- Experts caution on cost, loan management
The foreign exchange revaluation gains of five top banks dropped from N224.442billion in 2016 to N61.922billion in the 2017 financial year, investigation by The Point has revealed.
The banks are: GTBank Plc, FBN Holding, Zenith Bank International Plc, First City Monument Bank Plc, and Union Bank of Nigeria Plc.
While GTBank’s forex revaluation gain dropped by 70.7 per cent to N25.540billion in 2017, from N87.289billion in 2016; FBN Holding’s gains slipped by 83.2 per cent, to N13.515billion, from a peak of N80.232billion in the same period. Zenith Bank also dropped by 51 per cent to N12.526billion, from N25.587billion.
Devaluation is not profitable to banks as we think, because some of them have foreign exposures and this has put them in a much troubled state, just like other users of forex
FCMB trailed them in that order with 83.2 per cent drop in forex revaluation gain, sliding to N8.722 billion, from N29.310 billion in 2016; while Union Bank, in the same review period, recorded a 20 per cent drop, from N2.024 billion, to N1.619billion.
ANALYSTS BLAME INSECURITY, GLOBAL OIL MARKET
Financial market observers, who spoke with our correspondent in separate interviews, said the 2017 financial results of most commercial lenders showed a huge loss in their foreign exchange revaluation gain, which was mostly due to stability in the foreign exchange market, insecurity, and volatility in the global oil market.
Other experts attributed the decline to fragile economic recovery and a sharp drop in domestic production, as a result of the killings by herdsmen and activities of militants in the oil-rich Niger-Delta region.
A professor of economics, Samuel Chidobem, said the devaluation of the naira in the past did not actually benefit banks in all respects, and that those banks that had foreign currency-denominated debts had to cough up more naira to offset their debts, coupled with the intervention of the naira; a situation that stabilised the naira to a large extent.
He projected that banks, this year, would devise measures to manage their loan books and cut down operating costs in order to sustain profits, since it was not certain that they would make any gain from foreign exchange revaluation this year, due to inconsequential policies.
Professor Leo Ukpong, Dean, School of Business, University of Uyo, Akwa Ibom State, stressed that the forex revaluation gains that banks made in 2017 would have reversed, going by the aggressive foreign exchange policy of the apex bank, which had strengthened the naira.
A capital market analyst, Mr. Rasheed Abdullahi, attributed the dwindling fortune of the banks’ forex revaluation to volatility in the global oil prices, which resulted in some foreign exchange crisis.
According to him, the only means of solving the foreign exchange crisis is through continuous inflow, needed to sustain naira appreciation. He added that for the banks, a lot would depend on the nature of assets on which they put the revaluation gain.
He explained that if it was the banks’ trading assets, “when they sell those assets, they will realise the exchange gain.”
“This means that when foreign exchange assets are acquired at lower price, the players would have to revalue those assets to make foreign exchange gains, when the exchange rate rises,” he said.
A capital market operator and financial analyst, Mr. Taiwo Adedayo, said devaluation for banks was just a matter of business strategy. “Devaluation is not profitable to banks as we think, because some of them have foreign exposures and this has put them in a much troubled state, just like other users of forex,” he said.
He noted that what happened in a challenged situation was that every institution would look for a way to curtail any incursion on any area of their businesses.
An economic analyst, Mr. Femi Oyetunji, also said the decline was partially attributable to unrealised gains on hard currency assets, as a result of foreign exchange movements, following the sharp devaluation of the naira.
He noted that the indirect devaluation of the naira by the CBN was a boom for firms that had dollar reserves, while it was a disaster for those who did not have, but had denominated loans.
The Managing Director, Highcap Securities Limited, Mr. David Adonri, explained that companies that depended on importation of raw materials when domestic currency dropped were likely to be victims of the disaster.
According to him, companies that are dependent on importation of some of its products tend to suffer more when domestic currency depreciates against foreign currencies. He noted that it was difficult to predict the rate of foreign exchange, describing it as a bad situation for the economy.
FITCH FORESEES GLOOMY FUTURE
Meanwhile, Fitch, a rating agency, in a report, said profits made by Nigerian banks might drop in 2018, owing to a slowdown in the rate at which treasury bills were issued by the Federal Government.
The Central Bank of Nigeria’s latest issuance schedule showed N1.1 trillion ($3.6 billion) of rollovers in 2018, as against N1.3 trillion of maturing bills. The reduction in rollovers indicated that the apex bank is issuing fewer treasury bills.
