Banks record 156% increase in profit before tax
The Nigerian banking sector has witnessed a remarkable increase in its profitability in the first nine months of 2023, thanks to the foreign exchange revaluation gains arising from the depreciation of the naira. According to the financial reports submitted to the regulators by nine leading banks, the profit before tax (PBT) of the sector reached N2.292 trillion, representing a 156.4% increase from N897.717 billion recorded in the same period of 2022.
The nine banks that have released their results include FBN Holdings, Zenith Bank, GTBank Group, UBA, Access Bank, Stanbic IBTC, Wema Bank, Sterling Bank Holdings, Fidelity Bank and Jaiz Bank. Other major banks such as Ecobank Transnational Incorporation (ETI), Union Bank, Polaris Bank, FCMB, Citibank, Standard Chartered Bank, FSDH Merchant Bank, NOVA Merchant Bank, Heritage Bank, Keystone Bank, Providus Bank, and others are yet to publish their figures.
Forex gains account for 63.6% of the profit
A significant portion of the banks’ profit came from foreign exchange related transactions, as the naira depreciated against the US dollar and other major currencies in the period under review. The nine banks reported a total of N1.457 trillion as forex gains, which accounted for 63.6% of their PBT. This is a remarkable increase of 546.5% from N225.416 billion recorded in the same period of 2022.
The forex gains were mainly derived from the revaluation of the banks’ foreign currency denominated assets and liabilities, as well as the gains from trading in the foreign exchange market. The naira depreciated by 18.7% from N379.50 per US dollar at the end of December 2022 to N450.50 per US dollar at the end of September 2023, according to the official exchange rate published by the Central Bank of Nigeria (CBN).
Banks leverage on digital platforms and cost optimization
Apart from the forex gains, the banks also leveraged on their digital platforms and cost optimization strategies to boost their revenues and profitability. The banks reported a total of N3.647 trillion as gross earnings, which was 19.8% higher than N3.045 trillion recorded in the same period of 2022. The banks also improved their efficiency ratio, as their operating expenses grew by only 9.2% from N1.366 trillion to N1.491 trillion.
The banks also increased their lending activities, as their total loans and advances grew by 14.9% from N16.976 trillion to N19.497 trillion. The banks also improved their asset quality, as their non-performing loans (NPL) ratio declined from 5.3% to 4.8%. The banks also maintained adequate capital adequacy ratio (CAR) of 18.9%, which was above the regulatory minimum of 15%.
Industry analysts project N3.5 trillion profit for the sector
Industry analysts have projected that the banking sector will record a total of N3.5 trillion as PBT for the full year of 2023, based on the performance of the nine banks and the expected results of the remaining banks. This would represent a 140.6% increase from N1.455 trillion recorded in 2020.
The analysts attributed the impressive performance of the sector to the resilience and innovation of the banks, as well as the recovery of the Nigerian economy from the impact of the COVID-19 pandemic. The analysts also expressed optimism that the banks will continue to benefit from the forex gains, as the naira is expected to remain under pressure due to the high demand for foreign exchange and the low level of external reserves.
