Industry sources say that banks now face even greater operational challenges than they did before the intervention of the CBN Governor, Sanusi Lamido Sanusi.

According to them, the sector faces more serious crisis of confidence, as the publication, which assumed credible Nigerian businessmen as chronic debtors, has inadvertently criminalised the operations of the banks.

Hence the correspondent banks decline confirmation lines for letters of credit opened by Nigerian banks on behalf of their customers.
Said one of the sources: "A bank is as good as its customers; so, if the businessman for which an LC is opened is deemed to be fraudulent, it means that Nigerian banks had been deceiving the correspondent banks.

"In fact, one of the foreign banks had to query its Nigerian agent for not informing it that one of the troubled banks had problems. But the bank (name withheld) never defaulted in any of its transactions with the foreign bank,"

Reacting to the development, Chief Executive Officer of Neimeth International Pharmaceuticals, Mazi Sam Ohuabunwa, blamed the loss of confidence by foreign banks on the CBN forceful change of leadership and publication of the list of debtors by the apex bank.

Ohuabunwa said the CBN governor should have been more discreet in handling the matter.

Another source explained that the former Governor of the apex bank, Professor Chukwuma Soludo, might have observed the problem but, as an economist, chose to handle it more discreetly to avoid "throwing the baby away with the bath water."

Ohuabunwa expressed concern that the lingering loss of confidence could actually create gaps in importation and subsequently lead to high prices, especially for petroleum products.

Importers, who spoke to The Guardian, lamented the development and noted that if not nipped in the bud, the loss of confidence could lead to run-away inflation.

http://www.ngrguardiannews.com/news/article01//indexn2_html?pdate=130909&ptitle=Foreign%20Banks%20Reject%20Letters%20%20Of%20Credit%20From%20Nigeria

What's the significance of this rejection of letters of credit from Nigerian Banks? (for non-bankers)

Seun:

What's the significance of this rejection of letters of credit from Nigerian Banks? (for non-bankers)

It means businessmen and importers will have a hard time doing business. There will be little or no funds available to import. Foreign exchange transactions will be hampered. Oil importers will have difficulty bringing in oil.

4 non-bankers, it might not mean much but rmbr Naija is an import driven economy. So when foreign banks start rejecting LC 4rm Naija banks.
Then there is a serious prblm 4 all importers, meaning prblms 4 naija's economy.

What are letters of credit used for?

Seun:

What are letters of credit used for?

Consider letters of credit as : the paper version of credit cards. A stylish loan that guarantees availability of funds to make a purchase. It simply lets the foreign counterpart know the bank is capable of supplying the funds. More like your credit rating.

We're reaping the benefits of Sanusi's poorly thought through actions.
The most dramatic effect maybe on fuel importers, and the potential for very long fuel lines very soon.

A stylish loan that guarantees availability of funds to make a purchase.

What kind of purchase? (I've never been for a 'letter of credit' by any seller - ever)

Seun:

What are letters of credit used for?

Letters of Credit(Known as LC) is an undertaken from a buyers bank to pay a seller/sellers bank at any trade across national boundaries upon conformation of goods receipt, its generally of 2 types Confirmed and Unconfirmed LC
Rejecting letters of credit means they are rejecting the(our) means of payment used in International trade, Maybe we'll then stop importation and concentrate on Local Production

I'm not Economics, but i think is a good development. If importation stopped, then local production should be gear up. I think is a way forward toward achieving 20-20-20. Shike nan.

Abu-Maryam:

I'm not Economics, but i think is a good development. If importation stopped, then local production should be gear up. I think is a way forward toward achieving 20-20-20. Shike nan.

Well thought but, *e no go easy o* believe me the masses will always be the victim

Seun:

What kind of purchase? (I've never been for a 'letter of credit' by any seller - ever)

Purchases that you can not afford with your own personal money. Then you can seek for LC from your bank.  
If you can afford to pay for your imported goods with your own money, there would be no need for you to seek for LC from your bank. Once your bank agrees to issue the LC to you, the trade between you and your foreign business counterpart would go ahead after your foreign business counterpart have received your LC and also confirm the authentication of your LC with your issuing bank. The foreign business counterpart will then ship out the said goods to your country and on your receipt and confirmation of the goods, your bank will then (immediately) release the payment funds to the bank account of your foreign business counterpart. I hope this simple  kowashiation will be easier for you to understand)

Seun:

What kind of purchase? (I've never been for a 'letter of credit' by any seller - ever)

That is cos you are not a LARGE SCALE IMPORTER OF goods and commodities that require foregin transactions.

