CBN: LC Payments Drop 60.23% To $21.49m

Letters of Credit (LCs) payments dropped by 60.23 per cent to $21.49 million in May from $54.03 million in April, latest data released by the Central Bank of Nigeria (CBN) shows.

New Telegraph’s analysis of the apex bank’s data on international payments between January and May 2024, indicates that total LC payments for the five month-period amounted to $279.99 million.

The amount is $482.04 million or 63.26 per cent less than the $762.03 million that went into LC payments in the corresponding period of 2023, according to the CBN’s data.

Specifically, the data shows that LC payments amounted to $58.33 million in January; $102.60 million in February, $43.54 million in March, $54.03 million in April and $21.49 million in May. By contrast, LC payments amounted to $107.78 million in January 2023; $171.95 million in February 2023, $269.49 million in March, $152.52 million in April and $60.29 million in May last year.

This means that LC payments, which dropped by $56.67 million or 4.15 per cent to $1.31 billion in 2023 compared with $1.36 billion in 2022, maintained their downward trend in the first five months of this year.

A Letter of Credit (LC), also known as a documentary credit, is a mode of payment used for the importation of visible goods.

Typically, it is a letter from a bank guaranteeing that a buyer’s (importer) payment to a seller (exporter) will be received on time and for the correct amount, upon presentation of stipulated documents that conform to the terms and conditions of the documentary credit.

Analysts attribute the sharp decline in LC payments between January and May this year, when compared to the amount recorded for the corresponding period of 2023, to concerns about the health of Nigeria’s external reserves, occasioned by the country’s persistent foreign exchange crisis.

For instance, while the CBN announced in March that it had paid $1.5 billion to effectively settle the about $7 billion FX backlog inherited by its Governor, Olayemi Cardoso, when he assumed office in September last year, it refused to approve outstanding Forex forward transactions amounting to $2.4 billion, because it claimed they were ineligible for forex allocation.

Commenting on the issue at the post Monetary Policy Committee (MPC ) meeting press conference in March, Cardoso said that the apex bank relied on the report by Deloitte Consultants to refuse approval for the $2.4billion applications, adding that Deloitte Consultants had produced an audit report that revealed that most of the transactions did not qualify for payment.