Data compiled from the financials of Nigeria’s five biggest banks has revealed that the widening gap between naira and the dollar has helped Nigerian banks rake in N159 billion of additional profit in nine months.
The banks are: Access Bank Plc. Zenith Bank Plc., FBN Holdings Plc. (First Bank), United Bank for Africa Plc. (UBA), and Guaranty Trust Bank Plc. (GTBank).
The Naira was devalued on May 25, 2021 from N379/$1 to N410.25/$1 by the Central Bank of Nigeria. At the black market on Wednesday, traders said they exchanged Naira to dollar at N565.
Data from FMDQ securities showed Nigerian currency exchanged at N415.10/$1 at the last session before the holidays compared with N414.73/$1 it was traded at the preceding session.
For many businesses and individuals, the Naira’s fall has been a heavy burden on their operations and personal lives, but the FX devaluation of the Naira was broadly positive for some Nigerian banks.
According to Managing Director of FCMB, Yemisi Edun, banks’ profits would be boosted due to a weaker naira in 2021 as it did in the previous year when foreign currency earnings rose more than two-fold to 10 billion naira ($24.5 million) from 3.5 billion naira.
“The devaluation of the currency last year partly boosted FCMB’s interest income which rose 9.9 percent to 151 billion naira from “earnings in foreign currency that on translation increased interest income,” Edun said.
The amount made in 2021, is a 140 percent increase when compared to the N66 billion the banks made in the corresponding period of 2020.
Access Bank made the most gain as its foreign exchange revaluation income surged by 586.91 percent to N86.80 billion as at September 2021 from N12.63 billion as at September 2020.
United Bank for Africa (UBA)’s foreign exchange gains spiked by 78.83 percent to N35.55 billion in September 2021 from N19.88 billion as at September 2020.
Guaranty Trust Bank Plc. (GTBank) earned N14.8 billion compared to N12.1 billion made in 2020.First Bank’s foreign exchange income also rose to N5.9 billion compared to N624 million loss recorded in 2020.
Zenith Bank also recorded N15.4 billion but this was a drop when compared to N20.5 billion income made in 2020.
Explaining how banks made their money, Johnson Chukwu, CEO and managing director of Cowry Asset Management Limited said: “When you are holding assets in foreign currency rather than liability, you tend to make money during devaluation.”
However a weaker naira also increases Nigerian banks’ risk-weighted assets related to their foreign currency loans, putting negative pressure on their capital metrics, but the banks hold good capital buffers.
