Banks allegedly fixing dollar prices
Banks accused of allegedly fixing dollar prices leading to a crisis that has seen lenders run out of foreign exchange
Banks accused of allegedly fixing dollar prices leading to a crisis that has seen lenders run out of foreign exchange.
The Competition Authority of Kenya (CAK) is looking into several unnamed banks over allegations that they fixed foreign exchange trades, giving the crisis—which has seen lenders run out of dollars on occasion—a new dimension.
According to the antitrust commission, “investigations are ongoing” into potential dollar exchange rate manipulation and collusion, which could result in fines and up to five years in prison for bankers.
According to sources with knowledge of the investigation, the CAK is looking into claims that some bank dealers coordinated their trading actions while providing quotes to clients looking to buy or sell currencies using electronic chat rooms and instant messaging.
The investigation was initiated in June 2022, according to regulatory filings, and comes amid the weakening of the shilling against the dollar and the continued widening of the spread between the official and open market rates.
“The Authority’s investigation is ongoing and, therefore, we cannot divulge or discuss the specifics of the matter. However, the Authority is engaging the relevant stakeholders, and the applicable remedies shall be as defined in the Competition Act, upon the conclusion of the investigation,” the CAK in response to queries over the price-rigging allegations in currency markets.
Restrictive trade practices include direct or indirect fixing of purchase or selling prices or any other trading conditions.
Other violations that would amount to restrictive trade practices in line with the Competition Act are the maintenance of a minimum resale price.
The CAK investigation will also seek to uncover whether banks through their industry lobby— the Kenya Bankers Association (KBA) —would have influenced prices to be charged for foreign exchange-related transactions and terms of sale.
The dollar shortage has become an issue of national concern due to the secondary effect of rising consumer prices and potential supply hitches of key imported commodities.
A black market was also emerging in the wake of banks buying the dollars at less than Sh130 and selling the US currency at over Sh140.
Top firms have started trading in dollars among themselves, with hotels and aviation firms attracting interest from those in need of hard currency.
Those with dollars are finding they can get a better rate by bypassing banks and selling directly to individuals and firms in need.
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The firms are buying the US currency at lower rates than those quoted by the banks.
Last month, the government in partnership with the central bank sought to revive the interbank foreign exchange market as part of efforts to fix the currency woes.
The interbank market for the hard currency has been dormant in recent years due to what traders said was aggressive policing by the central bank, which made it difficult to do deals.
Central Bank Governor Patrick Njoroge has repeatedly denied undue interference in the market, saying the regulator was merely playing its role of enforcing discipline.
The lack of a vibrant interbank foreign exchange market has partly been blamed for a biting shortage of hard currency that has even forced the government to seek longer credit periods for essential imports such as petrol.
It has also given rise to a parallel market, with money-changers quoting a different foreign exchange rate from the official central bank one, with a divergence of over 10 percent.
The trading rate moved further from the CBK average rates, widening the gap between the official and open market trading price to Sh16 in early March from less than Sh5 a year ago.
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