Central Bank Caps Forex Trading Spreads at Two Percent, Tightens Fee Disclosures

The National Bank of Ethiopia (NBE) has revised its foreign-exchange policies, imposing a cap on currency trading spreads and compelling commercial banks to separately disclose foreign-exchange fees and commissions. In a statement its officials issued today, they disclosed their intentions to align "banking practices with global standards and enhance transparency in the foreign-exchange market."

Under the new directive, banks are to identify foreign-exchange trading spreads in their daily posted rates, with the spread not exceeding two percent, from an average of 11.2pc over the past one month.

Previously, the Central Bank, had mandated that all foreign-exchange–related fees and commissions, excluding nominal charges, be included within the trading spread between a bank's buying and selling rates. However, regulators have reconsidered this approach, mandating banks to disclose foreign exchange related fees and commissions separately and report any changes to the Central Bank.

"They are encouraged to adopt international best practices in setting these fees to ensure they remain competitive," said the statement.

The policy changes come during the Central Bank's struggle to stabilise the foreign exchange market in the face of Birr's ongoing devaluation. Measures have included foreign-exchange auctions and the injection of 175 million dollars, particularly targeting at securing fuel imports.

The Central Bank has also issued forex bureau licenses to non-bank operators, further opening up the market and increasing competition.

However, industry observors see today's measure in narrowing the spread as constraining commercial banks' profit margins, especially since they are restricted from charging certain commission fees.

With net interest margins under pressure due to credit caps and existing liquidity crunches, banks could face tough times ahead.

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