Facing spreads far wider than regional peers, the National Bank of Ethiopia set a two percent ceiling on banks' foreign-exchange trading margins and mandated separate fee disclosure in new rules.
Data shows average selling-buying spreads charged by Ethiopian banks reached around 10 percent recently, according to central bank figures. That vastly exceeds margins seen in neighbors like Kenya (5.2 percent), Tanzania (three percent), Uganda (1.9 percent) and Rwanda (2.6 percent).
The increase came after the NBE disallowed imposing fees on foreign-exchange transactions following the birr's floatation on July 29th. Banks instead incorporated charges into expanded spreads, fueling market volatility.
In a directive issued today, the central bank lowered the allowed difference between purchase and sale rates and said spreads generally shouldn't top the new limit. Lenders must also clearly show fees separately from trading margins.
“Based on lessons gained from experience and inputs received from the banking sector, it has now become important to review the earlier decision regarding the treatment of FX related spreads and fees,” the central bank said.
The aim is to stabilize forex rates by reining in banks' wide gains and boosting transparency. The changes take immediate effect, with October 16 set as the deadline for compliance.