Business corporates raised their share of dollar deposits in banks to 70 percent as of September last year, amidst a biting shortage that has disrupted purchases of critical raw materials from the global market.
New Central Bank of Kenya (CBK) data shows that the sum of foreign currency deposits held by firms hit Sh973 billion at the end of the third quarter of 2023 compared to Sh418 billion in hard currency deposits by households.
The deposits by firms represent 70 percent of all forex deposits which stood at Sh1.39 trillion at the end of the same period.
The share of foreign currency deposits by firms has steadily risen from a low 56 percent in the second and third quarters of 2019.
The rise in foreign currency deposits by both firms and households coincides with the weakening of the Kenyan shilling over the past year with the local unit shedding more than 25 percent of its value against the US dollar in 2023. For instance, foreign currency deposits stood a Sh575.7 billion in September 2018.
Commercial banks have led firms in stockpiling hard currency with the holdings being previously attributed to the increased operation of Kenyan lenders in the region.
In June last year, CBK noted that banks had been the primary driver of growth in foreign currency deposits, which continue to set historical highs, as they accumulate from their regional operations and by contracting hard currency loans.
“Operations of our local banks in the region have been the principal driver of the foreign currency deposits. At the same time, some banks have been financing some of their lending externally,” noted former CBK Governor Patrick Njoroge.
The nominal value of the foreign currency deposits has, however, been lifted in part from a weaker shilling, suggesting the deposits could have grown at a slower rate in real/absolute terms.
According to the former CBK governor, commercial banks have deployed hard currency deposits in lending suggesting no prominence in the hoarding of hard currency.
“There is no free foreign currency that is sitting somewhere in somebody’s account as banks are already using these deposits in the same way they would with Kenya shillings,” he added.
Local banks hold substantive assets in foreign currency across regional subsidiaries with economies such as the DRC and South Sudan for instance being heavily dollarized.
Additional data from the CBK shows Kenyan banking subsidiaries held Sh1.617 trillion in total assets in 2022 with Equity holding the bulk of assets in the period at Sh442 billion.