Wealthy Kenyans and businesses’ stockpile of dollars nearly touched a trillion in February amidst a biting shortage that has disrupted purchases of critical raw materials from the global market.
Central Bank of Kenya (CBK) data show that foreign currency bank deposits hit a historic high of Ksh987.7 billion ($7.27 billion), just Ksh13 billion ($95.7 billion) shy of the trillion mark as individuals and big companies sought a safe haven for their wealth.
The Ksh66 billion ($485.65 million) increase in dollar deposits in January and February was equivalent to daily savings of Ksh1 billion ($7.36 mllion) daily in the period.
Investors opted to open foreign currency-dominated accounts in the hope of making gains from the sharp fall in the shillings against major currencies like the dollar and the pound.
Bulk buyers also sought a buffer of dollars following a shortage of the US currency, which was blamed on panic buys and the interbank forex market that had become dormant in recent years.
The shortage had forced industrialists to start seeking dollars daily and from several lenders for their monthly hard currency needs as the scarcity put a strain on supplier relations and the ability to negotiate favourable prices in spot markets.
The stockpile of dollars in bank vaults grew 176.6 percent in the year to February, the highest 12-month growth in recent years.
This shows that the jump in forex bank deposits rode on savings, with little influence by the strengthening of the greenback against the shilling, which gained 9.4 percent against the US currency in the period.
Higher trading revenue
Kenya’s Stanbic Bank parent Standard Bank Group noted in its annual report for 2022 that the growth in non-interest revenue by 23 percent was driven by higher trading revenue from higher client sales in Kenya driven by dollar demand following the Kenya shilling depreciation.
This shows that investors sought dollars as a hedge against the shillings.
FX Pesa lead market analyst Rufas Kamau said that the Kenyan shilling’s sharp depreciation against the dollar led to a loss in faith in its strength, with many Kenyans resorting to stash dollars to maintain their purchasing power.
But it is also possible that listed companies have been stockpiling dollars ahead of dividend payments, according to financial analyst Churchill Ogutu.
The stockpiling of dollars has attracted the attention of the state house, with Kenya’s President William Ruto warning those holding onto the greenback of losses.
“I’m happy that the players in that sector including our banks, are coming forward and are working with the CBK so that we can again take charge of our market and that it is not distorted by brokers,” Ruto said on March 12.
“For the people who work numbers, I’m giving you free advice that those who are holding dollars you shortly might go into losses. This market is going to be different in a couple of weeks,” he added.
