2014/11/20
PY  - 2014
N1  - https://doi.org/10.11648/j.jwer.20140305.11
DO  - 10.11648/j.jwer.20140305.11
T2  - Journal of World Economic Research
JF  - Journal of World Economic Research
JO  - Journal of World Economic Research
SP  - 55
EP  - 59
PB  - Science Publishing Group
SN  - 2328-7748
UR  - https://doi.org/10.11648/j.jwer.20140305.11
AB  - Despite the fact that, banks can withstand the effects of inflation in the short run, since banking system mostly operates with reference to interest rate and maturity of financial instruments with less concern about the purchasing power of money. However, the banking system cannot absorb the shocks in the long run. The objective of this paper is to conceptually expose the effect of inflation on bank performance. To accomplish this objective, the paper reviews some theoretical and empirical works on the effect of inflation on financial sector performance. The paper found two divergent views. Thus, inflation has an adverse effect on banking sector performance and its spillover effect is very harmful to the overall economy. Inflation affect the purchasing power and bank exchange rate regime, opportunity cost of holding currency in the future, worsen loans policy, disrupt business plans and the equity holding performance of banks. While the other side of the argument states that inflation leads to an increase in bank performance as long as the banks can be able to anticipate future inflation and adjust interest rate to generate higher revenue than cost which leads to higher profit and performance as a result of adjusting the rate of interest.
VL  - 3
IS  - 5
ER  -

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Author Information

Mohammed Umar

Dept. of Economics and Development Studies, Federal University Kashere, Gombe State, Nigeria
Danjuma Maijama’a

School of General Studies, Abubakar Tatari Ali Polytechnic Bauchi, Bauchi State, Nigeria
Mohammad Adamu

Dept. of Economics, Bauchi State University, Gadau, Nigeria

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Plain Text BibTeX RIS

APA Style

Mohammed Umar, Danjuma Maijama’a, Mohammad Adamu. (2014). Conceptual Exposition of the Effect of Inflation on Bank Performance. Journal of World Economic Research, 3(5), 55-59. https://doi.org/10.11648/j.jwer.20140305.11

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ACS Style

Mohammed Umar; Danjuma Maijama’a; Mohammad Adamu. Conceptual Exposition of the Effect of Inflation on Bank Performance. J. World Econ. Res. 2014, 3(5), 55-59. doi: 10.11648/j.jwer.20140305.11

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AMA Style

Mohammed Umar, Danjuma Maijama’a, Mohammad Adamu. Conceptual Exposition of the Effect of Inflation on Bank Performance. J World Econ Res. 2014;3(5):55-59. doi: 10.11648/j.jwer.20140305.11

Copy | Download

@article{10.11648/j.jwer.20140305.11,
  author = {Mohammed Umar and Danjuma Maijama’a and Mohammad Adamu},
  title = {Conceptual Exposition of the Effect of Inflation on Bank Performance},
  journal = {Journal of World Economic Research},
  volume = {3},
  number = {5},
  pages = {55-59},
  doi = {10.11648/j.jwer.20140305.11},
  url = {https://doi.org/10.11648/j.jwer.20140305.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20140305.11},
  abstract = {Despite the fact that, banks can withstand the effects of inflation in the short run, since banking system mostly operates with reference to interest rate and maturity of financial instruments with less concern about the purchasing power of money. However, the banking system cannot absorb the shocks in the long run. The objective of this paper is to conceptually expose the effect of inflation on bank performance. To accomplish this objective, the paper reviews some theoretical and empirical works on the effect of inflation on financial sector performance. The paper found two divergent views. Thus, inflation has an adverse effect on banking sector performance and its spillover effect is very harmful to the overall economy. Inflation affect the purchasing power and bank exchange rate regime, opportunity cost of holding currency in the future, worsen loans policy, disrupt business plans and the equity holding performance of banks. While the other side of the argument states that inflation leads to an increase in bank performance as long as the banks can be able to anticipate future inflation and adjust interest rate to generate higher revenue than cost which leads to higher profit and performance as a result of adjusting the rate of interest.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - Conceptual Exposition of the Effect of Inflation on Bank Performance
AU  - Mohammed Umar
AU  - Danjuma Maijama’a
AU  - Mohammad Adamu
Y1  - 2014/11/20
PY  - 2014
N1  - https://doi.org/10.11648/j.jwer.20140305.11
DO  - 10.11648/j.jwer.20140305.11
T2  - Journal of World Economic Research
JF  - Journal of World Economic Research
JO  - Journal of World Economic Research
SP  - 55
EP  - 59
PB  - Science Publishing Group
SN  - 2328-7748
UR  - https://doi.org/10.11648/j.jwer.20140305.11
AB  - Despite the fact that, banks can withstand the effects of inflation in the short run, since banking system mostly operates with reference to interest rate and maturity of financial instruments with less concern about the purchasing power of money. However, the banking system cannot absorb the shocks in the long run. The objective of this paper is to conceptually expose the effect of inflation on bank performance. To accomplish this objective, the paper reviews some theoretical and empirical works on the effect of inflation on financial sector performance. The paper found two divergent views. Thus, inflation has an adverse effect on banking sector performance and its spillover effect is very harmful to the overall economy. Inflation affect the purchasing power and bank exchange rate regime, opportunity cost of holding currency in the future, worsen loans policy, disrupt business plans and the equity holding performance of banks. While the other side of the argument states that inflation leads to an increase in bank performance as long as the banks can be able to anticipate future inflation and adjust interest rate to generate higher revenue than cost which leads to higher profit and performance as a result of adjusting the rate of interest.
VL  - 3
IS  - 5
ER  -

Copy | Download