Foreign currency deposits in Kenyan banking institutions rose by 21.6 per cent last year with diaspora remittances being among the major drivers of the growth.
Monthly data from the Central Bank of Kenya (CBK) showed the deposits stood at Sh581.9 billion at the end of December 2018 compared to Sh478.8 billion at the end of the previous year.
In November 2018 the deposits stood at Sh569.6 billion showing they rose by Sh12.3 billion or 2.2 per cent in a month to close the year at Sh581.9 billion.
In an earlier statement in March and January, CBK’s Monetary Policy Committee (MPC) had reported that diaspora and other inflows were strong in 2018 as well as in the few months of this year.
“The foreign exchange market has remained stable supported by the narrowing of the current account deficit to 4.7 percent of GDP in the 12 months to February from 5.5 percent in February 2018. This reflects robust performance of exports particularly horticulture, resilient diaspora remittances, and higher receipts from tourism and transport services. Additionally, growth in imports slowed mainly due to lower imports of food and machinery,” said Eric Musau, head of research at Standard Investment Bank, in a recent interview.
“We have had a lot of inflows. I don’t know the relative strength of the factors leading to this, but they included diaspora remittances, new investments in Kenya and flows from exports such as in agriculture and horticulture.”
Mr Musau said that commercial banks had considerable amounts of hard currency that was not yet used and could go into various ventures, including lending to the government, even as the bulk of their holdings remained in domestic currency.
Besides the diaspora remittances and travel receipts, the amnesty given to allow Kenyans to bring back their deposits abroad also contributed to the current situation.
The amnesty was initially supposed to end in June last year but it has since been extended to June this year.
The Treasury extended the amnesty after addressing concerns raised to the effect that the earlier offer did not exempt those who brought the money into the country from court proceedings on the basis of flouting the laws on economic crimes.
The year was also marked by a narrowed gap of imports and exports, leaving more forex deposits within banks.