Business corporations have significantly increased their share of dollar deposits in banks, reaching 70 percent as of September last year. This surge comes amid a severe shortage impacting the procurement of essential raw materials from the global market.
CBK Data and Foreign Currency Deposits:
The latest data from the Central Bank of Kenya (CBK) reveals that foreign currency deposits held by firms totaled Sh973 billion by the end of the third quarter of 2023, surpassing the Sh418 billion held in hard currency deposits by households. In total, forex deposits amounted to Sh1.39 trillion at the same period.
The share of foreign currency deposits by corporations has steadily grown, rising from a low of 56 percent in the second and third quarters of 2019.
Kenyan Shilling’s Depreciation Impact:
The increase in foreign currency deposits by both firms and households corresponds with the depreciation of the Kenyan shilling over the past year. The local currency lost more than 25 percent of its value against the US dollar in 2023, prompting a strategic shift towards dollar holdings.
Commercial Banks and Hard Currency Stockpiling:
Commercial banks, particularly through increased regional operations, have been at the forefront of accumulating hard currency deposits. In June of the previous year, the CBK acknowledged banks as the main drivers behind the growth in foreign currency deposits, setting historical highs. This accumulation is attributed to both regional operations and contracting hard currency loans.
Former CBK Governor’s Perspective:
Former CBK Governor highlighted that commercial banks have actively deployed hard currency deposits in lending activities, indicating a lack of emphasis on hoarding hard currency. This suggests a strategic utilization of foreign currency reserves rather than a passive accumulation.