Kenya’s tier-1 banks recorded a Sh4.9 billion jump in forex trading income to Sh57.8 billion in the nine months to September, helped by growth in revenue from those funding regional trade deals.
Equity Group led the sector with an increase of Sh5 billion in forex revenue to Sh13.9 billion, but this was primarily from its regional subsidiaries considering its Kenyan unit’s income from the revenue line fell by Sh768 million to Sh4.02 billion.
Equity was followed by Standard Chartered Bank Kenya, whose forex revenue rose by Sh2.09 billion to Sh6.3 billion, and DTB with a Sh1.28 billion jump to Sh4.54 billion.
I&M Group and Stanbic Bank Kenya also grew their treasury income, by 12.9 percent and five percent respectively to Sh4.27 billion and Sh7.24 billion.
“We have seen non-funded income grow, driven by trade finance and treasury, because of the currency conversions as we support cross-border trade.
Treasury income is, therefore, less on placements and increasingly on products that support trade finance,” said Equity Group chief executive James Mwangi during the bank’s quarter three briefing on November 20.
The contribution of forex trading revenue to the banking sector’s non-funded income mix has grown over the past two years, largely helped by wider margins in the Kenyan dollar market on the back of higher demand and periodic shortage of the US currency.
Forex revenue goes up whenever there are increased volumes of transactions due to high demand for dollars from importers as well as higher margins when greenback supply dips and sellers are able to extract a premium from buyers.
In 2022, demand for dollars rose due to the higher cost of importing essential goods such as petroleum products, wheat, edible oil, steel and paper on continued Covid-induced disruptions in global supply chains, which were exacerbated by the Russia-Ukraine war.
This volume and margin-driven growth has, however, neared its peak due to moderation of prices of goods globally and improved supply of dollars in the local forex market, leaving the lenders to instead lean on forex trading from regional subsidiaries.
Banks that leaned heavily on local transactions to drive growth in 2022 have, thus, seen their forex revenue fall this year.
NCBA Group, which led its tier-1 peers in forex income in September 2022 at Sh9.21 billion, saw its treasury revenue drop by 34 percent or Sh3.1 billion to Sh6.05 billion in the nine months to September 2023.
Others recording lower treasury income were Co-operative Bank, down by 25 percent to Sh2.46 billion, KCB by 2.4 percent to Sh8.19 billion and Absa Kenya by 2.3 percent to Sh4.86 billion.
