Moses Kuria calls for controls on bank forex trading
Investments, Trade and Industry Cabinet Secretary Moses Kuria has said the Central Bank of Kenya should be tough on banks holding too much foreign currency and for charging too much for the exchange.
Mr Kuria said lenders were making as much as ten shillings from the rate of buying and selling dollars while holding huge reserves despite the current shortages.
At the end of last year, the Central Bank was holding $7.9 billion dollar reserves which has been drawn down to $6.6 billion at the beginning of this month to pay debts and intervene in the market.
Banks were holding $4.1 billion by the end of last year making them powerful in determining the direction of Kenya’s currency.
“We have to talk to the CBK Governor, I know of a bank which was making Kes1 billion from forex business and last year they made Kes11 billion on FX. Our banks have currency spreads of Kes10, when have we ever had a Kes10 spread and one bank is holding billions of dollars. You should ask the Governor of the Central Bank to be tough on banks holding onto dollars,” Mr Kuria told the National Assembly Trade, Industry and Cooperatives committee yesterday.
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Stanbic Bank, the first lender to report last year full profits made saw net earnings surge 26 percent to close the financial year at Kes9.1 billion lifted by huge revenues from trading dollars.
Forex currency trade earned the bank Kes8.5 billion last year, a 36 percent jump from Kes6.2 billion the previous year as demand for dollars surged from importers amidst foreign currency shortages and dwindling reserves.
Last year, the shilling declined nine percent from 113.1 in January to 123.3 against the US dollar in December which meant that traders had to give the bank more shillings to buy dollars, lining up the banks profitability.
This year alone, the Kenya Shilling has declined 4.1 percent from 123.4 at the beginning of the year to 128.5 at the close of trading yesterday, signaling that banks will continue reaping big from currency trade.
But that is the official rates, which currently are not reflective of the market prices, Stanbic Bank for instance is buying the dollar at Kes128.9 and selling at Kes139.5 a very huge spread that has made buying and selling dollars juicier.
The government has lost control over currency rates on entry of the International Monetary Fund which has demanded exchange rate flexibility as a condition to loan Kenya billions of dollars.
Kenya has to rely on the IMF and World Bank for dollars as the country runs out of options to get new foreign exchange with the Eurobond markets currently too expensive for the country while exports to countries like Egypt and Pakistan failing to yield FX due to global shortages.
CS Kuria says the government should introduce a tax on imports to discourage Kenyans from importing ‘toothpicks’ to reduce the demand for dollars.