Eight Nigerian banks have earned a total of N26.73bn from commissions charged on Letters of Credit issued for international trade transactions from January to September.
Analysis of the third-quarter financial reports of the eight banks indicated that this amounted to 23 per cent increase as against N21.68bn earned by the banks in the corresponding period of 2019.
A Letter of Credit 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 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 Jaiz Bank Plc.
Others are Sterling Bank Plc, Union Bank Plc and United Bank of Africa Plc.
Checks showed the improved earnings were boosted by a rise in revenue from Letters of Credit processed by UBA Plc and First Bank Plc
The remaining six banks reported declined earnings from LCs processed in the nine-month period.
Access Bank reported N1.5bn revenue from LCs issued between January and September 2020, representing 34.78 per cent dip in earnings from N2.3bn in the same period in 2019.
First Bank’s earnings from LCs grew 78.56 per cent from N4.71bn reported in the nine-month period in 2019 to N8.41bn in the same period in 2020.
The earning of the FCMB from Letters of Credit year-on-year dropped by 43.01 per cent from N614.84m in January to September 2019 to N350.39m in the same period in 2020.
Fidelity Bank reported 27.33 per cent reduction in revenue from Letters of Credit from N1.05bn reported in the first nine months of 2019 to N763m in the same period in 2020.
For Jaiz Bank, earnings from Letters of Credit were N123.65m in the nine-month period ended September 2020, dipping by 61.38 per cent from N325.34m in the corresponding period in 2019.
Sterling Bank reported a 6.16 per cent decline in revenue from Letters of Credit from N876m in the nine-month period ended September 2019 to N822m in the same period in 2020.
Union Bank reported N877m revenue from LCs issued between January and September, representing 9.4 per cent dip in earnings from N968m in the same period in 2019.
For UBA, earnings from Letters of Credit were N13.89bn in the nine-month period ended September, increasing by 21.96 per cent from N10.84bn in the corresponding period in 2019.
The reduction in earnings of some banks on letters of credit could be linked to the scarcity of forex, which started since March 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.
