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Pressure to Devalue Naira Grows Amid CBN Resistance

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CBN

The persistent weakness of the naira, occasioned by low oil price in the international market, calls for devaluation of the currency sooner than later, industry experts have said, urging the Central Bank of Nigeria to review its restrictive foreign exchange polices.

The price of crude oil, the nation’s biggest source of foreign exchange, dropped below $35 per barrel last week, the lowest level since July 2004.

The naira took a further beating at the parallel market, trading near its lowest of N280 against the dollar on Thursday. It had on December 17, 2015 crashed to 280 against the greenback on the unofficial market.

Declining oil prices and the unwillingness of the CBN to devalue the naira amid constrained external reserves had continued to worsen the foreign exchange liquidity position of Nigerian banks, Renaissance Capital, a London-based investment bank, said in a report last month.

The naira had been devalued twice since the drop in global oil prices began, first in November 2014, when the central bank lowered the midpoint of the official peg by eight per cent to 168 per dollar.

In February 2015, the CBN also scrapped its twice-weekly auctions at which the naira was sold at a subsidised rate, a move that resulted in an effective weakening in the exchange rate of the currency by about 15 per cent.

The currency had lost 28 per cent of its value in the six months to February 2015 before the central bank fixed the exchange rate at N198 per dollar and tightened capital controls.

Since then, the central bank has sought to prop up the ailing naira with several measures, including stopping importers of around 40 items from toothpicks to glass and wheelbarrows from buying foreign exchange; restricting the use of local debit cards overseas; lowering Automatic Teller Machine withdrawal limits; and barring Nigerians from depositing hard currencies into their domiciliary accounts.

The Managing Director and Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, said the restrictions the CBN had recently put in place in the wake of the shortage of foreign exchange had been counter-productive.

He said, “The way forward to a sustainable exchange rate is to attract foreign investment. There is no country that can sustain a stable exchange rate if all you rely upon is what you earn from exports.

“My big issue with the way the central bank has chosen to manage the naira is that the it speaks about the reserves and exchange rate situation as if it is only about trading, and I think they get it wrong in that regard. It is not all about trading; capital flows matter.”

Teriba said the restrictive policies had scared capital away from Nigeria and eroded confidence of wealth holders in holding naira-denominated assets.

He added, “Countries that get comfortable reserves positions are countries that have regard for capital flow. They solicit and court capital flows and encourage people who bring their money into their jurisdiction to retain confidence in their ability to manage it. That is the neglected dimension in the face of the increased demand for forex; the CBN was announcing list of items that you cannot source official forex to import, and that is very wrong.

“By the time you start telling people that they cannot use their debit cards abroad, do you think that is going to encourage them to hold more money in naira? It is going to scare them to even flee the naira the more.”

The Financial Derivatives Company Limited, headed by renowned economist, Mr. Bismarck Rewane, in its latest Economic Bulletin, noted that the next meeting of the Monetary Policy Committee of the CBN in two weeks would come up at a time when there were mixed signals on the direction of the monetary policy in the country.

“The CBN is expected to announce a new forex policy, which will give it the flexibility to bring the external and domestic economic variables into equilibrium,” they added.

This may include the announcement of a new exchange rate band, with a floor of N185 and a ceiling of N220, during the first quarter of the year, the FDC said.

“Nigeria’s external reserves are below $29bn. The anticipated adjustment in the exchange rate band is expected to slow-down the rate of depletion, as the demand pressure eases. However, with oil prices still soft at $37 per barrel, the likelihood of an accretion is slim,” the FDC analysts said.

The Global Chief Economist at Renaissance Capital, Charles Robertson, said he said in an emailed response to questions from our correspondent, “Given that oil producers around the world are devaluing, from Azerbaijan to Angola, investors do expect a similar move in Nigeria.

“Indeed, letting the market set the currency rate could help President Buhari achieve his anti-corruption goals.”

The Head, Investment Research, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said, “The challenges we see around the naira have continued to compound, and they show that several policies that the CBN has introduced have refused to yielded any positive results and that call for a review of the policies.

“The pressure we have seen in recent times, especially last week, can still be linked to the fact that the demand for the dollar has not been reduced. It is just that it has been shifted from the interbank to the parallel market.

“It further buttresses what the IMF boss has reiterated in terms of being flexible regarding our foreign exchange policies, which simply put means devaluation, to reflect the current reality that we are seeing in terms of global oil prices that have been on the downward trend.”

