Drawings on letters of credit decline by 73.1% on CBN’s FX directives

Foreign exchange drawings on Letters of Credit (LCs) declined by 73.1 percent to US$0.06 billion in August 2020 following the Central Bank of Nigeria (CBN) directive of discontinuation of third-party payments, using Form M.

The CBN on August 24, 2020, directed all authorised dealers to desist from opening of Form M whose payment are routed through a buying company/agent or any other third parties.

Nigeria’s currency on Wednesday weakened by N1.00k as the dollar was sold at the rate of N462 as against N461 traded on Tuesday on the black market.

The local currency was stable at the Bureau De Change (BDC) segment and at the Investors and Exporters (I&E) forex window as the dollar was quoted at N462 and N386 respectively.

At the I&E window, the daily foreign exchange turnover declined by 89.82 percent to $23.56 million on Wednesday from $231.35 million recorded on Tuesday, data from the FMDQ indicated.

Aggregate foreign exchange outflow through the CBN increased by 12.7 per cent to US$2.67 billion in August 2020 compared with US$2.37 billion in the preceding month, the Apex bank said in its economic report for the month of August released on Tuesday.

The development was due to increased demand necessitated by the uptick in economic activities as a result of the reopening of factories and businesses.

A breakdown of the outflows through the Bank during the review period showed that interbank utilisation amounted to US$1.65 billion; public sector/direct payment, US$0.35 billion; third party Managed Discretionary Account (MDA) transfers, US$0.38 billion; external debt service, US$0.22 billion; foreign exchange special payment, US$0.02 billion; and drawings on L/Cs, US$0.06 billion.

The non-oil sector remained the major source of foreign exchange inflows to the economy through the CBN. Aggregate foreign exchange inflow through the CBN stood at US$2.58 billion, an increase of 30.3 per cent above the level in the preceding month, but a decline of 25.5 per cent below the corresponding month of 2019.

This was attributed, largely, to the 48.1 per cent and 4.7 per cent increase in the non-oil and oil receipts through the Bank to US$1.73 billion and US$0.08 billion, respectively, in the review period. The development was due to the increased demand for oil and the opening of international borders by most countries, which led to the gradual recovery of global economic activities. In the domestic economy, the partial relaxation of lockdown measures also impacted economic activities positively.

A further analysis of non-oil receipts showed that inflows from Interbank/Institutional Swaps increased by 140.0 per cent to US$0.60 billion, other official receipts rose by 35.0 per cent to US$0.42 billion, while interest on reserves and investments amounted to US$0.03 billion with a 77.3 per cent increase.

Similarly, the Treasury Single Account (TSA) and third-party receipts and unutilised funds from foreign exchange transactions rose by 104.9 per cent and 7.7 per cent to US$0.36 billion and US$0.03 billion, respectively, compared with their respective levels in the preceding month.

The report further show that foreign exchange purchases, DMB cash receipts, returned payments and unutilised International Money Transfer Operators (IMTO) funds, declined below the preceding month’s levels by 4.6 per cent, 89.2 per cent, 57.4 per cent and 2.8 per cent to US$0.19 billion, US$0.01 billion, US$0.003 billion and US$0.07 billion, respectively.