The National Bank of Egypt (NBE) has signed a memorandum of understanding (MoU) with six Ethiopian commercial banks in a move intended to make letters of credit (L/Cs) more available to Egyptian investors in Ethiopia.

The Egyptian bank has made the arrangement via its new representative office in Addis Ababa.

Currency shortage

A serious foreign currency reserve shortage has made it extremely difficult for Ethiopia's banks to provide the L/Cs required by Ethiopia's business community.

Last year, foreign reserves declined to a level whereby they could only support one month of imports, although the country now has an estimated 2.2 months of import cover.

Local involvement

Ethiopia's banking law bars foreign entities from direct involvement in the banking sector, which is what led NBE to consult local commercial banks on ways to facilitate L/C flows.

Under the MoU with the Ethiopian banks, NBE will provide foreign currency if the local bank finds itself short of such funds.

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