As I have written here many times since the floating and swimming of the Naira against the US dollars and other currencies, Nigerian banks are going to hit profit records. Why? It is simple mathematics: if you have a foreign currency denominated asset in your books, originally priced at N415/$, and you can now change it to N800/$, you have actually created a massive profit.
For banks which do not have a lot of foreign currency exposures, but which enjoy solid foreign-denominated investments, that exchange rate flip will deliver alpha at scale. Men and women will have great parties in Ikoyi, Victoria and Banana Island this season!
First Bank of Nigeria (yes, FBN Holdings Plc) has started the party: “FBN Holdings Plc, one of Nigeria’s largest banks released its 2023 second-quarter results showing pre-tax profits rose 5 folds to N150.1 billion (N29.2 billion Q2 2022). The increase in second-quarter profits helped its half-year profit before tax to rise by 213% to N206.2 billion compared to N65.7 billion same period last year. This is also the Bank Holding Company’s best half-year performance since it was listed on the Exchange,” Nairametrics reports.
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First Bank of Nigeria (yes, FBN Holdings Plc) has started the party: 414% in PBT, from N29.2 billion in Q2 2022 to N150.1 billion in Q2 2023.
Other banks will report similar numbers. As I noted during Tekedia Investment class on Saturday, investors have been buying Nigeria’s big bank stocks, hoping to enjoy the rainfall on dividends (there would be many of them) since profits will be yakata (money everywhere).
Yet, as we attain an FX equilibrium with inflation hitting hard, purchasing power dropping and manufacturing output weakening, some of the investment exuberance will be time-limited for fun. So, it is really a strategy of knowing when to get in and get out!
But as things stand now, this will be the best profitable quarter in the history of Nigerian banking. I used to be among them; men and women will see GREAT digits on the bonus day.
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As expected. But when they want to report it, will they state where the sudden surge in profit came from, or it will be recorded as great ‘performance’ and peerless ‘innovation’? It’s how politicians sell dummies to people also.
Anyway, it’s still like motion without movement.