CBN Extends Letter of Credit Timelines Amidst Forex Woes

The Central Bank of Nigeria (CBN) has revised the timeline for issuing letters of credit from 24 hours to five working days, aiming to address challenges posed by the ongoing foreign exchange scarcity in the country.

The move is a departure from the previous 2020 service charter, which set the timeline at 24 hours for the issuance and management of letters of credit.

The 2023 service charter reveals the extended timeline, which is also applicable to the registration of Form M and NXP, now set at two working days.

The changes come amidst efforts by the CBN to navigate the complexities of a unified forex market, introduced in June 2023 to enhance liquidity and stability.

However, this move seems to have triggered unintended consequences, leading to increased market instability and a depreciation of the naira.

Nairametrics reported a nearly 20% devaluation of the naira, trading at N951.2/$ on the official Investor and Exporter forex window.

This depreciation is impacting local and international trade, particularly the import of goods and services.

Foreign suppliers are reportedly rejecting letters of credit from Nigerian businesses, affecting the importation of visible goods.

A letter of credit is a crucial payment mode for the importation of goods, where the bank commits in writing to pay the exporter within a specified timeframe, contingent upon the customer providing the requisite paperwork.

Additionally, the CBN Single Window mandates all importers to complete Form M for importing goods in foreign currency, while exporters must fill out the Nigeria Export Proceed Form (NXP) for outbound goods.

Industry experts, such as Mr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, speculate that the extended timelines may be the CBN’s strategy to manage cash flow and instill confidence in the transaction process, preventing disruptions amidst the ongoing forex crisis in the country.

Source: Nairametrics