Recent data from the Central Bank of Kenya (CBK) reveals a significant trend in the country’s financial landscape: Kenyan businesses are bolstering their dollar reserves, now constituting a commanding 70% of all foreign currency deposits in banks. This strategic move comes amid concerns over currency fluctuations and disruptions in global supply chains, signaling a proactive approach by corporations to safeguard against economic uncertainties.
Corporate entities amassed a substantial Sh973 billion in foreign currency deposits by the end of the third quarter of 2023, outpacing households’ holdings, which stood at Sh418 billion during the same period. This steady increase in dollar reserves among firms, rising from 56% in the second and third quarters of 2019, underscores their commitment to mitigating risks associated with currency volatility.
Commercial banks have played a crucial role in facilitating this accumulation of hard currency, driven primarily by their expanding regional operations. Notably, these deposits are actively utilized for lending purposes, reflecting a pragmatic approach by banks to deploy resources effectively.
The significant assets held by Kenyan banking subsidiaries, totaling Sh1.617 trillion in 2022, with Equity Bank leading with assets valued at Sh442 billion, further underlines the robustness of the financial sector in managing foreign currency inflows.
While the nominal value of foreign currency deposits has surged, partly due to a weaker shilling, it suggests a measured growth rate in real terms. Nonetheless, the proactive stance adopted by Kenyan firms in bolstering dollar reserves underscores their resilience in navigating economic challenges and ensuring financial stability.
This trend highlights the importance for policymakers and regulators to address underlying structural issues, such as the foreign exchange shortage, to sustain economic resilience and foster a conducive environment for international trade.
Photo ( The Standard)
By: Montel Kamau
Serrari Financial Analyst
4th February, 2024
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