Local banks beat foreign rivals in forex revenueThursday December 08 2022
Large indigenous banks beat their foreign-owned counterparts in growing their income from forex trading this year, attributed to a willingness to pay a premium to access dollar supply in the market.
Tier one lenders’ earnings from forex trading in the first nine months of this year rose by 87.1 per cent to Sh52.89 billion, from Sh28.27 billion in the same period of the year, on higher demand for the dollar and widening margins.
The weakening of the shilling and higher demand for dollars from importers amid global shocks this year has increased competition for dollars in the local market, both among banks and dollar buyers.
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Banks lend dollars to each other based on the interbank rates, which also form the basis of determining the official exchange rate for the country, which currently stands at 122.69 units to the dollar.
“We believe that some banks have become more aggressive and have been paying a premium to acquire more dollars. This explains the massive growth in forex revenue for some institutions which previously were not big players in the market,” said a commercial bank executive who declined to be named speaking on forex matters.
“While all the major banks record strong growth in forex income, indigenous institutions have clearly outpaced their foreign-owned rivals.” In the period, I&M Bank and NCBA recorded the biggest jump in forex earnings among the large banks, up by 220 per cent to Sh3.78 billion and 163 per cent to Sh9.21 billion respectively.
They were followed by KCB, whose forex earnings grew by 86 per cent to Sh8.4 billion, DTB (up 81 per cent to Sh3.27 billion) and Co-operative Bank (up 72 per cent to Sh3.28 billion).
The majority foreign-owned Stanbic, Standard Chartered Bank Kenya and Absa Bank Kenya grew their forex earnings by 69 per cent, 66 per cent and 60 per cent respectively to Sh6.9 billion, Sh4.2 billion and Sh4.97 billion.
Equity Bank recorded the lowest relative growth in the period at 57 per cent (to Sh8.9 billion), but this reflected its previous high growth of 41 per cent in 2021 when it led the market in forex earnings.
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The higher forex earnings among banks were driven by both higher volumes and wider margins in the retail market, where the spread (between buying and selling prices) rose to as high as Sh12 for some lenders in the period.
Spread and demand rise due to the higher cost of importing essential goods such as petroleum products, wheat, edible oil, steel and paper on Covid-induced disruptions in global supply chains, which were exacerbated by the Russia-Ukraine war.
Manufacturers had complained earlier this year that a shortage of dollars was forcing them to buy the US currency at a premium to the official Central Bank of Kenya’s average exchange rate.
CBK governor Patrick Njoroge however denied the possibility of parallel exchange rates in the country, saying there was ample dollar supply to support daily market needs.