Kenya banks book $100m forex gain from foreign units

Friday August 25 2023

Tier one banks recorded currency gains worth $100.14 million in the first half of the year due to the shilling’s depreciation against the local currencies. PHOTO | SHUTTERSTOCK


Kenya's tier one banks recorded currency gains worth Ksh14.5 billion ($100.14 million) in the first half of the year due to the shilling’s depreciation against the local currencies of regional subsidiaries, boosting the value of their earnings, dividends and assets.

This was a nearly four-fold rise compared to the gains worth Ksh3.96 billion ($27.35 million) reported in the first half of last year.

Regional subsidiaries normally prepare their financials in their home currencies (functional currency), but when the financials are amalgamated into the group, the currency is translated into shillings (reporting currency).

This means that there are exchange losses or gains factored in depending on whether the shilling has strengthened or weakened against the respective operating currencies of the subsidiaries.

The shilling depreciated by 18 percent against the Uganda shilling between June 2022 and June this year, and by 13 percent and 4.8 percent against the Tanzania shilling and Rwandese Franc respectively.

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Lenders operating in the DRC have also recorded translated currency gains due to the strengthening of the dollar against the shilling by 19 percent in the year to June.

The DRC relies heavily on the US dollar as a medium of exchange in its local economy.

While most currencies in the region have come under pressure in the past two years amid global economic shocks, the Kenya shilling fared relatively worse to trade at record lows of 150 units to the dollar in recent days.

Equity Group, which in addition to Kenya also operates in Uganda, Tanzania, Rwanda, the Democratic Republic of Congo (DRC) and South Sudan, recorded the biggest currency gain at Ksh6.3 billion ($43.51 million), compared to Ksh637 million ($4.4 million) in June 2022.

Others making significant gains were NCBA Group, I&M Group and DTB, which variously have regional subsidiaries in Rwanda, Uganda and Tanzania, Mauritius and Burundi.

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DTB’s currency gains rose from Ksh199.5 million ($1.4 million) in June 2022 to Ksh2.56 billion ($17.7 million) this year, while I&M’s jumped from Ksh494.1 million ($3.4 million) to Ksh2.19 billion ($15.1 million).

NCBA in the meantime booked a gain of Ksh1.21 billion ($8.4 million), up from Ksh124.4 million ($859,116) in the first half of last year.

KCB, which operates regionally in Uganda, Tanzania, Rwanda, Burundi, South Sudan and DRC, recorded currency gains worth Ksh2.45 billion ($16.9 million) this year.

In the first half of 2022, the lender’s translated currency gains stood at Ksh2.62 billion ($18.1 million).

The currency gains have made regional subsidiaries more valuable by raising the value of their assets, earnings and dividends paid to the Kenyan parents.

The current foreign exchange gains are a contrast to the early years of regional expansion when Kenyan banks reported major losses in South Sudan, which suffered hyperinflation and devaluation of the South Sudanese pound.