Ebo said for the CBN to be able to close the gap between the parallel market and the interbank rates, it would need to devalue the naira by a minimum of 25 per cent.

He added, “But beyond the devaluation, they also need to watch the policies so that we don’t see an immediate increase in the spread between the interbank and the parallel market after the devaluation.

“So, it is more of policy-driven than just devaluing. If we continue to hold on to these restrictive policies, then you create arbitrage and round-tripping and other unethical practices.”

The Managing Director, International Monetary Fund, Ms. Christine Lagarde, had last week during her visit to Nigeria, said the goal of achieving external competitiveness required a package of policies, including business-friendly monetary, flexible exchange rate and disciplined fiscal policies, as well as implementing structural reforms.

“Additional exchange rate flexibility, both up and down, can help soften the impact of external shocks, make output and employment less volatile, and help build external reserves. It can also help avoid the need for costly foreign exchange restrictions, which should, in any case, remain temporary,” she said.

The CBN may revise its target for the naira by more than 20 per cent to 240 to 250 per dollar as oil continues its decline, a London-based economist at Exotix Partners LLP, Alan Cameron, said in a research note last week.

Africa economist at Capital Economics, John Ashbourne, said in a note to clients last Wednesday that Nigeria would be forced to devalue the naira to around 240 per dollar in the first half of 2016, adding, “Cumbersome foreign exchange restrictions are strangling economic growth.”

Punch

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Banking Sector

Zenith Bank is Nigeria’s Best Commercial Bank for Second Consecutive Year

Zenith Bank Plc, Nigeria’s leading financial institution, has emerged as the best commercial bank in Nigeria for a second consecutive year at the World Finance Banking Awards 2022.

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Zenith Bank Award Presentation

Zenith Bank Plc, Nigeria’s leading financial institution, has emerged as the best commercial bank in Nigeria for a second consecutive year at the World Finance Banking Awards 2022. The leading bank was also named the best corporate governance bank.

The awards were in recognition of the bank’s sound digital transformation and best-in-class sustainability and corporate governance practices that over the years have led to a stellar business performance, even in a difficult economic climate like Nigeria.

At the awards presentation at the London Stock Exchange on Monday was the Group Managing Director and Chief Executive Officer, Zenith Bank Plc, Mr. Ebenezer Onyeagwu.

Speaking on the awards, Onyeagwu said “These awards reflect our strong business fundamentals, resilience and ability to adapt to the ever-changing dynamics of the market through our innovative solutions, as well as our commitment to global best practices. As a member and signatory to various domestic and international sustainability frameworks including the United Nations Global Compact (UNGC) and the Central Bank of Nigeria Sustainable Banking Principles, we continue to support the achievement of the Sustainable Development Goals (SDGs) by creating value for our shareholders, customers, clients, investors, communities and the environment through our practices, operations and investments.”

Onyeagwu went on to dedicate the awards to Jim Ovia, CON, the Founder and Group Chairman, for his pioneering role in building the structures and laying the foundation for an enduring and very successful institution; the Board for the outstanding leadership they provide; the staff for their commitment and dedication; and the bank’s customers for making Zenith Bank their preferred financial institution.

Zenith Bank’s track record of excellent performance has continued to earn the brand numerous awards, with these latest accolades coming on the heels of several recognitions including being voted as Best Bank in Nigeria, for three consecutive years from 2020 to 2022, in the Global Finance World’s Best Banks Awards; Best in Corporate Governance ‘Financial Services’ Africa, for three consecutive years from 2020 to 2022, by the Ethical Boardroom; Best Commercial Bank, Nigeria and Best Innovation In Retail Banking, Nigeria in the International Banker 2022 Banking Awards; and Bank of the Year (Nigeria) in The Banker’s Bank of the Year Awards 2020. Also, the Bank emerged as the Most Valuable Banking Brand in Nigeria in the Banker Magazine Top 500 Banking Brands 2020 and 2021, Number One Bank in Nigeria by Tier-1 Capital in the “2021 Top 1000 World Banks” Ranking by The Banker Magazine and the Retail Bank of the year at the BusinessDay Banks and Other Financial Institutions (BOFI) Awards 2020 and 2021.

Similarly, Zenith Bank was honoured as Bank of the Decade (People’s Choice) at the ThisDay Awards 2020 and emerged winner in four categories at the Sustainability, Enterprise, and Responsibility (SERAS) Awards 2021, carting home the awards for “Best Company in Reporting and Transparency”, “Best Company in Infrastructure Development”, “Best Company in Gender Equality and Women Empowerment”, and the coveted “Most Responsible Organisation in Africa.

