While manufacturers face more enormous debts, another player in the Nigerian banking sector has revealed impressive gains amidst the naira devaluation.
Zenith Bank Plc has announced its profit has more than doubled in the first half of 2023. The financial giant attributed this gain to the devaluation of the naira.
The Nigerian central bank effected an exchange rate unification, which saw the naira trade in the free market in response to demand and supply alone. The currency fell to levels trading in the unofficial market, weakening by 40% against the US dollar. The local currency slipped further by another 6%, barely two months after the devaluation.
While this development boosted the portfolio of banks holding foreign assets, manufacturers with foreign currency loans suffered the pains of converting a weak naira to service dollar interest debt. At the top of the list are companies like Airtel Africa and Nestle, with losses of about $170 million and 50 billion, respectively.
Within six months, the financial house raked 355.6 billion naira (~$471.6 million) of foreign exchange profit. According to a regulatory filing, the most significant portion of the spike occurred in June, where gains rallied to 291.6 billion from 111.3 billion naira.
Zenith’s performance has mirrored that of its peer, Guarantee Trust Holding Co., whose income almost tripled to $468 million after revaluing its foreign assets. The firm has also increased provisions by nearly eight times to 207.9 billion to match the deteriorating lending environment for manufacturers.
These recent developments have boosted the stock performance of many banks, including Zenith and Guarantee Trust. Their shares have gained 45% and 57% YTD.
Do you think banks will record more gains in the second half of 2023? Let us know your thoughts in the comment section below.
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