Analysts have warned that Nigeria's declining foreign exchange reserves could cause concern amongst the country's trading partners, who may insist on cash collateral to support letter of credit (L/C) transactions.

The warning comes in the wake of Nigerian assurances that banks' priorities are to ensure that foreign exchange is available for L/C transactions for hydrocarbon and raw material imports (DC World News, 6 January 2016).

Depleting reserves

Nigeria's foreign exchange reserves recently reached a 12-year low, dropping to US$28.93 million at the end of the first full week of January this year.

From the beginning of December 2015 to 7 January 2016, the country's reserves have declined by 3.17 per cent.

L/C concerns

Chief executive of Cowry Assets, Johnson Chukwu, told local media that if Nigeria's reserves fall below a certain threshold, the country may be unable to meet its foreign currency obligations.

"This could trigger loss of confidence by the country's trade partners who may insist on cash collateral before establishing L/Cs for Nigeria's importers." he said.

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