Commercial Bank of Ethiopia (CBE) Given Until March 2026 to Cut FX Exposure as NOP Pressures Persist

The deadline for the Commercial Bank of Ethiopia (CBE) to significantly reduce its foreign exchange exposure has been extended to March 2026, after weaker-than-expected foreign currency inflows complicated efforts to bring the bank’s net open position (NOP) within regulatory limits.

According to a recent International Monetary Fund (IMF) review, the extension shifts the original end-2025 deadline agreed under Ethiopia’s IMF-supported reform programme. The decision follows a deterioration in CBE’s foreign exchange position during the first quarter of the 2025/26 fiscal year, driven largely by slower remittance inflows and rising demand for foreign currency from private sector clients.

The Commercial Bank of Ethiopia’s (CBE) on-balance-sheet Net Open Position (NOP) widened to approximately USD 500 million by the end of the first quarter. This marks a substantial deterioration from the minus USD 200 million recorded at the close of the previous fiscal year. According to the IMF, this substantial short position stems from fundamental pressures on the bank’s foreign currency cash flows. A key contributing factor is the CBE’s primary role in funding crucial imports, such as fuel and fertilizer, a risk exposure that private banks have largely been unwilling to undertake.

In response, the National Bank of Ethiopia (NBE) and CBE have agreed on a revised adjustment plan, supported by weekly consultations to track progress and manage risks. The plan includes contingency buffers and a renewed focus on mobilising foreign exchange from diaspora sources. CBE has rolled out targeted remittance campaigns and tailored financial products to attract foreign-currency inflows.

The IMF noted that intensified competition from private banks and specialised money transfer operators has weighed on CBE’s remittance performance, despite ongoing government efforts to redirect flows away from informal channels. To close the NOP gap, the Fund suggested that CBE may need to adopt more competitive pricing strategies and participate more actively in NBE’s foreign exchange auctions.

An Asset Quality Review of CBE’s loan portfolio is also scheduled for completion by June 2026, forming part of broader efforts to strengthen the bank’s balance sheet and risk management framework. Additional support is expected from the World Bank’s Financial Sector Strengthening Project, which is providing nearly USD 800 million to bolster CBE’s capital position and foreign asset base.

The NOP challenge comes as NBE moves to tighten oversight of banks’ foreign exchange exposures. In November, the central bank revised a 25-year-old NOP directive, aligning it with international standards and setting a maximum FX exposure limit of plus or minus 18 percent of Tier 1 capital at the end of each business day. A clear penalty regime for breaches takes effect on January 1, 2026.

The IMF observed signs of gradual improvement in Ethiopia’s foreign exchange market, including shorter waiting times for FX access and stabilisation in the real effective exchange rate. Stronger net FX inflows from an improved trade balance in 2024/25, along with regular NBE FX auctions, have helped ease liquidity pressures, while private banks have begun opening letters of credit for fuel imports.

Further reforms planned include integrating interbank FX transactions and NBE’s own FX operations into daily indicative exchange rates, surveying unmet FX demand, and fully enforcing the revised NOP framework to support a more transparent and functional foreign exchange market.

Source: Capital