Emmanuel OchayiIn a groundbreaking move aimed at shoring up Nigeria’s dwindling naira, Afrexim Bank is actively engaging oil traders to secure a $3 billion loan for the country’s national oil enterprise, NNPC LTD.
The oil-backed loan is pivotal to Nigeria’s ongoing efforts to stabilize its currency, which has seen it plummet to a rate of 1000 naira to a dollar in the foreign exchange market.
According to Reuters, speaking on condition of anonymity, revealed that Afrexim Bank recently reached out to traders to gauge their interest in supporting this critical loan to NNPC LTD.
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As the talks progress, Afrexim is meticulously crafting the terms to present to trading houses.
A senior oil executive familiar with the discussions commented, “There is a lot of interest, but they need to see the conditions.”
However, the executive requested anonymity due to restrictions on public statements regarding the matter. He also highlighted that an upswing in oil prices, potentially exceeding $90 per barrel, could significantly boost trader interest.
NNPC LTD had initially announced the $3 billion loan in August as part of its relentless drive to prop up the naira, which has been losing ground.
The nation’s economic woes have been exacerbated by currency devaluation and the growing disparity between official and black market exchange rates, driving both individuals and businesses to seek dollars through unofficial channels.
Under the proposed arrangement, traders would receive actual oil cargo as payment from financiers. Afrexim Bank is reportedly painstakingly calculating the precise volume of oil to be allocated to these traders in exchange for their financial backing.
In a related development, Olayemi Cardoso, the newly appointed central bank chief, stated during his confirmation hearing that clearing outstanding foreign exchange obligations to local lenders, estimated at around $7 billion, is his top priority.
The backlog has resulted in a scarcity of dollars on the legal market, forcing companies and individuals to resort to the black market.
Notably, cash-upfront traders are set to receive physical oil cargoes as payment, and the bank is actively working on determining the specific quantities to allocate to various traders in exchange for their funding.
Both NNPC and Afrexim Bank have yet to officially comment on the situation, and NNPC has not made any official announcement regarding this project. However, all eyes are on this innovative alliance as Nigeria strives to stabilize its currency and revive its economy.
The partnership between Afrexim Bank and oil traders presents a unique opportunity to fortify the naira and bring stability to Nigeria’s financial landscape. The ultimate terms agreed upon and the willingness of traders to participate in this venture will be key factors in determining the success of this groundbreaking funding approach.
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