Letters Of Credit Surge 33.3% On Improved Forex Liquidity

Improved access to foreign exchange in Nigeria’s financial system has spurred a surge in trade-related transactions, with the value of Letters of Credit (LCs) rising by 33.3 per cent year-on-year in the first eight months of 2025.

According to data from the Central Bank of Nigeria (CBN), total international payments facilitated by the apex bank declined by 14.3 per cent to $4.14 billion between January and August 2025, compared to $4.83 billion recorded in 2024. However, the increase in LCs, which rose from $453.91 million to $605.01 million, shows renewed activity in import financing and growing confidence in the forex market.

Analysts attributed the development partly to improved liquidity in the foreign exchange market and a stronger naira, which has eased access to trade finance instruments for importers and manufacturers.

Despite the positive uptick in trade-related payments, the data also showed a general slowdown in other categories of external costs. Foreign debt service payments, which accounted for 69.2 per cent of total international payments, fell by 6.5 per cent to $2.86 billion from $3.06 billion in the corresponding period of 2024.

Direct remittances had slumped by 48.9 per cent year-on-year to $671.86 million, down from $1.32 billion a year earlier. The sharp drop was attributed to lower payments for international services by Nigerian residents.

Analysts at Cordros Capital, commenting on the improved LCs noted that while the decline in remittances and debt service payments helped moderate total outflows, the rise in LCs underscores a gradual return of confidence to Nigeria’s forex market following months of reforms by the CBN to unify exchange rates and clear outstanding forex obligations.

The analysts further projected that international payments may rise in the short term, driven largely by upcoming debt obligations, including the refinancing of the $1.2 billion Eurobond maturing in November 2025.

Meanwhile, data from the CBN also showed that credit to the private sector increased modestly by 1.5 per cent year-on-year to N75.83 trillion in August 2025, from N74.73 trillion in the corresponding period of 2024.

However, credit to private sector fell to N75.8 trillion in August 2025 when compared to the N76.12 trillion recorded in June 2025. This marks the fifth time this year that lending to businesses and individuals has declined.

Data reveals that credit to the private sector reached its highest level in April 2025 at N78.1 trillion. The decline in credit began earlier in February 2025, when total private sector credit dropped from N77.3 trillion in January to N76.3 trillion. This downward trend persisted through March, falling further to N75.9 trillion. Although April saw a brief recovery to N78.1 trillion, the momentum was short-lived, with credit levels dipping again in May and June.

The recurring monthly contractions in 2025 suggest possible liquidity pressures, a cautious lending stance by banks, or a slowdown in credit demand from the private sector amid tight economic conditions.