Volatile shilling lifts forex bureaus back to profit zone

High volatility of the shilling and cost cutting boosted foreign exchange bureaus’ performance last year, lifting them from loss-making into profitability.

Data from the Central Bank of Kenya (CBK) show that forex bureaus earned a pre-tax profit of Sh225 million in the nine months to September last year, against a total loss of Sh28 million in 2010.

The full-year audited results are yet to be finalised, but they are expected to show an even higher growth in profits as the last quarter of the year marked the highest fluctuation of the currency.

Chairman of the Kenya Forex Bureaus Association (KFBA), Sam Angwenyi, said high volatility of the shilling was a major boost to the sector’s turnaround.

“There was high demand for foreign exchange services as people were changing their money to Kenya shillings to take advantage of the strong dollar,” said Mr Angwenyi.

He said part of the returns were also attributable to an increase in the amount of money flowing into the country as Kenyans in the diaspora sent more cash home to capitalise on the weak shilling.

Diaspora remittances rose 39.8 per cent in the period to November last year to hit an all-time high of Sh68.4 billion ($805 million) from Sh48.9 billion (Sh576 million) at current exchange rates within the same period the previous year.

The sector regulator said ongoing reforms touching on the structure of forex bureaus had resulted in leaner organisations that are less costly to operate.

Total expenses dropped by 33 per cent across the sector to Sh776 million in the first nine months of last year, from Sh1.173 billion the previous year.

“The improved performance is attributed to various factors, including reforms in the sub-sector that mainly focused on streamlining the operations of the bureaus,” said CBK in a statement.

Mr Angwenyi said bureau owners were also able to make bets on the movement of the currency after its volatility became apparent, adding that the otherwise slow economic growth that characterised 2011 could have seen them post even lower earnings.

The shilling lost a quarter of its value, touching a low of 107 units in October, before retracing the curve to end the year in the mid-eighties range.

The high returns were also attributed to the wide spreads in the forex market, affording the money changers high profit margins. The difference between buy and sell prices at times stretched up to two shillings as opposed to about 20 cents in normal market conditions.

“Due to market uncertainty forex bureaus increased their spreads inorder to protect their margins last year, as the shilling oscillated within wide bands,” said Mr Angwenyi.

Heavy demand for imported commodities such as food, fuel and manufactured goods fanned by the availability of cheap credit negatively impacted on Kenya’s balance of payments sending the shilling into a free fall.