July 21, (THEWILL) – In addition to the Asset Management Corporation of Nigeria (AMCON) levy, which takes a huge chunk off their profits, Nigerian banks will now experience further financial hemorrhage as the government plans to impose a 50 percent foreign exchange windfall tax on them– to fund the budget deficit. This will deplete the shareholders’ dividend as the move impacts on the profitability of the banks which declared unusually high earnings in 2023 financial year.
President Bola Tinubu had proposed an amendment to the 2023 Finance Act, aiming to impose a 50 per cent tax on foreign exchange gains recorded by commercial banks in Nigeria for the full year 2023.
This move, now awaiting Senate approval, has sparked considerable controversy among stakeholders
In a letter to the Senate, President Tinubu explained that the revenue generated from this tax would be allocated to capital infrastructure development, education, healthcare access, and public welfare initiatives.
In 2023, eight Nigerian banks made N754.8 billion in foreign exchange revaluation gains, largely due to the liberalization of the FX regime.
This was a 472.3 per cent increase from N131.9 billion FX gains reported in 2022.
The banks are Zenith Bank Plc, United Bank for Africa (UBA) Plc, Access Holdings Plc, FCMB Group Plc, Stanbic IBTC Holdings Plc, Fidelity Plc, Guaranty Trust Holding Company (GTCO) Plc, and Sterling Financial Holdings Company Plc.
The statutory contribution made by nine banks to the Asset Management Corporation of Nigeria increased by 25.81 per cent to N306.06bn in 2023 from N243.28bn in the previous year.
This is based on data gleaned from the annual reports of the banking groups filed with the Nigerian Exchange Group for the year ended 2023.
The banking groups and banks reviewed included FBN Holdings, Access Holdings, Zenith Bank, United Bank for Africa, Stanbic IBTC Holdings, FCMB Group, Guaranty Trust Holding Company, Fidelity Bank and Wema Bank.
According to the results, Access Holdings, the parent company of the largest Nigerian bank, paid the highest AMCON levy of N68.81bn, indicating a 30.48 per cent increase over the previous year’s figure
President Tinubu had asked legislators for an upward review of the 2024 Appropriation Act by N6.2 trillion, thus taking the total proposed expenditure to N34.9 trillion, up from the previous budget estimation of N28.7 trillion, as he plans to tax banks’ windfall from foreign exchange gains.
In 2023, eight Nigerian banks made N754.8 billion in foreign exchange revaluation gains, largely due to the liberalisation of the FX regime.
This was a 472.3 per cent increase from N131.9 billion FX gains reported in 2022.
The banks are Zenith Bank Plc, United Bank for Africa (UBA) Plc, Access Holdings Plc, FCMB Group Plc, Stanbic IBTC Holdings Plc, Fidelity Plc, Guaranty Trust Holding Company (GTCO) Plc, and Sterling Financial Holdings Company Plc.
Analysts at FBNQuest confirmed that the banks will face a significant financial burden as a result of the move by the government to further impose the forex gain tax on them.
“This measure may have an impact on their profitability and capital adequacy, especially if they had anticipated using these gains as a counter-cyclical buffer against foreign exchange fluctuations, as directed by the Central Bank of Nigeria,” they said in a note last week..
Meanwhile, shareholders of 10 leading deposit money banks (DMBs) in the country have decried the massive increase in operating cost fuelled by the Asset Management Corporation of Nigeria (AMCON) and Nigeria Deposit Insurance Corporation (NDIC) levies, which reached a whooping N490.54 billion in 2023.
The 10 DMBs are: Zenith Bank Plc, Access Holdings Plc, FBN Holdings Plc, Guaranty Trust Holding Company Plc (GTCO), and United Bank for Africa Plc (UBA).
Analysis of the audited/unaudited reports of the banks showed that while AMCON banking sector resolution costs stood at N316.53 billion in 2023, representing about 25 per cent increase over N252 billion in 2022, NDIC deposit insurance premium moved from N134.5 billion in 2022 to N174.01 billion in 2023, a growth of 29 per cent.
Analysts at FBNQuest further noted that while profits from FX revaluation gains are expected to increase revenue for the government, it will amount to scratching the surface considering the nation’s huge debt profile currently at N121.67 trillion.
Despite this one-time windfall tax, analysts said the revenue generated is unlikely to cover the additional N6.2 trillion needed to fund the government’s expanded spending plans, urging the Nigerian government to look to other means of financing the plans.
The National Co-ordinator, Progressive Shareholders Association of Nigeria, Boniface Okezie, had at the annual general meeting (AGM) of the banks, lamented over the huge financial burden that the AMCON levy constitutes to the financial services institutions, and ultimately, impact negatively on the dividend payout to the shareholders.
