Lenders’ forex trading earnings drop by Sh6bn

Earnings by listed banks from forex trading in the Kenyan market fell by Sh6 billion last year as margins – the difference between buy and sell rates — for hard currency narrowed on increased dollar availability.

According to data from financial statements touching on the local operations of the 10 listed commercial banks, total forex income in the year ended December dropped to Sh55.6 billion from the peak of Sh61.5 billion in 2022.

A majority of the listed commercial banks including KCB, Equity, NCBA, Co-operative Bank, Absa Bank Kenya and I&M Bank marked a drop in forex trading income.

StanChart Kenya, Stanbic, DTB and Housing Finance however bucked the trend by growing forex trading income in the same period.

NCBA which had the highest forex earnings in 2022 at Sh11.9 billion saw revenues from the currency trades tumble to Sh7.5 billion in 2023 while at Equity the earnings fell to Sh5.1 billion from Sh6.4 billion.

According to NCBA, forex income had been widely projected to begin normalising as exchange rate volatility eased and dollar liquidity improved over the course of 2023.

“We did budget for slower forex revenue on account of the expectations that the exchange rate troubles were going to normalise and as you can see most recently, that has actually been the case,” noted NCBA chief economist Raphael Agung’.

Forex trading income by banks reached a peak in 2022 as volatility and hard currency shortages gave rise to heightened demand for dollars and wider bid-ask margins.

Local businesses and households raised their accumulation of hard currency during the period, resulting in an unprecedented demand for dollars.

Retail currency rates differed with the interbank spreads before interventions by the Central Bank of Kenya including more realistic quotes of the effective dollar rate and the rejuvenation of the forex interbank market.