CBK curbs banks’ daily forex trade to save the shilling
The Central Bank has been battling to keep the shilling from sliding further, having lost 11 per cent to the dollar since the beginning of the year. PHOTO | FILE
What you need to know:
CBK has limited the value of foreign exchange trading commercial bank dealers can handle to 10 per cent of the lenders’ core capital in a single day.
Banks say that the move will significantly reduce the volume of business they can undertake on a single day.
The Central Bank has issued a circular curbing the volume of daily foreign exchange trading by banks in a move aimed at limiting speculative trading on the shilling.
The circular effectively limits the value of foreign exchange trading commercial bank dealers can handle to 10 per cent of the lenders’ core capital in a single day.
Commercial banks say that the move will significantly reduce the volume of business they can undertake on a single day.
“The intra-day foreign exchange limit should not exceed the 10 per cent overall limit at any time during the day,” reads the circular signed by CBK’s assistant director of bank supervision, Matu Mugo.
CBK requires banks to keep their forex exposure at below 10 per cent of their core capital. As per prudential guidelines, the intra-day regulations were previously to be set by individual banks’ boards of directors.
“Intra-day foreign exchange risk exposures, both in single currencies and overall, shall be maintained within prudent limits as established by a bank’s board of directors in a written policy covering foreign exchange risk exposure,” reads part of the guidelines.
Currency dealers contacted by the Business Daily complained that the directive may force them to turn away large business in fear of contravening the requirement.
“You can deal as much as your clients demand intra-day so long as end of day it is good – it (foreign currency holding) can fluctuate during the day,” said a dealer who indicated that the traders would request the Central Bank to withdraw the directive.
The Kenya Bankers Association said it was yet to receive any complaints from its members regarding the CBK circular.
KBA chief executive Habil Olaka said the association would take up the matter with CBK if its members gave it reasons to challenge the regulator’s position.
The Central Bank has been battling to keep the shilling from sliding further, having lost 11 per cent to the dollar since the beginning of the year to trade at Sh102.55 to the greenback on Wednesday.
CBK attributed the 2011 slump of the shilling to speculative trading and has stated that it will not let such activity to impact on the local currency again.
“CBK is monitoring the situation very closely and is taking appropriate measures to eliminate disorderly market developments,” said CBK governor Dr Patrick Njoroge in a press statement last week.
CBK’s foreign currency reserves have shrunk by Sh17.8 billion ($175 million) in the last three weeks as Central Bank sold dollars in the market to prop the frail shilling.
Protection of the shilling has seen the currency reserves held by CBK fall to remain marginally above the mandatory required four times the country’s monthly import bill. The import cover is currently at 4.14 times.
Pressure to remain compliant with the import cover requirement is likely to push the government to tap the Sh63 billion standby credit facility available from International Monetary Fund.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
