Due mostly to the Naira’s depreciation last year, the top Nigeria’s commercial banks had considerable profits in foreign exchange revaluation, estimated at a combined total of N3.37 trillion in 2023 and Q1 2024.
According to the banks’ reports, these FX profits comprise both realized and unrealized sums. Based on information gathered from the banks’ Q1 2024 and 2023 FY financial statements, Access Holdings, FCMB, Fidelity, GTCO, Stanbic IBTC, UBA, and Zenith Bank are these lenders.
An overview of the banks’ foreign exchange gains for Q1 2024 and Q3 2023 may be found below.
GTCO: N844.450 billion FX Gains
With a total of N844.450 billion for the 2023 FY and Q1 2024, GTCO had the largest foreign exchange gain of any Nigerian bank. The bank’s profitability during these times was significantly boosted by this large gain. The FX gain of N345.070 billion 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 foreign exchange gain of N499.380 billion in Q1 2024—roughly 144.72% of the FX gains for the entire year 2023—this favorable trend continued, and the result was a significant pre-tax profit of N509.349 billion. The bank’s financial notes state that the FX advantage for 2023 has not been achieved.
Zenith Bank Plc, N828.675 billion
One of the biggest banks in Nigeria, Zenith Bank Plc, has profited handsomely from the peculiarities of the foreign exchange market.
In its 2023 financial results, the bank recorded foreign exchange gains of N638.98 billion, and in Q1 2024, it reported an additional N189.693 billion.
The bank acknowledged that notable increases in interest and non-interest income were responsible for its profits and profitability growth, but it also acknowledged that substantial contributions from foreign exchange 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.
Access Holdings: N748.159 billion FX gains
In its 2023 financial report, Access Holdings reported significant foreign exchange profits. At N748.159 billion, the group’s FX gains in FY 2023 and Q1 2024 were the third biggest.
The bank is well-positioned to profit from changes in the foreign exchange market because to its broad worldwide activities and efficient currency management techniques.
Impressive FX gains were made in 2023; however, in 2024, they seem to have slowed down, having only reached 18% of the FY level from 2023. The Group’s profitability grew by double digits in Q1 2024 and Q2 2023, demonstrating its continued strength.
United Bank for Africa: N682.952 billion FX gains
The dramatic decrease in Q1 2024, reporting only N23.695 billion, underlines the volatility and unpredictability of FX markets and their major impact on the bank’s financial performance, even though UBA could not indicate whether the FX gains were realized or unrealized.
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 earlier gains were mostly unrealized, the steep decrease in UBA’s FX gains in Q1 2024 could be even more worrying because it indicates that the paper profits did not translate into actual cash flows and might potentially reverse.
However, profitability growth remains healthy. In Q1 2024, pre-tax profit grew by 155% YoY to N156.344 billion, though just 21% of 2023 pre-tax profit was N757.680 billion, up 277% YoY.
First City Monument Bank (FCMB): N116.443 billion FX Gains
For 2023 and Q1 2024, FCMB reported a total foreign exchange gain of N116.443 billion. The bank declared an FX gain of N86.307 billion in 2023, indicating a remarkable jump of more than 1,000% from the previous year. It reached about 30% of the 2023 amount by the end of Q1 2024, with an FX gain of N30.137 billion. The bank claims that these foreign exchange gains have been realized.
The N116.443 billion in realized foreign exchange gains that FCMB reported for 2023 and the first quarter of 2024 show solid financial performance that has a direct beneficial impact on cash flow, earnings stability, and investor confidence.
With 185% YoY growth in 2023 and 193% YoY growth in Q1 2024, its profitability growth has continued to astound. Other banks under review, including Fidelity Bank and Stanbic IBTC, reported FX gains of N71.143 billion and N24.569 billion, respectively.
While these FX 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.
As part of the Renewed Hope Agenda, the Federal Government has proposed amendments to the Finance Acts 2023 to introduce a one-time windfall tax on the foreign exchange gains realized by banks in their 2023 financial statements. This tax aims to fund capital infrastructure development, education, healthcare, and welfare initiatives.
While the one-time windfall tax could promote economic stability and social welfare, it will also reduce banks’ net profits, impacting their bottom lines and shareholders’ wealth.
Banks will need to adapt their strategies, manage costs, and ensure compliance to mitigate the financial impact and maintain investor confidence.
