Kenyans hide Sh771b in dollar accounts to protect their wealth


The super rich Kenyans had placed 771 billion shillings in dollar accounts by the end of August 2021 in a bid to protect their money as the shilling took a beating.

The latest data from the Central Bank of Kenya (CBK) shows that liquidity in foreign currency deposits jumped 13 billion shillings from 758 billion shillings in July 2021, as the local currency continued its free fall.

With gross deposits in local banks of 4.4 trillion shillings, this means that 17.5% of cash hidden in Kenya’s commercial banks is in foreign currencies, particularly dollars.

This is the highest level of foreign currency deposits since February 2021, when the amount held in dollar accounts peaked at 780 billion shillings.

ICEA Lion Asset Management chief executive Einstein Kihanda said it could simply be a hedging mechanism against the depreciation of the currency.

He noted that globally, the US dollar has gained ground against other currencies as well.

“My initial thought would be that at least you wanted to hedge yourself so that if, for example, you need to make a payment, you have the currency to make it without having to be affected by fluctuations,” Kihanda said.

Paul Njoki, head of wealth management at Standard Chartered, however, does not think that the accumulation of dollars is a flight to safety – which has been observed in countries like Nigeria and Uganda.

“Kenyans love their currency,” Njoki said, noting that most of the dollar stocks are due to interruptions in investment plans and restrictions on out-of-country travel.

“I think during the time of Covid-19 some investments have been delayed,” he said, noting that more and more people have postponed new investments due to uncertainty, especially at most height of the pandemic.

He also estimated that the rich, who would have built up a stock of dollars in order to travel outside the country, could have ended up with a large chunk of the change in their accounts after the implementation of bans on international arrivals to curb the spread of Covid-19.

“If the trip was delayed, that money obviously stayed in the account.”

Foreign currency deposits are expected to rise further, following the weakening of the shilling which traded yesterday at an average of 111.91 units against the greenback, according to central bank data.

Critics have also noted that there is a parallel forex market where the interbank rate – the rate at which banks buy from each other – is much higher than that reflected on bank websites.

Financial markets

Since the Covid-19 epidemic, which devastated financial markets in border countries like Kenya, investors, especially the wealthiest, have converted their cash into dollars to hedge against exchange rate volatility.

On March 12, a day before the country recorded its first case of the viral disease, the local currency was trading at 102.47 units against the dollar.

However, since then the shilling has been in free fall due to a combination of factors, including weak export earnings and tourism.

To protect against exchange rate volatility, banks have also taken out many long-term dollar-denominated loans from development partners.

Equity Bank recently said it has not only diversified geographically into six countries, but also managed a mix of currencies, with just 56.6% of its cash held in shillings.

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