Abu-Maryam:

I'm not Economics, but i think is a good development. If importation stopped, then local production should be gear up. I think is a way forward toward achieving 20-20-20. Shike nan.

Olodo. So what happens to the construction industry that relies heavilly on importation of machinery and raw materials alike.
What will happen when a select few start importing fuel at the expense of others (local/nigerian importers) because they have the cash. They will control the market and the effect of deregulation will be lost due to the monopoly. Are you ready to buy fuel for N120 in November?
Of course our reliance on imports is not good. This however is not a positive but a negative for us. Also, a drop in importation can not guarantee increase in local production because of the energy costs. Comppanies have moved to ghana my friend.

Abu-Maryam:

I'm not Economics, but i think is a good development. If importation stopped, then local production should be gear up. I think is a way forward toward achieving 20-20-20. Shike nan.

You dare not bring that your useless awusa illiterate mentality here. What provision have you made for local production to gear up before embarking on disrupting foreign importation? You should take that your brainless discuss to www.kanoonline.com where your almajiris will hail your madman thought without first thinking for themselves as it's their trait.
This is how your useless illiterate awusa people destroyed nigeria and still have the guts to defend their madmen actions. Tomorrow, some iddiots will come out here to write that it's only the elite that destroys the country. Look at what kind of response a human being is given in this situation of sanusi's madness policy only because he is from the same northern nigeria as sanusi. Nonsense!!!

MrCrackles:

How are you sure Sanusi's actions so far are poorly thought out and executed?

You saw how hurried he was. It's one thing to "identify" a problem, and another thing to have a knee-jerk reaction to it. A more matured and seasoned banker would have considered all options before doing anything.

A-town:

That is cos you are not a LARGE SCALE IMPORTER OF goods and commodities that require foregin transactions.

Olodo. So what happens to the construction industry that relies heavilly on importation of machinery and raw materials alike.
What will happen when a select few start importing fuel at the expense of others (local/nigerian importers) because they have the cash. They will control the market and the effect of deregulation will be lost due to the monopoly. Are you ready to buy fuel for N120 in November?
Of course our reliance on imports is not good. This however is not a positive but a negative for us. Also, a drop in importation can not guarantee increase in local production because of the energy costs. Comppanies have moved to ghana my friend.

Bialegend:

You dare not bring that your useless awusa illiterate mentality here. What provision have you made for local production to gear up before embarking on disrupting foreign importation? You should take that your brainless discuss to www.kanoonline.com where your almajiris will hail your madman thought without first thinking for themselves as it's their trait.
This is how your useless illiterate awusa people destroyed nigeria and still have the guts to defend their madmen actions. Tomorrow, some iddiots will come out here to write that it's only the elite that destroys the country. Look at what kind of response a human being is given in this situation of sanusi's madness policy only because he is from the same northern nigeria as sanusi. Nonsense!!!

In as much as I agree with both of you that Abu-Maryam post was short sighted lets tone down on the bashing,

Abu MAryam No country is an Island, No country can produce all she needs, She still needs to trade with others so thinking that this is a good situation for Nigeria is wrong

Vision 20-20-20, what a brainless coward. A country that cannot develop one thing for people to see is talking of vision. We all have vision by the way. Which country even in top thirties that Nigeria try to talk over not to talk of top twenties. A country that has not roads, electricity, unemployment, no security, crime of destructions everywhere, corruption, lack of inforstruction and wild spread poverty, dieing economy or should I say fail state. Please get serious.

And now Sanusi's dust is still settling. Ladies and gentlemen, this is just the beginning of the road ! The global markets and players have started to give judgements.
There is also the part about premiums on Nigerian assets. Which will definitely be more expensive as Sanusi has just told the whole world that Nigerias coporate world is a fraud! So long for FDI and world Capital market funds .

MrCrackles:

So are you trying to say he is not a seasoned banker

Seasoned Nigerian banker but not a seasoned Macro-Economist. He needs to a seasoned bit of the two.(_{Thats if he spends less time on Sharia/islamic and political issues})

Sanusi's likely 2B a very short sighted person,else,he would've realized dt beheading a man is not a solution to headache. Most imported goods are of better quality than our locally produced goods(yes or no?). I'm not an Economist,but from all I've gathered 2day,it's likely not going to be easy to convince d foreign banks dt most Nigerian banks are still credit worthy.Abi!
Somebody help me out,I might be lost.

