According to BusinessDay’s analysis and expert opinions, Nigerian banks are facing significant pressure on their lucrative foreign exchange earnings due to a decline in economic activities involving the dollar. Data obtained from the Nigerian Exchange Group (NGX) reveals that five banks, namely Stanbic IBTC Holdings, FBN Holdings, Wema Bank, Guaranty Trust Holding Company, and Union Bank, experienced a decrease in foreign exchange earnings during the first quarter of 2023. Additionally, Fidelity Bank and Zenith Bank recorded foreign exchange losses during the same period. FX shortages were identified as a key factor limiting banks’ engagement in foreign exchange transactions. Stanbic IBTC Holdings, for example, witnessed a 38% drop in foreign exchange earnings from N22.95 billion in Q1 2022 to N14.22 billion in Q1 2023. The constrained availability of foreign currency liquidity in Nigeria, combined with constraints on domestic oil production, capital outflows, and the strengthening of the US dollar, puts Nigerian banks at risk. Other contributing factors to the decline in foreign exchange earnings include declining foreign reserves, lower oil production, Nigeria’s rising imports compared to exports, and low foreign investor participation in the Nigerian market. Despite these challenges, two banks, Access Holdings and UBA, recorded gains in foreign exchange earnings during the period under review. However, the disparity in foreign exchange positions, with some banks having net foreign currency assets and others having more liabilities than assets, presents advantages and disadvantages for different banks. Concerns among investors regarding multiple exchange rates, widespread insecurity, low oil production, high fuel subsidy costs, and uncertainties related to repatriating money from Nigeria further contribute to the decline in foreign capital inflows and investor confidence. KPMG Nigeria emphasizes the importance of foreign capital inflows to stimulate economic activity and highlights the negative impact of inadequate access to forex on production inputs, revenue, and overall economic growth. Investor confidence has been weakened due to what foreign investors perceive as an ambiguous forex regime characterized by multiple exchange rates, limited forex access, and high volatility. Political transitions and the need for a clearer understanding of the new government’s direction and priorities may also be influencing investors’ cautious approach to investing in Nigeria.
