Banking sector witnessed $1.63bln windfall from forex trading in Nigeria

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Nigeria’s banking sector has witnessed a significant windfall, with a staggering N2.6 trillion surge in earnings from foreign exchange trading and revaluation, according to the 2024 Nigerian Banking Sector Report by Afrinvest Group.

The gain is attributed to the banks’ favourable net foreign exchange positions, which have enabled them to capitalise on the volatility in the currency market.

As the sector continues to navigate the complexities of the foreign exchange (FX) landscape, the impressive performance raises questions about the sustainability of such gains and the broader implications for the economy.

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The report linked the Central Bank of Nigeria’s earlier delay in providing market direction and guidance to forex dealers and investors as responsible for significant fall in the value of the naira.

The launch of the 2024 Nigerian Banking Sector Report by Afrinvest Group held in Abuja, with the theme, ‘Banking Recapitalisation: Catalyst for $1 trillion Economy,’ attracted key stakeholders from the Nigerian banking sector.

The report said the governor of CBN, Olayemi Cardoso, failed to provide clear communication to the market in his first 60 days in office, forcing the FX market to capitulate to speculative activities.

It insisted that the year 2023 would go down in history as one of Nigeria’s most turbulent years on the exchange rate front.

“On June 14, the interim CBN leadership announced the collapse of all FX segments into the I&E window and re-introduced the willing-buyer-willing-seller model, among others. This announcement, in its basic terms, implies the change in the FX management system to a crawling peg from managed float,” the report said.

It further disclosed that on the back of this development, the CBN official FX rate fell 29.0 percent on June 14 to N660.04/$, thereby narrowing the differential between the parallel market and the official rate to N92.96 from N283.33 the prior day.

According to the report, by the end of June 2024, the differential between the official and parallel market rate has diminished to N2.75, a level last seen in the pre-COVID period.

The report recommended effective execution of fiscal reforms that include solving the problems of insecurity, poor infrastructure and unfriendly business environment, stating that weak legal system remained the only foundation upon which the CBN could achieve a lasting solution to the recurring FX crises.

Speaking at the event, the Managing Director of Afrinvest Group, Mr Ike Chioke, discussed the inception of the banking sector report in 2005, following the first recapitalisation programme.

“Our report aims to highlight the dynamics of the Nigerian banking sector. Investors should exercise caution and thoroughly evaluate opportunities before investing in the current recapitalisation exercise,” he advised.

Chioke acknowledged the challenging macroeconomic environment but underscored the importance of data-driven economic management, stating that despite the potential national strike, the data is available to run the economy effectively.

On recapitalisation, the report said the Nigerian banking sector had witnessed several recapitalisation episodes in a bid to shore up minimum capital required to compete locally and globally.

It said the most recent round of recapitalisation was targeted at strengthening the financial system and aiding the government’s $1 trillion economy by 2030.

The report said efforts to reform a banking system, whether through financial liberalisation, recapitalisation, restructuring, enhanced regulation or technological innovations, are understood to have some positive bearing on broad economic progress.

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