The National Bank of Ethiopia (NBE) has turned down a request by newly established forex bureaus seeking permission to offer transaction services aimed at easing the strict deposit conditions tied to obtaining Letters of Credit (LCs) from private banks.
Speaking at the Ethiopian Finance Summit 2025 in Addis Ababa, Ethio Forex, one of the country’s most prominent foreign exchange providers, raised concerns over the difficulties faced by businesses in Ethiopia in accessing LCs legally. The company cited growing pressure on small and medium-sized enterprises (SMEs) as some banks continue to demand collateral deposits as high as 200% of the LC amount, despite such terms being outside official NBE guidelines.
Ethio Forex’s managing director, Ato Kebede Alemayehu, warned that these practices not only undermine legitimate businesses but also erode trust in the formal financial system.
The rejected proposal would have allowed forex bureaus to support trade-related transactions, offering an alternative to the conventional banking route. Proponents argued that such a move could reduce pressure on the black market by making official channels more accessible. There are growing fears among industry players that limited legal options for forex access will only expand illicit trade and weaken the Ethiopian birr further.
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Governor of the NBE, Mamo Mihretu, acknowledged the growing concerns at the summit but stood firm on the regulator’s decision. He pointed out that banks demanding excessive deposits were already in violation of NBE LC deposit rules. Businesses facing such issues have now been encouraged to report complaints via a new hotline and online portal.
“In our regular meetings with banks, we consistently call for efficient and transparent foreign exchange service delivery to private sector clients,” Mihretu said, adding that the central bank would introduce more frequent audits and penalize non-compliant banks.
The Governor reiterated that forex bureaus will not be permitted to perform bank-like operations such as LC-related services. He clarified that their role remains limited to smaller cash-based transactions, including remittances, travel allowances, and basic currency exchange for individuals and small-scale business needs.
As of August 2025, 25 forex bureaus are licensed to operate in Ethiopia, including around 10 that have been newly authorized. The NBE has also introduced tighter oversight over the sector, requiring daily transaction reporting and stricter anti-money laundering compliance.
The decision by the central bank comes against the backdrop of ongoing macroeconomic reforms, which marked their first anniversary in July 2025. These reforms include a shift toward a market-based exchange rate system and financial sector liberalization, aimed at stabilizing the foreign exchange regime.
Over the past year, foreign exchange inflows reached $32 billion, a 33% rise compared to the previous year. The inflows were driven by $8.3 billion from commodity exports, $8.5 billion from services, $7.1 billion in private promissory notes, $1.9 billion in government aid, $2.7 billion in foreign loans, $3.9 billion in foreign direct investment (FDI), and $0.2 billion from other capital flows.
Ethiopia’s foreign exchange reserves have grown significantly, with the NBE’s reserves tripling to $4.5 billion and commercial banks’ holdings increasing to $2.8 billion. This rise has allowed a larger daily forex allocation to businesses, from $11 million in July 2024 to $25 million currently. Monthly forex supply to the private sector has also doubled to $500 million. Meanwhile, new foreign credit facilities totaling $445 million have been accessed by businesses, mainly in agriculture, manufacturing, and construction.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.