National Bank of Ethiopia has removed mandatory prior approval requirements for Letters of Credit (LC) and Cash Against Documents (CAD) transactions, while also ordering commercial banks to revise how they charge LC-related fees, marking another major step in the country’s ongoing foreign exchange reforms launched in July 2024.
Under revisions to FX Directive No. FXD/01/2024 released on 25 May 2026, commercial banks are now permitted to approve LC and CAD transactions on acceptance terms for customers holding foreign currency and retention accounts without first seeking clearance from the central bank.
The updated rules also allow holders of foreign currency and retention accounts to begin shipments under CAD arrangements without prior bank approval, although payments will still depend on the submission and verification of shipping documents.
The reforms form part of a broader liberalisation programme introduced after Ethiopia floated the birr in July 2024, a decision that saw the currency lose roughly 30% of its value against the US dollar as part of conditions attached to a US$3.4 billion IMF Extended Credit Facility arrangement.
The latest measures are aimed at easing long-standing bottlenecks in Ethiopia’s trade finance system. Previously, importers and exporters faced extended delays caused by central bank approvals, foreign exchange shortages and slow internal bank processing, often pushing LC processing timelines far beyond international standards and driving confirmation costs higher than regional averages.
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The central bank has also directed commercial banks to calculate LC fees for foreign currency and retention account holders using an annualised pricing model applied proportionately to the tenor of each LC. The rate will remain subject to the maximum cap already set by the NBE.
According to the regulator, the earlier fee structure was out of step with international market practice, and the revised framework is intended to align Ethiopia’s trade finance costs with global standards.
The reforms build on additional changes introduced in February 2026 under Directive No. FXD/04/2026, which included provisions for forward foreign exchange trading, full FX retention for service exporters and international payment card access for foreign currency account holders.
Earlier, in January 2026, the NBE instructed banks to rely on indicative pricing benchmarks issued by the Ethiopian Customs Commission when opening Letters of Credit, in an effort to curb pricing inconsistencies affecting balance of payments data.
The policy changes come amid signs of improving macroeconomic stability in Ethiopia. The birr has steadied at around ETB 154.8 against the US dollar in NBE auctions, inflation eased to 9.7% in December 2025, and export revenues surpassed US$5 billion during the first half of the 2025/26 fiscal year, exceeding government targets by 20%.
Meanwhile, the International Monetary Fund completed its fourth review of Ethiopia’s ECF programme in January 2026, unlocking an additional US$261 million in funding and raising total disbursements under the programme to about US$2.18 billion.
