The processing of Letters of Credit for importers by Nigerian banks boosted their revenue profile despite dampened international trade in the pandemic year
Seven Nigerian banks have earned a total of N42.46 billion from commissions charged on Letters of Credit (LC) issued for international trade transactions from January to December 2020.
BizWatch Nigeria’s analyses of the audited financial reports of the seven banks indicated that this amounted to 45 per cent increase as against N29.22 billion earned by the banks in the corresponding period of 2019.
This is despite the disruption of economic activities by the COVID-19 pandemic last year and its impact on travel, supply chain logistics and international trade in goods and services globally.
A Letter of Credit (LC) is an important international trade document issued by a bank to guarantee that a seller will receive a buyer’s payment on time and for the full amount.
Banks usually collect a fee or commission for issuing a letter of credit.
The banks whose financial reports were assessed are Access Bank Plc, First Bank of Nigeria, FCMB Plc, Fidelity Bank Plc and Zenith Bank Plc.
Others are United Bank of Africa Plc and Wema Bank Plc.
Checks showed that the improved earnings were boosted by a rise in revenue from Letters of Credit processed by Wema Bank Plc, Zenith Bank Plc, UBA Plc and First Bank Plc.
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The remaining three banks reported declined earnings from LCs processed in the 12-month period.
Access Bank reported N2.19 billion revenue from LCs issued between January and December 2020, representing 27 per cent dip in earnings from N2.99 billion in the same period in 2019.
First Bank’s earnings from LCs grew by 86 per cent from N6.38billion reported in the 12-month period in 2019 to N11.89 billion in the same period in 2020.
The revenue of the FCMB from Letters of Credit year-on-year dropped by 32 per cent from N773.61 million in January to December 2019 to N522.89 million in the same period in 2020.
Fidelity Bank reported 26 per cent slump in revenue from Letters of Credit from N1.33 billion reported in the first 12 months of 2019 to N1.07 million in the same period in 2020.
For Zenith Bank, earnings from Letters of Credit were N6.80 billion in the 12-month period ended December 2020, growing by 112.5 per cent from N3.2 billion in the corresponding period in 2019.
UBA reported a 35 per cent increase in revenue from Letters of Credit from N14.13 billion in the 12-month period ended December 2019 to N19.12 billion in the same period in 2020.
Wema Bank reported N856.27 million revenue from LCs issued in 2020, representing 109.8 per cent growth in earnings from N408.15 million in the same period in 2019.
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The reduction in earnings of some banks on Letters of Credit could be linked to the scarcity of forex, which started since March last year when oil prices in the international market crashed.
This affected the flow of foreign currency to Nigeria, whose major source of forex income is oil imports.
Manufacturers had complained that banks had been unable to meet their forex needs for inputs that are not available locally, leading to a backlog of dollar, euro and pounds denominated Letters of Credit.
In order to stop forex abuse, the Central Bank of Nigeria had in August directed all authorised dealers and stakeholders to desist from opening of Form M whose payments are routed through a buying company/agent or any other third parties.
The CBN in the circular signed by the Director, Trade and Exchange Department, Dr O. S. Nnaji, said all authorised dealers should only open Form M for Letters of Credit, bills for collection and other forms of payment in favour of the ultimate supplier of the product or service.
Meanwhile, there is optimism that merchandise trade volumes will recover this year after the shock of the pandemic.
The World Trade Organization (WTO) estimated that global trade will rebound by 8 per cent in 2021 on the back of vaccine production and distribution.
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“Ramping up production of vaccines will allow businesses and schools to reopen more quickly and help economies get back on their feet,” said WTO Director-General, Dr Ngozi Okonjo‑Iweala.
Also, the United States Conference on Trade and Development (UNCTAD) reported 10 per cent rebound in global trade in Q1 2021 driven by the strong export performance of East Asian economies.
“Global trade has recorded a faster recovery from the recession caused by the pandemic than in the last two trade recessions,” the UNCTAD economist, Alessandro Nicita, stated.
