Dollar stockpile households hold soars 246pc to Sh285bn

Foreign currency deposits owned by households soared by 246 percent across 2022 to close the year at Sh320 billion from Sh285 billion. FILE PHOTO | SHUTTERSTOCK

Households joined corporate bodies in the race to stack up dollars in banks amid a supply deficit that fuelled the hoarding of the greenback last year.

The latest data from the Central Bank of Kenya (CBK) show that foreign currency deposits owned by households soared by 246 percent across 2022 to close the year at Sh320 billion from Sh285 billion.

This represented an absolute growth of Sh35 billion in households’ foreign currency deposits in the year compared to an addition of just Sh10.1 billion in foreign currency a year earlier.

For their part, currency deposits by corporate bodies grew at 59.8 percent to close 2022 at Sh598 billion.

The corporate bodies accumulated Sh82 billion in absolute foreign currency deposits in the year compared to Sh51.3 billion in 2021.

Total foreign currency deposits meanwhile reached Sh921.1 billion at the end of 2022 from Sh803.7 billion as of December 2021.

“What is happening right now with the shortage in dollars is that customers who have the dollars, especially exporters are holding onto it,” Absa Bank Kenya’s Interim Managing Director told the Business Daily in an interview.

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“In normal days, a customer who exports and is paid in dollars and doesn’t need the foreign currency would come to the bank or sell it elsewhere. Now they are not doing the same as they see volatility,” he said while explaining the rise in foreign currency deposits.

Periods of spikes in foreign currency deposits accumulation differed between the two categories of banking customers, with corporates registering the highest jump in foreign currency deposits between May and June.

In comparison households’ foreign currency deposits rose the fastest between October and December when holdings surged by Sh20 billion to cover more than half of the year’s appreciation in the deposits.

The rise in foreign currency deposit holdings has been traced by bankers to high volatility in the local exchange rate, which has seen holders of foreign currency/dollars register notable gains from just holding on to the deposits.

The hoarding of foreign currency deposits by banking clients has exacerbated the crisis, which has partly precipitated from a weakened local currency. The depositors have been making huge gains from just holding on to the deposits.

Across 2022, the Kenya shilling (official CBK rate) weakened by nine percent against the US dollar to exchange at an average of Sh122 in the fourth quarter from Sh111.9 same time in the prior year.

The combination of a weaker local currency and dollar shortages had the opposite effect of dampening both the CBK’s official reserves and commercial bank foreign currency reserves.

CBK official reserves fell from Sh1.247 trillion ($9.491 billion) in December 2021 to Sh1.024 trillion ($7.791 billion) in December last year, representing a reduced 4.3 months of import cover from 5.6 months’ equivalent months covered previously.

The fall in reserves has been partly attributed to scheduled debt servicing over the period, with debt service costs spiking from a stronger dollar and from a weaker local currency.

Commercial banks also reported a drop in their foreign exchange reserves, which fell from Sh621.2 billion ($4.728 billion) in December 2021 to Sh466.8 billion ($3.553 billion) in December last year.

Commercial banks have no minimum requirements specific to foreign currency reserve holdings but the CBK expects them to hold at least 4.25 percent of both their foreign currency and domestic deposits as reserves, which is defined as the cash reserve ratio.

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This year the local currency has continued to depreciate against the US dollar as hard currency availability challenges remain prevalent.

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