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Finance

Bank Account Ownership in Nigeria Increased to 45% – World Bank

The number of unbanked adults in Nigeria continues to decline as the Federal Government through the Central Bank of Nigeria (CBN) intensified financial inclusion efforts.

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Global Banking - Investors King

The number of unbanked adults in Nigeria continues to decline as the Federal Government through the Central Bank of Nigeria (CBN) intensified financial inclusion efforts.

The percentage of adults with a bank account in Nigeria rose to 45% from 30%, according to the latest World Bank report titled ‘The Global Findex Database 2021’ obtained by Investors King.

The number includes all accounts with regulated financial institutions in Nigeria.

In part, the report reads, “Individual economies saw different rates of growth over the past decade. Between 2011 and 2021, economies such as Peru, South Africa, and Uganda drove up the average with account ownership increases of 25 percentage points or more.

“Uganda, in fact, saw its rate more than triple, from 20 per cent to 66 per cent. In India, account ownership more than doubled in the past decade, from 35 per cent in 2011 to 78 per cent in 2021. This outcome stemmed in part from an Indian government policy launched in 2014 that leveraged biometric identification cards to boost account ownership among unbanked adults.

“Other economies saw much smaller increases over longer periods. Pakistan, for example, grew by just 10 percentage points over the past decade, from 10 per cent in 2011 to 21 per cent in 2021. The Arab Republic of Egypt and Nigeria increased ownership by 18 percentage points and 16 percentage points, respectively—from 10 per cent to 27 per cent in Egypt, and from 30 per cent to 45 per cent in Nigeria.”

The Washington-based bank attributed the increase in account ownership in Nigeria and other African nations to growing mobile payment adoption.

It stated, “In Sub-Saharan Africa in 2021, 55 per cent of adults had an account, including 33 per cent of adults who had a mobile money account—the largest share of any region in the world and more than three times larger than the 10 per cent global average of mobile money account ownership.

“Sub-Saharan Africa is home to all 11 economies in which a larger share of adults only had a mobile money account rather than a bank or other financial institution account. The spread of mobile money accounts has created new opportunities to better serve women, poor people, and other groups who traditionally have been excluded from the formal financial system.”

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Finance

CBN Offers Farmer N131 Billion Loan Guarantee

The Central Bank of Nigeria (CBN) through its Agricultural Credit Guarantee Scheme Fund (ACGSF) has guaranteed loans estimated at N13.903 billion for farmers across the country.

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Food Security - Investors King

The Central Bank of Nigeria (CBN) through its Agricultural Credit Guarantee Scheme Fund (ACGSF) has guaranteed loans estimated at N13.903 billion for farmers across the country.

The CBN disclosed this on Thursday at the national award ceremony for the 2021 Best Farmer of the Year Award organised by the ACGSF in Abuja.

According to Mr Stephen Okon, the Chairman ACGSF, “A total of 1,232,326 loans valued N130.903b were guaranteed from inception to May 2022 out of which 973,646 beneficiaries had repaid a total of N98.91b.”

In the Federal Capital Territory (FCT), ACGSF guaranteed a total of 82 loans worth N22.580 million between January to May 2022. This, according to Okon, brought the total loans guaranteed in FCT from the begining of the scheme in 1978 to May 2022 to 14,258 and at a value of N1.748 billion.

In terms of loan recovery, the Chairman said FCT farmers have repaid 11,726 loans worth N801.058 million since inception, adding that the positive result showed a high level of commitment of loan offers in FCT as well as the determination of the farmers.

“We do hope that before long, participants in the agricultural value chain in the FCT will take advantage of the opportunities provided in the Amended Act,” he said.

The ACGSF was created under in April, 1978 to de-risk agricultural loans by providing guarantees to deposit money banks offering loans to the agricultural sector.

Speaking on Thursday ceremony, Michael Onyeka Ogbu the Abuja Branch Controller, said the gathering shows CBN commitment to supporting hard work, innovation, and productivity in the agricultural value chain.

“To this end, the CBN challenges Nigerian farmers to explore our various agricultural interventions aimed at enhancing value addition to their output towards attaining food self-sufficiency, provision of raw materials to our manufacturing industries and also for export, which ultimately assists in diversifying and improving the foreign exchange earnings base of our economy,” he said.

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