The National Bank of Ethiopia (NBE) says that banks can take out a total of 100 billion birr under the loan expansion ceiling in order to increase the revenue of hard currency. Zero remittance fees were advised by NBE.
In an effort to increase foreign currency generation, the central bank has launched a six-month campaign in collaboration with various government agencies, financial institutions, diplomatic missions, and the diaspora.
The campaign’s primary target is remittances, which are one of Ethiopia’s main sources of hard currency, despite the fact that they have historically been heavily abused due to the wide disparity between the official exchange rate and the parallel market.
Various studies suggested that the nation might make around USD 10 billion through private and non-official money transfers, although less than half of that amount could be moved through the legal system.
Nonetheless, given that the rate at the black market and banks is about equal, the most recent significant macroeconomic reform, which included exchange rate floating, is anticipated to increase the flow of resources through the legal system.
NBE Governor Mamo Esmelealem Mihretu states that banks should offer many appealing services to cuswtomers who transfer money through the legal system.
Recently, the state-owned financial giant Commercial Bank of Ethiopia (CBE) has started to provide extremely high rates to people who have received remittances.
CBE declared that it gives out more than 121 birr for every dollar received in remittances. The sum is around 12 percent greater than the purchasing rate from its daily transaction and even from the selling rate on Friday, September 13, which is approximately 120 birr.
According to industry experts, the CBE offer is far greater than what is offered on the black market, “it would attract anyone who wants to send money for their beloved ones in Ethiopia.”
Several private financial firms have also been observed calling their clients to utilize their remit system throughout the holiday season, with the banks offering enticing exchange rates upon return.
In addition to making such larger offers, banks are also expected to back other initiatives aimed at enhancing foreign exchange inflow.
According to Mamo, banks pool 100 billion birr as credit with the goal of transferring foreign exchange in a lawful manner.
Individuals who make foreign currency contributions will have access to a favorable credit facility under the 100 billion birr.
NBE’s Director of Bank Supervision, Frezer Ayalew, told Capital that the funds banks utilize go toward the NBE’s credit cap. The NBE implemented a number of macroeconomic measures on August 11, 2023, with the goal of keeping inflation under control. Restricting the growth of loans extended by commercial banks was one of the bold decisions made. The regulations impose a 14 percent annual cap on bank credit growth.
However, analysts have stated that certain banks, due to limited resources caused by the NBE rule, will have difficulty providing enough funds to individuals contributing to foreign currency earnings.
According to experts, several large, established banks with significant credit positions will use this new system reached as a consensus by the NBE.
At the official campaign kickoff event a week ago, the Governor warned those involved in the black market that “the government will take legal measures.” He claims that as of September 4, the difference between the parallel and legal exchange rates has decreased to four percent.
Experts, including those who import certain goods from places like Dubai, Istanbul, and China, claim that despite the fact that legal and illicit exchanges are nearly identical, they still obtain foreign exchange from their partners in the aforementioned cities and nations.
“I have visited Istanbul twice since the implementation of the new reform,” a woman who owns a clothing store near Bole Medhanialem said to Capital, noting that the rate she received on the black market in Turkey is nearly identical to the bank rate.
“However, we are still using dollars obtained from illicit remittance sources in Turkey to purchase the goods,” she added.
She claims that the primary reason she continues to use illicit sources is the extremely small quantity of foreign currency that Ethiopian banks provide her, which remains the same as during the reform period.
She said, “As a result, we are still obtaining foreign currency from overseas.”
Although analysts claim that there has been a noticeable improvement in the distribution of foreign currency for international tourists, the flow of foreign currency, mostly from public and private sources, has increased since the economic reform was implemented.
The flow of foreign exchange has increased since the economic reform was implemented, mostly from public and private sources. However, analysts claim that while this is a positive development, the allocation of foreign exchange for individuals traveling abroad has not improved as much as they believe it should have.
According to experts, “the government and banks need to increase the allocation of foreign currency for private travelers and importers, who are the main players in the parallel market, if they want to improve the inflow of foreign currency. “They said, “As the rate is the same, there is no reason to conduct or get involved in illegal remittances at this time. However, the absence of a reasonable foreign currency allocation at banks is driving traders and individual travelers to look for foreign currency on the black market.”
The Governor said, “It is anticipated that the reform will increase export earnings, including remittance revenue.”
According to him, banks and forex companies have to be well-versed in the latest foreign exchange directive and should use the expedited method when opening foreign exchange accounts and facilitating different schemes to support their customers.
Anyone with access to foreign currency shall have a foreign currency account in the country, following the recently issued “Foreign Exchange Directive No. FXD/01/2024,” which went into effect on July 29.
It has advised service providers to implement a fee-free money transfer policy.
Article 11.6.5 of the directive states that a representative shall charge zero or a minimum fee on remittance transfer services and shall disclose the same, including any changes, to the National Bank. The fee, in any case, cannot exceed 1% of the transferred money.
Additionally, the directive has offered a number of enticing incentives, such as a license for non-bank forex bureaus to mobilize foreign exchange.
Remittance companies are supposed to collaborate with banks and incur minimal service fees, according to Mamo.
He requested that fintechs, or technology-based financial enterprises, charge only a minimum fee for their services.