Kenyan corporates and rich investors raised the dollar share of their deposits in banks to 70 percent as of September 2023, amid 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 Ksh973 billion ($6 billion) at the end of the third quarter of 2023, compared with Ksh418 billion ($2.6 billion) in hard currency deposits by households.
The deposits by firms are representative of 70 percent of all forex deposits which stood at Ksh1.39 trillion ($8.6 billion) at the end of the same period.
The share of foreign currency deposits by firms has been on a steady climb having grown from 56 percent in the second and third quarters of 2019.
Read: Kenya bank dollar deposits increase by $415m to $8.4bnThe rise in foreign currency deposits by both firms and households has coincided with the weakening of the Kenya shilling over the past year, with the local unit having shed more than 25 percent of its value against the dollar last year.
For example, combined foreign currency deposits stood at just Ksh575.7 billion ($3.5 billion) five years earlier in September 2018.
Commercial banks have led firms in stockpiling hard currency with the holdings being previously attributed to the increased operation of Kenyan banks in the region.
Commercial banks’ roleIn June 2023, CBK noted that commercial banks had been the primary driver of growth in foreign currency deposits, which continue to set historical highs, as they accumulate deposits 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,” said former CBK Governor Dr Patrick Njoroge.
The nominal value of the foreign currency deposits has however been lifted in part from a weaker local currency suggesting the deposits could have grown at a slower rate in real/absolute terms.
According to the former CBK governor, commercial banks have deployed the hard currency deposits in lending, suggesting no prominence in the hoarding of hard currency.
Read: Wealthy Kenyans’ dollar stash in banks hit record $7.7bn“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 dollarised.
Additional data from the CBK shows Kenyan banking subsidiaries held Ksh1.617 trillion ($9.95 billion) in total assets in 2022, with Equity holding the bulk of assets in the period — Ksh442 billion ($2.7 billion).
The weak has prompted Kenyans to flock to US dollar-based investments in a move aimed at cushioning them against the effects of a weakening local currency. © Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).