Bank boosts earnings in foreign currency with more Naira devaluation

*Goldman Sachs’ report has stated the Central Bank of Nigeria may devalue the Naira, again, in the short term to meet the conditions for international financing

Emmanuel Akosile | ConsumerConnect

An official of Nigerian lender FCMB Group Plc has said at an investor call, that a widening gap between the spot and forward rates of the country’s Naira signals further devaluation of the currency.

The bank is projecting a boost in profits due to a weaker Naira in 2021 as it did in the previous year.

Yemisi Edun, Acting Managing Director of FCMB Limited, who stated this at the call in Lagos, Nigeria’s commercial hub, said when foreign currency earnings rose more than two-fold to 10 billion naira ($24.5 million) from 3.5 billion Naira, Bloomberg report said.

Edun said: “The gap between the spot and forward rates in the market also supports this foreign-exchange gain.”

The Nigerian Government devalued the local unit twice 2020 in response to demand pressure after a crash in the crude price triggered by the novel Coronavirus (COVID-19) pandemic hampered revenue from oil, which accounts for about 90 percent of foreign currency earnings.

Goldman Sachs in a report Wednesday, March 31, 2021, stated that the Central Bank of Nigeria (CBN) may devalue the national currency, again, in the short term to meet the conditions for international financing.

Investors expect the Naira to trade at N425.69 per dollar in three months and 440.50 Naira per Dollar in six months, based on non-deliverable forward contracts quoted Thursday, April 1 in Lagos. That compares to a spot rate of 407.38 naira as of 8.21 a.m. Thursday.

Africa’s largest economy operates a multiple exchange rate regime, with a pegged official rate of N379 to the Dollar, and a controlled but more flexible rate for investors, exporters and some government transactions.

There are also rates for small businesses and a parallel market rate that the central bank considers illegal.

The country has resisted calls by the International Monetary Fund to merge the rates.

Edun noted that similar devaluation of the currency in the past year partly boosted FCMB’s interest income to 9.9 percent to N151 billion from “earnings in foreign currency that on translation increased interest income.”