By Gbenga Adedayo
First City Monument Bank (FCMB) is projecting a boost in profits due to a weaker naira in 2021 as it did in the previous year when foreign currency earnings rose more than two-fold to 10 billion naira ($24.5 million) from 3.5 billion naira.
The Acting Managing Director of the bank, Yemisi Edun, said this at a call in Lagos, Nigeria’s commercial hub. The bank said that the widening gap between the spot and forward rates of the naira signals further devaluation of the currency.
The devaluation of the currency last year partly boosted FCMB’s interest income which rose 9.9% to 151 billion naira from “earnings in foreign currency that on translation increased interest income,” Edun said, adding “The gap between the spot and forward rate in the market also supports this foreign-exchange gain.”
Nigeria devalued the naira twice last year in response to demand pressure after a crash in the crude price triggered by the coronavirus pandemic hampered revenue from oil, which accounts for about 90% of foreign currency earnings. The central bank may devalue the currency again in the short term to meet the conditions for international financing, Goldman Sachs said in a report Wednesday.
Investors expect the naira to trade at 425.69 naira per dollar in three months and 440.50 naira per dollar in six months based on non-deliverable forward contracts quoted in Lagos on Thursday. That compares to a spot rate of 407.38 naira as at 8.21 a.m.
Africa’s largest economy operates a multiple exchange rate regime with a pegged official rate of 379 naira 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.
-Bloomberg