The Banks in Nigeria Record Enormous turnaround, with banks reporting staggering forex assets revaluation gains of N1.913 trillion in the first half of 2023 (H1’23). This substantial profit surge comes in the wake of a significant devaluation of the Naira, a move introduced by the Federal Government in the second quarter of 2023, resulting in substantial losses for many manufacturing and other firms.
The Naira devaluation had a detrimental impact on manufacturing firms and companies, which are pivotal to the nation’s living standards and Gross Domestic Product (GDP). In contrast, financial institutions reaped the benefits of this currency adjustment.
Banks in Nigeria Record Enormous Financial Vanguard’s investigation revealed that the top 12 banks listed on the Nigerian Exchange Limited (NGX) recorded a mere N70.3 billion in forex business profits during the corresponding period in 2022 (H1’22). However, in H1’23, these banks reported a combined Profit Before Tax (PBT) of N1.787 trillion, compared to N666.038 billion in H1’22. This stark increase in profits indicates that the majority of these banks’ earnings were derived from forex gains.
Tier-1 banks such as UBA, GTB, Ecobank, Access Bank, Zenith Bank, and First Bank were among the major beneficiaries of this profit windfall. UBA led the pack with N418.3 billion, followed by GTB with N357.5 billion, Ecobank with N329.5 billion, Access Bank with N244 billion, Zenith Bank with N212.3 billion, and First Bank with N98.4 billion.
Tier-2 banks also recorded significantly higher profits during this period. Stanbic IBTC reported N129.2 billion, FCMB had N52.2 billion, Unity Bank recorded N35.8 billion, and Fidelity Bank posted N32.2 billion in profits.
Conversely, many manufacturing companies and other entities listed on the exchange faced unprecedented forex liability revaluation losses. Approximately 20 large manufacturing firms and companies reported a combined forex liability revaluation loss of N656.1 billion due to the same forex market developments that saw banks generate substantial profits. In the corresponding period of 2022, these manufacturers had recorded N81.1 billion in profits.
In response to these extraordinary gains, the Central Bank of Nigeria (CBN) delayed the approval of banks’ financial results due to audit concerns related to the revaluation gains. The CBN eventually granted approval but with a caveat that banks should reserve the forex revaluation gains as a buffer against potential economic shocks. Consequently, banks were prohibited from using these gains to pay dividends or cover operating expenses.
The banking sector’s windfall has led to a growing disparity between the financial sector and the real sectors of the economy, including agriculture and manufacturing. Experts have welcomed the CBN’s directive to prevent banks from using forex revaluation gains for dividend payments, as it aligns with the goal of addressing this disparity.
Analysts have also noted that the deregulation of the forex market has opened up new income-generating opportunities for banks and can contribute to the development of the financial market. However, they caution that the manufacturing and consumer goods sectors may continue to face challenges due to elevated forex losses and increased costs of living and operations.
In conclusion, while banks have reaped substantial profits from forex gains, the broader economic outlook remains uncertain due to the ongoing depreciation of the Naira and its impact on various sectors of the economy. The government and the CBN will need to implement measures to stabilize the exchange rate and restore external sector equilibrium to foster economic growth and attract foreign investment.
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