In response to ongoing challenges posed by foreign exchange scarcity, the Central Bank of Nigeria (CBN) has announced an extension of the timeline for the issuance of letters of credit from 24 hours to five working days. The move comes as part of the newly approved 2023 service charter, marking a departure from the 2020 service charter, which had set the timeline at 24 hours.
The adjustment is not limited to letters of credit, as the CBN has also extended the timeline for the registration of Form M and NXP from 24 hours to two working days, as observed by financial analysts at RateCaptain.
Earlier in June 2023, the CBN made headlines with its announcement of the unification of all segments of the forex market, consolidating various windows into a single official platform for foreign exchange transactions. While this measure was intended to enhance liquidity and stability in Nigeria’s forex market, it appears to have triggered unintended consequences, contributing to further instability.
RateCaptain reported a significant depreciation in the value of the naira, which lost nearly a fifth of its value, trading at N951.2/$ on the official Investor and Exporter forex window on Wednesday. This depreciation has had far-reaching effects on both local and international trade, particularly impacting the import of goods and services. Reports suggest that foreign suppliers are now rejecting letters of credit from Nigerian businesses, adding strain to the already challenging economic situation.
For the importation of visible goods, a letter of credit serves as a mode of payment. It involves the bank providing a written promise to pay the exporter a specified sum within a designated timeframe, contingent on the customer furnishing the bank with the necessary documentation. Additionally, the importation of goods denominated in foreign currency into Nigeria requires the completion of Form M by importers and the Nigeria Export Proceed Form (NXP) by exporters.
The decision to extend the timelines for letters of credit, Forms M, and NXP in the newly approved service charter is believed to be a response to the current forex crisis in the country. Analysts speculate that the move is an effort by the CBN, under the leadership of Governor Yemi Cardoso, to manage cash flow and instill confidence in the transaction process, thereby preventing disruptions.
In a statement, the CBN emphasized that the service charter is a requirement of the Business Facilitation Act 2022, designed to improve the ease of doing business in Nigeria. The charter aims to align the CBN with SERVICOM’s directives on enhancing customer service delivery, reaffirming the bank’s commitment to providing effective and timely services to stakeholders and consumers.
Yemi Cardoso, in the foreword of the revised document, highlighted the CBN’s dedication to fostering responsive and citizen-friendly governance through excellent, efficient, responsible, and transparent service delivery. In response to questions about the extended timelines, Mr. Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, suggested that the CBN’s move may be a strategic effort to manage cash flow and bolster confidence in the transaction process to prevent disruptions.