Kenyan banks recorded currency losses of about Sh50 billion in the first half of the year when translating the financials of regional subsidiaries into Kenyan shillings due to the appreciation of the shilling during the period.
The shilling has appreciated between 19 and 31 percent against the currencies of Uganda, Tanzania, Rwanda, Burundi and the Democratic Republic of Congo (DRC) since the beginning of the year, reversing the depreciation of the local unit in 2023, when it was one of the world’s worst performing currencies.
Regional subsidiaries of Kenyan banks normally prepare their financial statements in their local currency (functional currency), but when they are consolidated into the group, the currency is translated into shillings (reporting currency).
This means that there are exchange losses or gains, depending on whether the shilling has strengthened or weakened against the respective operating currencies of the subsidiaries.
These currency translations affect the value of assets and liabilities, earnings and dividends or distributions paid to the parent company.
For example, a loan on the books of a Ugandan subsidiary denominated in Ugandan shillings would be worth less when translated into Kenyan shillings on the Group’s books if the local currency had appreciated against its Ugandan counterpart.
Dollar-denominated assets have also experienced a currency-related impairment as the shilling has strengthened against the dollar this year.
Equity Group, which has operations in Uganda, Tanzania, Rwanda, the Democratic Republic of Congo and South Sudan, recorded paper foreign exchange losses of Sh21.26 billion in the six months to June 2024, compared to a gain of Sh6.3 billion in the first half of 2023.
The bank’s biggest regional exposure is the DRC, where its subsidiary Equity BCDC accounts for 30.4 percent of the group’s total assets of Sh1.88 trillion, followed by Uganda at 6.1 percent.
The DRC franc has depreciated by 31 percent against the shilling this year, while the Ugandan shilling has depreciated by 19 percent.
The Kenyan shilling has appreciated 31 percent against the Tanzanian shilling this year, 27.5 percent against the Rwandan franc and 23 percent against the Burundian franc.
The DRC also uses the US dollar as a medium of exchange in its local economy, meaning that the shilling’s 21 percent gain against the US currency has also contributed to foreign exchange losses for Kenyan banks operating in the country.
KCB Group is also active in the DRC, having acquired Congolese lender Trust Merchant Bank (TMB) in 2022. It also acquired a majority stake in Rwandan lender Banque Populaire du Rwanda Plc (BPR) in 2021.
KCB, which also has subsidiaries in Uganda, Tanzania, Rwanda, Burundi and South Sudan, reported foreign exchange losses of Sh17.6 billion in the first half of 2024, compared with gains of Sh2.45 billion in the corresponding period of 2023.
NCBA Group, I&M Group and DTB, which have various regional subsidiaries in Rwanda, Uganda and Tanzania, Mauritius and Burundi, also made losses on their currency translation.
I&M’s foreign exchange loss stood at Sh7.1 billion compared to a gain of Sh2.2 billion in June 2023, while NCBA’s translation losses stood at Sh2.87 billion, reversing a gain of Sh1.2 billion in the first half of last year.
DTB is yet to release its half-year results for 2024, but in the first quarter of the year, its foreign exchange loss from regional operations stood at Sh6.7 billion.
While the regional units’ contribution has been dampened by forex losses, Kenyan banks have still reported higher profits this year, thanks to high interest rates that have raised interest income.
KCB Group led the industry in earnings in the period, with its net profit up 87 percent to Sh29.1 billion. The bank’s Kenyan unit contributed Sh21.2 billion to the net profit.
Equity Group’s net profit rose by 12.1 percent to Sh28.54 billion, with its regional subsidiaries posting a combined profit after tax of Sh13.7 billion.
