Nigerian banks may report lower profits this year compared to the previous year, as the naira’s recent stability eliminates the extraordinary foreign exchange (FX) revaluation gains that boosted earnings in 2023, financial experts have said.

The era of windfall profits from currency depreciation appears to be over, and industry watchers believe that upcoming results will reflect the new reality.

Executive Director of Hallo Capital Management Limited, Dr Paul Uzum, explained that the banking sector would no longer benefit from the FX gains that previously bolstered profits.

“There will be no FX gains since the naira has stabilised. So, we do not expect banks to perform as much as they did in the 2024 financial year in 2025. We expect their Q1, 2025 result by the end of this month and do expect to see a drop in profits across the banks to sustainable levels as FX gains disappear.

“We anticipate the release of Q1 2025 financial results by the end of this month, and early indications suggest that the banking sector may post lower profits compared to the same period in 2024.

“This projected decline does not necessarily indicate weakness but rather a reversion to more realistic earnings levels in the absence of FX-driven windfalls. The focus will likely shift to core banking operations such as interest income, fee-based services and cost efficiency as key profit drivers going forward,” he said.

He added that institutions with strong liquidity tend to profit significantly during economic crises, with Nigerian banks no exception.

“They had easy access to the Nigerian FX market when the CBN was rationing foreign exchange during Buhari’s government. So, the devaluation of the naira allowed them to make huge FX gains.

“Beyond FX revaluation, other macroeconomic conditions have also played in the banks’ favour. Interest rates have been elevated over the past two years due to high inflation. Banks responded by raising their lending rates to over 30 per cent per year. The income they are generating from placements in treasury bills, commercial paper (CP) and bonds has also been significant, averaging 25 per cent per annum,” Uzum said.

He pointed out that while Q1 2025 results expected before the end of April may show a dip in profits compared to the same period last year, this should not be interpreted as a downturn, rather, it reflects a return to more stable and recurring income streams, as banks shift away from one-off FX revaluation gains.

Chief Executive Officer of Cowry Asset Management Limited, Dr Johnson Chukwu, said the era of outsized profits for Nigerian banks may be winding down as FX gains fade and interest rates begin to moderate.

“The banking sector, having enjoyed years of stellar earnings powered by high interest rates and currency volatility, now faces headwinds for sustained profit growth. As interest rates moderate, profit margins could tighten. Still, we believe that banks with strong loan book growth and non-interest income strategies will likely be solid options for investors,” he said.

In 2024, banks stood out as top performers largely due to FX gains. In contrast to the banking sector, many companies in the real sector, including Dangote Sugar, Nestlé Nigeria, BUA Cement and Guinness Nigeria, were hit hard by FX losses in 2024 due to their exposure to dollar-denominated liabilities. The divergence in impact underscores the unique position banks enjoyed during the currency crisis.

The top five banks – FBN Holdings, United Bank for Africa (UBA), GTCO, Access Holdings and Zenith Bank – achieved pre-tax profit of N5.1 trillion, a 59 per cent growth compared to N3.2 trillion posted in 2023.

Their gross earnings rose from N9.6 trillion to N17.3 trillion, representing an increase of 80 per cent.

However, the significant foreign exchange (FX) gains that boosted the profits in the 2024 financial year are unlikely to recur in 2025. The naira has shown relative stability in recent months, following a series of monetary and fiscal policy interventions by the Central Bank of Nigeria (CBN) aimed at curbing volatility in the FX market.