Banks have recorded another round of extra-ordinary profits against the backdrop of foreign exchange revaluation gains arising from depreciation of the Naira.

The financial reports turned in to the regulators by leading banks indicated a profit before tax of N2.292 trillion just in the nine months of 2023.

About 63.6 per cent, amounting to N1.457 trillion of the profit came from foreign exchange related transactions.

The same banks made just N225.416 billion in the corresponding period of 2022, indicating forex profit growth rate of 546.5%.

Meanwhile, according to details of the financial reports of the nine banks released by the Nigerian Exchange Limited, NGX, the profit of N2.292trillion also shows a staggering increase of 156.4 per cent against N897.717billion recorded in the corresponding period of last year, 9M’22.

The nine banks which Financial Vanguard reviewed their results include FBN Holdings, Zenith Bank, GTBank Group, UBA, Access Bank, Stanbic IBTC, Wema Bank, Sterling Bank Holdings, Fidelity Bank and Jaiz Bank.

Other major banks yet to release their figures include, Ecobank Transnational Incorporation (ETI), Union Bank, Polaris Bank, FCMB, Citibank, Standard Chartered Bank, FSDH Merchant Bank, NOVA Merchant Bank, Heritage Bank, Keystone Bank, Providus Bank, and others.

While these banks have been seen by analysts as late filers, Ecobank had informed the Exchange in letter stating: “ETI, the parent company of the Ecobank Group, the leading pan-African banking group with banking operations in 34 countries, notifies the general public that it is currently undergoing an external audit of the 2023 Third Quarter Financial Results of Ecobank Group for the period ended September 30, 2023 (“the Audited Results”).

“The Board and Management of Ecobank Transnational Incorporated took the decision to undergo an audit of the 2023 Third Quarter Financial Results of the Ecobank Group.

”Consequently, the Audited Results will be published in compliance with the provisions of Rule 2.1.1 of the Rulebook of the Exchange; Rules for Filing of Accounts and Treatment of Default Filing (Default Filing Rules) which states that “Where an Issuer has a reasonable belief that it will not be able to file its accounts by the relevant due date, the Issuer may before the due date submit an application for an extension of time, supported by compelling reasons and evidence in support of its inability to file its accounts by the due date.”

The industry analysts believe that when results of the remaining banks are rolled out, combined profit would be in excess of N3.5 trillion.

Comparative profit performance

Details of the Tier -1 banks’ profit figures in the 9M’23 include: Zenith Bank which topped the chart with N505.0363 billion, followed by UBA’s N502.091billion, GTB with N433.203billion came third while Access Bank trailed with N294.416 billion and First Bank posted N270.333 billion.

The Tier-1 banks’ profits accounted for 87.5% of the combined 9 banks’ profitability for the period under review, while Tier-2 banks accounted for 12.5%.

Tier-2 banks with significantly higher profit during the period under review include: Stanbic IBTC which recorded N129.458 billion to top the chart followed by Fidelity Bank N110.992 billion, Wema Bank N22.117 billion, Sterling Bank N17.803 billion and Jaiz Bank N6.679 billion.

Banks’ gross earnings details

The Exchange rate revaluation gains also impacted the banks’ gross earnings in the 9M’23 with Access Bank’s Group taking the lead posting N1.593 trillion, followed by Zenith Bank N1.329 trillion.

UBA occupied the third position recording N1.308 gross earnings, followed by FBN Holdings N1.080 trillion and GTBank Groups posted N850.330 billion for the period under review.

The Tier-1 banks also accounted for the significant gross earnings recorded within the review period, representing 86.3% of the 9 banks’ combined earnings while Tier-2 banks accounted for 13.7%.

Meanwhile, it will be recalled that at the backdrop of the windfall the Central Bank of Nigeria, CBN in the send quarter of the year, had warned banks to isolate and save the forex revaluation gains as buffer against economic shocks.

Consequently, the CBN stopped the banks from using FX revaluation gains to pay dividends or meet operating expenses.

The CBN disclosed this in a letter to all banks titled, “Impact of recent FX policy reforms: Prudential guidance to the banking sector.”

The letter signed by the Director Banking Supervision Department, CBN, Mr. Haruna Mustafa, stated: “The CBN has reviewed the impact of the recent foreign exchange (FX) rate regime change on the banking system and observed its potential to significantly increase naira values of banks’ foreign currency (FCY) assets and liabilities, resulting in varying levels of FX revaluation gains or losses across the industry.”

Analysts/Experts react

Reacting to the performance of banks in the 9M’23, David Adonri, Analyst and Vice Executive Chairman at HIGHCAP Securities Limited, said: “Following the deregulation of foreign exchange market on May 29, 2023, banks revalued their hard currency portfolio upwards giving them income windfall. Cash scarcity that had taken its toll on banking transactions was eliminated by CBN from Q3 2023.

This enhanced banks’ income. Finally, the contractionary monetary policy to rein in inflation saw hike in interest rate which swelled banks’ income. Banks also managed their costs effectively to protect their Profit.”

On whether the bank would continue to make extra ordinary profit from the forex revaluation in Q4’23, Adonri said: “As long as market correction continues in the foreign exchange market, banks will cream off extraordinary FX gains. The tradeoff may not continuously be in their favour and detriment to the productive economy. The deficit suffered by importers and manufacturers may ultimately haunt the banks as several credits could become delinquent. Sustenance of forex gain in Q4 is possible but at diminishing rate since the economy will certainly adjust to the new price level in due course.”

In his own deposition, Tajudeen Olayinka, Analyst and CEO Wyoming Capital and Partners, said: “So long an enterprise is on the side of net dollar assets during a period of persistent currency depreciation, so long it will continue to rake in forex revaluation gains. This is what is responsible for the huge profits and gross earnings declared by those 9 banks listed on the NGX. Similarly, an enterprise with net dollar liabilities will continue to suffer forex revaluation loss.

On the impact of the revaluation or the assets, Olayinka said: “It will improve Naira funding capacities of the nine banks and heighten the default risk of loan customers. If not quickly addressed, it could become a major source of threat to financial system stability”

Continuing, he said: “As businesses with net dollar liabilities continue to reprice earning assets, in a way to remain profitable, the current inflationary pressure in the economy could drag on for too long. It could elevate the unemployment rate and drag more people to poverty territory.”

Reacting as well on the banks’ performance, Mallam Garba Kurfi, said: “The devaluation of naira and rising of Monetary Policy Rate, MPR to 18.5% pushed the banks’ interest rate charged on the loans already given to their customers. Also inflation has also been attributed to the higher gross income and profit before tax recorded by these banks.

“If the Government implement the Foreign Exchange loans of $7.0billion together with NNPÇ $3.0billion these will help to stabilise the Naira before end of the year and this issue of forex gains by banks would be drastically reduced if not eliminated.” (Vanguard)

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