Analysis: How Much GTB Made From Devaluation


Nairametrics| For a lot of Nigerians, the devaluation of the Naira in 2016 was painful, especially when you consider the negative impact it had on their purchasing power and disposable income. The situation was even worse for companies in the manufacturing, consumer goods, and aviation sectors. Most have recorded losses or at best, seen profits drop in double figures.

Whilst the devaluation and the ensuing failed forex polices of the CBN wreaked havoc across the economy, the banking sector reaped the benefits. The weaker the Naira got, the more money some banks made. GTB is a classic example.

The bank reported a record N132 billion profit after tax for the year ended December 2016. However, included in that profit is a massive exchange gain of N87.8 billion up 17 folds from the N5.1 billion reported a year earlier (see below).

Excerpt of GTB’s Notes to the account detailing its foreign exchange gain.

It doesn’t come as a surprise to us as the rise in gain was reported in the company’s 9 months’ interim report analysed and published in Nairametrics.

This is also not the first time, GTB is reaping heavily from the benefits of devaluation. In 2014, when the CBN devalued the naira, the bank saw its foreign exchange gain rise 2.6 folds to N28.2 billion. But this is still nowhere close to the N87 billion earned in 2016.

For most Nigerian banks, the devaluation of the Naira has been a blessing in disguise. Whilst banks incur increased provisioning on bad loans, the risk is mitigated by even higher gains in exchange rate gains. Therefore, despite the record N65.2 billion in loan impairments in 2016, the exchange rate gain of N87 billion has more than provided a buffer.

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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