Equity boss questioned over shilling woes

A parliamentary committee on Monday accused Equity Bank Chief Executive James Mwangi of having a hand in the record depreciation of the shilling in 2011 that worsened the cost of living for majority of Kenyans.

The committee investigating the fall of the shilling accused Mr Mwangi of influencing policy direction by the Central Bank of Kenya.

"We know how much your bank made, and the relationship between you and two others including the governor who took over policy making," said the chairman of the parliamentary committee Adan Keynan.

Mr Mwangi denied any role in the shilling fall saying Equity Bank’s involvement in the foreign exchange market was insignificant to sway the market.

"I have not in anyway participated in any policy making decision of the government," Mr Mwangi declined, adding that the bank earned only Sh508 million from forex trading, placing it ninth in the segment.

The bank said the bulk of its foreign exchange trading profit came from South Sudan and not Kenya.

The bank also denied that it was among three banks that the Central Bank had blamed for the decline in the value of the shilling in 2011.

The rapid fall in the local currency in 2011 by 33 per cent from 80 to 107 against the dollar resulted in imported inflation where prices of fuel and other imported raw materials increased pushing up the cost of living beyond the reach of most Kenyans.

This resulted in a drastic hike of interest rate from 7 per cent in October to 18 per cent in December 2011 increasing the burden for borrowers as interest rate went up from 15 per cent to 29 per cent.

The committee was also investigating whether the shilling fall was caused by a need to finance this year’s elections by key policy makers in the government since election years have in the past been preceded by sharp depreciations in the shilling.

Mr Mwangi was also put to task to explain why he sold his stake in Equity Bank ahead of the financial turmoil that the financial sector was set to face and use the funds for speculative purposes.

Mr Mwangi said Equity Bank gets about 3 per cent of its revenue from foreign exchange trading as compared to more than 30 per cent in other banks.

The parliamentary committee also wanted to find out if the bank’s involvement with foreign banks in providing foreign currency loans to local organizations affected the shilling.

Mr Mwangi however said that all foreign currency loans coming to Equity bank are never converted to shillings but are loaned out straight to the recipient organizations.

The bank borrowed about $50 million from China Development Bank, $70 million from the Dutch development bank FMO.