የኢትዮጵያ ብሔራዊ ባንክ
NATIONAL BANK OF ETHIOPIA
አዲስ አበባ / ADDIS ABABA

Licensing and Supervision of Banking Business Directives for Foreign Currency Intermediation by Banks Directive No. SBB/82/2021 (1st Replacement)

"Whereas, the National Bank of Ethiopia is vested with the power to determine the terms and amount of external indebtedness of banks and other financial institutions and further to grant permission for transactions taking place in Ethiopia in currencies other than the Ethiopian Legal Tender;

Whereas, it has become necessary to facilitate access to foreign exchange to foreign currency generating activities by allowing banks to intermediate in foreign currency through borrowing from external lenders and lending in foreign currency to such activities and also facilitate imports of priority goods accordingly;

Whereas, the National Bank of Ethiopia is responsible to ensure that banks are properly managing their foreign exchange and credit risks;

Now, therefore, in accordance with Article 5(9 and 10), Article 17(3) and 27(2) of the National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008, the National Bank has issued this Directive.

1. Short Title

This Directive may be cited as "Foreign Currency Intermediation by Banks Directives No. SBB/82/2021" (1st Replacement).

2. Definitions

For the purpose of this Directive, the term:

2.1 "All-in-cost" means rate of interest, other fees and expenses in foreign currency excluding commitment fee and pre-payment fee.
2.2 "Bank" means a company licensed by the National Bank to undertake banking business or a bank owned by the Government.
2.3 "Current assets" means cash and other assets of a bank that are expected to be converted to cash within one year of the date of reporting.
2.4 "Current liabilities" means short-term financial obligations of a bank that are due within one year of the date of reporting.
2.5 "External loan" means loan acquired from a foreign or non-resident entity and registered as such at the National Bank.
2.6 "External borrowing" means borrowing from a foreign or non-resident entity and which is registered as such at the National Bank.
2.7 "Foreign currency" means any currency other than Ethiopian legal tender which is legal tender in any country outside Ethiopia as to which the National Bank has declared to be acceptable for payment in Ethiopia for the purpose of this Directive.
2.8 "Foreign currency generating activity" means any legal business that generates foreign currency revenue.
2.9 "Foreign currency intermediation" refers to the act of borrowing in foreign currency, including from foreign lenders, and granting credit to local borrowers in foreign currency as well as collecting the repayment of the credit in foreign currency.
2.10 "Foreign currency short position" means a situation where liabilities denominated in a particular foreign currency exceed assets denominated in the same currency.
2.11 "Loan-to-Equity Ratio" means the ratio of the total loan amount divided by the equity of the project or net worth of the business to which the loan is granted.
2.12 "National Bank" means the National Bank of Ethiopia.
2.13 "Net operating income" means net earnings (operating revenue less operating expense) before interest and taxes.

3. Scope of the Directive

This Directive shall be applicable to all banks operating in Ethiopia.

4. General Provisions

4.1 A bank may engage in foreign currency intermediation.
4.2 For the purpose of sub-article 4.1 of this Article, when a bank engages in foreign currency intermediation, it shall be exempted from acquiring a separate permission from the National Bank for the transactions to be expressed in foreign currency.
4.3 A bank shall be eligible to acquire external loan in foreign currency provided that the loan meets the following terms and conditions:
4.3.1. grace period for principal payment of at least 6 (six) months;
4.3.2. repayment period of at least 2 (two) years (including grace period);
4.3.3. the loan is denominated in US Dollar or Pound Sterling or Euro or Chinese Yuan or Canadian Dollar or Japanese Yen; and
4.3.4. no prepayment (repayment ahead of original schedule) of external loans shall be made without the approval of the National Bank.
4.4 Foreign currency acquired through external borrowing pursuant to sub-article 4.3 of this Article shall be utilized only for:
4.4.1. extending credits in foreign currency to foreign currency generating activities in Ethiopia;
4.4.2. facilitating imports of priority goods as per National Bank's Directive on Transparency in Foreign Currency Allocation and Foreign Exchange Management; or
4.4.3. depositing at the National Bank or at a foreign correspondent bank, in foreign currency.
4.5 Foreign currency acquired through external borrowing can be utilized for facilitating imports of priority goods as per sub-article 4.4.2 of this Article only with the prior approval of the National Bank.
4.6 The prior approval request in sub-article 4.5 of this Article shall be made to the Banking Supervision Directorate of the National Bank and shall include the list of priority imports to be facilitated and evidence that the bank will not breach the foreign currency net open position limit as a result of this operation.
4.7 The request made under sub-article 4.6 of this Article shall be granted by the National Bank if the requesting bank's foreign currency short position will remain to be within the allowed prudential limit as per the relevant Directive.
4.8 Foreign currency acquired through external borrowing pursuant to sub-article 4.3 of this Article may not be subject to foreign exchange surrender requirements pursuant to the relevant Directives.
4.9 When extending credit in foreign currency to foreign currency generating activities pursuant to sub-article 4.4.1 of this Article, a bank shall ensure that:
4.9.1 the loan does not exceed 70% (seventy percent) of the total cost of the project or net worth of the business to which the credit is extended and the borrower contributes the remaining 30% (thirty percent), in any currency, in the form of equity;
4.9.2 it disburses the foreign currency loan with strict follow-up of project execution and loan utilization; and
4.9.3 disbursements are made based on specific foreign currency needs of the projects for which the foreign currency credit is obtained and directly to the supplier of the borrower which requires foreign currency payments;
4.10 Prior to engaging in foreign currency intermediation, the board of directors of a bank shall ensure that the bank has developed and put in place required policies and mechanisms needed to closely manage foreign exchange risks arising from foreign currency intermediation either through a separate document or as part of the risk management program of the bank.
4.11 A bank may buy debt service insurance in foreign currency against its external debt service obligations.
4.12 A bank acquiring an external loan shall register the loan with the Foreign Exchange Monitoring and Reserve Management Directorate of the National Bank by submitting a copy of the signed contract, including term sheet of the loan within 5 (five) business days after the signing of the loan contract by both parties.
4.13 In registering the external loan with Foreign Exchange Monitoring and Reserve Management Directorate of the National Bank, a bank shall issue a confirmation stating that all requirements stipulated in this Directive have been complied.

