(Bloomberg) -- Nigerian banks should scale back their flamboyancy, including spending on private jets, and pay a new windfall tax to regain public trust and support the economy, a top banking executive said.
“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 Thursday, in which he also expressed his “strong support” for the windfall tax.
The West African nation last month slapped banks with a 70% tax on realized profits from foreign-exchange gains to improve the nation’s fiscal position. Lenders with foreign-currency assets made significant profits when converting the assets to naira after the central bank relaxed exchange controls in June 2023 and again in January to end dollar shortages and lure investors. The move led to a more than 70% depreciation in the naira against the dollar.
The profit of Guaranty Trust Bank, the country’s biggest lender by market value, more than tripled in 2023 to 539.7 billion naira ($326 million), driven by the revaluation gains. Net income for FBN more than doubled to 307.22 billion naira.
“Taxing these extraordinary gains ensures a fairer distribution of wealth, allowing those who benefit disproportionately to contribute more significantly to the broader societal good,” Otedola said. “The revenue generated from windfall taxes can be channeled into essential public services such as health care, education, and infrastructure,” he said.
The central bank last year ordered lenders to hold on to the revaluation gains as a buffer against potential future losses. Earlier this year, it increased minimum capital requirements for banks 10-fold to enable them to overcome increasing operational challenges and support economic growth.
Otedola said he supports this move as it is “designed to strengthen the banking sector’s capacity to support Nigeria’s broader economic development goals.” It is crucial for banks to prioritize operational efficiency, technological innovation and customer service instead of “executive extravagance,” he added.
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