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Union, UBA, Access post higher forex gains amid weak naira

Union Bank of Nigeria Plc, United Bank for Africa Plc (UBA) and Access Bank Plc saw their foreign exchange gains rise to N140.1 billion in the nine months ended September 2022, up 19 percent from N117.6 billion in the same period of 2021.

A BusinessDay analysis of the foreign exchange income data of 10 banks show that six of them recorded a year-on-year drop in foreign exchange income in the period under review while one posted a loss.

Union Bank’s foreign exchange income rose to N4.8 billion as of September, indicating a 41 percent increase from N3.4 billion in the corresponding period of last year.

UBA’s foreign exchange income increased by 40.6 percent to N38.4 billion from N27.3 billion.

Access Bank recorded a foreign exchange income of N96.9 billion, up 11.6 percent from N86.8 billion in the same period of 2021.

“Naira devaluation serves as a tailwind to banks as commercial banks tend to gain from trading FX to their customers. Considering the significant gap between the official rate and the parallel market, individuals will resolve to buy dollars from banks, therefore, leading to the banks benefiting and recording higher gains on FX trading,” Tesleemah Lateef, a banking analyst at Cordros Securities Limited, said.

The spread between the parallel and official naira-dollar exchange rate has widened in recent months amid the lingering scarcity of the US currency in Nigeria. The naira weakened to as low as 890 per dollar early this month, compared with an average of 440/$1 at the official market.

Read also: Naira stabilises at N775 per dollar as supply rise

On the reason for the depreciation of the naira, Lateef said: “The main issue we see here is the dynamic between the supply and demand of FX. We have seen a reduction in Nigeria’s FX reserves due to the low supply levels as the country’s low crude oil production levels and foreign portfolio investors exiting the Nigerian market continue to affect the foreign exchange market.

“On the demand side, pressures have been on the reserve levels as individuals continue to demand to satisfy their FX needs.”

Commercial banks in Nigeria get foreign exchange from the central bank and sell to customers who have legitimate needs.

“Banks can book FX income through investments in FX instruments, FX trading, and FX revaluation. These examples are not exhaustive as banks have other means to book FX,” said Ngozi Odum, financial services analyst at CardinalStone.

Fidelity Bank Plc recorded a foreign exchange income of N2.4 billion from January to September this year, a 75 percent drop from N9.6 billion a year earlier.

Sterling Bank Plc saw its foreign exchange income dip to N1.5 billion, a 66 percent drop from N4.5 billion in the comparable period of 2021.

FBN Holdings Plc, the parent company of First Bank of Nigeria Limited, recorded a 64 percent decline in foreign exchange income to N2.1 billion from N5.9 billion in the period reviewed.

Wema Bank Plc recorded a foreign exchange income of N123 million, down 40.5 percent from N207 million in September 2021.

Guaranty Trust Holding Company Plc recorded N11.6 billion as foreign exchange income, which fell 25 percent from N15.5 billion.

Stanbic IBTC Holdings saw its foreign exchange income drop by 8.2 percent to N16.8 billion from N18.3 billion.

Zenith Bank Plc recorded a foreign exchange loss of N11.1 billion as of September 2022, compared to N15.4 billion in the same period last year.