Bank group opposes Nigerian govt’s “ill-timed” dollar windfall tax

The Bank Directors Association of Nigeria (BDAN) has opposed a newly imposed 70% windfall tax on foreign exchange gains made by Nigerian banks.

The group labelled the tax, introduced last month by the federal government in an effort to bolster the nation’s fiscal position, as an “excessive burden” on the banking sector, particularly as the industry navigates economic challenges and faces pressure to meet tightened capital requirements.

The windfall tax targets profits that banks have realized from foreign-currency assets, which surged in value when converted to naira following the Central Bank of Nigeria’s (CBN) relaxation of exchange controls in June 2023.

The policy change was part of a broader effort to end persistent dollar shortages and attract foreign investment, but they also led to a significant depreciation of the naira, which has lost about 70% of its value against the dollar in the last one year.

Critical Time

The introduction of the windfall tax comes at a critical time for Nigerian banks. In March, the CBN mandated that banks increase their capital reserves, giving them a two-year deadline to comply.

Lenders with international subsidiaries are required to raise their capital tenfold to N500 billion, while those operating locally must increase their capital eightfold to 200 billion naira. The new tax, effective until the end of 2025, could severely impact these recapitalization efforts, the BDAN warned.

“The tax is excessively burdensome and ill-timed, particularly considering the ongoing bank-recapitalization efforts,” the BDAN said in a statement. “We respectfully urge the National Assembly to revisit these amendments and engage in constructive discussion.”

The concern is shared by credit rating agency Moody’s, which last month cautioned that the tax would reduce banks’ profits available to absorb bad loans and trim their retained earnings—a critical component of regulatory capital.

Despite these concerns, some industry leaders have urged banks to support the government’s fiscal measures.

FBN Holdings Plc Chairman, Femi Otedola, called on lenders to accept the tax as a necessary contribution to the struggling economy. Five major banks have already launched equity offers to raise capital and meet the CBN’s 2026 deadline.

However, the BDAN has also raised questions about the implementation of the tax, seeking clarification on what constitutes taxable foreign-exchange transactions and how banks that incur losses rather than gains will be treated under the new levy. The group warned that such a high levy could stifle growth and innovation within the banking sector.