Capital Markets

Dollar deposits surge by Sh15 billion in June

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The Central Bank of Kenya offices in Nairobi. FILE PHOTO | NMG

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Summary

  • Data by the Central Bank of Kenya (CBK) shows that the dollar deposits stood at an equivalent of Sh760.34 billion at the end of June, up from Sh745.44 billion in May.
  • They had been coming down from March when they stood at an all-time high of Sh779.7 billion.

Hard currency deposits in Kenyan banks rose by Sh15 billion in June, reversing a two-month decline that had been pinned on a shift to local currency accounts due to a stronger shilling.

Data by the Central Bank of Kenya (CBK) shows that the dollar deposits stood at an equivalent of Sh760.34 billion at the end of June, up from Sh745.44 billion in May.

They had been coming down from March when they stood at an all-time high of Sh779.7 billion.

Analysts say that the renewed threat of new Covid variants has reintroduced an element of caution among depositors, thus the June increase.

“We see the foreign currency deposit uptick as a result of ramped-up deposit mobilisation as the quarter came to an end. Furthermore, the risk of the Covid-19, with its multiple variants, has led to the appeal of hard currencies and as such, we expect this trend to continue until the pandemic risk fades,” said Churchill Ogutu, the head of research at Genghis Capital.

The CBK said earlier that bankers and firms had informed it via a poll that investors were hoarding dollars for speculation purposes in the wake of forecasts showing that the shilling would remain weak against the US currency.

The shilling, however, gained in May to averages of 107 units against the greenback, hence the decline in dollar deposits during the month, but started showing signs of coming under pressure in late June. It is currently trading at an average of 109.13 units to the dollar.

Firms have also largely shelved expansion plans under the current economic setting, pushing them to hold onto their funds awaiting full recovery of the economy.

Higher diaspora remittances have also helped bulk up the dollar deposits in local banks this year, as they continue to defy expectations of a dip due to Covid restrictions in source markets.

In the first half of the year, remittances went up by 20.4 percent to $1.75 billion (Sh190.1 billion).

The remittances are expected to remain robust for the rest of the year as more key source countries like the US and the UK move to fully reopen their economies after vaccinating the vast majority of their population against Covid-19.