Nigeria’s leading commercial banks recorded significant forex revaluation gains, estimated at a combined total of N3.37 trillion in 2023 and Q1 2024.
This is as the Tinubu administration concludes up plans to impose a massive windfall tax on the realized portion of forex revaluation gains of Nigerian banks.
The data is according to research conducted by Nairalytics (research arm of Nairametrics). The data is collated from the 2023 full year and first quarter 2024 financial statements released by the banks.
According to Nairalytics research, commercial banks earned as much as N2.4 trillion in 2023 and other N883 billion in the first quarter of 2024.
The banks include Access Holdings, FCMB, Fidelity, GTCO, Stanbic IBTC, UBA, and Zenith Bank. The list excludes banks that are not quoted on the NGX.
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 big from forex gains
The forex gains earned by commercial banks are a result of the massive devaluation of the naira, which occurred when the central bank unified the exchange rate markets.
The forex unification meant Nigerian banks with significant forex assets registered massive profits on paper, leading to some of the largest profits ever declared by the financial services sector. In addition to banks, the oil and gas sectors and businesses with significant dollar earnings also gained massively from the forex devaluation.
But in contrast, manufacturing companies and other major sub-sectors of the economy faced severe challenges. The cost of imported raw materials and equipment surged due to the weaker naira, squeezing profit margins and escalating production costs.
Many companies struggled to maintain their operations, leading to reduced output, layoffs, and in some cases, closure of businesses unable to cope with the new financial realities.
The major impact of the losses will be felt in their external loans, which upon forex depreciation forced them to incur significant forex losses. Though most of these losses were unrealized initially, they will eventually be realized, putting further strain on their financial stability.
Consumers, too, felt the impact as prices of goods and services soared, reducing purchasing power and increasing the cost of living.
The devaluation, while beneficial for some sectors, suggest a deeper economic divide and highlighted the vulnerabilities of an economy heavily reliant on imports for its manufacturing and consumption needs.
Banks and their revaluation gains
First City Monument Bank (FCMB) – N116.443 billion Forex Gains
FCMB reported a cumulative forex gain of N116.443 billion for 2023 and Q1 2024.
- In 2023, the bank reported a forex gain of N86.307 billion, representing an impressive year-over-year growth of over 1,000%.
- By the end of Q1 2024, it had achieved approximately 30% of the 2023 figure, with a forex gain of N30.137 billion.
- FCMB’s reported realized forex gains of N116.443 billion for 2023 and Q1 2024 indicate strong financial performance with immediate positive impacts on cash flow, earnings stability, and investor confidence.
- Its profitability growth has continued to impress, showing 185% year-over-year growth in 2023 and 193% year-over-year growth in Q1 2024.
United Bank for Africa – N682.952 billion 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
- The Q1 2024 figure is a stark contrast to the substantial N659.257 billion reported in 2023, which represents an impressive 814% year-over-year growth compared to the N72.150 billion recorded in 2022.
- The sharp decline in UBA’s forex gains in Q1 2024 could be more concerning if the prior gains were largely unrealized, as it suggests that the previous paper gains did not convert to actual cash flows and could be subject to reversal.
- However, profitability growth remains healthy. In Q1 2024, pre-tax profit grew by 155% year-over-year to N156.344 billion, though just 21% of 2023 pre-tax profit of 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.
- The bank reported forex gains of N638.982 billion in its 2023 financial statements and an additional N189.693 billion in Q1 2024.
- While the bank attributed its earnings and profitability growth to significant increases in interest and non-interest income, the results also reflect substantial contributions from forex gains, though the bank did not classify if the forex gains were realized or unrealized.
- In 2023, Zenith Bank recorded a pre-tax profit of N795.962 billion, the highest among Nigerian banks.
- This strong performance continued into Q1 2024, with a 270% year-over-year growth in pre-tax profit, reaching N320.194 billion.
- The bank did not separate the realized from unrealized forex gains.
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.
- This significant gain greatly contributed to the bank’s profitability during these periods.
- In 2023, GTCO reported a forex gain of N345.070 billion, which played a crucial role in the 184% year-over-year growth in pre-tax profit, reaching N609.308 billion.
- This positive trend continued in Q1 2024, with an additional forex gain of N499.380 billion, representing about 144.72% of the full-year 2023 forex gains.The forex gains led to a substantial pre-tax profit of N509.349 billion.
- According to the bank’s financial notes, the forex gain for 2023 is unrealized.
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.
Windfall Taxes
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.