Business
Forex revaluation loss worsens Unity Bank’s woes
BY EMEKA EJERE
Unlike in the case of some other financial institutions, the recent foreign exchange revaluation necessitated by the floatation of the naira has pushed Unity Bank Plc further south into the loss region, jeopardising the recovery efforts of the struggling agriculture-focused lender.
On June 14, 2023, the Central Bank of Nigeria (CBN), directed Deposit Money Banks to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market to enable its free float against the dollar and other global currencies.
It said, “The Central Bank of Nigeria wishes to inform all authorised dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange Market: Abolishment of segmentation. All segments are now collapsed into the Investors and Exporters window.” This led to an immediate decline in the value of the naira by about 40 percent.
While the development sparked a boom that saw the five top-tier Nigerian banks, known as FUGAZ, raking in about N1.38tn from forex revaluation gains between June and July, Unity Bank’s foreign exchange revaluation recorded a loss of N35.4 billion, according to the bank’s financials, compared to N16.2 million a year earlier.
The AMCON- backed lender reported a net loss of N38.9 billion for the first six months of the year in contrast to a net profit of N1.7 billion recorded a year ago, its newly issued financial report has shown.
The financial scorecard showed N8.9 billion in long-term loans from the African Export-Import Bank after conversion from the U.S dollar.
“In the light of the prevailing FX revaluation in the financial system, what we have is a market-driven impact, which is adjustable envisaged from the positive economic outcomes of the government policies in the near term,” CEO Tomi Somefun said in a separate statement.
“The negative shareholders’ fund has improved considerably through the injection of N135 billion, which moderated the negative shareholders’ fund from (-ve) N275 billion in December 2022 financial year-end to (-ve) N178 billion as at the end of June 2023, after absorbing the FX revaluation loss suffered in Q2/2023,” she added.
The retail lender drew N135.2 billion in the form of convertible debentures from its other reserves to pare down the negative balance of its shareholders’ fund by 35 per cent.
Revenue for the period saw a flattish growth as gross earnings climbed to N27.8 billion from N27.6 billion. Net interest income, a key profitability metric, fell 23 per cent to N7.9 billion, strained by a weaker interest income and an increased interest expense.
Adding pressure to the bottom line, operating expenses leapt 16 per cent to N15.3 billion driven by a significant jump in personnel expenses. According to the balance sheet, its total liabilities of N688.8 billion exceeded its total assets by 35.1 per cent.
Mrs Somefun, however, hinted at plans by the bank to complete its recapitalisation programme soon, saying it will enable the financial institution to “do business as expected in the fast-growing markets in Nigeria.”
However, analysis of the financial statements of First Bank, UBA, Zenith, Access, and GTB for the first half of 2023 showed that the five lenders reported a combined N1.38tn from forex revaluation gains. This showed an increase from about N63.86bn reported over the same period in 2022.
FBN Holdings as a group reported a foreign exchange loss of N98.4bn, compared to a gain of N16.51bn. However, as a company, there was a gain of N301m up from N2m loss.
UBA reported a foreign exchange gain of N418.3bn in H1 2023, up from N9.15bn in the same period of last year. Zenith Bank also declared a FX revaluation gain of N355.59bn from N6.25bn loss in June 2022.
The total net foreign exchange gains of Access Holdings Plc rose by 362 per cent to N244bn in the first half of 2023 from N52.84bn recorded in the same period of 2022. GTCO’s foreign exchange gain rose to N357.5bn from N1.87bn.
Analysts have not forgotten a claim at a time by an online news medium that the CBN was planning to nationalise Unity Bank Plc and the apex bank’s swift denial of same.
The report had claimed that the banking sector regulator’s target examination of Unity Bank showed that the foremost agriculture lender was in, ”grave financial condition”, with Capital Adequacy Ratio (CAR) and Non- Performing Loans (NPL) ratio that breached prudential standards.
However, this did not fall in line with the position of the CBN’s Monetary Policy Committee ( MPC), which noted in the communiqué issued shortly after that the banking industry was in good health
Surviving the storm
Unity Bank is the only bank with northern ownership that survived the consolidation programme implemented by former CBN governor Prof. Charles Soludo in 2006.
Again, experts suggest that the bank was spared in 2010 because of northern sentiment when former CBN governor, Sanusi Lamido Sanusi, carried out a reform that consumed five other banks.
One of the legacy banks that merged as Unity Bank was Bank of the North, a financial icon established by the late northern region premier, Sir Ahmadu Bello and owned by the 19 northern states.
The bank was grasping for breath until a management team led by Henry Semenitari, turned around its fortunes from doldrums. The efforts of Mr. Semeniteri, who became GMD on January 9, 2014 started yielding results that reflected in the bank’s third quarter results at the time, which showed a 900 per cent growth in profit. It consequently declared profit after tax of N10.692billion in its audited results for 2014.
The results had marked the bank’s return to profitability after declaring a loss after tax of N22.582bn in the previous year 2013. The lender made a profit before tax of N13.639bn, compared to a loss before tax of N33.639bn for the year ended December 31, 2013.