Central bank discovers growing illegal forex transactions in the two towns
Commercial banks are no longer allowed to provide foreign currency and credit services at branches located in Moyale and Togochale towns.
The National Bank of Ethiopia last week said it found bank branches in two border towns, Togochale and Moyale, dealing in foreign currencies illegally, following examinations on their operations.
The branches have been facilitating foreign exchanges through various illegal ways including availing local currencies for such activities, instead of running the usual financial services, according to the central bank.
In a letter written to all banks on May 27, 2022, and signed by Solomon Desta, vice governor of financial institutions supervision at the NBE regarding the branch services at Togochale, 665km east of Addis Ababa in Somali Regional State, the central bank ordered the banks to downgrade their branches in the area into sub-branches.
This also includes the branches in Moyale town, 774km south of Addis Ababa bordering Ethiopia with Kenya, which the central bank also ordered to be downgraded into sub-branches, according to senior officials at the NBE.
The banks have also been ordered to restrict deposit and withdrawal services to/from accounts serviced in the specific sub-branches only to residents and business customers in the local community through Know Your Customers (KYC) document.
“Non-residents shall bring cash when visiting or passing through these areas, or use the branches outside Togochale or Moyale,” said the senior official at the NBE.
Explaining why the bank came up with the decision, the official said currency smugglers were sending cash to the branches in these towns, and travel there to withdraw later on and exchange it there before smuggling it into neighboring countries.
By downgrading the branches to sub-branches, the central bank is forcing the banks to cease provision of services such as loans and foreign exchanges, limiting them only to saving services, according to the official.
There are about 15 banks with 19 branches in Togochale alone, with about the same quantity available in Moyale as well.
“Licenses previously issued to branches in Togochale area shall be returned to the National Bank and sub-branch licenses shall be issued as replacements,” reads the letter the NBE wrote regarding the situation in Togochale.
According to Asfaw Alemu, chief executive officer of Dashen Bank, the measures won’t have any impact on his bank since it already has a limited engagement that did not go further than residents’ savings, which will still continue.
“We were already thinking of taking some actions ourselves, as we had costs over the business movement,” Asfaw told The Reporter.
However, residents in the area will still be out of choice for a full banking service while visiting customers won’t get banking services unless the decision is reversed. Neither the letter nor the official could confirm if the decision is permanent or temporary.
“There is always a trade-off,” the senior official at the central bank said, adding “If the cost outweighs the benefit, the impact on the economy would be unbearable.”