Dollar crisis earns Kenya banks Sh52bn amid consumer woes

US dollars and the electronic currency display board at Bay Forex Bureau along Kenyatta Avenue. PHOTO | DIANA NGILA | NMG

Commercial banks’ earnings from foreign exchange trading for nine months through September nearly doubled on higher demand for the dollar amid widening margins.

The Business Daily’s analysis of published financial performance statements shows tier-one banks earned Sh52.89 billion from trading in currencies in the review period compared with Sh28.27 billion in the same period the year before.

Bank executives attributed the 87.11 per cent year-on-year growth for the nine top lenders to increased demand for the dollar because of higher prices of commodities like petroleum products, which sparked fierce competition for the greenback this year.

Manufacturers complained earlier in the year that the shortage of dollars forced them to buy the greenback at a premium to the official Central Bank of Kenya’s average exchange rate.

“Forex revenue has gone up due to increased volumes of transactions as well as higher margins. The prices of commodities like fuel, wheat and palm oil have risen sharply and this results in more dollars required to buy the goods,” said a CEO of a tier-one bank.

“Margins have increased, mainly because of difficulty in getting dollars. Those with dollars will price in the illiquidity in terms of accessing the hard currency.”

The cost of essential commodities such as petroleum products, wheat, edible oil, steel and paper hit record levels earlier in the year on Covid-induced disruptions in global supply chains, which were exacerbated by the Russia-Ukraine war.

This meant that traders were spending more dollars to buy the same volume of commodities they bought last year.

A spot-check by the Business Daily on Monday showed some top banks were earning margins as high as Sh12 on dollar-shilling exchange trade.

Several banks were selling the dollar at levels around Sh130 while buying the same for Sh120.

One top bank, for example, was buying the greenback for Sh119.80 and selling at Sh131.40 per unit.

The official shilling-dollar exchange rate published by the CBK stood at 122.34 units Monday.

CBK governor Patrick Njoroge has, however, denied the possibility of parallel exchange rates in the country even at a time when there was a gaping mismatch between demand and supply of the US currency, which prompted some banks to cap volumes per trader.

The shilling has depreciated 8.13 per cent against the globally bullish dollar since the beginning of the year, attributed to strong demand for the greenback.

The widening of the bid-ask spread — the difference between the price a dealer buys and sells a currency — in the forex market to a margin of more than Sh10 is indicative of the high demand for dollars amid a perceived drop in supply, according to bankers.

The exchange rate has long been a sensitive issue, with most players preferring silence for fear of reprisals from the central bank.

“Margins keep on fluctuating on a daily basis hence their contribution is not as significant. The one thing that has really driven those earnings are volumes [of transactions]. This is because we [banks] are facilitators of [import] trade, especially in oil, manufacturing and agricultural sectors,” a chief financial officer at a tier-one bank said.

“So as the economy opened up post-Covid, we saw significant growth in volumes of transactions and this continues to be the main driver.”

The analysis shows I&M Group more than tripled income from forex trading to Sh3.78 billion in January-September 2022 compared with Sh1.81 billion the prior year.

It was followed by NCBA, which grew forex earnings by 162.91 per cent to Sh9.21 billion, KCB Group by 86.39 per cent to Sh8.40 billion and Diamond Trust Bank by 80.59 per cent to Sh4.98 billion.

Co-operative Bank bumped up its revenue 71.56 per cent to Sh3.28 billion, Stanbic Bank’s climbed 69.33 per cent to Sh6.90 billion, while Standard Chartered’s rose 66.00 per cent to Sh4.20 billion.

Equity Bank grew its forex income at the slowest pace amongst tier-one banks at 57.50 per cent to Sh8.89 billion, while Absa’s increased 59.97 per cent to Sh4.98 billion.

The scramble for the dollar means that buyers — both for trading and hedging purposes — keep bidding higher for the currency.

The higher effective rate for those buying dollars in the market was highlighted by importers in the first half of the year.

Getting adequate dollars proved difficult for some traders due to banks not being willing to sell to each other, making it hard for smaller players to fulfil their orders from clients.

Kenya’s official foreign exchange reserves —largely tapped for government payments like servicing external debts and essential government imports such as medicines— have fallen below the equivalent of four months of import cover for the first time since October 2015, according to the CBK.

The stockpile of foreign currencies stood at $7.045 billion (Sh861.88 billion) last Thursday, enough to meet import needs for 3.95 months against the statutory four months.

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