The Managing Director of Cowry Asset Management Limited, Mr. Johnson Chukwu, has expressed concerns over the imposition of windfall taxes on banks’ foreign exchange profits without accounting for the impact of foreign exchange devaluation on the quality of their risk assets.
He warned that this approach could jeopardize the sustainability of banks’ profitability, as a rise in non-performing loans would erode operating profits in future financial years.
Speaking at a forum in Lagos, Chukwu emphasized the need for regulators to reconsider the structure of the windfall tax.
“A policy that considers the cyclical nature of the banking industry and external shocks, such as economic recessions or fluctuating oil prices, would be more effective,” he said.
He added that imposing such taxes during periods of financial strain could exacerbate challenges faced by banks, limiting their ability to grow and meet capital requirements.
Chukwu also highlighted the stringent requirements imposed by the Central Bank of Nigeria (CBN) on investors seeking to invest in bank shares.
Corporate investors, for instance, must provide three years of audited financial statements, a board resolution authorizing the investment, and tax clearance certificates for the past three years.
While acknowledging the importance of regulation in maintaining the stability and integrity of the financial system, Chukwu called for a more balanced approach.
He urged the CBN to leverage existing customer information within the banking system and avoid imposing excessive conditions on investors, which could deter much-needed investments in the sector.
Chukwu further addressed the constraints imposed by the National Pension Commission on pension funds, which are limited to a maximum of 30 per cent equity investments in a single sector.
While this regulation aims to ensure diversification and minimize risk, he argued that it has inadvertently hindered pension funds from making substantial investments in the banking sector.
“Banks are central to Nigeria’s economy and play a critical role in financing growth. Reviewing the current cap would enable pension funds to increase their exposure to the banking sector, allowing for larger capital inflows and aiding banks in raising the necessary funds for recapitalization,” Chukwu said.