The modest depreciation of the Birr last week has amplified pressure on the foreign exchange market, exposing underlying systemic vulnerabilities in liquidity management and the stability of the banking industry.
The average exchange rates, at 124.82 Br for buying and 127.27 Br for selling, appear relatively stable but mask worrisome volatility and institutional disparities. Notably, ZamZam Bank emerged as a Lead player, posting the highest rates of 124.99 Br for buying and 127.49 Br for selling. This signalled its aggressive bid to attract hard currency amid tightening liquidity conditions. It overtook Dashen Bank as the premium bidder for foreign currency inflows.
As the liquidity crunch deepened last week, the foreign exchange market grew more strained, raising pressing issues about the sustainability of current forex management practices and the banking industry's stability. A widening gap between state-owned behemoths and private lenders revealed a growing fragmentation, as larger banks leveraged stronger liquidity positions or privileged access to limited forex.
Smaller banks, meanwhile, struggled in a more competitive and constricted market. This heightened uncertainty for importers, turning the quest for favourable exchange rates into a matter of institutional relationships as much as market conditions as the Brewed Buck continued its incremental depreciation against the Green Buck. Liquidity shortages, manifesting systemic weaknesses in the macro economy and notable differences among commercial banks in their foreign currency offerings, already inhibited pressures in the foreign exchange market.
Importers and financial institutions faced a tough environment, with mounting liquidity and credit supply constraints.
On the lower end, the Commercial Bank of Ethiopia, the state-owned giant, has been an outlier. Its buying rate languished at 122.59 Br and its selling rate at 125.05 Br, displaying its relatively conservative pricing. CBE’s advantageous access to forex protected it from the intense demand-driven fluctuations battering privately owned lenders. Goh Betoch Bank, however, has emerged as an intriguing exception. It reached a buying rate of 124.87 Br and a selling rate of 127.36 Br, mirroring ZamZam’s position, taking a more aggressive position in a bid for foreign currency inflows, but departing from the cautious approaches displayed by others.
These manoeuvres show the diverging fortunes of commercial banks.
Larger, well-capitalised institutions can afford measured pricing, while smaller or more liquidity-strapped players offer higher rates to reel in foreign exchange. Three distinct tiers now define the banking industry on the forex front. The first group comprises CBE and the Development Bank of Ethiopia, both state-backed entities with access to foreign currency allocations that can afford to keep prices lower. A second set, including Dashen, Awash, and Abyssinia banks, sticks more closely to prevailing market norms. The final cluster, represented most prominently by ZamZam and Goh Betoch, appeared willing to push rates higher, a strategy that signals heightened competition and more acute liquidity strains.
Though most banks maintain the mandated two-percent spread between buying and selling rates, this cosmetic uniformity belies volatility beneath the surface.
ZamZam’s and Goh Betoch’s outlier postings revealed how smaller institutions are fighting for foreign currency in an increasingly tight market. Fueled by external debt obligations weighing on the country’s balance sheet, the liquidity crunch in Birr has forced domestic banks to hunt for hard currency independently. This has created a critical challenge for importers, who simultaneously wrestled with harsh credit shortfalls. The resulting environment has exposed vulnerabilities at all levels of the banking system, escalating the tug-of-war for forex.
Whether these disparities can be reconciled through policy interventions or market corrections remains an open question. For now, importers and banks alike could brace for sustained volatility, as competition for scarce foreign exchange grows fiercer by the day. The forex market now depends on which bank can actually deliver dollars rather than who quotes the lowest price, demonstrating the increasingly mounting pressure facing businesses dependent on consistent foreign currency access for crucial supplies.
PUBLISHED ON
Dec 22,2024 [ VOL
25 , NO
1286]
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