Early trading data in the Nigerian Exchange has shown a pattern of decline across bank stocks, as investors react to the proposed 50% tax on FX gains.
According to trading data as of 12.30 pm, there was a 3.16% decline in FBN Holding’s share price, a 0.33% decline in GTCO’s share price, a 3.25% decline in FCMB share price, as well as a 1.89% decline in UBA share price.
Data from some of the brokers have revealed an increase in sell pressure on banking stocks, with a high turnover volume after just two and a half hours of trading.
For example, over 32 million GTCO shares have been traded, with 19.7 million UBA shares already traded at the time.
50% Windfall tax on FX gains
In a proposed amendment to the 2023 Finance Act, the Federal Government is making efforts to apply a one-time windfall tax of 50% on the realized foreign exchange gains recorded by banks in the 2023 financial year.
According to a letter sent by the president to the Senate, the 50% tax would be used to fund the N6.2 trillion additions to the 2024 appropriation budget.
It was noted that the tax would be used to fund “capital infrastructure development, education, and healthcare as well as welfare initiatives all of which are components of the Renewed Hope Agenda.”
In the 2023 financial year, major Nigerian banks recorded FX gains amounting to about N3.37 trillion. However, there will need to be a distinction between the realized and unrealized gains.
After the devaluation of the Naira in 2023, banks in Nigeria recorded significant earnings from the revaluation of their FX-denominated assets. However, for other private sector players, it was a significant dent to their books, as companies like MTN Nigeria suffered a N740 billion FX revaluation loss.
It’s just a normal market reaction
One day after the news of the proposed windfall tax broke, the reaction of the market has been bearish to banking stocks, with analysts noting it was just a normal market reaction.
Adebayo Adebanjo, a senior analyst with Cardinalstone Securities noted, “I don’t think there should be any cause for alarm. It’s just a normal market reaction to corporate announcements that people don’t understand.”
“Though the news is not positive for banks, it’s not something that would have such a big deal on their books as long as it’s within the band of the 2023 financial year.”
The decline in banking stocks led to an early 0.2% decline in the NGX, with the ASI falling to an intra-day low of 99,830.80.
