In 2023, eleven Nigerian banks incurred a total of N575.168 billion in taxes, marking a significant 175% increase compared to the N209.608 billion incurred in 2022.
Out of this total, N440.305 billion was specifically for that taxable year, 2023. This dramatic rise in tax expenses can be attributed to a substantial increase in pre-tax profits recorded by these banks.
The banks collectively made N3.722 trillion in pre-tax profits, driven by a rise in net interest income, non-interest income, and foreign exchange revaluation gains.
This pre-tax profit figure represents an impressive 197% increase from the N1.255 trillion reported in 2022.
These banks are Access Holdings, FBNH, FCMB, Fidelity, GTCO, Jaiz Bank, Stanbic IBTC, Sterling Bank, UBA, Wema Bank and Zenith Bank.
Considering the Nigerian government’s recent plan to implement a 50% tax on the profits realized from foreign exchange revaluation in 2023, aimed at funding an increase in workers’ minimum wage, these banks’ tax burdens are expected to rise further.
This new tax policy could impact their profitability and capital adequacy, especially if the banks had planned to use these foreign exchange gains as a counter-cyclical buffer against currency fluctuations, as directed by the Central Bank of Nigeria.
In 2023, the banks reported a combined post-tax profit of N3.156 trillion, which is a substantial 201% increase from the N1,048 trillion recorded in 2022.
Below is a review of the income taxes incurred by the banks:
United Bank for Africa – N149.984 billion Income tax
United Bank for Africa (UBA) incurred a substantial income tax expense of N149.984 billion in 2023, the highest among its peers.
This tax expense was drawn from its pre-tax profit of N757.680 billion. The 2023 tax expense represents an approximate 390% year-on-year increase compared to the N30.599 billion recorded in 2022. For the current year, UBA reported a tax of N102.556 billion.
In 2023, UBA achieved significant gains from foreign exchange valuation, fair value revaluation, and other related items, totaling N659.257 billion.
With substantial gains from foreign exchange valuation, UBA’s financial performance was notably enhanced. However, these gains might attract additional taxation if the proposed 50% windfall tax on foreign exchange gains is implemented, which will reduce its profitability.
Zenith Bank – N119.053 billion income tax
Zenith Bank, the most profitable bank in 2023, incurred a tax expense of N119.053 billion; N77.908 billion for the current year and deferred tax liabilities of N41.145 billion from its pre-tax profit of N795.962 billion, resulting in a profit after tax of N676.909 billion, the highest among the banks.
If the Nigerian government implements the proposed 50% tax on the profits realized from foreign exchange revaluation in 2023, it will significantly impact Zenith Bank’s profit after tax.
According to the notes to the 2023 financial statements, the bank recorded N228.982 billion in foreign currency revaluation gains from the net gain on the revaluation of foreign currency-denominated assets and liabilities, though it did not specify whether these gains were realized.
Access Holdings – N109.677 billion Tax
Access Holdings reported a pre-tax profit of N729.001 billion in 2023 and incurred a tax burden of N109.677 billion, marking a 642% year-on-year increase. Consequently, profit after tax stood at N619.324 billion.
Although the group’s net interest income was impressive at N695.360 billion, its substantial foreign exchange-related gains also contributed significantly to the bottom line.
Access Holdings reported substantial foreign exchange-related gains of N628 billion in 2023. These significant gains have enhanced overall profitability but also exposed the bank to potential tax liabilities, which would increase with the proposed 50% tax on realized foreign exchange gains.
This could substantially reduce net profits, depending on the proportion of realized gains within the N628 billion. Disclosing and understanding the exact breakdown of the realized portion is crucial for assessing the full impact of the proposed tax.
The bank indicated in its notes to the 2023 financial statements that net realized/unrealized FX gains/(losses) not hedged amounted to N17.254 billion.
GTCO– N69.654 billion in Income Tax Expense
GTCO incurred an income tax expense of N69.654 billion in 2023, with N73.894 billion for the current year and deferred tax assets of N4.243 billion.
This means the group paid N73.894 billion from its pre-tax profit of N609.308 billion for 2023, driven by impressive performance in net interest income, non-interest income, and substantial growth in foreign exchange revaluation gains.
The bank recorded a significant foreign exchange gain, with about N442 billion unrealized according to the group’s 2023 financial report.
The unrealized foreign exchange gains suggest potential future tax liabilities once these gains are realized. Coupled with increasing foreign exchange gains, especially with Q1 2024 gains of N499.380 billion, and the proposed 50% tax on realized foreign exchange gains, GTCO’s tax burden is likely to rise, which will impact its profitability.
FBNH – N48.393 billion Income Tax Expense:
First Bank of Nigeria Holding Plc incurred an income tax expense of N48.393 billion in 2023 from a pre-tax profit of N351 billion, the lowest among the other tier-1 banks.
The relatively lower growth in net foreign exchange-related gains might have contributed to this. According to the bank’s 2023 annual report, it reported an unrealized revaluation loss on foreign currency balances of N341.558 billion in 2023.
The unrealized losses on foreign currency balances highlight potential risks and volatility in foreign exchange exposure, which can affect future tax liabilities and profitability.
Given the reported unrealized losses, the immediate impact may be minimal unless future periods see a reversal or realization of these gains. If the bank begins to realize foreign exchange gains, the proposed 50% tax would significantly increase its tax expenses, potentially reducing net profits..
Other banks recorded substantial income tax expense:
- Stanbic IBTC – N32.250 billion
- Fidelity Bank – N24.806
- FCMB – N11.414 billion
- Wema Bank – N7.675 billion
- Sterling Bank – N2.065 billion
- Jaiz Bank – N167 million
These figures highlight the significant tax liabilities incurred by Nigerian banks based on the rise in in pre-tax profit, driven in part by foreign exchange-related gains.
The proposed 50% tax on realized foreign exchange gains presents a potential challenge, potentially impacting their profitability, financial health, return on shareholders and investor sentiment. The banking sector index lost 0.77% last week.
It is crucial for these banks to carefully manage their foreign exchange exposure and tax planning to mitigate the impact on their overall financial performance.
