Nigeria’s Banking Titans: A Stellar 260% Profit Surge in H1 2023 – In a remarkable turn of events, the first half of 2023 has witnessed Nigeria’s top banks, namely FBN Holdings, Guaranty Trust Holding Company (GTCO), United Bank for Africa (UBA), and Zenith Bank, report a staggering combined profit growth of 260%. When we dive into the numbers, these financial powerhouses collectively raked in a profit after tax of N1.13 trillion in H1 2023, a significant leap from the N315.9 billion recorded in the same period the previous year.
Who’s Leading the Pack?
UBA stole the limelight with the most considerable after-tax profit, boasting N378.2 billion of the impressive N1.13 trillion. Notably, Access Holdings is yet to unveil their figures, leaving us in eager anticipation.
The Catalyst:
Tochukwu Okafor, a revered senior lecturer at Baze University, points to the naira’s devaluation as the driving force behind this upsurge. He underscores the international affiliations of these tier-one banks, with a majority of their assets being dollar-denominated. This devaluation, thus, has acted as a catalyst, amplifying their profits.
“In an unprecedented shift in banking history, we’ve seen banks declare profits that overshadow the annual N400 billion mark, all within half a year. This paradigm shift from a pegged exchange rate to a free-floating one, coupled with the devaluation, has led to this noteworthy profit surge in H1 2023,” Okafor elucidated. He further highlighted the substantial contribution of non-interest income sources like fees, commissions, and off-balance sheet transactions to these elevated profit margins.
Another Perspective:
Gbolohan Ologunro, a portfolio manager at FBNQuest, highlighted the strategic positioning of these banks. “Most of these banks maintain a net long position in USD, meaning their foreign assets surpass their liabilities. Therefore, any currency revaluation amplifies their profit margins,” Ologunro explained.
But, Is This Sustainable?
While the numbers are exciting, Tajudeen Ibrahim from Chapel Hill Denham offers a word of caution, terming this growth as ephemeral. Once the initial impact wanes, banks will revert to their foundational business of lending. Their success will then hinge on the business environment’s risk levels and inflation outlook.
The Macro View:
On June 14, 2023, a significant policy shift was witnessed when the Central Bank of Nigeria amalgamated all foreign exchange markets into the I&E window, reintroducing the willing buyer, willing seller model. This saw the official exchange rate climb from N463.38/$ to N747.8/$ as of September 11. However, this move has exacerbated the gap between the official and parallel market rates, leading to a 61.4% depreciation of the naira against the dollar.
Market Capitalisation Snapshot:
Zenith Bank emerged as the market leader with a cap of N1.104 trillion. GTCO, FBN Holdings, and UBA followed with market caps of N766.9 billion, N642.5 billion, and N562.6 billion, respectively.
Bank-by-Bank Breakdown:
- UBA: UBA’s profit after tax soared by 437.8% to N378.2 billion from N70.33 billion. This pan-African financial behemoth offers diverse services across 20 African nations, connecting millions through its extensive network.
- Zenith Bank: Zenith Bank’s profit before tax surged by 169% to N350.4 billion. Recognized as a significant financial service provider, it stands as a commercial bank stalwart in Nigeria.
- GTCO: GTCO witnessed its profit after tax skyrocketing to N280.48 billion from N77.56 billion. As a multinational financial conglomerate, it offers a gamut of services and stands as the successor of the illustrious Guaranty Trust Bank PLC.
- FBN Holdings: FBN Holdings reported a 231.1% growth in profit after tax, reaching N187.2 billion.
In a nutshell, Nigeria’s banking sector is on a meteoric rise, backed by strategic financial maneuvers and favorable currency dynamics. The future, though unpredictable, holds promise and potential for further growth.