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Banks’ forex income hit by US dollar surplus
Besides reduced revenue from forex transactions, Kenyan banks are also witnessing a decline in income from lending following the lower interest rates policy by the CBK.
Excess US dollar liquidity and the decision by the Central Bank of Kenya (CBK) to hold the Kenya shilling steady at around Sh129 against the American currency has curbed banks’ revenue from foreign exchange trading.
Banks say the two factors have slowed down revenue from trading currencies by lowering margins in this business line where lack of volatility—rapid and unpredictable changes— has also reduced due to the stable rates that have been in place since August 2024.
The lenders typically earn more fees from trading currencies when there is volatility. A dynamic market drives demand for stronger currencies besides other related services like hedging.
“Trading revenue remained flat, due to a combination of lower client foreign exchange margins linked to excess US dollar liquidity in Kenya and reduced market volatility,” Standard Bank, the ultimate parent firm of Stanbic Bank Kenya, said in a commentary accompanying its results for the year ended December 2025.
Stanbic Bank Kenya’s forex trading income for the same period declined to Sh3.99 billion from Sh6.98 billion the year before.
Absa Bank Kenya saw its revenue from this business line fall slightly to Sh5.94 billion from Sh6.04 billion.
Kenyan banks previously recorded major revenue growth from their currency trading desks when the shilling was depreciating rapidly from late 2022 to early 2024.
The local currency traded at 120.9 units to the dollar on October 16, 2022 and proceeded to depreciate steadily to exchange at 163.2 on January 25, 2024.
The sharp depreciation was partly linked to fears that Kenya was going to use its foreign exchange reserves to repay a $2 billion Eurobond that was maturing in June 2024.
Kenya, however, made a partial early repayment of the debt amounting to $1.5 billion in February 2024 using proceeds of a new Eurobond which was issued at a higher interest rate.
The successful partial redemption of the debt boosted the shilling immediately, with the local currency reversing a large part of its losses in the next four weeks.
The shilling finally settled to trade at a narrow range around 129 units to the dollar since August 2024, with National Treasury officials saying the local currency would have gained even further if it had been left purely to market forces.
The shilling has traded more freely against other currencies such as the euro and British pound but the dollar is the most used currency in global transactions, meaning its reduced volatility and increased supply in Kenya has dampened earnings for traders.
Multinational banks with operations in markets outside Kenya that have better forex trading margins such as Uganda are likely to be cushioned from the dynamics in the local market.
Besides reduced revenue from forex transactions, Kenyan banks are also witnessing a decline in income from lending following the lower interest rates policy by the CBK.
