MARKET NEWS

Foreign exchange (FX) gains, once a major profit booster for Nigeria’s biggest banks, have dropped to their lowest level in three years and the trend is expected to continue as lenders shift attention back to traditional banking activities.

In the first nine months of 2025, Nigeria’s tier-one banks reported total FX gains of N470.1 billion, down from N562.5 billion in the same period last year and a sharp 56% drop from the N1.07 trillion they earned in 2023, when a steep naira devaluation generated extraordinary profits. The slowdown has not affected all banks equally. Access Holdings and UBA saw steep declines of 53% and 77% in FX income, respectively. On the other hand, First Bank recorded gains of N71.6 billion, a 132% increase, while Zenith Bank swung from a loss last year to a gain of N24.2 billion, representing a 1,517% jump. GTCO also posted growth, with FX gains rising 28% to N77.2 billion.

The decline comes after a major policy change. In July 2024, President Bola Ahmed Tinubu approved a one-off 50% windfall tax on FX profits earned in 2023. The levy wiped out a large chunk of the extraordinary earnings banks made following the naira’s 37% devaluation in June 2023, forcing many lenders to adjust their financial statements or absorb the costs.

Moody’s Investors Service described the tax as “credit negative,” particularly for banks operating close to minimum capital requirements.

“The tax follows record profits in 2023, largely driven by FX revaluation gains linked to the naira’s sharp devaluation,” Moody’s said.

By 2025, FX gains have largely disappeared. With currency volatility easing and interest rates stabilizing, banks can no longer rely on currency movements to boost earnings. The naira, which opened the year at N1,660/$1, traded within a narrower band and closed at N1,450.42/$1 on December 5, limiting the valuation gains that previously inflated profits.

Monetary policy has also shifted. Even as inflation eased to 16.1% in October from 18.02% in September, the Central Bank of Nigeria (CBN) kept the Monetary Policy Rate (MPR) at 27%, while adjusting the lending corridor. This reduces incentives for banks to park excess funds with the CBN and encourages them to lend more to businesses and individuals.

With FX windfalls fading, banks are now focusing on core lending. Customer loans across tier-one banks rose 2% year-on-year to N41.3 trillion, and were 5% higher than full-year 2024 levels.

Samuel Oyekanmi, Research and Insights Lead at Norreberger, said the differences in FX gains highlight the importance of risk management and treasury strategy. “Zenith Bank and First Bank benefited from favorable foreign currency exposures and active treasury operations, while UBA, Access, and GTCO maintained more conservative or hedged FX positions,” he noted.

Oyekanmi added that FX gains are largely short-term, driven by market movements, but sophisticated treasury management is becoming a key competitive advantage for banks in Nigeria.