The value of dollar deposits in Kenyan commercial banks has surged by Sh528.56 billion in the first 10 months of the year, driven primarily by the continuous depreciation of the shilling against the dollar. This trend has resulted in customers enjoying double-digit capital gains on their dollar holdings, offering a notable financial advantage.
Key Points:
- Dollar deposits in Kenyan commercial banks increased by 57 percent, rising from Sh921.05 billion at the end of the previous year to Sh1.449 trillion in October.
- The surge in dollar holdings coincides with a 22 percent depreciation of the shilling against the dollar, closing at 150.56 units to the dollar by October, with a year-to-date devaluation of 24.3 percent.
- Despite some growth in the actual stock of dollars, the primary contributor to the surge in value is the depreciation of the shilling against hard currencies.
- Customers holding dollars experienced an appreciation of Sh220,000 for every Sh1 million equivalent, even before factoring in interest paid by banks on such deposits.
- The rise in dollar deposits is particularly significant for businesses involved in importing raw materials and finished goods, as accessing dollars has become challenging.
- The weak shilling has led to increased costs for servicing foreign currency-denominated loans and elevated the prices of imports.
- The Central Bank of Kenya (CBK) raised the base lending rate from 10.5 percent to 12.5 percent to combat inflation and stabilize the shilling against further depreciation.
- CBK data shows that the shilling has averaged a three-cent loss to the dollar since the beginning of December, offering some hope for currency stability.
Conclusion: The surge in dollar deposits in Kenyan commercial banks, propelled by the weakening of the shilling, reflects the economic challenges posed by currency devaluation. While this trend benefits dollar holders and exporters, it raises concerns about the impact on the cost of servicing foreign currency debts and the overall stability of the Kenyan economy. The government and financial institutions are closely monitoring these developments to mitigate potential risks and maintain fiscal objectives.
