FX turnover sees first collapse following Afrexim Bank’s $925 million announcement

On Monday, there was a 39.95% decline in the foreign exchange (FX) turnover on the Nigerian official market.

By the conclusion of last week, it was down from $269.27 million to $161.69 million.

On the first trading day of the week, it seemed that investors and traders exercised caution.

Lower trading volumes were probably the outcome of the participants’ cautious approach, which allowed them to assess the state of the market before making big decisions.

This is the first crash since June 6, 2024, when Afrexim Bank revealed that $925 million had been disbursed, which was another tranche of the $3.3 billion loan deal that the bank had last year with the NNPC secured by crude oil.

The bank made this information public in a post on its website, noting that the facility has now received $3.175 billion in payments.

The bank clarified that the latest payment was made possible by the proceeds from the sale of crude oil to companies such as Oando Group and Sahara Energy.

Naira and FX turnover trend after the $925 million announcement

The naira was worth N1,481.49/$1 on June 6, 2024, according to data from the FMDQ, which indicates a 0.48% gain over earlier values on the NAFEM window. FX turnover values increased by 3.84% over this time, reaching $213.31 million.  

But on June 7, 2024, the value of the naira dropped somewhat to N1,483.99/$1, indicating a marginal fall of 0.17%. It’s interesting to note that this day had a significant 26.23% increase in FX turnover, hitting $269.27 million.

The value of the naira increased by 0.02% by June 10, 2024, to N1,483.62/$1. Even with the exchange rate’s small gain, FX turnover dropped by 39.95% from the previous trading session.

Four days after Afrexim Bank announced on June 6, 2024, that $925 million had been disbursed as part of a $3.3 billion crude oil-backed loan arrangement, there was a notable decline in foreign currency turnover, which confirms the instability of Nigeria’s foreign exchange market.

Although the goal of this large funding infusion was to stabilize the market, the ensuing volatility exposed lingering issues.

Things To Note

The African Export-Import Bank (Afrexim Bank) provided the federal government, through the NNPC, with a $3.3 billion crude oil-backed lending facility after the FX market unification in June 2023 and the ensuing depreciation of the naira.

Given the extreme volatility, the National Economic Council (NEC) had stated last year that it was certain the loan would contribute to the stabilization of the foreign exchange market.

Notably, on Monday, the value of the naira fluctuated between N1,410/$1 and N1,505/$1. 

In a market with high volatility, the trading range may not be dramatic, but it does show significant swings within a single trading day.

Variability of this nature may be an indication of how the market is reacting to recent financial interventions as well as changing dynamics of supply and demand.