Banks earn margins of up to 10pc in forex transactions

Kenyan banks are earning margins of up to 10.5 percent on foreign currency transactions. PHOTO | SHUTTERSTOCK

Kenyan banks are earning margins of up to 10.5 percent on foreign currency transactions, benefitting from increased demand for hard currencies.

A spot check by Business Daily on Tuesday showed the country’s biggest banks are enjoying spreads — the difference between the price at which they are buying and selling the US dollar — in the range of 3.4 percent to 10.5 percent.

Absa Bank Kenya is leading with a margin of 10.5 percent or Sh14.76, followed by Co-operative Bank of Kenya at 7.7 percent (Sh11.2), NCBA Bank Kenya at 7.2 percent (Sh10.4) and Standard Chartered Bank Kenya at 7.1 percent (Sh10.16).

Stanbic Bank came fifth at 6.9 percent (Sh10), DTB (Sh9.1) and Equity (Sh9.2) tied at 6.3 percent followed by I&M at 5.1 percent (Sh7.4).

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KCB has the smallest spread of 3.4 percent or Sh5 on the shilling-dollar trades. The lender sold the dollar at Sh150.95 and bought it at Sh145.95 compared to Absa’s 154.98 and Sh140.22 respectively.

The Business Daily also sampled forex bureaus in Nairobi’s Central Business District (CBD), finding that they offer the best deals for retail transactions at spreads of between 1.36 percent and 2.7 percent.

Satellite Forex Bureau was the cheapest with a margin of Sh2 or 1.36 percent trading on Tuesday at Sh146 buying and Sh148 selling.

It was followed by Sterling Forex Bureau Limited at a spread of two percent or Sh3 (Sh150 buying versus selling at Sh153).

Wall Street Forex Bureau De Change’s spread was at 2.7 percent –buying the greenback at Sh148 and selling it at Sh152.

The top nine Nairobi Securities Exchange-listed lenders are making billions from the increased appetite for the greenback in imports, travel, and payments among other transactions.

Absa booked forex trading income of Sh3.76 billion in its consolidated results for the half year ended June compared to Sh2.9 billion a year earlier, representing a 25.9 per cent increase.

StanChart’s forex income almost doubled from Sh2.26 billion to Sh4.4 billion. The revenue earned from trading currencies is now a significant part of banks’ non-interest income which supplements their earnings from lending to the government and the private sector.

Banks have benefitted from the volatility in the forex markets, with the weakening of the shilling, prompting businesses and individuals to initiate more transactions as they stock up on hard currencies.

The local currency has depreciated 18.4 percent against the dollar in the past 12 months alone to trade at an average of Sh147.9 to the greenback.

The spot prices Business Daily sampled on Tuesday represent what individuals and small businesses can get. Large clients such as manufacturers and importers can, however, negotiate better rates.

The depreciation of the shilling has been linked to the country’s reduced economic competitiveness as well rising rates in the developed economies, a move that has caused a flight of capital from emerging and frontier markets like Kenya.

Read: Card, mobile money transactions rebound 

Central banks in the US and Europe have raised interest rates to fight inflation, boosting the attractiveness of their economies.

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