By John Danjuma Omachonu
The recent proposed windfall tax on the profits banks made due to the naira’s devaluation in 2023 and new capital requirements by the federal government of Nigeria may have put the industry under scrutiny, metribusinessnews.com (MBN) interactions with stakeholders have revealed.
Both exercises have equally brought tremendous income, both earned and unearned as well as opportunities for consolidation of grips on these institutions by their owners/chairmen.
But, in the midst of these, the economy continues to deteriorate while the customers battle with discrimination in terms of loan facility, unimaginable charges, threatening development and financial inclusion.
In mid-July, President Tinubu introduced a one-time windfall tax aimed at the substantial foreign exchange gains reported by banks in 2023.
Tinubu proposed the tax as part of an amendment to the 2023 Finance Act, seeking to generate additional revenue for crucial infrastructure, education, and healthcare projects under his Renewed Hope Agenda.
Nonetheless, the Senate recently passed the amendment bill, increasing the windfall levy from the initially proposed 50 per cent to 70 per cent. It also extended the tax’s applicability from the end of 2023 to all profits from FX transactions through 2025
Also, following the new capital requirements by the Central Bank of Nigeria, (CBN), to be met between now and 2026, the banks have began aggressive revenue drives through public offerings and rights issue, while other options like mergers and acquisition, downgrading are being exploited by others.
Currently, five banks are in the market seeking to raise about N1.36 trillion in capital through rights issues and public offers, the largest ever seen at a time in Nigerian stock market history.
GTCO Holdings is on track with its N400.5 billion public offer, where it seeks to issue 9 billion shares at N44.50 each. While Access Holdings is conducting a N351 billion rights issue, with about 17.772 billion shares offered at N19.75 per share.
FCMB Group began its N110.9 billion public offer on July 29, with the bank offering 15.197 ordinary shares at N7.30 per share. And Zenith Bank is due to commence its N290 billion share offering programme on August 1st.
Fidelity Bank’s hybrid offer initially to end on July 29, 2024 has been extended to August 12.
The extension of the offer comes with an increase in the size of the total offer, from the initial N127.1 billion to N205.45 billion.
MBN further gathered that, besides the consolidation of grips by the ‘privileged’ owners and chief executives, raising capital through shares at a price higher than the current market price portends danger for both the banks amd the shareholders.
”Issuing shares at a premium to the current market price may indicate overvaluation, which can lead to a correction in the share price later on.
Also, existing shareholders may experience dilution of their ownership stake, potentially leading to a loss of control, and in the event of unfavourable market situations, the bank may struggle to sell the shares at the desired price,” says an analyst, in response to MBN’s inquiry.
They argue that companies typically offer a larger discount on rights issues because they are exclusively available to existing shareholders, making the discount an additional incentive for these shareholders.
Although, they further argue that the bank’s specific situation, market conditions, and investor sentiment, could be responsible for the higher earnings as basis for the action as justified by some industry operators, but were equally faulted, as not being sufficient enough.
Some analysts wonder why inspite of the humongous profits declared last year and many other income streams like huge investments in Treasury Bills and other fixed incomes over the years, these have neither impacted positively on the economy nor the customers.
Rather, all Nigerians have been contending with are lives of affluence and financial impunity from the custodians of people’s hard earned funds.
This is why most Nigerians are not applauding the bankers’ change of heart to cooperate with the government on the taxing of the windfall gain, not until a meeting by some operators with president Tinubu, and, indeed, after the initial opposition.
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Specifically, the Chairman of United Bank for Africa (UBA), Tony Elumelu has rendered his support for the tax, declaring this after a visit to President Tinubu at the state house, Abuja.
Interestingly, Elumelu emphasized the importance of democratizing prosperity for Nigerians and ensuring access to a good life for everyone and noted banking sector would support the Windfall Levy, which aims to alleviate poverty.
He explained the significance of widespread prosperity, where thriving businesses, job creation, and investor benefits contribute to a happier society and that the newly introduced levy would succeed in creating prosperity for all Nigerians.
He said, “We believe in prosperity. We believe in creating jobs and employment for our people. We believe in making sure that we democratise prosperity and that Nigerians have access to good life. So, today we spoke about the Windfall Tax. We support the government.”
The FCMB Chief, Ladi Balogun, who was in attendance said he was confident that the Tinubu administration would continue to support all stakeholders by promoting growth and investment.
But, the thinking of most Nigerians is that the industry operators should scale back their flamboyancy, including spending on private jets, and pay a new windfall tax to regain public trust and support the economy.
“Nigerian banks are spending an estimated $50 million annually just on maintaining private jets, with over $500 million gone into purchasing nine private jets by four banks,” Femi Otedola, chairman of FBN Holdings Plc, the country’s third biggest lender by market value, said.
“This level of extravagance significantly erodes public trust in our financial institutions and diverts crucial resources away from vital areas,” the billionaire businessman said in emailed statement to Bloomberg, in which he also expressed his “strong support” for the windfall tax.
However, the analysts say the windfall tax is one of the major achievements of this administration, while advising that no amount of pressure should make it change its mind, but that , it should rather be extended beyond 2025.
However , the federal government has restated its commitment to fast tracking development, insisting on simplifying the tax regime by focusing on taxing profits while allowing companies’ capital to grow.