25 September 2014, Abuja – The Central Bank of Nigeria (CBN) says Chinese manufacturers have started rejecting Letters of Credit (LCs) from Nigerian importers, insisting on cash payment only.
Its Director, Trade and Exchange, Olakanmi Gbadamosi lamented that in spite of improved banking regulation in the country and the apex bank’s cash-less policy, the Chinese exporters still reject LCs from the country.
Gbadamosi spoke at the 2014 Wema Bank Customer Trade & Structured Finance Forum in Lagos.
An LC is a document issued by a financial institution or a similar party, assuring payment to a seller of goods or services provided certain documents have been presented to the bank. LC serves as a guarantee to the seller that the money will be paid regardless of whether the buyer ultimately fails to pay.
It ensures that the risk that the buyer will fail to pay is transferred from the seller to LC’s issuer. The letter can also be used to ensure that all agreed standards are met by the supplier, provided that these requirements are reflected in the documents described in the letter of credit.
Gbadamosi, who was represented by CBN’s Deputy Director, Trade and Exchange, Mrs. Onyinye Ahuchiogu said the practice is affecting Chinese trade volume with the country and is being addressed.
“At CBN, we are aware of that because I want to tell you authoritatively that at that end, some people monitor foreign exchange flows. We do know that so much money goes to China, cash, not LCs. The demand for cash is against the CBN cash-less banking policy.
“I do know that the cash-less policy is gaining ground; everybody is going cash-less, but China has refused. I think it is a bilateral issue and we have suggested that it should be tackled because this people are doing business in our environment and they are making profit. They are enjoying our environment. Despite security challenges in Nigeria, businesses are still thriving.”
He however said the CBN is looking at ways of resolving the challenge.
Continuing, he said the CBN is committed to ensuring that banks fund their accounts, two days before the bid date for foreign exchange adding that importers can source for funds either through the official window or interbank.
“As a business man, you can source fund from any segment, depending on the transaction you want to execute. But in Nigeria, we have a list of eligible bank transactions, which we expect that importers chose only from this list. It is also our expectations that banks educate their customers about these transactions, and the supporting documents needed for effective import,” he said.
– The Nation