The amendment to FXD/01/2024 shifts selected approval functions from the National Bank of Ethiopia to commercial banks and requires Letter of Credit charges to be annualised, applied pro rata according to tenor, and kept within the maximum limit previously set by the NBE.
Executive Summary
In a public notice dated 25 May 2026, the National Bank of Ethiopia announced Foreign Exchange Directive No. FXD/05/2026, formally amending NBE Directive FXD/01/2024, as subsequently amended, including FXD/03/2025, FXD/04/2026, and FXD/05/2026. The directive introduces two categories of change: a procedural relaxation allowing commercial banks to approve selected Letters of Credit and Cash Against Documents transactions without prior NBE approval, and a fee rationalisation instruction requiring LC charges to be calculated on an annualised, pro-rata basis. The measures form part of Ethiopia's continued transition toward a market-based foreign exchange regime and are intended to ease administrative bottlenecks, reduce transaction costs, and improve the operational efficiency of foreign exchange-related trade finance.
Before this amendment, institutions seeking to open Letters of Credit or process Cash Against Documents transactions were required to obtain prior approval from the NBE in addition to their bank. The new directive removes that central bank approval step for eligible account holders, transferring the approval function to commercial banks.
Key Regulatory Changes
Banks may now approve Letters of Credit without prior NBE approval
Commercial banks are now authorised to approve Letters of Credit on acceptance for institutions holding foreign currency accounts, including retention account holders, without seeking prior approval from the NBE. This is a significant procedural relaxation for importers, exporters, and other eligible foreign currency account holders who rely on Letters of Credit for international trade transactions. The approval decision now sits with the commercial bank, subject to the bank's own documentary and compliance requirements.
Banks may now approve Cash Against Documents transactions
Banks are also authorised to approve Cash Against Documents on acceptance for institutions holding foreign currency accounts and retention account holders without prior NBE approval. This reduces delays in trade documentation and payment processing, particularly for businesses engaged in import and export activities where speed of payment release is commercially critical.
Shipment under Cash Against Documents may be initiated without prior bank approval
Institutions holding foreign currency accounts, including retention account holders, may now order or initiate shipment of goods under Cash Against Documents arrangements without prior bank approval. However, payment processing remains subject to the submission and verification of all required documents. Businesses should therefore ensure that all trade, shipping, customs, and payment documentation is complete and compliant before payment is requested, as the relaxation applies to the initiation of shipment, not to the documentary verification step that precedes payment release.
Rationalisation of Letter of Credit Fees and Charges
In the NBE public notice dated 25 May 2026, the NBE also instructed all commercial banks to rationalise fees and charges applicable to Letter of Credit transactions. The notice states that the structure of fees and charges applied by commercial banks on foreign exchange-related LC transactions has been inconsistent with prevailing global norms, and that the rationalisation is intended to align LC fee arrangements with international standards.
Under the new approach:
- Fees and charges for Letter of Credit transactions involving institutions holding foreign currency accounts, including retention account holders, must be determined on an annualised basis.
- Such fees must be applied pro rata, depending on the actual tenor of the relevant Letter of Credit.
- The applicable annualised fee rate must not exceed the maximum limit previously set by the NBE. Businesses should confirm the applicable maximum rate with their bank or the NBE's published fee schedule.
This measure is expected to make LC-related costs more predictable and more closely aligned with international trade finance pricing practices. Businesses with existing LC arrangements should review their current fee structures with their bank to determine whether any recalculation is required.
Practical Implications for Businesses
The amendment is likely to have important practical benefits for Ethiopian businesses engaged in cross-border trade and for foreign investors operating through Ethiopian banks. In particular, it may:
- Reduce administrative delays associated with foreign exchange approvals for eligible LC and CAD transactions, as the approval step moves from the central bank to the commercial bank.
- Improve predictability in Letter of Credit pricing through annualised and pro-rata fee calculations, replacing the previous flat or non-standardised fee structures.
- Lower transaction costs for importers and exporters who hold foreign currency or retention accounts with Ethiopian commercial banks.
- Support faster shipment and payment processing under Cash Against Documents arrangements by removing the prior bank approval requirement for initiating shipment.
- Strengthen the operational role of commercial banks as the primary interface for foreign exchange-related trade finance approvals.
Businesses holding foreign currency accounts or retention accounts should consult their banks promptly to understand the internal implementation procedures, revised approval workflows, documentary requirements, applicable fee structure, and processing timelines following this amendment.
Compliance Takeaways
- Review existing trade finance arrangements to determine whether pending or upcoming LC and CAD transactions benefit from the new bank-level approval procedure.
- Engage with commercial banks early to confirm revised approval workflows and applicable documentation requirements under FXD/05/2026.
- Check LC fee calculations to ensure that charges are being annualised and applied pro rata according to the actual tenor of the LC, and that the rate does not exceed the NBE's maximum.
- Maintain complete transaction documents, as payment processing remains subject to full documentary submission and bank verification regardless of the procedural relaxation.
- Monitor further NBE communications, as additional implementation guidance or bank-level circulars may follow.
Frequently Asked Questions
Who benefits from the relaxed LC and CAD approval procedures?
The relaxed approval procedures apply to institutions holding foreign currency accounts and retention account holders. This includes exporters, foreign investors, and other eligible entities whose banks maintain qualifying foreign currency or retention accounts on their behalf. Businesses that do not hold foreign currency or retention accounts should confirm their position with their bank, as standard NBE approval procedures may continue to apply to transactions outside the scope of the amendment.
What documents are still required despite the procedural relaxation?
The amendment removes the prior NBE approval requirement for certain LC and CAD transactions, but it does not remove documentary obligations. Payment processing under Cash Against Documents remains subject to the submission and verification of all required trade, shipping, customs, and payment documents. Banks will continue to carry out documentary compliance checks before releasing payments. Businesses should maintain organised and complete transaction files, as incomplete documentation remains a basis for payment delay or rejection regardless of the new procedure.
How does the pro-rata LC fee calculation work in practice?
Under the fee rationalisation, LC-related charges must be calculated on an annualised basis and then applied pro rata according to the actual tenor of the Letter of Credit. For example, an LC with a three-month tenor should carry approximately one quarter of the applicable annualised fee rate. The annualised rate must not exceed the maximum previously established by the NBE, and businesses should verify the specific rate with their bank. Businesses with multi-tranche or long-tenor LC arrangements should ask their bank to confirm how the pro-rata calculation applies to each tranche or renewal period.
How 5A Law Firm LLP Can Help
5A Law Firm LLP advises clients on banking regulation, foreign exchange compliance, trade finance structuring, investment transactions, and regulatory engagement with the NBE and other Ethiopian authorities. Businesses seeking to understand the practical effect of FXD/05/2026 on their trade finance arrangements, account structures, or import and export operations may contact the firm's Banking, Finance and Capital Markets practice for tailored guidance.
For legal advice on foreign exchange compliance, Letters of Credit, Cash Against Documents transactions, or banking regulation in Ethiopia, contact 5A Law Firm LLP.
This legal alert is provided for general information purposes only and is not specific legal advice for any particular matter or transaction. Businesses affected by Foreign Exchange Directive No. FXD/05/2026 should consult 5A Law Firm LLP for advice tailored to their specific circumstances.
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