By Elizabeth Adegbesan

Nigeria’s foreign trade payments through Letter of Credit (LC) fell by 146.5 percent year-on-year (YoY) to $434.05 million in the first nine months of 2024 (9M’24) from $1.07 billion in the corresponding period of 2023.

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

An LC is a mode of payment used for the importation of visible goods, where bank guarantees are used instead of cash before shipment.

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.

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

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.

In Q2’24 LCs declined by 47.3 percent quarter-on-quarter (QoQ) to $107.8 million.

The downward trend continued  in Q3’24 when  LCs decreased by 13.9 percent to $193.8 million from $225.06 million in Q3’23.  

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