Analyzing the impact of macroeconomic factors on the profitability of commercial banks in Rwanda; a case study of Bank of Kigali (2013-2024)

Abstract

This paper investigated the impact of macroeconomic factors on the profitability of commercial banks in Rwanda, with specific focus on Bank of Kigali (BK) Plc during the period 2013–2024. The study was guided by the general objective which was to analyze how inflation, interest rates, and exchange rates influence the profitability of commercial banks, measured through indicators such as Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM). The research relied exclusively on secondary data obtained from BK Plc annual reports and publications from the National Bank of Rwanda. Statistical, regression, and descriptive methods were applied to analyze the data. Findings revealed that exchange rate depreciation negatively affects profitability, while interest rates and inflation exhibit a positive but varying effect on ROA. Overall, the results suggested that macroeconomic variables play a significant role in shaping bank performance, although other internal factors remain important. The study concluded that BK Plc has demonstrated financial resilience despite macroeconomic fluctuations, but sustained profitability requires robust risk management and adaptive strategies. Researchers recommended that BK should strengthen foreign exchange risk management, aligning lending practices with macroeconomic conditions, diversifying revenue sources, and enhancing collaboration with policymakers to ensure a stable banking environment. This research contributed to existing literature by providing empirical evidence on how macroeconomic factors affect bank profitability in Rwanda and offers practical insights for bank managers, policymakers, and academicians.