I just hope Sanusi is not causing more harm than good sha

this is what u get when a mad man is in charge of ur economy and a tribalistic president is in charge. we will soon be roasted under a zimbababwe style inflation. in their dash to sell off other people's sweat and property to the northerners, they have mauled d soul of this country's economy. as it is, the poor man on d street is d looser as militant sanusi & incompetent yaradull is already rich to d teeth to feel d impact. its only in dis kind of banana republic dat 5 healthy banks belonging to hardworking citizens without a history of default in their obligations are seized and handed over to freinds of the power brokers, mauling d only sector in this country that still provides living wages without a protest from nobody. bankers are now being sacked in their thousands without any likely source of re employment due to this, these are folks that would have still been employed but for this tribalistic attack and seizure. the banks are now exposed to serious discrimination from their correspondent banks and subsequently have refused to lend to nigerian busineses. how mad can we get, killing off the very sould of our country just so we can get some political score. i weep for our children

tayotoyin:

Sanusi's likely 2B a very short sighted person,else,he would've realized dt beheading a man is not a solution to headache. Most imported goods are of better quality than our locally produced goods(yes or no?). I'm not an Economist,but from all I've gathered 2day,it's likely not going to be easy to convince d foreign banks dt most Nigerian banks are still credit worthy.Abi!
Somebody help me out,I might be lost.

Yeah that's what is happening now, every action has his own after effects.

When some of us came out heavily against the agbero actions of Sanusi, we called all sorts of saddening names. People rushed out, masturbating over his "writings" as if those were going to somehow save the banks. Finding problems is one thing (if there were really any), the wisdom to resolve them properly is another.

Obama hit the nail on the head when he said Africa's problems were due to a lack of instituitions. But here was a man handed the most successful of our nascent instituitions, only to wreck what took many long years to build in two short months.

Should we laugh or weep? We love mediocrity and "action" in Nigeria.
Welcome to sharia style banking, chop off a few limbs here and there, stone the others; Hellooo. . . year is 2009!

What have we done with previous letter of credits but import all sorts of junk, toothpick, petrol, toilet roll, generators, juice, rice, sardine etc. All the things that we have no business importing if our bankers and those in government had any brains.
The letters of credit has made us lazy and even encouraged desperate business men to kill Nigerian companies so they can continue importing and continue depleting our foreign reserves.

If we think well, we will be creating jobs here not asking for letters of credit. If you ask me, I see this as a welcome development for a nation that has chosen the easy route.

By the way, for the companies refusing the letters of credit, it's not like there is a crying demand for their products? who needs their tooth picks, diesel, juice, generators apart from the STUPID people known as Nigerians.

Bialegend:

Purchases that you can not afford with your own personal money. Then you can seek for LC from your bank.  
If you can afford to pay for your imported goods with your own money, there would be no need for you to seek for LC from your bank. Once your bank agrees to issue the LC to you, the trade between you and your foreign business counterpart would go ahead after your foreign business counterpart have received your LC and also confirm the authentication of your LC with your issuing bank. The foreign business counterpart will then ship out the said goods to your country and on your receipt and confirmation of the goods, your bank will then (immediately) release the payment funds to the bank account of your foreign business counterpart. I hope this simple  kowashiation will be easier for you to understand)

The moronic Bialegend has decided to assail us with his limited grasp of international economics. The use of an LC is not limited to businessmen that have to borrow money. It is also a means of ensuring that you do not get swindled by a trade partner as the bank will only remit the funds after the terms of the transaction are fully met.

And why are you commenting on this thread? I thought you were a Biafran nationalist.

You've still not explained why the great leader, Dim Odumegwu Ojukwu took part in the Nigerian presidential elections.


Delusional nincompoop!!!

jacobs123:

What have we done with previous letter of credits but import all sorts of junk, toothpick, petrol, toilet roll, generators, juice, rice, sardine etc. All the things that we have no business importing if our bankers and those in government had any brains.
The letters of credit has made us lazy and even encouraged desperate business men to kill Nigerian companies so they can continue importing and continue depleting our foreign reserves.

If we think well, we will be creating jobs here not asking for letters of credit. If you ask me, I see this as a welcome development for a nation that has chosen the easy route.

By the way, for the companies refusing the letters of credit, it's not like there is a crying demand for their products? who needs their tooth picks, diesel, juice, generators apart from the STUPID people known as Nigerians.

Yes, I wonder who needs diesel, generators etc. When all we have to do is use photosynthesis each time PHCN fails (which is everytime)

Damn!

@Beaf,

This is shameless propaganda from The Guardian. The LCs are not being rejected because of Sanusi.

The LC embargo will simply accelerate the exodus of Nigerian companies to Ghana. Period.

qblaze:

@Beaf,

This is shameless propaganda from The Guardian. The LCs are not being rejected because of Sanusi.

It is not propaganda. I heard a manufacturer complaining about LC rejection 2 weeks ago. Guardian just published the story today.