November 26, (THEWILL) – The total assets of 10 Nigerian deposit money banks were collectively eroded by $24.73 billion (N18.7 trillion) as of September 30, 2023, following the devaluation of the Naira, computations by THEWILL have shown.
The financial services institutions include Access Corporation, Zenith Bank, United Bank for Africa (UBA), FBN Holdings and Guaranty Trust Corporation. Others are Fidelity Bank, Stanbic IBTC Holdings, FCMB Group, Sterling Financial Holdings Company and Wema Brnk.
Although the financial services institutions recorded significant expansion in their balance sheets and their top and bottom lines during the period, the quantum leap in assets base suffered severe value erosion when the effects of the naira devaluation were factored in.
The Federal Government had on June 14, 2023 introduced reform initiatives that involved the floating of the naira alongside unification of the multiple exchange rates which had seen the local currency badly battered in the parallel market.
In the bid to close the wide gap between the parallel and official exchange rates by the monetary policy authorities, the Naira has significantly depreciated in the Nigerian Autonomous Foreign Exchange Market (NAFEM), formerly investors’ and exporters’ (I&E) window.
Consequently, the naira which traded at N472 per dollar on the official window and N768 per dollar at the parallel market on June 13, began its downward slope with N665 per dollar on the official exchange window and N750 at the black market on June 14 – the first day of the reform.
As of September 30, 2023 the Naira had plunged to N756 per dollar on the official window, deepening to N1,000 per dollar at the parallel market. This implies that the local currency officially depreciated by 60 percent within 24 hours on June 14, against its last traded N472 to a dollar on June 13, 2023
The 10 financial service institutions had a total assets of N68.46 trillion as of December 31, 2022, according to data from their respective annual reports. This was equivalent to $152.82 billion at the ruling official exchange rate of N448 per dollar at the time.
Inflation rate was 21.34 percent in December 2022, as against 26.72 percent in September, 2023 according to data from the National Bureau of Statistics (NBS).
The banks’ earnings soared in the third quarter of the year which saw their total assets soared by N28.3 trillion to N96.8 trillion representing a rise of 41.37 percent.
At the ruling exchange rate of N756 per dollar in September 2023, the N96.80 trillion assets translate to $128.04 billion – a shortfall of $24.73 billion.
Meanwhile, the Central Bank of Nigeria (CBN) has advised the deposit money banks to be prepared to boost their capital base in order to meet the need of the envisioned $1 trillion economy of the President Bola Tinubu administration.
The apex bank has also vowed to go after the licensed payment service providers that have parted way with the prescribed rules in order to safeguard the integrity of the nation’s financial services industry.
These disclosures were made by the CBN Governor, Dr Olayemi Cardoso, in his speech at the Chartered Institute of Bankers of Nigeria (CIBN) 58th Annual Bankers’ Dinner and Grand Finale of the Institute’s 60th Anniversary held at the Eko Hotels in Lagos, on Friday, November 24, 2023.
Dr Cardoso said, while there has been stability in the banking sector, banks in the country were not adequately capitalised to meet the need of a $1 trillion economy which the present government aims to achieve within seven years.
“Will Nigerian banks have sufficient capital relative to the finance system’s needs in servicing a one trillion dollar economy in the near future? In my opinion, the answer is no, unless we take action,” he said.
“Therefore, we must make tough decisions regarding capital adequacy. As a first step, the Central Bank will be directing banks to increase their capital”, Cardoso added, stressing that the policy measures adopted by the new CBN leadership have started showing results.
The CBN boss also stressed the importance of technology in delivering financial services as well as enhancing the much desired financial inclusion which the Bank had vigorously pursued over the years.
He however lamented over the erring behaviour of some licensed payment operators which he said had deliberately deviated from their prescribed scope of operations to breach their licences, thereby negating the benefits of technology in the financial services sector.
His words, “Technology will continue to play a critical role in delivering financial services and enhancing financial inclusion.
“However, recent developments in the payment services landscape have raised concerns regarding the use of technology and the existing licensing and regulatory framework.
“We have observed that some licensees are operating outside the approved activities, breaching the boundaries set for them.
“Any intentional or unintended non-compliance will be subject to sanctions, as operators have the responsibility to ensure that they are licensed for the activities they undertake.”
The CBN boss said the apex bank will adopt a strategy aimed at promoting the desired change in the technology-driven banking industry to ensure that the banks that have made progress build on the milestones achieved.
