Stable currency eats into banks’ forex earnings

“There has been an increase in the general client knowledge on market forces hence increasing competition in the forex market leading to reduced profit margins,” said Joshua Anene of Commercial Bank of Africa.

“There was a lull in the import-export trade early in the year hence reducing the number of clients buying foreign currency which in turn ate into the profit margins, it is therefore not only a matter of volatility but also an issue of international trade” said Peter Mutuku, a currency dealer with the Bank of Africa.

The world bank report on the economy in the first quarter of the year reported low import-export trade volumes but predicted a surge in international trade later in the year.

Sector players said that the reduction in foreign exchange inflows into the country due to lack of new investments or donor aid into the country arising from the just ended financial crisis has reduced market activities.

Economic fundamentals

“The views of the bank (Citibank) were mostly based on local economic fundamentals and largely positive for the Kenya Shilling but the international forces disrupted the market creating uncertainty hence people kept out of the market, ” adds Mr Ayeyemi.

The recovery in the Euro signals improving health of the eurozone economy which is expected to boost export markets for local producers.

Currency dealers said late 2009 saw reduced foreign direct inflows due to the effects of the global financial crisis hence there were no external shocks to the shillings reducing volatility.

The passage of the new law, and the weak US dollar coupled with a strong Euro demand has seen the local currency rise to recover from its losing streak.