Nigeria’s first-tier banks are no longer celebrating bumper foreign exchange gains as the Central Bank of Nigeria has narrowed avenues for arbitration.
At least three tier-one banks suffered N1.16tn losses, while N477.5bn slashed United Bank for Africa’s (UBA) foreign exchange gains in the full year of 2024 as the spread between the official forex and parallel market rates fell below one per cent.
The tier-one banks that were most affected by the losses are Zenith Bank Plc, First Bank of Nigeria Holdco, Guaranty Trust Holdco, and United Bank for Africa.
Zenith Bank is the biggest loser in foreign exchange deals as the group suffered a foreign exchange revaluation loss of N1.1tn by the end of 2024, according to its full-year books analysed by THE WHSITER.
Out of the N1.16tn total loss declared by tier-one banks in 2024, Zenith Bank’s loss accounted for over 94 per cent during the period.
In the 2023 financials, Zenith Bank posted a staggering N358.1bn gain arising from foreign exchange revaluation. This was the period when the naira was rapidly declining.
Zenith Bank said, “The year witnessed significant volatility in the foreign exchange of naira against the dollar, from about N977/US$ in Q4 2023 to 1,535/US$ as of 31 December 2024.
“The CBN narrowed the spread between the various foreign exchange segments of the market, an indication of price discovery and improved market efficiency, thus reducing opportunities for arbitrage and speculation.”
First Bank Holdco posted a foreign exchange loss of N62.59bn in 2024.
Although the lender posted a loss, the N62.56bn was an improvement compared to N334.2bn foreign exchange loss that the group posted in 2023.
A breakdown showed that FBN posted a foreign exchange trading loss of N96.43bn, but the losses were reduced by a forex revaluation gain of N33.83bn, making the net forex loss to become N62.59bn in 2024.
Guaranty Trust Holding Company (GTCO) suffered an unrealised foreign exchange loss of N1.9bn in 2024 based on the company’s financials.
In 2023, the bank declared an unrealised foreign exchange gain of N74.5bn.
An analysis of the United Bank for Africa’s financial report for December 2024 shows that its “net trading and foreign exchange gain fell to N181.8bn from N659.3bn,” which it recorded in the 2023 full year.
This reflects a 72.4 per cent slash in the gains it made in 2023, when the naira depreciated by about 94 per cent following the introduction of a managed float.
A breakdown of UBA’s net trading and foreign exchange income showed that, unlike the N457.2bn posted as net fair value gain on derivatives in 2023, UBA suffered a shocking loss of N342.2bn in 20204.
This impacted the group’s net trading and foreign exchange income gain from the N659.3bn made in 2023 to N181.8bn in 20204.
In 2023, many banks posted huge foreign exchange gains. It is estimated that banks made a foreign exchange revelation gain of around N3.3tn in 2023.
Financial expert and the co-founder of Dairy Hills, Kelvin Emmanuel, had accused banks of using their foreign exchange position to speculate against the currency.
Kelvin said, “One important decision CBN took to stabilise the FX markets last year was to harmonise reporting requirements for foreign currency positions of (especially) tier 1 banks — these are open positions net of maturing foreign currency obligations.”
The CBN, led by Olayemi Cardoso, took a major step to defend the currency by introducing a policy limiting banks’ net open positions.
In January 2024, the Trade and Exchange Department of the CBN issued a circular dated January 31, 2024, limiting the Net Open Position (NOP) of overall foreign currency assets and liabilities of banks to not more than 20 per cent short or zero per cent long of shareholders’ funds unimpaired.
The Circular also directed banks whose current NOP exceeded 20 per cent short and zero per cent long of shareholders’ funds unimpaired by losses to bring them to the prudential limit in February of the same year.
Some insiders in the CBN alleged that as of the time of the circular, about five tier 1 banks had $5bn onshore that had been used to speculate on the currency against the zero per cent long and 20 per cent short that the new circular required.
On October 2, 2024, the CBN introduced the Electronic Foreign Exchange Matching System (EFEMS) for conducting foreign exchange (FX) transactions in the Nigerian Foreign Exchange Market (NFEM).
“The masterstroke that has compelled and checkmated the banks is the transition from managed float to NFEM matching system (that’s completely electronic),” said Kelvin.
The CBN said the EFEMs would reduce speculative activities, eliminate market distortions, and give the CBN improved oversight capabilities to effectively regulate the market.