FOREX GAINS: BANK EARNINGS SOAR TO N2.3 TRILLION, UP 156%.

The gains from the Naira's fall in FX, banks have reported yet another round of extraordinary profits.

Leading banks submitted financial filings which showed a N2.292 trillion profit before taxes for just the first nine months of 2023.

Approximately 63.6% of the profit, or N1.457 trillion, was derived from transactions using foreign currencies.

In 2022, the same banks earned a mere N225.416 billion during the same period, suggesting a 546.5% currency profits.

Meanwhile, the profit of N2.292 trillion of 156.4 percent against N897.717 billion reported, according to details of the financial reports of the nine banks provided by the Nigerian Exchange Limited, or NGX.

FBN Holdings, Zenith Bank, GTBank Group, UBA, Access Bank, Stanbic IBTC, Wema Bank, Sterling Bank Holdings, Fidelity Bank, and Jaiz Bank are the nine banks

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 are yet to reveal their number.

Analysts have perceived them as late filers, but Ecobank sent a letter that it was undergoing an external audit of its 2023 Third Quarter Financial Results for the period ending September 30, 2023 (“the Audited Results”). ETI, the parent company of the Ecobank Group, the leading pan-African banking group with banking operations in 34 countries, said that in the letter.

The Ecobank Group's third-quarter financial results for 2023 were decided to be audited by the management of Ecobank Transnational Incorporated.

“Where an Issuer belief that it will not be able to file 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,” according to Rule 2.1.1 of the Rulebook of the Exchange: Rules for Filing of Accounts and Treatment of Default Filing (Default Filing Rules). As a result, the Audited Results will be published in compliance with these rules, that the total profit after the remaining banks' findings are released will exceed N3.5 trillion.

COMPARATIVE PROFITABILITY FIGURES

The following are specifics of the Tier-1 banks' 9M'23 profit figures: Top of the list was Zenith Bank with N505.0363 billion, then UBA with N502.091 billion, GTB in third place with N433.203 billion, Access Bank in fourth place with N294.416 billion, and First Bank with N270.333 billion.

For the period, the nine banks were made up of 87.5% earnings from Tier-1 banks and 12.5% from Tier-2 banks. Stanbic IBTC, which topped the chart with N129.458 billion, was followed by Fidelity Bank with N110.992 billion, Wema Bank with N22.117 billion, Sterling Bank with N17.803 billion, and Jaiz Bank with N6.679 billion. These Tier-2 banks had much larger profits during the period.

DETAILS OF BANKS' GROSS EARNINGS

Gains form an impact on the banks' 9M'23 gross earnings; Access Bank's Group led the pack with N1.593 trillion, followed by Zenith Bank with N1.329 trillion.

With N1.308 billion in gross earnings for the period under review, UBA came in third place, ahead of FBN Holdings with N1.080 trillion and GTBank Groups with N850.330 billion. Significant gross earnings during the review period were also accounted for by Tier-1 banks, which accounted for 86.3% of the total earnings of the nine banks, while Tier-2 banks accounted for 13.7%.

Recall that the Central Bank of Nigeria, or CBN, in the second quarter of the year to isolate and preserve the FX revaluation safety net against economic shocks in light of the windfall.

As a result, the CBN prohibited the banks from using their gains from the FX revaluation to cover their operational costs or dividend payments.

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

“The CBN has reviewed the impact of the recent change on the banking system potential naira values of banks' foreign currency, resulting in varying levels of FX revaluation gains or losses across the industry,” read the letter, which was signed by Mr. Haruna Mustafa, Director, Banking Supervision Department, CBN.

EXPERTS AND ANALYSTS RESPOND

In response to bank performance in the 9M'23, “Banks revalued their hard currency portfolio upwards giving them income windfall following the deregulation of FX market on May 29, 2023,” stated David Adonri, Analyst and Vice Executive Chairman of HIGHCAP Securities Limited. Beginning in Q3 2023, that had negatively impacted banking transactions.

This increased bank revenue. Ultimately, an increase in interest rates brought by the aimed at containing inflation increased bank profits.

“As correction continues in the FX market, banks will cream gains,” Adonri responded when asked if the bank would continue to profits from the currency revaluation in Q4'23. They might not always benefit from the trade-off at the productive economy. The shortfall experienced by importers and manufacturers could finally come back to haunt the banks because a number of credits can become past due. Maintaining a forex gain in Q4 economy will eventually react to the new price level. The Naira will stabilize before the year ends if the Government implements the $7.0 billion in FX loans along with NNP¯ $3.0 billion, and forex gains by banks would be drastically reduced or no gain at all.