The Kenya Bankers Association (KBA) is tipping its members to increase the stock of Chinese currency for its transactions as Kenya-China trade ties intensify.
The chief executive of the lenders’ lobby, Habil Olaka, says the yuan is becoming important in settling financial transactions with many Kenyan banks reacting to this by setting up China-dedicated desks and increasing the stock of Chinese currency.
“As global trade picks up in terms of China with the rest of countries such as Kenya, yuan usage is going to pick up--- There is a lot of trade now and slowly the Chinese currency is becoming the medium of transacting between the entities,” said Mr Olaka.
He noted that some banks have responded to local demand by setting up units targeting the Chinese community and expects more to follow suit.
Lenders such as Equity Bank #ticker:EQTY, Family Bank, Stanbic Bank and Standard Chartered Bank #ticker:SCBK have set up centres and stocked them with the yuan to facilitate Chinese businesses operating in Kenya and Kenyan companies trading with the Asian country.
“Banks are always scanning for opportunities and since there is opportunity to trade in this currency that is becoming relevant, we will see the market moving towards that direction,” said Olaka.
In June, Xinhua, a Chinese news agency with office in Nairobi, reported that Central Bank of Kenya (CBK) could soon add the yuan to its list of reserve currencies.
"It is inevitable that Kenya will include the Chinese yuan as a reserve currency. The only question is when and the timing will be determined by a number of short term factors," CBK Governor Patrick Njoroge said during the Guangzhou-Foshan Nairobi Business forum.
Currently, most of Kenya's foreign exchange reserves are in dollars. In 2016, the International Monetary Fund (IMF) included the renminbi to its Special Drawing Right (SDR) basket alongside the US dollar, euro, yen and the British pound.
According to data from National Treasury, Kenya’s share of external debt that is yuan-denominated has been rising. From July 2015 when it was just Sh63 billion or 4.3 per cent of total external debt, it has grown to Sh163 billion or 6.5 per cent of external debt.
Chinese banks such as Bank of China have set up representative offices in Kenya to tap into growing trade between the two countries. According to Mr Olaka, some of them may eventually convert into commercial banks as business dealings rise.
KBA amended its constitution about three years ago to allow representative offices of international banks to become members but none has joined.