Nigerian leading commercial banks have reported substantial foreign exchange (FX) revaluation gains estimated at around N1.7 trillion in the first half of 2023. This marks a significant increase compared to a combined gain of N66.559 billion in H1 2022. The surge in FX gains is attributed to the devaluation of the Naira, which reached N769.25/$ in June 2023.
Banks reporting impressive growth in FX revaluation gains include Access Holdings, FBNH, FCMB, Fidelity, GTCO, Stanbic IBTC, Sterling Bank, UBA, Unity Bank, Wema Bank, and Zenith Bank. The Central Bank is speculated to be a principal counterparty in the forex transactions contributing to these gains.
The Central Bank’s response to the magnitude of the forex profits was the release of a regulatory circular two weeks ago. The circular directed banks to set aside FX revaluation gains rather than using them for dividends or operational expenses.
While the regulatory directive is seen as a precautionary measure to safeguard the financial stability of banks, concerns are raised about the timing of such directives. Investors often factor in FX revaluation gains when assessing and valuing banks, and any deviation from prior expectations may lead to market reactions and impact stock prices.
Despite the gains in FX revaluation, there are warnings about the sustainability of profitability, especially considering the decline in net interest income after impairment charges. The CBN’s directive is viewed as a prudent measure, but the timing may influence investor reactions in the market. For example, Access Holdings recently experienced a decline in share price, possibly attributed to its dividend announcement deviating from prior expectations.
