Winners and losers from naira devaluation

The liberalisation of the foreign exchange regime in Nigeria which led to large devaluation of the naira has had positive and negative impacts on the financial performance of companies in 2023.

The biggest blow was felt by companies that have dollar-denominated loans in their capital structure, while those that have significant dollar reserves saw a boost in their earnings.

Banks top the list of companies that benefitted from the naira devaluation, with some of them recording huge foreign exchange revaluation gains that drove up their profits.

However, some companies, especially fast-moving consumer goods (FMCG) businesses, which rely heavily on imported goods and services to support their production processes, have been badly affected.

“Various firms that rely on imported raw materials had more exposure to foreign exchange, leading to a spike in foreign exchange loss,” Mustapha Umaru, an equity research analyst at CSL Stockbrokers Limited, said.

The Central Bank of Nigeria in June merged all segments of the FX market into the Investors and Exporters window, and reintroduced the willing buyer, willing seller model.

The naira has continued to depreciate against the dollar and other major foreign currencies since then.

The official exchange rate fell from N463.38/$ to N889.86/$ as of December 15. At the parallel market, the naira depreciated to 1,186/$ from 762/$.

Tajudeen Ibrahim, director of research and strategy of ChapelHill Denham, said the banks with foreign exchange gains most likely had net foreign currency assets while the banks with FX losses had net foreign currency liabilities more than foreign currency assets, resulting in devaluation loss.

High inflationary pressures have shrunk business activity four times so far this year.

Data from the latest monthly Purchasing Managers’ Index (PMI) by Stanbic IBTC Bank show that the headline index dropped to the lowest in eight months of 48.0 in November 2023 from 49.1 in the previous month, marking the second straight month of contraction.

“Companies in Nigeria continued to be negatively impacted by strong inflationary pressures in November, with new orders and output both falling as customers were either reluctant or unable to pay higher charges,” the PMI report said.

Banks

Seven banks recorded a cumulative FX gain of N1.2 trillion in the first nine months, up from N145.9 billion in the same period of 2022.

United Bank of Africa recorded the highest FX gain of N450.3 billion, up from N38.4 billion. Its profit after tax surged to N449.3 billion from N116.04 billion.

Zenith Bank recorded N378.1 billion as FX gain in the period under review, up from N11.1 billion. Its profit after tax rose to N434.2 billion from N174.3 billion.

Guaranty Trust Holding Company recorded N334.4 billion as FX gain, compared to a loss of N7.39 billion a year earlier. Its profit after tax jumped to N367.4 billion from N130.4 billion.

FCMB Group recorded N54.8 billion as FX gain, up from N1.35 billion. Its profit after tax increased to N49.2 billion from N22.9 billion.

Access Holdings recorded N50.7 billion as FX gain in the period under review, down from N96.9 billion. Its profit after tax rose to N115 billion from N48.26 billion.

Fidelity Bank recorded N25.0 billion as FX gain, up from N2.36 billion. Its profit after tax fell to N29.8 billion from N11.7 billion.

Wema Bank recorded N3.95 billion as FX gain as against N0.98 billion a year earlier. Its profit after tax increased to N19.24 billion from N8.18 billion.

Food producers

Six FMCG firms recorded a cumulative FX loss of N269.5 billion in the first nine months of this year, compared to N13.6 billion in the same period of last year.

Nestle recorded the highest exchange loss of N127.5 billion, compared to a gain of N1.96 billion. It recorded a loss after tax of N43.1 billion as against a profit of N40.2 billion.