The top commercial banks in Nigeria saw large gains in their forex revaluation in 2023 and Q1 2024, with an estimated total of N3.37 trillion. This is happening as the Tinubu administration wraps up preparations to levy a sizable windfall tax on the percentage of the realized gains from the foreign exchange revaluation of Nigerian banks.
The information is based on studies carried out by Nairalytics, the Nairametrics research division. Data from 2023’s first quarter and full year are compiled.
Up to N2.4 trillion was earned by commercial banks in 2023, and an additional N883 billion was earned in the first quarter of 2024. Access Holdings, FCMB, Fidelity, GTCO, Stanbic IBTC, UBA, and Zenith Bank are among the banks involved. Banks that are not quoted on the NGX are not included in the list.
However, the total amount of forex gains included unrealized gains, which does not fall into the tax bracket of the government. See below for breakdown of the banks with leading forex gains.
Banks earn a lot from forex gains
When the central bank unified the exchange rate markets, the naira underwent a huge devaluation, which is what led to the forex gains made by commercial banks.
Due to the FX unification, Nigerian banks with sizable foreign exchange holdings saw enormous gains on paper, which resulted in some of the highest profits the financial services industry has ever reported. Apart from banks, companies in the oil and gas industry and those with substantial dollar earnings also benefited greatly from the devaluation of foreign exchange.
On the other hand, manufacturing firms and other significant economic subsectors encountered significant difficulties. Because of the lower naira, the cost of imported equipment and raw materials increased, which reduced profit margins and raised manufacturing costs.
Many firms found it difficult to continue operating, which resulted in lower output, job losses, and, in certain cases, the liquidation of companies that were unable to handle the new financial reality.
Their external loans, which were compelled to suffer large forex losses due to currency depreciation, will bear the brunt of the losses. Even if the majority of these losses were initially unrealized, they will eventually come to pass and severely limit their ability to maintain their financial stability.
The impact was also felt by consumers, as rising prices for products and services reduced their purchasing power and raised living expenses.
Even though some industries benefited from the devaluation, it also exposed the weaknesses of a country whose manufacturing and consumption requirements are mostly met by imports.
Banks and their revaluation gains
First City Monument Bank (FCMB): N116.443 billion in forex gains
For 2023 and Q1 2024, FCMB reported a total forex gain of N116.443 billion.
- The bank declared a forex gain of N86.307 billion in 2023, indicating a remarkable growth of more than 1,000% in a single year.
- It reached over 30% of the 2023 amount by the end of Q1 2024, with a forex gain of N30.137 billion.
- The N116.443 billion in realized forex profits that FCMB reported for 2023 and the first quarter of 2024 show solid financial performance that has a direct beneficial influence on cash flow, earnings stability, and investor confidence.
- With an impressive 185% year-over-year increase in 2023 and 193% year-over-year growth in Q1 2024, its profitability growth has not stopped.
United Bank for Africa: N682.952 billion in forex gains
Though United Bank for Africa (UBA) did not specify whether the forex gains were realized or unrealized, the sharp decline in Q1 2024, reporting only N23.695 billion
- In sharp contrast to the huge N659.257 billion reported in 2023—a remarkable 814% year-over-year rise when compared to the N72.150 billion recorded in 2022—is the Q1 2024 figure.
- If the preceding gains were mostly unrealized, the sudden decrease in UBA’s currency gains in Q1 2024 could be even more worrying because it indicates that the previous paper gains did not translate into actual cash flows and might potentially reverse.
- Profitability growth is still robust, though. Pre-tax profit in Q1 2024 increased by 155% year over year to N156.344 billion, although that figure only represents 21% of the pre-tax profit in 2023, which was N757.680 billion, up 277% year over year.
Access Holdings: N748.159 billion Forex Gains
Access Holdings recorded substantial forex gains in its 2023 financial report. The group recorded the third-highest forex gains of N748.159 billion in 2023 and Q1 2024.
- The bank’s extensive international operations and effective currency management strategies have positioned it to benefit from forex market fluctuations.
- The forex gains in 2023 were impressive, but they appear to have slowed in 2024, having achieved 18% of the 2023 figure.
- The Group remains strong, with triple-digit growth in profitability both in 2023 and Q1 2024.
Zenith Bank Plc: N828.675 billion Forex Gains
Zenith Bank Plc, one of Nigeria’s largest financial institutions, has effectively capitalized on forex market dynamics.
- In its 2023 financial statements, the bank recorded currency gains of N638.982 billion, and in Q1 2024, it declared gains of an additional N189.693 billion.
- The bank acknowledged that notable improvements in interest and non-interest income were responsible for its profits and profitability growth, but it also noted that major contributions from currency gains were made; however, the bank did not specify whether these gains were realized or unrealized.
- Zenith Bank is the highest-performing bank in Nigeria, with a pre-tax profit of N795.962 billion in 2023.
- This impressive success persisted into the first quarter of 2024, as pre-tax profit increased by 270% to N320.194 billion.
- The realized and unrealized currency gains were not kept apart by the bank.
GTCO: N844.450 billion Forex Gains
GTCO recorded the highest forex gain among Nigerian banks, totaling N844.450 billion for the 2023 financial year and Q1 2024.
- The bank’s profitability during these times was significantly boosted by this large gain.
- The N345.070 billion currency gain that GTCO reported in 2023 was a major factor in the 184% increase in pre-tax profit over the previous year, which came to N609.308 billion.
- With an additional currency gain of N499.380 billion in Q1 2024, or around 144.72% of the forex gains for the entire year 2023, this good trend persisted.Pre-tax profits of N509.349 billion were large as a result of the forex gains.
- The FX gain for 2023 is unrealized, per the bank’s financial notes.
Other Banks
Other banks under review, including Fidelity Bank and Stanbic IBTC, reported forex gains of N71.143 billion and N24.569 billion, respectively.
While these forex gains have significantly boosted the banks’ bottom lines, some of the banks attribute their growth to robust earnings from both interest and non-interest income.
