• Export declines by 12.7% to $22.59bn on naira depreciation

Payments through Letters of Credit (LC) amounted to $1.03 billion between January 2024 and February 2025, the Central Bank of Nigeria’s (CBN) latest data on international payments has shown.

An analysis of the apex bank’s data indicates that LC payments gulped $873.07 million last year, about 33.35 per cent drop from the $1.31 billion recorded in 2023. Additionally, the data shows that the payments stood at $64.55 million and $95.59 million in January and February 2025, respectively.

This means that total LC payments for the 14-month period amounted to $1.03 billion. 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 decline in LC payments in 2024, when compared with the amount recorded for the previous year, to decreased import activity occasioned by foreign exchange scarcity.

Indeed, in a report released in November last year, global rating agency, Fitch Ratings, said Nigeria’s foreign exchange market was still lacking stability despite reform measures introduced by the CBN.

The report said: “The Central Bank of Nigeria is initiating several measures to address FX liquidity challenges and formalise FX activity to support the currency.

These include plans to introduce an electronic FX matching platform for all FX transactions effective December 1, 2024, to provide intra-day prices in real-time and enhance transparency.

“The CBN has also raised the monetary policy rate five times by a cumulative 850bp to 27.25 per cent since February 2024. However, Fitch believes that the FX market has yet to stabilise, and the ongoing flexibility of the exchange rate remains to be tested.”

Although, the rating agency noted that Nigeria’s FX reserves rose to $39 billion in mid-October 2024 from a low of $32.1 billion in mid-April, it questioned the true net reserves position, estimating that about a quarter of current gross reserves comprised FX swaps with local banks.

“There is significant uncertainty over the size of net reserves. We estimate that around one-quarter of current gross reserves are made up of FX swaps with local banks, although we expect most of these to continue to be rolled over,” Fitch stated, noting that while these FX swaps were expected to be rolled over, they still contribute to uncertainty in the FX market’s stability.