Four of Nigeria’s biggest banks have reported a surge in profits in the first half of 2023, with their combined earnings growing by 260 percent year-on-year, according to BusinessDay’s calculations.
Data obtained from the Nigerian Exchange Limited showed FBN Holdings, Guaranty Trust Holding Company (GTCO), United Bank for Africa (UBA) and Zenith Bank posted a combined profit after tax of N1.13 trillion in H1 2023, compared to N315.9 billion in the same period of 2022.
UBA posted the biggest after-tax profit, accounting for N378.2 billion of the N1.13 trillion. Access Holdings is yet to release its report as of the time of filing this report.
Tochukwu Okafor, a senior lecturer at Baze University, attributed the banks’ financial performance to the devaluation of the naira. He highlighted that most tier-one banks have international affiliations, with a significant portion of their assets denominated in dollars. As a result, the devaluation has led to a substantial increase in their profits, he said.
“In the history of banking, hardly any bank has ever declared profits of up to N400 billion annually, not even in a half-year period. However, due to the devaluation and the transition from a pegged exchange rate to a freely floating one, banks have experienced a significant spike in their declared profits in the first half of 2023,” he said.
He said a substantial portion of this increased profitability is attributed to non-interest income. The devaluation has affected fees, commissions, off-balance sheet transactions, and other non-interest income sources, which now contribute significantly to the banks’ higher profits.
“According to their financial statements, a significant portion of their profits is derived from non-interest income, and this portion has grown in recent periods,” Okafor added.
Gbolohan Ologunro, a portfolio manager at FBNQuest, said a significant portion of the banks’ recent profit gains came from revaluation gains on their net long US dollar income positions. He noted that most tier-one banks have structured their balance sheets to maintain net long US dollar positions, which means that they are able to record gains whenever the currency is adjusted.
“Most tier-one banks currently hold a net long position in USD. This means that their foreign currency assets exceed their currency liabilities. Consequently, whenever there is currency revaluation, it will positively impact their profits,” Ologunro said.
Tajudeen Ibrahim, director of research and strategy analyst at Chapel Hill Denham, however, described this growth as temporary and unsustainable.
“Once the initial impact diminishes, Nigerian banks will return to their core business of lending. At that point, their ability to meet their lending objectives will depend on the risk level in the business environment and the outlook for inflation,” Ibrahim said.
On June 14, 2023, the Central Bank of Nigeria merged all foreign exchange markets into the Investors and Exporters (I&E) window and reintroduced the willing buyer, willing seller model.
As a result, the official exchange rate increased from N463.38/$ to N747.8/$ as of September 11.
However, the reform has only widened the spread between the official and parallel market rates, as the naira has depreciated by 61.4 percent against the dollar since the float.
On Monday, the naira exchanged for 747.87 per dollar at the I&E window, up from 463.38/$ on June 13. Meanwhile, at the parallel market, the naira depreciated by 20.1 percent to 917/$ on September 11 from 762/$ in June.
In terms of market capitalisation as of Thursday, Zenith Bank led with a market cap of N1.104 trillion, followed by GTCO at N766.9 billion, FBN Holdings at N642.5 billion, and UBA at N562.6 billion.
UBA’s profit after tax amounted to N378.2 billion, representing a leap of 437.8 percent from N70.33 billion. The bank’s profit before tax amounted to N404 billion, an increase of 371 percent compared to the N85.75 billion.
The group delivered a 164 percent growth in its gross earnings which rose to N981.78 billion as of June 2023, up from N372.36 billion recorded last year in June 2022. Basic and diluted earnings per share stood at N10.95 per share from N1.98 per share in the comparable periods.
UBA recorded cash and cash equivalents of N1.62 trillion, up from N960.8 billion in 2022. It is a leading pan-African financial institution, offering banking services to over thirty-seven million customers across 1,000 business offices and customer touch points in 20 African countries.
With a presence in New York, London, Paris and now the UAE, UBA is connecting people and businesses across Africa through retail, commercial and corporate banking, innovative cross-border payments and remittances, trade finance and ancillary banking services.
Zenith Bank Plc reported N291.7 billion profit before tax, up from N111.4 billion. Its profit before tax grew by 169 percent to N350.4 billion.
The bank recorded a 139 percent growth in gross earnings from N404.8 billion, driven by both interest income and non-interest income. Basic and diluted earnings per share stood at N9.29 per share from N3.55 per share in the comparable periods.
Its cash and cash equivalents amounted to N2.4 trillion, up from N972.9 billion. The is a large financial service provider in Nigeria and Anglophone West Africa, headquartered in Victoria Island, Lagos. It is licensed as a commercial bank by the Central Bank of Nigeria, the national banking regulator.
GTCO’s profit after tax jumped to N280.48 billion from N77.56 billion. Its profit before tax amounted to N327.4 billion compared to N103.3 billion in 2022.
The holding company’s gross earnings amounted to N672.6 billion from N239.29 billion. Its basic earnings per share to N9.94 per share from N2.70 per share in the comparable period.
GTCO recorded the highest cash and cash equivalents which stood at N2.5 trillion, from N1 trillion in 2022.
GTCO is a multinational financial services group that offers retail and investment banking, pension management, asset management, and payments services, headquartered in Victoria Island, Lagos, Nigeria. It was created in July 2021 following the corporate reorganization of Guaranty Trust Bank PLC (or GTBank) into a holding company.
FBN Holdings reported a 231.1 percent growth in its profit after tax to N187.2 billion from N56.5 billion. Its profit before tax rose to N206.3 billion from N65.7 billion.
Its gross earnings rose 82.8 percent to N656.6 billion from N359.2 billion. Basic earnings per share stood at 519 kobo from 155 kobo. FBN Holdings’ cash and cash equivalents amounted to N1.52 trillion from N1.45 trillion.