Nigeria’s top-tier banks are experiencing major shifts in foreign exchange profits as the Central Bank of Nigeria (CBN) tightens regulations. Once lucrative forex arbitrage opportunities have dwindled, resulting in significant financial losses for leading financial institutions.

In 2024, at least three tier-one banks posted combined losses of ₦1.16tn. Zenith Bank suffered the biggest blow, recording a staggering foreign exchange revaluation loss of ₦1.1tn. First Bank Holdco also reported a loss of ₦62.59bn, an improvement from its ₦334.2bn loss in 2023. Guaranty Trust Holdco (GTCO) faced an unrealized forex loss of ₦1.9bn, contrasting sharply with its ₦74.5bn gain the previous year.

United Bank for Africa (UBA), which saw significant forex gains in 2023, suffered a drastic reduction in trading and foreign exchange profits. Its net trading and forex gains dropped by 72.4% from ₦659.3bn in 2023 to ₦181.8bn in 2024.

CBN’s Strategy to Stabilize the Forex Market

Financial experts believe the CBN’s recent policies are responsible for these developments. The apex bank, led by Olayemi Cardoso, has taken steps to limit speculative trading in the forex market.

Kelvin Emmanuel, co-founder of Dairy Hills, noted, “One important decision CBN took to stabilize the FX markets last year was to harmonize reporting requirements for foreign currency positions of tier-one banks—these are open positions net of maturing foreign currency obligations.”

In January 2024, the CBN issued a directive that restricted banks’ Net Open Positions (NOP) on foreign currency assets and liabilities. The circular required banks to limit their foreign currency exposure to not more than 20% short or 0% long of their shareholders’ funds unimpaired by losses.

Industry insiders suggest that before this regulation, at least five major banks had around $5bn onshore, which was allegedly used for speculative trading against the naira.

The Electronic Forex Matching System

The CBN further introduced the Electronic Foreign Exchange Matching System (EFEMS) in October 2024. This fully electronic platform transformed the Nigerian Foreign Exchange Market (NFEM), eliminating room for arbitrary pricing and speculative trading.

“The masterstroke that has compelled and checkmated the banks is the transition from a managed float to NFEM matching system,” Emmanuel remarked. “It ensures transparency and better market regulation.”

The EFEMS aims to eliminate market distortions and improve oversight capabilities, allowing the CBN to regulate forex transactions more effectively.

Future Outlook for Nigerian Banks

The CBN’s policy adjustments have reshaped the forex market, reducing speculative opportunities for banks while attempting to stabilize the naira. Analysts believe the losses incurred by banks signal a shift towards a more transparent and controlled foreign exchange market.

As banks adjust to the new reality, they will need to explore alternative revenue streams beyond forex speculation. Whether these policies ultimately strengthen Nigeria’s economy or create new challenges remains to be seen.

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