A major shift toward financial decentralization: commercial banks are now empowered to approve Letters of Credit for retention accounts without NBE pre-approval, and LC fee structures are capped.
Key Regulatory Changes
- ■ Decentralized LC Approvals: Commercial banks can now execute and approve Letters of Credit directly for foreign currency and retention account holders, removing a major bureaucratic bottleneck.
- ■ Streamlined Payments: Retention account holders can order and initiate payments under Cash Against Documents (CAD) arrangements without pre-approval from commercial banks, subject to standard documentation.
- ■ LC Pricing Caps: To protect businesses, the NBE has introduced a regulatory ceiling capping the annualized rate applicable to Letters of Credit transactions.
Introduction
On 26 May 2026, the National Bank of Ethiopia (NBE) issued a highly anticipated Public Notice concerning the amendment of foreign exchange directives and the rationalization of fees and charges applicable to Letters of Credit (LC).
This reform forms part of the government's broader macroeconomic and foreign exchange policy measures aimed at strengthening the foreign exchange market, improving transparency, and supporting private sector participation. According to the NBE, the amendment is intended to modernize the foreign exchange regulatory regulatory framework, facilitate international trade transactions, and reduce unnecessary barriers affecting businesses and financial institutions.
The NBE explained that Ethiopia has implemented a series of carefully sequenced exchange rate and foreign exchange reforms in recent years. These reforms are designed to improve the efficiency of foreign exchange management while ensuring stability in the financial sector. Within this context, the new measures focus on expanding access to foreign exchange services and revising the fee structures associated with international trade instruments, particularly Letters of Credit.
I. Amendments to FX Directive No. FXD/01/2024
The NBE introduced several critical operational amendments to Directive No. FXD/01/2024 relating to foreign exchange operations. The changes primarily concern the opening and operation of foreign currency accounts and the expansion of access to Letters of Credit facilities:
- Autonomous Bank Approvals: Commercial banks are now fully authorized to approve Letters of Credit on behalf of institutions holding foreign currency accounts and retention account holders without seeking prior approval from the NBE. This significantly reduces administrative delays and grants banks operational agility.
- Cash Against Documents (CAD) on Acceptance: Banks are now authorized to approve Cash Against Documents on acceptance for foreign currency and retention account holders directly. This facilitates smoother import and trade transactions by automating standard documentary trade setups.
- Direct CAD Initiation: Institutions holding foreign currency accounts, including retention account holders, may now order or initiate payments of goods under CAD arrangements without seeking the prior approval of commercial banks. The actual processing remains subject only to the standard submission of verified trade documents.
Collectively, these amendments demonstrate a decisive shift toward the decentralization of foreign exchange administration in Ethiopia. By transferring processing authority back to commercial banks, the reform directly targeted the transaction delays that historically limited trade speed and business confidence.
II. Rationalization of Fees and Charges on Letters of Credit
Alongside administrative adjustments, the NBE has fundamentally restructured the pricing of foreign exchange-related trade instruments. This rationalization of LC services is designed to align Ethiopian banking practices with international standards, promoting fairness and transparency in financial pricing.
Under the new regulatory framework, all fees and charges applicable to Letters of Credit transactions for foreign currency and retention account holders are harmonized on an annualized basis. These pricing structures are directly linked to prevailing macroeconomic indicators, allowing trade costs to remain responsive and fair relative to wider economic fluctuations.
Crucially, the NBE has introduced a rigid regulatory ceiling, capping the annualized fee rate applicable to Letters of Credit transactions. This cap prevents financial institutions from imposing excessive charges on corporate importers/exporters while ensuring systemic financial discipline is maintained within the banking sector.
III. Significance of the Reform
This dual reform wave holds profound structural benefits for three key groups in Ethiopia's business environment:
| Target Group | Key Implications & Opportunities |
|---|---|
| Importers & Exporters | Direct access to FX services, massive reduction in licensing/approval bureaucracy, and lower, capped transaction costs. |
| Commercial Banks | Increased operational authority, the ability to deliver faster customer support without NBE bottlenecks, and a transparent, consistent trade-charge registry. |
| Macroeconomy | Enhanced private sector trade participation, modernization of the FX ecosystem, improved foreign investor trust, and deeper integration with global financial networks. |
Conclusion
The National Bank of Ethiopia's amendment to FX Directive No. FXD/01/2024 and the rationalization of fees and charges on Letters of Credit represent an important development in Ethiopia's foreign exchange regulatory framework. By expanding the authority of commercial banks, simplifying trade finance procedures, and establishing a more transparent fee structure, the reform aims to facilitate international trade and improve the efficiency of foreign exchange operations.
The measures also reflect the NBE's broader policy objective of supporting macroeconomic reform, enhancing market confidence, and promoting a stable and efficient foreign exchange market. Businesses, financial institutions, and other stakeholders involved in international trade should closely examine the new framework to ensure compliance and take advantage of the opportunities created by the reform.
Kiya and Associates Law is prepared to assist multinational corporations, industrial park operators, and commercial banking desks in reviewing transaction structures to safely leverage these operational updates.