Top Banks Celebrate 109% Rise in Forex Earnings

Kenya’s top 10 banks saw foreign exchange trading income rise 109 percent last year, playing a significant role in their operating income as banks cashed in on the panic.

Data from investment bank EFG Hermes shows that top banks which include NCBA, KCB, Equity, Co-op, Absa, and others widened their spreads, making a hefty profit from the shortages.

“The foreign exchange income of the top 10 banks (nine of which are subsidiaries of entities listed on the NSE) jumped 109 percent year-on-year on average,” said EFG Hermes.

Commercial banks rode on this dollar shortage to help drive their overall income, helping them to thrive in the chaos.

“The increase accounted for 44.1 percent and 77.1 percent of the increase in their operating income and profits before tax. Some of the banks attributed these notable numbers to the recovery of FX volumes – in line with general recovery post-pandemic – as well as the weaker Shilling,” the EFG analyst report says.

For instance, KCB made Sh6.9 billion in the first nine months of last year from forex deals up from Sh2.9 billion in the same period the previous year.

Equity Bank made Sh4.7 billion in forex sales in the first nine months of last year compared to Sh2.4 billion same period in 2021.

This means that banks are up for another bumper harvest this year as the forex shortage persists due to a strong dollar and concerns about a recession in developed markets.

According to the Central Bank of Kenya, the official exchange rate is Sh124 to the dollar but retail dollar buyers are paying up to Sh134 per unit in Kenyan banking halls as the demand for the greenback continues to surge. 

Several large banks are now selling the dollar at between Sh133 and Sh134 per unit, while buying the same at between Sh118 and Sh123, with bankers and forex bureaus saying the higher prices have been driven by demand and the cost of accessing the hard currency on their part. 

The low supply of dollars and high demand especially from the government to service debt has seen freefall against the dollar since the beginning of last year.

Trade Cabinet Secretary Moses Kuria said that some tea-importing countries have stopped releasing dollars for the purchase of Kenyan tea given that the cash crop is not a critical import commodity.

“Several of the destination markets of Kenya’s Sh132 billion ($1.1 billion) per annum tea exports have stopped allocating hard currency for import of Kenya tea,” he said.

The higher effective rate for those buying dollars in the market had been highlighted last year by importers. 

Access to the greenback had previously also proved difficult for some due to banks being unwilling to sell to each other, which made it hard for smaller players to fulfill their orders from clients.

According to bankers, the rise in the bid-ask spread, or the difference between the price a dealer pays to buy and sell a currency, to a margin of roughly 16 is another sign of the high demand for dollars amid a supposedly declining supply.

Buyers continue placing greater bids for the dollar as a result of the race for it, both for trading and hedging purposes.

Data from CBK shows that as of last November, foreign deposits in local banks were worth a record Sh922 billion as of the end of July.