He also said the CBN will strengthen its internal system to be able to assist the banks it supervises in achieving their desired goals.
“Concurrently, as we conduct a comprehensive review of the licensing framework for payment services, we will engage in extensive consultations to develop a new regulatory and compliance framework that is suitable for the technology-driven payment services sector.
“Looking ahead for the industry, banks should reassess the responsible banking framework to ensure that the requirements are effectively integrated into their strategies.
“I am aware that some banks have made commendable progress in this regard. Furthermore, the Central Bank of Nigeria is taking steps to enhance its in-house capacity so that it can assist other banks that still have progress to make in implementing their sustainability principles,” he said.
Cardoso acknowledged the economic challenges confronting ordinary Nigerians in both the urban and rural areas and assured that the CBN will initiate policies that would energise the creative abilities of the Nigerian citizens in their various callings.
To achieve this, he said there will be renewed commitment towards promoting the micro, small and medium enterprises which constitute the engine of the economy.
He commended the resilience of the banking industry amid global and domestic challenges, noting that available data showed the soundness of the Nigerian financial services institutions.
“Indeed, despite the challenging global and domestic macroeconomic environment, Nigeria’s financial sector has demonstrated resilience in 2023, with key indicators of financial soundness largely meeting regulatory benchmarks.
“Stress tests conducted on the banking industry also indicate its strength under mild-to-moderate scenarios of sustained economic and financial stress, although there is room for further strengthening and enhancing resilience to shocks,” he stated.
The Group Managing Director/CEO, Afrinvest (West Africa) Limited, Ike Chioke, had said the depreciation of the bank’s naira assets against the dollar means that some of them will go for recapitalisation to enable them to remain profitable in business.
Responding to a question from THEWILL, Chioke said some of the banks will have to go for capital raise to shore up their depreciated assets to remain gainfully in business.
“Naira has been devalued. It means you also have to look at the risk assets point of view to the extent that the banks have also created a lot of risk assets in dollars and they have a naira balance sheet. At some level you have to look at how the ratios work out – capital adequacy ratio, liquidity ratio.
There are indications that some banks have to go back to raise additional capital. Those are signals. Already, we can see from an advisory point of view that a good number of banks have registered prospectuses or other processes for capital raise, either from the equity market or from the fixed income market.”
The financial services institutions recorded robust profits in the second and third quarters against the backdrop of foreign exchange revaluation gains arising from depreciation of the Naira. The financial reports turned in to the regulators by the leading 10 banks indicated a profit before tax of N2.2 trillion just in the nine months of 2023.
Checks showed that about 63.6 percent, amounting to N1.4 trillion of the profits came from foreign exchange related transactions. The same banks made barely N225.4 billion in the corresponding period of 2022, indicating a forex profit growth rate of 546 percent.
Details of some of the banks’ profit figures in the nine months of 2023 include: Zenith Bank which topped the chart with N505.03 billion, followed by UBA’s N502.09 billion and GTB Corp with N433.2 billion came third while Access Corporation and FBN Holdings recorded N294.4 billion and N270.3 billion respectively.
The exchange rate revaluation gains which boosted the banks’ gross earnings in the nine months of 2023 saw Access Corporation taking the lead posting of N1.5 trillion, followed by Zenith Bank’s N1.3 trillion.
UBA occupied the third position recording N1.3 trillion gross earnings, followed by FBN Holdings’s N1.0 trillion and GT Corporation with N850.3 billion for the review period.
THEWILL recalls that at the backdrop of the forex revaluation windfall the Central Bank of Nigeria (CBN) in the send quarter of the year, had warned banks to isolate and save the forex revaluation gains as a buffer against economic shocks.
Consequently, the CBN stopped the banks from using FX revaluation gains to pay dividends or meet operating expenses.
The CBN disclosed this in a letter to all banks titled, “Impact of recent FX policy reforms: Prudential guidance to the banking sector.”
The letter signed by the Director Banking Supervision Department, CBN, Mr. Haruna Mustafa, stated: “The CBN has reviewed the impact of the recent foreign exchange (FX) rate regime change on the banking system and observed its potential to significantly increase naira values of banks’ foreign currency (FCY) assets and liabilities, resulting in varying levels of FX revaluation gains or losses across the industry.”
Services Drive Nigeria’s Jobless GDP Growth in Q3 2023
The Services sector has remained the driver of Nigeria’s Gross Domestic Product (GDP) growth in recent times, amid worsening unemployment rate. Nigeria’s unemployment rate stood at 34 percent in 2022.
