Investigating the Effect of Exchange Rate on Banks' Ability to Provide Loans: An Applied Study on the Egyptian Banking Sector

Banks control the movement of money between individuals and businesses, whether they are physical institutions or virtual. More specifically, banks provide deposit accounts, which are safe storage venues for people's cash, and lend other persons or companies using the funds in their deposit accounts. Because the exchange rate may impact the profitability of the domestic activities of the bank, even the one without overseas assets or liabilities may be subject to currency risk. The objective of this research is to assess the effect of the exchange rate on the bank's ability to make loans through profitability. This research follows the quantitative design and deductive methodological approach, where secondary data are collected from the financial statements of Egyptian banks during the period from 2014 to 2021. The results showed that there is a significant effect of the exchange rate on the profitability of the banks; a significant negative impact or a significant negative impact on their ability or inability to make loans. Future research should examine the deferred effect of exchange rates; they could have a significant impact on banks’ profitability and ability to make loans. The key contribution of this study is in providing a clear understanding of the relationship between exchange rate and the bank ability to make loans, as well as investigating the factors that could affect this relationship (profitability in its dimensions), This research implies applying floating policies whenever required to help banks be more able to make loans.