5. Prudential Requirements

5.1 Any bank acquiring external loan shall open a reserve account in the currency of the external loans with the National Bank and at all times maintain, in the reserve account, 5% (five percent) of the outstanding balance of its external loans.
5.2 The reserve account under sub-article 5.1 of this Article shall have a remuneration equivalent to the 6 months US Dollar LIBOR rate. Foreign currency deposit of a bank in excess of the required reserves as per sub-article 5.1 of this Article shall not receive any remuneration.
5.3 Any bank acquiring external loan shall maintain a weekly average balance of foreign currency current assets not less than 15% (fifteen percent) of its foreign currency current liabilities. Any foreign currency deposit at the National Bank, including the deposit towards the reserve requirement under sub-article 5.1 of this Article shall count towards a bank's foreign currency current assets.
5.4 For each foreign currency and time band (shown in Annex VI), a bank shall maintain its cumulative maturity mismatch for foreign currency borrowing and lending within a maximum of 1% (one percent) of the bank's total capital.

6. Reporting Requirements

6.1 Any bank engaged in foreign currency intermediation shall submit a foreign currency reserve report and a foreign currency liquidity report, using the format prescribed under Annexes I and II, for each week ending Wednesday to Banking Supervision Directorate of the National Bank. The report shall be submitted latest by Tuesday of the following week.
6.2 A bank engaged in foreign currency intermediation shall also submit the following report, within 10 (ten) days after the end of each month, to Banking Supervision Directorate of the National Bank.
6.2.1. For each external borrowing (in line with Annex-III):
a) loan amount expressed in the original loan currency, including disbursed and undisbursed commitments; b) terms of the borrowing (grace period, repayment period excluding the grace period, all-in-cost in percent); c) projected annual debt service amount for the repayment (in a separate format); d) if the debt service is insured, the premium on the insurance; e) outstanding amount; and f) past due amount (if any).
6.2.2. For each domestic credit in foreign currency (in line with Annex-IV):
a) credit amount expressed in the credit currency, including disbursed and undisbursed commitments; b) loan-to-equity ratio of the project to which the credit is extended; c) loan status; d) outstanding amount; and e) past due amount (if any).
6.2.3. For external loans utilized to facilitate imports of priority goods as per Article 4.4.2, the amount of foreign currency utilized for imports classified by type of priority imports ((in line with Annex-V).
6.3 Maturity report for foreign currency borrowing and lending (in line with Annex-VI)

7. Penalty

7.1 Any bank contravening with sub-article 4.3 of Article 4 shall be subject to a penalty equivalent to 10% (ten percent) of the amount of the loan acquired through such contravention. The penalty shall be paid in the same currency in which the external loan is denominated.
7.2 Any bank contravening with sub-article 4.4 of Article 4 shall be subject to a penalty equivalent to 20% (twenty percent) of the amount of foreign currency not utilized in accordance with sub-article 4.4 of Article 4. The penalty shall be paid in the same currency in which the external loan is denominated.

8. Repeal

Foreign Currency Intermediation Directive No. SBB/77/2020 is hereby repealed and replaced by this Directive.

9. Effective Date

This Directive shall enter into force as of 1st date of December 2021.

