AmendmentFintech

Interbank Money Market Directive (Amended) (Directive No. 1012/2024)

National Bank Of Ethiopia1012/2024

Summary

This directive amends the Interbank Money Market Directive (No. 1012/2024) to regulate and modernize the operations of the interbank money market in Ethiopia. It aims to enhance the efficiency of the banking system by facilitating borrowing and lending between commercial banks, improving monetary policy implementation, and ensuring effective liquidity management.

Who's affected

Commercial banks licensed by the National Bank of Ethiopia, including government-owned commercial banks.

Action required

Commercial banks must ensure their trading platforms are approved by the National Bank, adhere to specified trading hours, report transactions as required, and comply with collateral and risk management requirements.

Key points

11
  • The directive amends the Interbank Money Market Directive.
  • It defines various terms related to the interbank market.
  • Commercial banks are the primary eligible participants.
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    • Trading hours are from 8:30 AM to 4:00 PM, Monday to Friday.
    • Approved electronic trading platforms must be used.
    • A manual book-entry system is introduced during the transition.
    • Minimum deal size is Birr 25 million.
    • Collateral requirements are detailed, including eligible assets.
    • Risk management and reporting requirements are outlined.
    • Procedures for termination of participation and events of default are specified.
    • Penalties include interest rate surcharges, administrative penalties, and suspension.

Requirements

19
  • All interbank money market participants must abide by this directive.
  • All transactions must be in Ethiopian Birr.
  • Eligible participants must maintain a reserve requirement with the National Bank.
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    • Participants must agree in writing to abide by the Code of Conduct.
    • Written membership requests must be submitted to the Monetary and Financial Analysis Directorate.
    • Trading must occur on NBE-approved platforms.
    • Binding quotes for borrowing and lending rates must be sent when requested.
    • Minimum deal amount is Birr 25 million, in multiples of one million.
    • Quotes shall be for overnight or seven-day tenors.
    • Agreed interest rates, total amount, settlement, and maturity dates must be stated and reported to the National Bank.
    • Collateral value must fully cover the loan, plus haircut and interest.
    • Eligible collateral includes Government securities, NBE securities, and Development Bank Bonds.
    • Market participants must establish robust risk management practices.
    • Daily reports must be submitted during the transitional period.
    • Participants must provide information requested by the National Bank.
    • Written notice of at least 10 days is required for membership cancellation.
    • Participants must notify the National Bank of any event of default.
    • Transactions must be conducted fairly and honestly.
    • Market participants must not engage in prohibited activities.

Rights and permissions

3
  • The National Bank may revise eligibility criteria.
  • The National Bank may immediately revoke a participant's market membership for non-fulfillment of obligations.
  • The National Bank may suspend a market participant from the interbank market for violations.

Restrictions

5
  • Transactions must be in Ethiopian Birr.
  • Only NBE-approved trading platforms can be used.
  • Only overnight or seven-day tenors are allowed for quotes.
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    • Unsecured transactions are allowed with notification to NBE after CSD go-live.
    • Prohibited activities that compromise market integrity are not allowed.

Penalties

4
  • Contravention of the directive is punishable according to Article 26 (2/d/) of Proclamation No. 591/2008.
  • Defaulting members are liable for administrative penalties: first time charged agreed interest rate plus a 5% penalty rate; second time charged maximum lending interest rate.
  • Failure to settle agreed trade transactions incurs a penalty based on the agreed interest rate plus a 5% penalty rate.
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    • Market participants violating the directive may be suspended from the interbank market for a minimum of six months.

Objectives

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  • Regulate and determine the supply and availability of money and credit.
  • Enable banks to effectively utilize and manage their funding and liquidity demand using existing banking system liquidity.
  • Enhance the efficiency of the price-based monetary policy framework.
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    • Deepen the interbank money market to enhance intermediation.
    • Modernize, conduct, monitor, regulate, and supervise payment, clearing, and settlement systems.

Organizations

2
  • National Bank of Ethiopia
  • Development Bank of Ethiopia

Legal references

3
  • Article 5 (sub article 4 & 11), Article 15 sub article 1(a(2)), and Article 27(2) of the National Bank of Ethiopia Establishment Proclamation No. 591/2008 (as amended)
  • Article 26 (2/d/) of the National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008
  • NBE directive NO.IBM/02/98
Original sourcehttps://justice.gov.et/en/directives/interbank-money-market-directive-amended-directive-no-1012-2024/
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