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Published On: Mon, May 8th, 2017

Analysts doubt bumper bank forex gains in 2017

 

…as oil prices tumble

FELIX OLOYEDE

Commercial banks had a field day making bumper profits from foreign exchange revaluation accounts in 201,6 a feat many analysts say is not repeatable in 2017, as many banks have already used the revaluation of their stock of foreign currencies to cushion previous pressure on their balance sheets. Indeed, total forex trading and revaluation gain from 15 of Nigeria’s deposit money banks came to a staggering N402 billion or 68.34 per cent of the size of their collective profits before tax.

The 15 banks made a total of N588.8 billion profit before tax (PBT) last year compared to N531.4 billion they declared in 2015.

The 2016 financial results of most commercial lenders showed huge foreign exchange gains, which was instrumental to the better-than-expected profits declared, despite a tough operating environment.

But there are concerns among several bank analysts that the foreign exchange gains banks were one off bonuses as the naira is not likely to depreciate as much this year as it did in 2016.

Dr Austin Nweze, an Economics lecturer with the Lagos Business School (LBS) OF THE Pan Atlantic University, told Business Hallmark that with the intervention of the Central Bank (CBN) in the forex market, banks may not be able to post the huge profit they declared in 2016 at the end of the current year.

“If the CBN succeeds in blocking the holes banks explore to make huge money from forex, they won’t be able to post the kind of profits they posted last year,” he said.

Business Hallmark’s review of the 2016 full year financial statement of 15 banks showed that in total they raked a whooping N402.4 billion from foreign exchange trading and revaluation items on their respective balance sheets last year, which was 220.26 percent higher than the N182.7 billion they realized in 2015.

The naira was devalued from N197 per dollar to N255/$ in June 2016 when the CBN decided to embar on a managed float of the naira due to acute dollar scarcity resulting from falling international crude oil prices and a sharp drop in domestic production as a result of bombing activities of militants in the oil-rich Niger-Delta region.

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Ecobank Transnational Incorporated (ETI), made the greatest gain from the devaluation of the naira as it earned N92.7 billion from forex trading and revaluation gains in 2016 compared to N61.1 billion in 2015, indicating a 51.72 percent rise over the period.

But its decision to write off N221.7 billion of non-performing loans (NPLs) eroded its forex gains as the bank posted a N52.6 billion loss in the year.

GT Bank was equally a grateful beneficiary of currency revaluation in 2016 as it made a massive N87.3 billion from forex revaluation gains alone, up by 1,580 percent from N5.2 billion in the previous year.

This brought the bank’s income from forex activities to N91.1 billion last year, which was 44.81 percent of the N132.3 billion profit before tax GTBank posted in 2016.

The colossal gain the bank recorded from forex revaluation was due to their forex reserve which was better than that of other lenders in the business.

Zenith Bank also profited majorly from foreign exchange revaluation in 2016. Of the N156.7 billion profit before tax it recorded in the year under review, the N45.7 billion Zenith realized from forex trading and revaluation gains was 29.13 percent of the N156.7 billion of its PBT in 2016, compared to 0.54 percent it contributed the bank’s N125.6 billion PBT in 2015.

Access Bank and Stanbic IBTC were some of the few lenders that did not profit from forex revaluation.

Access Bank actually recorded a forex revaluation loss of N5.2 billion in 2016, although it was 49.5 percent better than the N10.4 billion forex revaluation loss it posted in the previous year.

In spite of this, the bank grew its profit before tax by 20.39 percent to N90.3 billion in 2016.

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Stanbic IBTC net forex trading income was N6.2 billion in 2016, 13.96 percent lower than the N7.2 billion it recorded in 2015. However, the bank’s PBT was up 57.33 percent to N37.2 billion during this period.

Mr Emma Nwosu, former managing director of defunct ACB International Limited told the devaluation of the naira did not actually benefited banks in all sense, saying those of that had foreign currency denominated debts had to cough out more naira to upset  their debts.

“It is a matter of business strategy. Devaluation is not a profitable to banks as we think, because some of them have foreign exposures and devaluation has put them in much trouble as it put like other users of forex. What happened in a challenged situation is that every institution would look for a way to curtail any incursion on any area of their businesses.”

He projected that banks this year would device measures to manage their loan losses and cut down operating costs in order to sustain their profits, since they may not make as much gain from foreign revaluation this year as they did in 2016.

Professor Leo Ukpong, dean, School of Business, University of Uyo stressed that the forex revaluation gains banks made in 2016 would have reversed with the aggressive forex policy of the apex bank, which has strengthened the naira.

“Whatever they gained then, they must have lost by now,” he noted.

The dollar was sold for N305.70 on the FMDQ OTC Securities Exchange, but was exchanged N382.19/$ on newly introduced Investors’ and Exporters’ window onFriday and N391/$ at the parallel market.

Banks forex trading and revaluation gains  2015vs2016

Source: Business Hallmark

 

Banks’ Profit before tax 2015vs2016

Source: Business Hallmark

 

Source: Business Hallmark

 

 

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