Market News

By Elizabeth Adegbesan

Nigeria’s foreign trade payments through Letter of Credit (LC) fell by 65 percent year-on-year (YoY) to $319.9 million in the first seven months of 2024 (7M’24) from $912.3 million in the corresponding period of 2023.

LC payments is one of the critical measure of a country’s credit worthiness. But a decline or increase could also reflect developments in volume of import trades.

The Central Bank of Nigeria, CBN, disclosed this in its International Payments Data for the review period.

A Letter of Credit is a mode of payment used for the importation of visible goods.

It is a written undertaking given by a bank (issuing bank) at the request of its customer in which the bank promises in writing to pay the exporter a certain sum within a certain time frame in return for goods, as long as the customer provides the bank with the proper paperwork.

Breakdown of the data showed that LC payments fell by 15.6 percent to $204.4 million in the first quarter of 2024 (Q1’24) from $242.23 million in the fourth quarter of 2023.

The downward trend continued in Q2’23 when LCs declined by 47.3 percent quarter-on-quarter (QoQ) to $107.8 million.

However, LCs reversed the downward trend after hitting a new low of $32.3 million in July. It stood at $79.65 million in August, rising by 146.6 percent month-on-month from $32.3 million in June.

The decline in letters of credit indicates decline in importation activities due to rising custom duties, strict import regulations, and depreciation of the naira.

Despite the Central Bank of Nigeria’s effort to boost liquidity in the foreign exchange market and stabilise the naira, the exchange rate has remained under pressure hovering above N1,600 per dollar threshold in the past two weeks.