Shilling’s Slide Spurs Currency Gains: Tier One Banks Record Substantial Earnings Boost in H1 2023
Tier one banks in Kenya have experienced a noteworthy surge in currency gains, amassing a total of Ksh 14.5 billion in the first half of the year. This substantial increase can be attributed to the depreciation of the Kenyan shilling against the local currencies of their regional subsidiaries. The outcome has remarkably enhanced the overall value of their earnings, dividends, and assets.
This impressive leap marks a nearly four-fold rise compared to the Ksh 3.96 billion gains reported during the same period in the previous year. Regional subsidiaries typically prepare their financial statements in their respective home currencies, but when consolidated at the group level, these figures are translated into Kenyan shillings. As a result, exchange gains or losses are factored in based on the shilling’s performance against the operational currencies of the subsidiaries.
The Kenyan shilling experienced an 18% depreciation against the Ugandan shilling, a 13% depreciation against the Tanzanian shilling, and a 4.8% depreciation against the Rwandese Franc between June 2022 and June 2023. Similarly, banks operating in the Democratic Republic of Congo (DRC) benefited from translated currency gains due to the dollar’s strengthening against the shilling by 19% during the same period.
Despite regional currencies facing pressures amid global economic shocks, the Kenyan shilling notably weakened, hitting record lows against the dollar. Equity Group, a prominent bank operating across several regional countries, including Kenya, Uganda, Tanzania, Rwanda, DRC, and South Sudan, recorded the most significant currency gain of Ksh 6.3 billion. Other banks such as NCBA Group, I&M Group, DTB, and KCB also reported substantial currency gains from their regional subsidiaries.
This surge in currency gains has elevated the value of assets, earnings, and dividends distributed to the parent Kenyan banks, rendering their regional subsidiaries even more valuable. These gains mark a sharp contrast to the early years of regional expansion, when Kenyan banks faced considerable losses due to economic challenges, particularly in South Sudan.
BDA