A dollar shortage in the interbank market created arbitrage opportunities for banks, with buy rates for US Dollars reaching as low as 127 and sell rates reaching as high as 140.
This boosted foreign exchange income, driving an increase in Non-Interest Income which drove after-tax profits for banks in Financial Year 2022.
This is according to a Banking Sector Report released by AIB-AXYS last week in anticipation of earnings season for Kenyan banks.
Stanbic Bank Kenya led the charge, releasing their financial results for the financial year 2022 on Thursday. Foreign exchange trading income for Stanbic increased by 38.8% to Kshs 8.6 billion in 2022 from Kshs 6.3 billion in 2021, contributing significantly to the 28.6% increase in Stanbic Bank’s Profit after Tax, Exceptional Items, and Minority Interest to Kshs 9.1 billion in 2022 from Kshs 7.1 billion in 2021.
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As more Kenyan banks release their financial results for the financial year 2022 next week, it is expected that this trend will continue to be manifested.
The shilling depreciated by 9.0% against the dollar in 2022 and has already seen a 4.4% depreciation since the beginning of 2023, attributable to a current account deficit with Kenya being a net importer, denomination of Kenya’s import bill in USD and a bullish dollar in 2022 on the back of rate hikes.
An increase in the dollar value of imports further contributed to the depreciation of the shilling as demand for dollars outweighed supply, creating a positive feedback loop.
As these issues continue to persist, the Kenyan banking sector will continue to reap benefits from shilling depreciation and dollar shortages.
Forex trading income, according to AIB-AXYS, “will continue being a key revenue source for banks” in the financial year 2023.
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