Yinager Dessie (PhD)
Governor

Annex-I

FOREIGN CURRENCY RESERVE REPORT
(Amount in Thousands)

NAME OF BANK: __________________________________ FOR THE WEEK COVERING FROM ____________ TO ____________

No.	Description	Total	Reserve Maintained at National Bank of Ethiopia
			5% Reserve	Excess Reserve	Total
1	External Foreign currency Borrowing (Outstanding ):-
1.1	In USD
1.2	In Euro
1.3	In Pound Sterling
1.4	In Chinese Yuan
1.5	In Canadian Dollar
1.6	In Japanese Yen

Prepared by: ____________________ Approved by: ____________________ Signature: _____________________ Signature: ______________________

Annex-II

FOREIGN CURRENCY LIQUIDITY REPORT
(Amount in Thousands)

NAME OF BANK: __________________________________ FOR THE WEEK COVERING FROM ____________ TO ____________

No	FX	Foreign Currency Current Liabilities (maturing up to less than one year	Total	15% of the FCY	Foreign Currency Current Assets #	Excess (shortage) in liquidity
		External Borrowings A	FCY Liabilities Other than External Loans B	C=(A+B)	D= 15%*C	E	F=(E-D)
1	In USD
2	In Euro
3	In Pound Sterling
4	In Chinese Yuan
5	In Canadian Dollar
6	In Japanese Yen

includes foreign currency on hand; reserve A/C with NBE, foreign currency at local and foreign banks and any foreign currency denominated current assets.

Prepared by: ____________________ Approved by: ____________________ Signature: _____________________ Signature: ______________________

Annex-III

EXTERNAL BORROWING REPORT
(For Each Foreign Currency)
(Amount in Thousands)

NAME OF BANK: __________________________________ FOR THE MONTH ENDED ___________________________

No	Name of the Lender	Disbursement Date	Borrowed Amount	Terms of the Borrowing	The premium on the insurance¹	Outstanding Amount	Past Due (if any)
			Disbursed	Undisbursed	Total	Grace period	Repayment period²	All-in-cost
1
2
3
4
5
.
.
Total

Prepared by: ____________________ Approved by: ____________________ Signature: _____________________ Signature: ______________________

¹If the debt service is insured
²Excluding the grace period

Annex-IV

FOREIGN CURRENCY LOAN REPORT (Granted to Domestic Borrowers) (For Each Foreign Currency) (Amount in Thousands)

NAME OF BANK: __________________________________ FOR The MONTH ENDED ___________________________

No	Name of the Borrower	Disbursement Date	Loan Amount	Repayment period	Loan-to-equity ratio	Loan status	Outstanding Amount	Past Due ³(if any)
			Disbursed	Undisbursed	Total
1
2
3
4
5
.
.
Total

Prepared by: ____________________ Approved by: ____________________ Signature: _____________________ Signature: ______________________

³ If it is past due, mention the NPLs category (i.e., substandard, doubtful, or loss)

Annex-V

REPORT ON FOREIGN CURRENCY AVAILED FOR FACILITATION OF IMPORTS (For Each Foreign Currency) (Amount in Thousands)

NAME OF BANK: __________________________________ FOR The MONTH ENDED ___________________________

No.	Name of Customer	Date FCY Availed	Amount of FCY Availed	FCY Selling Rate	Type of Import Commodity

Prepared by: ____________________ Approved by: ____________________ Signature: _____________________ Signature: ______________________

Annex- VI

MATURITY REPORT FOR FOREIGN CURRENCY BORROWING AND LENDING (Amount in Thousands)

NAME OF BANK: __________________________________ FOR The MONTH ENDED ___________________________

	Time Bands	0-7 days	8-15 days	16-30 days	1-3 months	3-6 months	6-12 months	1-3 years	3-6 years	Over 6 years
FX Assets(lending)	Amount in Thousands
- In USD
- In Euro
- In Pound Sterling
- In Chinese Yuan
- In Canadian Dollar
- In Japanese Yen
FX Liabilities (borrowing)
- In USD
- In Euro
- In Pound Sterling
- In Chinese Yuan
- In Canadian Dollar
- In Japanese Yen
Mismatch
- Net mismatch in USD
- Cumulative mismatch in USD
- Net mismatch in Euro
- Cumulative mismatch in Euro
- Net mismatch in Pound
- Cumulative mismatch in Pound
- Net mismatch in Chinese Yuan
- Cumulative mismatch in Chinese Yuan
- Net mismatch in Canadian Dollar
- Cumulative mismatch in Canadian Dollar
- Net mismatch in Japanese Yen
- Cumulative mismatch in Japanese Yen

Prepared by: ____________________ Approved by: ____________________ Signature: _____________________ Signature: ______________________