In light of the weakening of the naira, banks have racked up still more extraordinary profits from currency revaluation.
Top banks reported a N2.292 trillion profit before taxes for the first nine months of 2023, according to their financial filings with authorities.
The majority of the gain, or almost N1.457 trillion (63.6%), resulted from dealings in foreign currency.
The 546.5% increase in forex profits represents a significant jump from the N225.416 billion the same banks made at the same time in 2022.
Meanwhile, the Nigerian Exchange Limited, NGX, disclosed details of the financial reports of the nine banks, revealing a profit of N2.292 trillion, an astounding growth of 156.4 percent from the N897.717 billion achieved in the 9M’22 comparable period.
FBN Holdings, Zenith Bank, GTBank Group, UBA, Access Bank, Stanbic IBTC, Wema Bank, Sterling Bank Holdings, Fidelity Bank, and Jaiz Bank are only some of the nine banks whose performance was evaluated by Financial Vanguard.
Ecobank Transnational Incorporation (ETI), Union Bank, Polaris Bank, FCMB, Citibank, Standard Chartered Bank, FSDH Merchant Bank, NOVA Merchant Bank, Heritage Bank, Keystone Bank, Providus Bank, and others are among the big financial institutions that have yet to disclose their numbers.
Ecobank wrote to the Exchange, “ETI, the parent company of the Ecobank Group, the leading pan-African banking group with banking operations in 34 countries, notifies the general public that it is currently undergoing an external audit of the 2023 Third Quarter Financial Results of Ecobank Group for the period ended September 30, 2023 (“the Audited Results”), even though these banks have been viewed by analysts as late filers.
The Ecobank Group’s financial results for the third quarter of 2023 will be audited, per a resolution from the board and management of Ecobank Transnational Incorporated.
Rule 2.1.1 of the Exchange’s Rulebook, Rules for Filing of Accounts and Treatment of Default Filing (Default Filing Rules), states that “Where an Issuer has a reasonable belief that it will not be able to file its accounts by the relevant due date, the Issuer may before the due date submit an application for an extension of time, supported by compelling reasons and evidence.” Accordingly, the audited results will be published in accordance with the provisions of Rule 2.1.1.
Industry experts predict a total profit of more than N3.5 trillion once the findings of the remaining banks are released.
The 9M’23 earnings of the Tier 1 banks are broken out as follows: The top five banks by total assets are as follows: Zenith Bank (N505.0363 billion), United Bank for Africa (N502.091 billion), Guaranty Trust Bank (N433.203 billion), Access Bank (N294.416 billion), First Bank of Nigeria (N270.333 billion), and GTB (N433.203 billion).
For the time period under examination, Tier-1 banks accounted for 87.5% of the combined 9 institutions’ profitability, while Tier-2 banks contributed 12.5%.
Among the tier-2 banks, Stanbic IBTC had the highest profit during the period under review with N129.458 billion; Fidelity Bank came in second with N110.992 billion; Wema Bank came in third with N22.117 billion; Sterling Bank came in fourth with N17.803 billion; and Jaiz Bank came in fifth with N6.679 billion.
The 9M’23 gross earnings of Nigeria’s two largest banks, Access Bank Group (N1.593 trillion) and Zenith Bank (N1.329 trillion), were both affected by the gains from the revaluation of the Nigerian currency against the United States dollar.
Third place went to UBA with N1.308 trillion in earnings, second to FBN Holdings with N1.080 trillion, and first to GTBank Groups with N850.330 billion.
According to jerrymusa.com The majority of the review period’s gross earnings (86.3% to be exact) were generated by Tier-1 banks, while only 13.7% came from Tier-2 institutions.
It should be recalled that the CBN had cautioned banks to set aside and save the gains from the FX revaluation as a buffer against economic shocks in the first quarter of the year, against the backdrop of the windfall.
As a result, the CBN forbade the banks to use profits from the FX revaluation for dividends or to cover running costs.
This was revealed in a letter from the CBN titled “Impact of recent FX policy reforms: Prudential guidance to the banking sector.”
According to a letter from the Central Bank of Nigeria (CBN), signed by its Director of Banking Supervision, Mr. Haruna Mustafa, the following was written: “The CBN has reviewed the impact of the recent foreign exchange (FX) rate regime change on the banking system and observed its potential to significantly increase naira values of banks’ foreign currency (FCY) assets and liabilities, resulting in varying levels of FX revaluation gains or losses across the industry.”
Following the liberalisation of the foreign exchange market on May 29, 2023, banks revalued their hard currency portfolio upward, providing them with an income windfall, according to David Adonri, analyst and Vice Executive Chairman at HIGHCAP Securities Limited, commenting on the performance of banks in the 9M’23.
The CBN ended the cash shortage that had hampered financial operations in the third quarter of 2023.
This increased the bank’s profit. Banks’ profits were boosted by the contractionary monetary policy that was implemented to reduce inflation. The banks also had very good cost management in order to safeguard their profits.
Adonri added, “As long as the market correction in the foreign exchange market continues, banks will cream off extraordinary FX gains.” This referred to the possibility that the bank would continue to reap remarkable profits from the forex revaluation in Q4’23.
They may not always come out ahead in this deal, which could be bad for the productive economy. A number of importers’ and manufacturers’ credits may become delinquent as a result of the trade deficit.
A continuation of the fourth quarter’s forex gain is possible, albeit at a slower rate, given that the economy will eventually adjust to the new price level.
Analyst and CEO of Wyoming Capital & Partners, Tajudeen Olayinka, testified that a company can benefit from currency revaluation gains for as long as it holds net dollar assets during a time of persistent currency decline.
This is the driving force behind the nine NGX-listed banks’ massive quarterly earnings reports. The same holds true for businesses that have net dollar liabilities, which will continue to incur losses due to currency revaluation.
Olayinka stated, “It will improve the Naira funding capacities of the nine banks and heighten the default risk of loan customers as a result of the revaluation of the assets.” It could constitute a serious danger to the stability of the financial system if action is not taken soon.
He went on to warn that the current inflationary pressure in the economy could last too long if companies with net-dollar liabilities kept reducing their generating assets to maintain profitability. It might cause more people to lose their jobs and fall into poverty.
Mallam Garba Kurfi added his thoughts on the banks, saying, “The devaluation of the naira and the rising of the Monetary Policy Rate (MPR to 18.5% pushed the banks’ interest rate charged on the loans already given to customers.” Additionally, inflation has been blamed for these banks’ increased gross income and profit before tax.
The issue of forex gains by banks would be significantly mitigated, if not eradicated, if the government implemented foreign exchange loans of $7.0 billion coupled with NNP’s $3.0 billion by the end of the year.