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Big banks rake N21.6bn from foreign exchange trading in Q1 - BUSINESSDAY

MAY 21, 2019

 

Nigerian tier-one lenders collectively realized N21.6 billion as proceeds from foreign exchange trading in the first three months of 2019, data from the companies’ financials showed.

This represents 88 percent appreciation over N11.5 billion earned in the previous comparable period, with Nigeria’s top lender by assets, Access Bank, accounting for nearly three-tenth of the proceeds in the review quarter.

Access Bank realized N6.2 billion from foreign exchange trading in the first quarter of the year; a strong rebound over N6.8 billion losses a year prior, trailed by United Bank for Africa with N6.1 billion, Zenith Bank (N3.3bn), GTB (N3bn) and First Bank (N2bn).

According to Olayinka Olohunlana, a Lagos-based financial analyst, the 88 percent significant growth in big banks’ proceeds from foreign exchange trading is largely attributable to the relative exchange rate stability witnessed in the economy so far.

“The rate of the naira to dollar has been moderately stable since the year started on various market windows, hovering around N360 per dollar, and even demonstrated resilience during the general election period.” Olohunlana said.

Speaking further, “The stability of the naira against the vehicle currency, the dollar, is a critical macro-index taken into cognizance by foreign investors before making investment decision. When the rate is stable, investors’ confidence heightens, uncertainties wane and foreign exchange trading booms.”

Of the five banks, only Access Bank recorded substantial improvement in proceeds from foreign exchange transactions. First Bank saw its foreign exchange gains dip some 37 percent from N4.6 billion in similar period of 2018. That of GTB, UBA and Zenith shed 15 percent, 9 percent and 4 percent respectively from N3.5 billion, N6.7 billion and N3.5 billion a year earlier.

Analysis of the cumulative first-quarter foreign exchange trading income of tier-one lenders revealed they realized N32.5 billion in 2015. This figure plunged 73 percent to N8.8 billion in 2016 as the economy was heading towards its first economic downturn in 25 years due to sharp decline in oil prices which incited pressure on foreign exchange.

With the inclusion of seven mid-tier lenders – Fidelity Bank (N2.25bn), Union (N344m), FCMB (N98mn), Stanbic (N587mn), Wema Bank (N15.5m) and Sterling (-N28mn), the twelve lenders jointly realized N25.2 billion from foreign exchange trading, with the tier-one lenders accounting for 61 percent.

Incorporating EcoBank’s N28.7 billion proceeds into the analysis, the cumulative gains from foreign exchange trading in first quarter of 2019 accelerates to N53.9 billion, implying that the Pan-African lender has 53 percent share in the total figure.

However, this is unsurprising given the fact the lender has presence in 40 African nations, transacting businesses in various countries’ currencies.

Foreign exchange trading income/losses occurs when banks offer services in a foreign currency.

The value of the foreign currency, when converted to the domestic currency of the local banks, varies depending on the prevailing exchange rate.  If the value of the domestic currency increases after conversion, it signifies foreign exchange gain or income, and vice-versa.

 

Israel Odubola

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