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Ethiopia’s Central Bank Introduces New Policy on FX Spreads and Fees

October 16, 2024

Ethiopia’s central bank introduces new policy on FX spreads and fees that takes effect immediately. This requires the country’s financial institutions to separately include their forex trading spreads in their daily posted rates to ensure transparency.

The bank stated that, based on lessons learnt and input from the banking sector, it has become necessary to reconsider the previous decision on the handling of FX-related spreads and fees.

Previously, the National Bank required banks to include all FX-related fees and commissions (except those set in nominal terms) in their trading spreads between buying and selling rates.

With the new policy, banks must clearly separate and display the foreign exchange trading spread — the difference between the buying and selling rates — in their FX transactions and daily posted rates.

The National Bank stated that banks continue to adjust their buying and selling rates in response to market conditions and through transparent and principled negotiations with individual customers. It further said that, in line with international standards, these adjustments should generally not exceed 2% of the banks’ posted rates.

Furthermore, the new policy requires that FX-related fees and commissions be separately disclosed, reported, and charged to bank clients, with banks expected to follow international best practices when setting such fees and offering correspondingly competitive fees.

“Moreover, banks are required to transparently disclose all such fees, commissions, or any other related charges in transactions with their customers. All such fees shall also be reported to the NBE on a regular basis per the usual practice.”

This will help in determining the exchange rate

In July 2024, the National Bank overhauled its foreign exchange regulations, allowing private authorized foreign exchange dealers to play a more prominent role alongside banks in determining the exchange rate. This move aimed to create a more open and competitive foreign exchange market.

The directive enabled authorised foreign exchange dealers to buy and sell foreign currency, with the final exchange rate emerging through negotiations between dealers and their customers. While banks continue to play an important role, they now coexist with private dealers as equal participants in the foreign exchange market.

On October 2, 2024, the bank announced that five companies that applied for licences and met the minimum requirements were approved to operate as Independent Foreign Exchange Bureaus.

The bank acknowledges that forex bureaus will play an important role in developing and deepening the country’s foreign exchange market. Their operations will be strictly monitored and supervised to ensure adherence to the roles and responsibilities set out in the NBE’s Foreign Exchange Directive.

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