Abstract
This study investigates the impact of inflation and exchange rate fluctuations on the financial performance of commercial banks in Palestine. Using econometric analysis, the research examines data from 13 commercial banks over the period 2013–2017, employing key performance indicators such as Return on Assets (ROA), Return on Equity (ROE), and the Liquid Assets to Total Assets (LATTA) ratio. The findings reveal a significant positive relationship between inflation and financial performance, indicating that Palestinian banks effectively adapt to inflationary environments to enhance profitability. Conversely, exchange rate fluctuations have a significant negative effect on ROA, suggesting that currency instability poses challenges to financial stability. These results highlight the need for strategic policies to mitigate exchange rate risks while capitalizing on inflation-driven opportunities. The study provides critical insights for policymakers, regulators, and bank managers, emphasizing the importance of financial resilience in an unstable economic landscape. Strengthening risk management frameworks, diversifying revenue streams, and implementing adaptive monetary policies can help commercial banks sustain performance amidst economic volatility. By understanding the dynamics of inflation and exchange rate movements, financial institutions can formulate strategies that ensure long-term stability and profitability. This research contributes to the broader literature on banking performance in emerging economies and serves as a foundation for future studies exploring macroeconomic influences on financial institutions.
Keywords: Commercial Banks, Exchange Rate, Financial Performance, Inflation.