The National Bureau of Statistics (NBS) stated in its latest report that the nation’s GDP grew by 2.54 percent (year-on-year) in real terms in the third quarter of 2023.
It revealed that this growth rate is higher than the 2.25 percent recorded in the third quarter of 2022 and also higher than the second quarter 2023 growth of 2.51 percent.
“The performance of the GDP in the third quarter of 2023 was driven mainly by the Services sector, which recorded a growth of 3.99% and contributed 52.70% to the aggregate GDP,” the report stated.
It revealed that the agriculture sector grew by 1.30 percent from the growth of 1.34 percent recorded in the third quarter of 2022. The growth of the industry sector was 0.46 percent, an improvement from -8.00 percent recorded in the third quarter of 2022.
“In terms of share of the GDP, agriculture, and the industry sectors contributed less to the aggregate GDP in the third quarter of 2023 compared to the third quarter of 2022,” the NBS said.
In the quarter under review, aggregate GDP stood at N60,658,600.37 million in nominal terms. This performance is higher when compared to the third quarter of 2022 which recorded aggregate GDP of N52,255,809.62 million, indicating a year-on-year nominal growth of 16.08 percent.
Concerning the role of the oil sector which has remained the major economic live blood of Nigeria.
The NBS said the real growth of the oil sector was –0.85% (year-on-year) in Q3 2023, indicating an increase of 21.83 percent points relative to the rate recorded in the corresponding quarter of 2022 (-22.67 percent).
Growth also increased by 12.58 percent points when compared to Q2 2023 which was –13.43 percent.
On a quarter-on-quarter basis, the oil sector recorded a growth rate of 12.47 percent in Q3 2023. The Oil sector contributed 5.48 percent to the total real GDP in Q3 2023, down from the figure recorded in the corresponding period of 2022 and up from the preceding quarter, where it contributed 5.66 percent and 5.34 percent respectively.
Four sub-activities make up the Agricultural sector: Crop Production, Livestock, Forestry and Fishing. The sector grew by 11.06 percent year-on-year in nominal terms in Q3 2023, showing a decrease of 9.02 percent points from the same quarter of 2022.
Looking at the preceding quarter’s growth rate of 11.42 percent, there was a decrease of 0.37 percent points. Crop Production remained the major driver of the sector. This is evident as it accounts for 92.24 percent of the overall nominal value of the sector in the third quarter of 2023.
Quarter-on-quarter growth stood at 45.59 percent in the third quarter of 2023.
Agriculture contributed 26.36 percent to nominal GDP in the third quarter of 2023. This figure was lower than the rate recorded in the third quarter of 2022 and higher than the second quarter of 2023 which recorded 27.55 percent and 21.07 percent respectively
The agricultural sector in the third quarter of 2023 grew by 1.30 percent (year-on-year) in real terms, a decrease of 0.04 percent points from the corresponding period of 2022, and a decrease of 0.20 percent points from the preceding quarter which recorded a growth rate of 1.50 percent. It grew on a quarter-on-quarter basis at 39.74 percent.
However, the sector contributed 29.31 percent to overall GDP in real terms in Q3 2023, lower than the contribution in the third quarter of 2022 and higher than the second quarter of 2023 which stood at 29.67 perceNt and 23.01 percent respectively.
In nominal terms, Other Services grew by 2.19 percent (year-on-year) in Q3 2023. This growth rate was lower than the 4.82 percent growth rate recorded in the same quarter of the previous year and lower than the growth rate of 2.62% in Q2 2023 by 2.63 percent points and 0.43% points respectively. Quarter-on-quarter growth was -10.58 percent.
This sector contributed 1.59 percent to the aggregate nominal GDP in Q3 2023, lower than the 1.81 percent it contributed in the same period of the previous year and lower than the 2.07 percent it contributed in the preceding quarter.
Other Services’ real GDP grew by 0.63 percent (year-on-year) in Q3 2023. This growth was higher by 3.30 percent points than the growth recorded in the same period of the previous year, and lower by 1.06 percent points from Q2 2023.
Quarter-on-quarter growth was -11.87 percent. The sector contributed 2.18 percent to real GDP in Q3 2023, lower than the 2.23 percent recorded for the corresponding quarter of 2022 and lower than the 2.72 percent recorded in Q2 2023.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
