• Tuesday, March 05, 2024
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Nigeria should switch to managed currency float, Ecobank says


Nigeria, whose currency lost almost 8 percent against the dollar this year, would benefit from letting market forces have more say over its exchange rate, according to Albert Essien, chief executive officer of Ecobank Transnational Inc.

“I would move to a regime of managed floating of the currency,” Essien, head of the largest pan-African lender which is active in 36 countries, said in an interview at Bloomberg’s office in London on Friday. “I don’t see how they can manage to intervene the way they are doing. I need to know how they could continue to hold on.”

Nigeria’s central bank on Thursday vowed to fight off speculators taking bets it will devalue the naira after Kazakhstan became the latest country to abandon control of its currency this week.

The naira could be the next currency to go, analysts including Bernd Berg of Societe Generale SA said. The currency is 20 percent overvalued, Renaissance Capital economist Yvonne Mhango said in note on Thursday.

Essien said the central bank would still have to intervene to stabilize the naira even if it did ease restrictions. The regulator may establish a target band for the currency in that scenario, he said.

“Perhaps it may not be advisable to leave it totally to the markets without some guidance in the short to mid-term,” Essien said. “When all these challenges — in China and not knowing what the U.S. would do — abate then perhaps you could take a chance of floating fully.”

The central bank imposed trading restrictions in February to prevent dollars from fleeing the economy. It bolstered rules after a strategy of burning through foreign reserves, down 8 percent this year to $31.6 billion, failed to stop the naira sliding to a record 206.32 per dollar on Feb. 12.

Ecobank reported a 26 percent rise in net income over the period largely due to “managing costs” and expects the full year profit before tax to grow at about 20 percent, Essien said. The group’s non performing loans will be lower than 5 percent this year, he said.

Ecobank is still on track to divest 25 percent of its Nigerian subsidiary this year to local and international investors, Essien said, without elaborating. The unit needs a minimum of $350 million of extra capital, he added.

Essien steps down in September and will be replaced by Ade Ayeyemi, CEO of Citigroup Inc. in sub-Saharan Africa.