Investors from China say they plan to open a bank in Nigeria specifically to enable letter of credit (L/C) transactions between the two countries.

The bank aims to overcome hurdles faced by Nigerian businesses in terms of money transfers and the non-acceptance by Chinese banks of L/Cs from Nigerian banks, according to a member of a Chinese delegation visiting Nigeria this month.

Central bank meeting

"We have agreed to set up a Chinese bank in Nigeria," says delegation leader, Jonathan Pang, who said the decision had been reached after a meeting with Central Bank of Nigeria governor, Professor Charles Soludo.

Speaking to local media in Abuja, he said the Chinese investors intend to use the bank to issue L/Cs to Nigerians doing business with China.

Problems

There are currently no substantial Chinese banking institutions in Nigeria, and that presents obstacles to Nigerian traders doing business with China, says Pang. It is not easy for Chinese banks to negotiate L/Cs with Nigerian businesses, he adds.

Pang says Nigerian businesses face problems with money transfers, credit arrangements and the non-acceptance by Chinese banks of L/Cs from Nigerian banks. This means L/Cs have to be channelled through third party banks in financial centres such as London or New York, who insist on the full payment of the value of transactions, according to Pang.

"This is not convenient for Nigerian businessmen who have to put down 100 per cent deposit to get the L/Cs" Pang told the daily This Day newspaper.

L/C negotiation

"We are going to use this bank to negotiate with Chinese banks, and this bank will sign an agreement or appoint a Chinese bank as our agent, so the present problem can be solved," says Pang who suggests the Chinese have two options.

Either they could establish a new bank in Nigeria or they could acquire an existing bank in China and set up a branch of that bank in Nigeria, he suggests.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.