Market News
Half-year Scorecard: Naira devaluation enables N2.3 trillion jackpot for top Nigerian banks - PREMIUM TIMES
FUGAZ, Nigeria’s five biggest lenders so named after their initials, reaped N1.3 trillion in foreign exchange revaluation gains from their Nigerian operations.
Ronald Adamolekun
Africa’s largest economy, beset by an 18-year high inflation rate and the naira at its lowest level ever against the dollar, now confronts a crisis of growth across key industries where banking, unlike most others, is virtually taking a smooth ride through the storm.
The Central Bank of Nigeria (CBN) has raised rates without break since last May, cumulatively by 7.25 per cent, one big spur for massive profitmaking by many banks last year, a major factor for even stronger performance at half-year 2022 (HY2022).
As lenders turn the central bank’s move against inflation into their own advantage by charging borrowers more, Nigeria’s decision to weaken the naira by about 40 per cent is creating perhaps a much bigger boom for banks.
The devaluation in the second quarter of the year let the exchange rate of the dollar to the naira slide from 471.8 to 760.3 within the three weeks to the end of June. In turn, banks with loans and financial instruments denominated in foreign currencies reported a surge in the value of such assets on conversion to naira.
FUGAZ, Nigeria’s five biggest lenders so named after their initials, alone reaped N1.3 trillion in foreign exchange revaluation gains from their Nigerian operations alone, going by their HY2022 earnings reports. The figure was more than 17 times greater than the N74.1 billion reported a year prior. That all five (First, UBA, Guarantee, Access and Zenith) hold international banking licenses has made them the real heirs of the largesse compared to their peers.
Operations at the banks’ subsidiaries outside Nigeria added a trillion naira in foreign currency (FC) translation gains as the icing on the cake, taking the overall foreign exchange gain to N2.3 trillion by PREMIUM TIMES estimate.
That is not to mention similar gains reported by other banks listed on the Nigerian Exchange and some other lenders that are not publicly listed.
Interestingly, no single bank of the five recorded FC translation gain in the same period of last year before the boom happened, all reporting a combined loss of N146.2 billion, reflecting the sheer scale of the exchange gains recorded by Nigeria’s biggest lenders in just six months.
By the advantage of its expansive African presence in 19 markets (excluding Nigeria) on the continent in addition to the UK, US, UAE and France, United Bank for Africa (UBA) took the fattest slice from the bloom, raking in N701.2 billion (N418.3 billion and N282.9 billion from FX revaluation and FC translation gains respectively).
It cotrasts to 12 months earlier when the pan-African banking behemoth incurred N26.4 billion as loss.
As monetary policy clears the path for lenders to turn the prolonged hawkish stance and the naira devaluation into their advantage, it has heightened the pang for borrowers and, by twist, triggered a boomerang for those banks who are now seeing a steady spike in impairment charges from loan default.
Continuous rate raising automatically translates to higher cost of borrowing which, in pressuring borrowers’ income, often renders many incapable of meeting their credit obligations.
Impairment charges weighed most on Zenith, which was forced to put aside as much as N207.9 billion or 21.5 per cent of its revenue to cover potential loss from problematic assets.
Yet, the drawback is not in any way new; the new figure pointing to the hard time Nigeria’s second-largest lender is facing in keeping its deteriorating assets low having posted just about the same figure in impairment charges in the corresponding period of 2022.
Guaranty Trust Holding Company (GTCO), worst-hit by poor loan quality in percentage times, saw its impairment charge balloon almost 24 times.
Impairment charges for the Big 5, within the one year to 30 June, had soared by 88.6 per cent.
