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By Chinwendu Obienyi
The imposition of a one-time windfall tax on foreign exchange (FX) gains has led to a significant decline in the value of Nigerian bank stocks. This downturn has resulted in a N1.3 trillion loss in market value for investors trading on the Nigerian Exchange Limited (NGX), according to an investigation by Daily Sun.
The recent tax, approved by the National Assembly, raises the tax on FX gains from 50 per cent to 70 per cent, aiming to boost the nation’s revenue. The Senate has also moved to amend the 2023 Finance Act to implement this tax, leading to a noticeable impact on the stock market. Since the announcement, the market capitalization has fallen from N56.929 trillion to N55.605 trillion, and the All Share Index (ASI) dropped below 100,000 points, closing at 98,202.49.
The banking sector, in particular, has been hard hit. The NGX banking index fell by 2.94 per cent over the week, bringing month-to-date losses to 1.32 per cent. This decline has reversed the 14.8 per cent gain recorded in the first quarter of 2024.
Despite a total turnover of 3.557 billion shares worth N47.220 billion in 42,871 deals, investor confidence in banking stocks remains low. The announcement has also affected banks’ efforts to raise fresh capital to meet the Central Bank of Nigeria’s (CBN) new minimum requirements, with a low subscription turnout reported.
Economic analysts have highlighted the broader implications of the windfall tax. Johnson Chukwu, Group CEO of Cowry Asset Management, noted that the high tax burden could increase non-performing loans (NPLs) as businesses struggle with FX losses, impacting banks’ balance sheets. He warned that the combined pressures of the windfall tax, high Cash Reserve Ratio (CRR), and rising Monetary Policy Rate (MPR) could weaken banks’ ability to lend, thereby slowing economic growth.
Additionally, the naira’s slight depreciation to N1609.29/$1 at the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the increase in the country’s FX reserves to $36.44 billion were noted amid these financial challenges.
The federal government could collect over N400 billion from seven banks as tax on their 2023 FX revaluation gains, yet this approach has raised concerns about the sustainability of imposing such high tax rates without considering the banks’ potential losses from non-performing loans.
Chukwu emphasized the need for a balanced approach to regulation and taxation to ensure that banks can continue to support economic growth without being overburdened by fiscal policies.
