Ethiopia Moves to Lower Letter of Credit Costs in Trade Finance Shake-Up

May 26, 2026

Mintesinot Nigussie

The National Bank of Ethiopia has revised its foreign exchange directive and introduced new rules aimed at lowering and standardising charges on letters of credit, in a further step to align trade finance practices with international pricing standards.

In a public notice issued on May 25, the central bank said commercial banks must apply an annualised fee structure for letter of credit transactions involving foreign currency account holders and retention account holders. The fees are to be calculated on a pro-rata basis depending on the duration of the credit facility.

The revised framework also requires that the annualised fee rate remains within the maximum limit previously set by the central bank. The move is part of broader reforms linked to Ethiopia’s shift to a market-based foreign exchange regime introduced in July 2024.

The central bank said the adjustments are intended to reduce inconsistencies in bank charges and improve efficiency in trade-related foreign exchange services.

Alongside the fee changes, the directive amends FX Directive No. FXD/01/2024 to ease approval requirements for certain trade finance operations. Under the new rules, banks are now authorised to approve letters of credit on acceptance and cash against documents transactions for institutions holding foreign currency and retention accounts without prior approval from the central bank.

Institutions with such accounts may also initiate shipments under cash against documents arrangements, subject to document verification by banks before payment is processed.

The central bank said the changes are designed to reduce administrative bottlenecks in foreign exchange transactions and support smoother trade settlement processes.