View From Arada | Jul 17,2022
Over six days last week, the Brewed Buck has been on a subtle slide against the U.S. Dollar, with daily fluctuations displaying a persistent weakening trend. Banks have been adjusting their cash and transaction rates daily, manifesting localised inflationary pressures and responses to a scarcity of dollars in the foreign exchange market.
Commercial banks can broadly be classified into three tiers based on foreign exchange rate patterns last week.
Leading banks like Oromia, Abay, and Dashen consistently posted rates above the industry average, uncovering aggressive forex procurement strategies. Mid-tier banks such as Wegagen and Zemen offered rates close to the industry average, a balanced approach to maintain competitiveness without destabilising their cost structures. Conservative banks like Hibret focused on stability, reducing exposure to high forex acquisition costs by consistently offering lower buying and selling rates.
Oromia International Bank (OIB) has led the pack in foreign exchange offerings. Its forex managers consistently posted the highest rates for two weeks in a row. Their aggressive posturing in forex acquisition appears to have targeted forex holders during tightened liquidity conditions. On November 2, OIB's buying rate stood at 121.3 Br to the dollar, unchanged from the previous day, while its selling rate reached 123.73 Br. This positioned OIB as the most expensive source of dollars for buyers but offered the highest incentives for sellers.
OIB's executive's strategy seemed with an ambition to dominate market share in the forex arena, particularly targeting entities that prioritise liquidity over sensitivity to pricing. By offering top-tier rates, they likely hoped to draw in a larger volume of dollar holders, beefing up their foreign currency reserves in a market where such assets are increasingly coveted. The industry average buying rate, which hovered around 119.58 Br to the dollar, contrasted this approach. The gap revealed the differing strategies among banks.
The National Bank of Ethiopia (NBE) has consistently posted one of the lowest spreads in the market, diverging from the two percent margin ceiling its regulators imposed on commercial banks. On October 28, its spread was 1.6pc, gradually dropping to 1.34pc by November 2. The narrowed spread signalled a policy intervention to soothe market pressure and improve forex accessibility at a lower premium. It could also hint at a regulatory intent to moderate volatility in forex rates, perhaps in an effort to stabilise the Birr amidst external economic pressures.
However, commercial banks have shown incremental adjustments reflecting the depreciating Birr. Last week, the average buying rate across all banks was 120.01 Br for a dollar, with the average selling rate at 122.42 Br. Despite daily variations, these averages revealed a steady erosion in the Brewed Buck's purchasing power against the greenback, though the fluctuations remain within narrow bounds.
On the more conservative end, Hibret Bank (HB) frequently quoted rates below the industry average. On November 2, Hibret Bank posted a buying rate of 119.2 Br to the dollar, offering the lowest premium compared to other banks. Its forex managers could be cautious of aggressive market capture, positioning the Bank as a lower-cost option for dollar buyers while signalling a restrained appetite for forex accumulation.
Outlier banks such as Addis International Bank (AIB) and Bunna Bank (BB) have displayed marginally divergent rates. Last week, AIB's buying rate shifted from 120.09 Br to 120.16 Br, while Bunna Bank's rate ranged between 119.3 Br and 119.8 Br. These conservative movements contrasted with Oromia Bank's more volatile adjustments, potentially unveiling varying access levels to forex liquidity or differing customer acquisition strategies.
Market sentiment around the Brewed Buck remained cautious. Forex rate adjustments could not not only be reactions to immediate market conditions. They were also strategic moves that reflected broader economic realities. The scarcity of dollars in the forex market has prompted banks to adopt varied strategies to secure foreign currency reserves, each apriorities.
The aggressive tactics of leading banks signal a focus on capturing greater market share in the forex market, perhaps anticipating future tightening of liquidity conditions. These banks sought to attract more forex holders by offering higher rates, boosting their reserves. However, this comes at the cost of higher rates for buyers, potentially exacerbating the depreciation of the Birr.
Mid-tier banks maintain a more balanced approach, keeping their rates close to the industry average. The strategy could help them attract new customers and retain those already on their list without altering their risk profiles. By not aggressively pursuing forex holders through higher rates, these banks might avoid the potential pitfalls of rapid currency depreciation or sudden shifts in market dynamics.
Conservative banks seem to prioritise stability over expansion in the forex market. By offering lower buying and selling rates, they positioned themselves as cost-effective options for buyers, possibly appealing to more price-sensitive clients. Their cautious approach may also reflect a strategic decision to limit exposure to the volatile forex market and focus on core banking services.
PUBLISHED ON
Nov 03,2024 [ VOL
25 , NO
1279]
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