Forex counter at a local bank. Commercial banks grew their foreign exchange income by 73 per cent in the first three months of the year helped by a volatile Shilling that has seen importers count billions in losses while exporters pocketed gains. File photo
Commercial banks grew their foreign exchange income by 73 per cent in the first three months of the year helped by a volatile Shilling that has seen importers count billions in losses while exporters pocketed gains.
About nine banks that are most active in the foreign currencies market saw their forex trading income increase by Sh1.3 billion to Sh3.6 billion, according to the lenders’ published results for the first quarter.
Standard Chartered Bank more than doubled its forex income to Sh700 million in the period, while Equity Bank’s earnings from the dealing room tripled to Sh390 million.
Kenya Commercial Bank, Cooperative Bank and Citibank grew their foreign exchange trading incomes by 70 per cent, 67 per cent and 63 per cent to Sh748 million, Sh275 million and Sh477 million respectively.
Rebound
Equity Bank’s performance marks a strong rebound from a depressed performance last year that was followed by an overhaul of the department’s dealing room.
Barclays Bank, the largest lender by asset base and now the fifth most profitable, grew its forex earnings by 10 per cent to Sh517 million falling behind Standard Chartered Bank and KCB in forex earnings compared to last year where it emerged the top earner having made over Sh472 million in the first quarter.
All the commercial banks that had released their results by last Friday posted growth in their foreign exchange trading income as opposed to last year when some had their dealing earnings eroded by a relatively calm market.
Dealers said high volatility of the Shilling helped to lift their earnings different from last year when most forex incomes were gained from client demand. “The first quarter of 2011, especially the period between February and March, saw more pronounced fluctuations giving a chance for dealers to take positions,” said Cynthia Mathenge, a dealer at Commercial Bank of Africa. She said the fluctuations provide profit opportunities for dealers, but individual skills and experience differentiated performances.
High demand for imported goods especially crude oil has increased demand for foreign exchange boosting commercial bank’s forex earnings.
The value of imported goods surged by 38 per cent in the first three months of 2011 to Sh284 billion from Sh206 billion at the same period last year.
Exports grew by 19 per cent to 118 billion helped by high commodity prices.
Dealers said that the period was also marked by one of the most volatile trends in the Shilling. The Shilling’s exchange rate against the dollar oscillated by a margin of up to Sh6 in a period of three months especially between February and March.
The Shilling lost from 80 to the dollar in February to 86 in mid March helped by rising international crude oil prices, chaos in the North African countries and political uncertainties over trial of the post election violence suspects.
Excesses of speculators also helped to drive the currency to even lower levels, the Central Bank of Kenya (CBK) said.
Claims of interventions by CBK have also influenced the fluctuations according to the dealers, who said the regulator’s sustained purchases of foreign exchange have driven the currency to historic lows of 87.15 to the dollar.
The CBK, however, said that the interventions were not geared at influencing exchange rates. The fluctuations in the Kenya Shilling to the dollar this month has presented dealers with another trading window pointing to an even better second quarter of the year, even as manufacturers continue to count losses due to increased spending on their raw materials. Listed firms such as the East African Cables, Access Kenya, Sameer Africa, East African Portland, Express Kenya and other commodity importers posted foreign exchange related losses due to foreign exchange fluctuations.
The sustained volatility this month is expected to have an impact on the banks’ earnings in the second quarter as dealers pointed to a much weaker Shilling in weeks ahead on account of few foreign currency inflows from exports.
The fall in exports due to lack of sufficient rains has exposed the currency to international disruptions resulting to increased volatility. The volatility has seen importers bear the brunt of the volatility, spending about Sh6 more to pay for every dollar worth of their imports.
This has resulted in imported inflation with fuel, metal and other imported goods coming in at above normal prices.
Improving global economic conditions lifted remittances by the Kenyan diaspora by 53 billion to 196 billion in the first quarter of the year as compared to the same period last year, but these were not enough to stop depreciation of the currency.
Higher remittances translate into increased demand for foreign exchange trading by recipients of the remittances seeking to convert the foreign currency to Shillings. Kenyan bank managers have recently intensified their ties with money transfer service providers with a view to tapping into the foreign exchange gains.
The local banking industry has steadily grown foreign exchange trading income in the last eleven years from an industry total of Sh3 billion in 2000 to over 12 billion last year, with smaller banks moving to strengthen their trading desks with more capital outlays in a bid to tap the increased incomes.
This has also attracted providers of trading platforms and data such as Bloomberg and Icap in the last two few years who now compete with Thomson Reuters.
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