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Currency Devaluation, a Boon for Big Banks as FX Gains Hit N1.61trn

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The largest lenders in Africa’s most populous nation are not feeling the pains of a tough operating environment as the currency devaluation is a boon that has created another era of free money.

For first nine months through September 2023, Zenith Bank Plc, Guaranty Trust Holdings (GTCO), Access Holding Plc, United Bank for Africa (UBA), and FBN Holdings Plc, collectively realised N1.61 trillion in foreign exchange (FX) revaluation gains, according to data compiled by MoneyCentral.

FX revaluation gains refer to the increase in the value of a bank’s assets and liabilities denominated in foreign currency when there is a change in the exchange rate between the foreign currency and the local currency.

Zenith Bank made N378.42 billion in FX gains; GTCO, N334.35 billion; Access Holdings, (N314.60 billion); UBA, (N339.95 billion), and FBN Holdings, (N251.38 billion).

Banks have been raking in billions of naira in exceptional gains since the foreign exchange by the central bank to promote transparency and liquidity in the foreign exchange market that led to the Naira losing 40 percent of its value against the U.S dollars.

The USD/NGN depreciated by 20.51 percent to N993.82/US$ as of October 30, 2023.

In a bid to encourage strengthening of capital adequacy of lenders, the Central Bank of Nigeria (CBN) issued a directive instructing commercial banks to refrain from utilizing their foreign exchange revaluation gains for dividends and operational expenditures.

The regulator highlighted that banks should utilize these revaluation gains to reinforce their capital reserves, thus enhancing the banking sector’s capacity to endure volatility and economic shocks.

The letter reads in part, “The Bank thus approved the following prudential guidance and directives for immediate implementation by banks:

“Treatment of FX Revaluation Gains: Banks are required to exercise utmost prudence and set aside the FCY revaluation gains as a counter-cyclical buffer to cushion any future adverse movements in the FX rate. In this regard, banks shall not utilize such FX revaluation gains to pay dividends or meet operating expenses.

“Single Obligor Limit (SOL): Banks that inadvertently breach the Single Obligor Limit (SOL) due to the FX policy will be granted forbearance upon application to the CBN. The forbearance shall apply only to existing facilities as of the effective date of this policy. Such banks shall be exempted from the regulatory deductions on the excess above the SOL limit in their CAR computation.

“Net Open Position (NOP) Limit: Banks that exceed the NOP prudential limits due to the FX revaluation shall be granted forbearance for the breach upon application.

“Existing prudential regulations on capital adequacy, dividend payments, and FCY borrowing limits shall continue to apply.”

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