Wealthy Kenyans sit on KSh922bn in dollars pilling pressure on local currency
Wealthy Kenyans amass KSh922 billion in dollars amid a depreciating Kenyan shilling further putting pressure on local currency
Wealthy Kenyans amass KSh922 billion in dollars amid a depreciating Kenyan shilling further putting pressure on local currency.
By last November, wealthy Kenyans and businesses had amassed a record Sh922 billion in dollars as they attempted to protect the value of their bank savings in the face of the falling shilling.
This comes after they added Sh119.24 billion more in the 11 months leading up to November 2022, continuing a trend that has put pressure on the local currency.
The deposits in foreign currency grew from Sh803.66 billion at the beginning of the year, marking a 14.8 percent gain, according to figures from the Central Bank of Kenya (CBK).
The deposits surge parallel with a decline in hard currency deposits held by commercial banks and the country’s official reserves, at a time the market faced issues of dollar availability in the market.
The foreign currency deposits held by residents increased by 6.8 percent to $7.63 billion in the quarter that ended September from $7.144 billion in a similar period in September 2021, representing a $486 million increase.
This was, however, a decline from a high of $7.924 billion in July 2022.
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The CBK data show shilling was exchanging at an average of 122.45 units to the dollar at the end of November, having depreciated by 8.2 percent from 113.14 at the start of the year, pushed by increased demand of forex by importers than the supply.
The weakening, which began during the pandemic has heightened Russia and Ukraine conflicts making investors and companies seek the dollar seen as a safer asset.
Businesses from a variety of industries expressed frustration with the difficulty in obtaining dollars in the quantities they needed last year.
This forced them to wait days to weeks to amass the funds they needed to pay their international partners, which interfered with their business plans.
As a result, there were fewer withdrawals from dollar-based accounts as businesses and individuals with dollar-based accounts hedged against further weakening by hoarding dollars or holding on to their reserves closely.
Over the same period, foreign exchange reserves held by commercial banks declined by 20.4 percent or $907 million to $3.55 billion in September from $4.457 billion.
Official reserves held by the CBK also decreased by 19.1 percent or $1.844 billion to $7.788 billion over the period.
The increase in residents’ foreign currency deposits and the decline in the country’s official and bank stockpile indicate the struggle to access dollars witnessed last year.
It also shows some companies and wealthy individuals (Kenyans) preferred to sit on the dollars on speculation of continued weakening of the shilling.
Manufacturers complained earlier in the year that the shortage of dollars forced them to buy the greenback at a premium to the official CBK’s average exchange rate.
Getting adequate dollars proved difficult for some traders due to banks not being willing to sell to each other, making it hard for smaller players to fulfill their orders from clients.
The dollar unavailability saw banks borrow from the accounts dollar–denominated accounts leading to the widening spread in the pricing of the foreign currency by a margin of more than Sh12 in order to cover for price risk.
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