Kenya's rich investors, businesses' dollar deposits rise to $7.27 billion

Friday April 28 2023
US dollars

Kenyan investors have opted to open foreign currency-dominated accounts in the hope of making gains from the sharp fall in the shillings against major currencies like the dollar and the pound. PHOTO | SHUTTERSTOCK


Wealthy Kenyans and businesses’ stockpile of dollars nearly touched a trillion in February amidst a biting shortage that has disrupted purchases of critical raw materials from the global market.

Central Bank of Kenya (CBK) data show that foreign currency bank deposits hit a historic high of Ksh987.7 billion ($7.27 billion), just Ksh13 billion ($95.7 billion) shy of the trillion mark as individuals and big companies sought a safe haven for their wealth.

The Ksh66 billion ($485.65 million) increase in dollar deposits in January and February was equivalent to daily savings of Ksh1 billion ($7.36 mllion) daily in the period.

Investors opted to open foreign currency-dominated accounts in the hope of making gains from the sharp fall in the shillings against major currencies like the dollar and the pound.

Bulk buyers also sought a buffer of dollars following a shortage of the US currency, which was blamed on panic buys and the interbank forex market that had become dormant in recent years.

The shortage had forced industrialists to start seeking dollars daily and from several lenders for their monthly hard currency needs as the scarcity put a strain on supplier relations and the ability to negotiate favourable prices in spot markets.


The stockpile of dollars in bank vaults grew 176.6 percent in the year to February, the highest 12-month growth in recent years.

This shows that the jump in forex bank deposits rode on savings, with little influence by the strengthening of the greenback against the shilling, which gained 9.4 percent against the US currency in the period.

Read: Why Congo is not worried by dollar crisis

Higher trading revenue

Kenya’s Stanbic Bank parent Standard Bank Group noted in its annual report for 2022 that the growth in non-interest revenue by 23 percent was driven by higher trading revenue from higher client sales in Kenya driven by dollar demand following the Kenya shilling depreciation.

This shows that investors sought dollars as a hedge against the shillings.

FX Pesa lead market analyst Rufas Kamau said that the Kenyan shilling’s sharp depreciation against the dollar led to a loss in faith in its strength, with many Kenyans resorting to stash dollars to maintain their purchasing power.

But it is also possible that listed companies have been stockpiling dollars ahead of dividend payments, according to financial analyst Churchill Ogutu.

The stockpiling of dollars has attracted the attention of the state house, with Kenya’s President William Ruto warning those holding onto the greenback of losses.

“I’m happy that the players in that sector including our banks, are coming forward and are working with the CBK so that we can again take charge of our market and that it is not distorted by brokers,” Ruto said on March 12.

“For the people who work numbers, I’m giving you free advice that those who are holding dollars you shortly might go into losses. This market is going to be different in a couple of weeks,” he added.

Read: China, India move to cut US dollar dominance

All-time low

The Kenyan shilling has declined to an all-time low of 135.7 against the dollar having depreciated from Ksh123.4 at the start of the year and Ksh104.44 at the end of March 2020.

Demand for dollars locally has gone up significantly this year in line with surging imports following the full reopening of the economy, which has unleashed pent-up demand for both consumer and capital goods.

Global shocks sparked by Russia’s invasion of Ukraine have also increased the prices of imported commodities, driving up dollar demand.

The shilling has also suffered from a stronger dollar as the US Federal Reserve hiked interest rates to fight inflation.

The rate hikes tend to spark dollar outflows to safe havens in the developed world, increasing demand for the greenback and depressing the value of the local currency.

In times of trouble, all sorts of companies, banks and investors want to hold dollars. It is the world’s reserve currency and is considered the safest.

The dollar has become the currency of choice for worried investors because the US economy is seen as the most sheltered in the event of damage to the global economy.

Investors are known to hoard dollars for speculation purposes in the wake of forecasts showing that the shilling would remain weak against the US currency.

With the expected decline, those holding dollars would be able to later convert their money to shillings at a gain or would not suffer conversion losses when importing.

Read: Kenyan banks face dollar rations

Interbank currency market revived

The biting dollar shortage has eased following the revival of the interbank currency market on orders from the state house.

Bulk buyers of dollars have witnessed increased availability of the greenback in recent days, a marked departure from market conditions that saw banks run out of the US currency on some days as others imposed a daily cap on dollar purchases of as little as $5,000 (Ksh679,500).

The changes followed a directive from President Ruto on March 22 for the revival of the interbank foreign exchange market in an effort to remove distortions in the market that had exacerbated the foreign exchange shortage.

The interbank market for hard currency had become dormant in recent years due to what traders said was aggressive policing by the central bank, which made it difficult to do deals.

The lack of a vibrant interbank foreign exchange market has partly been blamed for the biting shortage of hard currency that has even forced the government to seek longer credit periods for essential imports like petrol.