Commercial banks are making a windfall from the tumbling Kenyan shilling with exchange rates now hitting a high of 153 at some counters, piling pressure on importers and households.
This is way above Central Bank of Kenya’s selling rate of 146.14 as of yesterday, where the apex bank quoted the shilling’s buying average at 145.94 and a mean of 146.04.
Banks are making between Sh5 and Sh11 per dollar as demand for the US dollar by importers remains high.
As spot check by the Star on Thursday established Absa Bank was buying at Sh138.65 and selling at Sh153.24.
Equity Bank was exchanging a unit of the dollar at Sh152 and buying at Sh143 while
NCBA Bank was offering Sh139.65 to those exchanging the dollar, while those seeking the US currency were parting with Sh150.70 per dollar.
Stanchart was at Sh151 selling and Sh141 buying, National Bank was at Sh141.40 buying and 150.40 selling, Family Sh143.55 buying and Sh150.55 selling.
KCB was buying at Sh144.25 while selling at Sh149.25. Co-operative Bank was buying the dollar at Sh134.95 and selling at Sh146.45.
Among tier 1 banks, Equity recorded the highest earnings from foreign exchange trading in the first half of this year, totalling Sh8.4 billion.
This was up from Sh5 billion same period last year.
In the half-year to June, KCB's foreign exchange trading income rose to Sh5.9 billion, up from Sh4.9 billion same period last year.
Stanchart recorded Sh4.5 billion on income from forex, up from Sh2.3 billion in half-one 2022.
Co-op Bank and NCBA however saw earnings drop to Sh1.6 billion from Sh1.8billion and Sh4.3 billion from Sh5.2 billion, but are expected to reap in the second half as the shilling slides further.
At the current rates, it means for an importer seeking to exchange $1,000, they would have to part with up to Sh146,100.
This is about Sh21,000 more compared to the January this year’s exchange rates, which was at 124.49.
Forex bureaus were yesterday averaging Sh144.30 buying and selling at Sh148, giving the best terms in the market.
However, several banks indicated they are open to negotiations for those seeking huge amounts especially importers and regular clients.
"We can negotiate outside the system rates if you have large amounts," a teller at Equity told the Star.
The shilling has now shed some 20 per cent of its value to the dollar since January.
“Of course, they (banks) are cashing in,” economist and International Budget Partnership Country Manager, Abraham Rugo, said.
He is however of the opinion that the shilling be left “to find its resting place,” through market forces.
“There is great demand for them so cost will most likely continue going up until the current gap is met,” he said.
Policy decisions by the US government to tame high inflation has led to continued strengthening of the US dollar, with emerging market currencies losing their value.
The rise in global commodity prices has also led to higher demand for dollars from oil importers and the manufacturing sectors in Kenya, trading solutions provider – AZA Finance, noted.
Also, there has been a reduction of dollar receipts from agricultural produce which supports the shilling.
“The shilling is expected to weaken further in the coming week, driven by demand for dollars from the manufacturing and energy sectors,” said Terry Karanja, senior treasury associate at AZA Finance.
With importers spending more to secure enough dollars to pay for imports, the costs are being bore by consumers who continue to pay more, as Kenya remains a net importer.
The country’s trade deficit has been widening over years, hitting Sh1.62 trillion last year, the Economic Survey 2023 indicates.
The country’s import bill rose by 17.5 per cent to Sh2.5 trillion against Sh873.1 billion in export earnings.
Petroleum products are among Kenya’s key imports and are greatly affected by a weak shilling, with high prices having multiplier effects in the transport, farming, production and manufacturing sectors.
The depreciation is also set to increase electricity prices through higher forex levies on power bills, as generators factor in foreign exchange fluctuation adjustment charges.
Prices of food products such as cooking oil, wheat, maize and other imports are also expected to increase, adding pressure to households already grappling with historic prices of sugar and high prices of other food commodities.
The weak shilling is among a major concern by CEOs in the country, according to a CBK survey, alongside new taxes under the Finance Act 2023 which has seen VAT on fuel increase among other levies.
Coupled with increases in fuel prices, they are seen as a major contribution to the cost of doing business in the country; at a time households are struggling with reduced disposable income hence lower purchasing power.
Stanbic Bank Kenya Purchasing Managers’ Index for August, released on Tuesday, indicated nearly 38 per cent of surveyed firms saw a monthly rise in their input costs, marking one of the sharpest rates of cost.
“Panellists often linked higher costs to sustained currency weakness, although increased fuel prices and higher taxes were also mentioned,” said Christopher Legilisho, economist at Standard Bank.