Kenyans were holding onto a record Sh905 billion worth of dollar deposits in local banks as at July, even as importers continued to struggle to raise foreign currency from the local market to fund purchases.
Latest Central Bank of Kenya (CBK) data showed dollar deposits jumped 19.6 percent from Sh755.9 billion at the beginning of the year, crossing the Sh900 billion mark for the first time.
But the large dollar holdings point to forex market inefficiencies, with dealers telling the Business Daily that lenders have been unwilling to sell the greenback to each other, while individuals and companies have also been holding their hard currency tightly.
During this period, the shilling has weakened 6.1 percent against the dollar pressured by higher demand for the US currency by importers, especially petroleum products and industrial supplies and interest rate hikes.
The shilling has declined to 120.81 at a faster pace than last year’s 0.5 percent depreciation, increasing the value of dollar holdings for the rich Kenyans and bankers.
Bankers say clients are rushing to stock up the dollar –the dominant currency in international transactions — and this has led to its gradual strengthening against the Kenya shilling.
Businesses from diverse sectors have complained of difficulty in accessing the dollar in quantities they want, forcing them to wait for days to weeks to accumulate the funds they require to make payments to their overseas partners, hitting their business plans.
Some have been unable to source enough dollars on a reliable basis, forcing them to scale down their operations.
A number of banks have resorted to borrowing dollars from their clients to fund their forex trading operations.
This has seen corporates, individuals and banks hoard dollars to protect the value of their wealth and to ensure they have a supply of the currency amid the shortages.
The demand has seen those holding foreign currency charge top dollar for the foreign currency, further leading to depreciation of the shilling.
The scramble for US dollars has seen a widening spread in the pricing of the foreign currency by a margin of more than Sh13.1.
The bid-ask spread — the difference between the price a dealer buys and sells a currency – has increased from as low as Sh2 in March.
Most banks are now selling a dollar at about 128.9 units of the local currency while buying the greenback at 115.8 units of the Kenya shilling, revealing a strong demand for the US currency.
The rates at which most customers are buying the dollar are substantially higher than the officially published mean of Sh120.85.