The National Bank of Ethiopia (NBE) has issued a revised policy concerning the treatment of foreign exchange (FX) trading spreads and related fees. This update, effective as of October 16, 2024, introduces changes to how banks manage and disclose the differences between FX buying and selling rates, as well as the fees and commissions associated with such transactions.
The policy revision follows a review of the foreign exchange market after Ethiopia transitioned to a new FX regime on July 29, 2024. The NBE’s review was conducted in response to various issues that arose during the early stages of the new system, with input from the banking industry informing the changes.
FX Spread Separation:
The new policy mandates that banks must separately identify the spread, or the difference between the buying and selling rates of foreign currency, in their transactions. This spread must also be clearly posted in the banks’ daily FX rate displays. Previously, banks could include FX-related fees and commissions within the trading spread, but under the new rule, these elements must be treated separately.
The NBE’s policy notes that the spread should generally not exceed 2 percent of the rate, in line with international norms. Banks retain the ability to adjust their rates based on market conditions and specific negotiations with customers, provided the spreads are transparent.
Disclosure of FX-Related Fees and Commissions:
Fees and commissions associated with FX transactions, which were previously bundled within the trading spread, must now be separately disclosed to clients. Banks are required to report these charges explicitly in transactions and also submit regular reports to the NBE, as per existing practices.
This policy aims for banks to adopt internationally recognized practices for setting fees, which must be presented transparently to customers. All FX-related fees and commissions are expected to be outlined clearly in transactions to avoid any ambiguity.
The NBE has directed banks to implement these changes immediately, with full compliance expected by October 16, 2024. Banks will be required to update their systems to reflect the new separation of FX spreads and fees, ensuring that the relevant information is disclosed in accordance with the new guidelines.
