Forex income boom for banks on dollar shortage

foreign exchange trading

Commercial banks’ earnings from foreign exchange trading in the financial year ended December jumped sharply on higher demand for the dollar amid widening margins.

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Commercial banks’ earnings from foreign exchange trading in the financial year ended December jumped sharply on higher demand for the dollar amid widening margins.

A review of published financial performance results of five tier-one lenders as of Friday shows that the lenders earned Sh34.8 billion from trading in currencies in the review period compared with Sh20.99 billion in the same period the year before.

Kenya has been from last year battling a biting shortage of US dollars with banks selling forex at rates way above the recommended rates by the Central Bank of Kenya (CBK) amid huge demand, especially from importers.

The dollar shortage is being driven by rising dollar demand owing to increased shipments of fuel, electronics, food, raw materials, and equipment.

Further, traditional sources of dollar inflows such as agricultural exports and tourism have failed to keep up with demand.

An analysis by Nation of five tier-one banks listed at the Nairobi Securities Exchange (NSE) that have so far released their 2022 full-year earnings shows a sharp increase in income from trading forex.

KCB posted a 126 per cent increase in forex income which hit Sh8.91 billion from Sh3.95 billion in 2021. The income helped KCB storm to a record Sh40.83 billion net profit in 2022, a 19.5 per cent increase from the Sh34.17 billion profit after tax it earned in the previous year.

Cooperative Bank also saw its forex earnings rise by 66 per cent to hit Sh4.71 billion last year up from Sh2.84 billion in 2021.

This pushed the lender to a Sh22 billion net profit for the financial year, a 33 per cent jump from the previous period.

Stanbic Bank’s income from forex trading rose by 37 percent in 2022 after netting Sh8.57 billion from the trade, a significant increase from Sh6.27 billion in the preceding year.

This helped push the lender’s profit after tax to a record Sh9.05 billion, up from the Sh7.2 billion it earned in 2021.

Absa Bank Kenya grew its forex income to Sh6.64 billion in 2022 underlining a 60 percent increase from a forex trading revenue of Sh4.16 billion it earned in the previous year.

The lender reported a 34.2 percent net profit growth in the year ended December to Sh14.6 billion, largely supported by increased lending with net interest income growing ahead of non-funded income by 27.7 percent to Sh32.3 billion.

Meanwhile, Standard Chartered raked in Sh5.97 billion in forex trading income, a 58 percent increase from Sh3.77 billion in 2021.

The bank’s net profit for the year ending December 2022 went up 34 per cent to Sh12.1 billion with income up 16 per cent to Sh34 billion driven by higher non-funded and interest income. The dollar shortage has continued this year even as firms that are searching for dollars to settle their bills are currently buying the greenback at over Sh145 which is Sh16 more than the CBK’s indicative rate of Sh129 on Friday.

A huge import bill and external debt repayment obligations have dwindled Kenya’s forex reserves which fell to $6,566 million (Sh853.58 billion) translating to just 3.67 months of import cover as of March 9.

This is below the legal threshold that requires the CBK to hold reserves of at least four months of import cover.

The dollar shortage is being felt by households and businesses as the cost of goods and services continues to rise.