Amendment of Limitation on Open Foreign Currency Position of Banks

የኢትዮጵያ ብሔራዊ ባንክ NATIONAL BANK OF ETHIOPIA ADDIS ABABA

TELEGRAPHIC ADRESS NATIONBANK TELEX 21020 CODES USED PETERSON 3rd & 4th ED. BENTLEY'S 2nd PHRASE A. B. C. 6th EDITION

PLEASE ADDRESS ANY REPLY P.O. BOX 5550 ADDIS ABABA

LICENSING AND SUPERVISION OF BANKING BUSINESS Directive No. SBB/27/2001 Amendment of Limitation on Open Foreign Currency Position of Banks Directive No. SBB/23/97

1. Issuing Authority

This directive is issued by the National Bank of Ethiopia pursuant to the authority vested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and by Article 36 of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.

2. Definitions

For the purpose of this directive: 2.1 An "Open Foreign Currency Position" shall mean a situation where assets denominated in foreign currencies do not equal liabilities denominated in the same currencies and vice versa. 2.2 A "Long Position in a foreign currency" shall mean a situation where assets denominated in a particular foreign currency exceed liabilities denominated in the same currency. 2.3 A "Short Position in a foreign currency" shall mean a situation where liabilities denominated in a particular foreign currency exceed assets denominated in the same currency. 2.4 An "Overall Open Foreign Currency Position" shall mean the greater of the amount of the total long positions or the total short positions in all foreign currencies. 2.5 The "Inter-bank Foreign Exchange Rate" shall mean the rate determined in the inter-bank foreign exchange market daily. 2.6 "Total Capital" shall include paid-up capital, legal reserve and any other unencumbered reserves acceptable to the National Bank of Ethiopia. 2.7 "Squaring a foreign currency position" shall mean the buying from or selling of foreign exchange to any other participant in the inter-bank foreign exchange market in order to eliminate any positions above the limit set under article 4 herein below. 2.8 "Peg balance" shall mean the minimum foreign currency balance required by a correspondent bank as a condition for establishing a correspondent relationship.

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የኢትዮጵያ ብሔራዊ ባንክ NATIONAL BANK OF ETHIOPIA

3. Scope of Application

3.1 In computing the overall open foreign currency position all foreign currency denominated assets and liabilities shall be taken into account, including all memorandum items denominated in foreign currency, except: a) peg balances; b) expired import letters of credit; c) import letters of credit issued by the bank with the condition that payment of the foreign currency amount under the letter of credit will be paid by (i) external donors, or (ii) external borrowings by the importer; d) inward bills for collection, unless Birr equivalent of the value of the documents is actually collected; e) outward document bills for collection (ODBC) and outward bills for collection (OBC), unless foreign currency value of the bills is actually collected; and f) unsold travelers checks. 3.2 The overall open foreign currency position of each bank shall be assessed on a consolidated basis, that is, including its forex bureaux and its subsidiaries, if any.

4. Limitation

The overall open foreign currency position of each bank at the close of business each day shall not exceed 15% (fifteen percent) of its total capital.

5. Computation of Overall Open Foreign Currency Position

The overall open foreign currency position shall be computed in the following manner: a) the difference between the assets and the liabilities denominated in each foreign currency shall be determined and categorized either as long or as short position; b) open positions in each foreign currency as determined and categorized under "a" herein above shall be converted into their Birr equivalents by using the buying rate prevailing at the close of business each day; c) the birr equivalents of open positions in each foreign currency obtained under "b" herein above are added to arrive at the total long and the total short position; d) the greater of the total long or the total short position determined under "c" herein above is divided by the bank's total capital to determine the ratio;

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የኢትዮጵያ ብሔራዊ ባንክ NATIONAL BANK OF ETHIOPIA

e) the ratio determined under "d" herein above is compared with the limit on overall open foreign currency position laid down under article 4 herein above.

6. Squaring of Excess Foreign Exchange Position

Banks are required to monitor their open foreign currency positions on a continuous basis. Any excess foreign exchange position must be squared without delay.

7. Penalty

7.1 Any bank that is in breach of the provisions of article 4 of this directive shall pay a financial penalty. The financial penalty shall be assessed on the excess amount using a 10 percent annual interest rate. The penalty so assessed will be automatically deducted on the next business day from a bank's account maintained with the NBE. 7.2 Any bank that fails to comply with the reporting requirement specified under article 8 herein below shall pay a penalty of Birr 1,000 per day of delay. The penalty so assessed will be automatically deducted from the bank's account maintained with the NBE.

8. Submission of Daily Reports to the National Bank

Each bank shall submit to the Supervision Department of the National Bank of Ethiopia a daily report, showing the amounts of foreign currency positions as of the close of business each day, on the next business day before 12 a.m. The report shall be submitted in accordance with the table attached herewith, which shall be a part hereof.

9. Repeal

Directive No. SBB/23/1997 is hereby repealed and replaced by this Directive.

10. Effective Date

This Directive shall enter into force as of the 24th day of October 2001.

TEKLEWOLD ATNAFU GOVERNOR

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Form-SD/FX

Report on Foreign Currency Positions In Thousands of Birr At Close of Business ________

Reporting Bank:	Contact Person:	Phone:	Fax:

Foreign Currency (1)	Balance Sheet Items		Memorandum Items			Open Position (2-3+4-5)-6		Closing Buying Rate (9)	Birr Equivalent Open Position
	Assets(+) (2)	Liabilities(-) (3)	Assets(+) (4)	Liabilities(-) (5)	Peg balance (6)	Long (+) (7)	Short (-) (8)		Long (+) (7 x 9 = 10)	Short (-) (8 x 9 = 11)
Total Capital (13)						Total Long Positions (total column 10 = 15)
						Total Short Positions (total column 11 = 16)
Overall Open Foreign Currency Position Limit (15% of Line 13=14)						Overall Open Foreign Currency Position (the greater of 15 or 16 = 17)

*Including peg balance