Co-op Bank eyes forex gains from Dubai trade deals

Co-operative Bank customers queue to withdraw money at an ATM in Kisumu. Co-op Bank’s move is expected to offer relief to traders who have had a forex challenge involving the shilling and the dirham. Photo/FILE 

By CHARLES MWANIKI

In Summary

• Most Kenyan banks do not accept the dirham given the absence of a reciprocal agreement and clearing agreement between the two central banks, while only a few bureaus in the UAE accept the Kenya shilling.
• The use of the dirham would likely go up if there were to be a clearing agreement given that it would stabilise the exchange rate and remove any risk factor carried by traders who accept payments in Kenya shillings in the Emirates.
• A reciprocal account would ease currency exchanges between two countries by giving local banks a chance to take currencies of a foreign country to their local central bank.

Co-operative Bank has moved to cash in on growing trade between Kenya and the United Arab Emirates by providing currency exchange services for the dirham, targeting businesses that deal in import and export of goods to Dubai.

Kenyan imports from the UAE stood at Sh149.8 billion in 2012, against exports worth Sh28.6 billion, yet the two countries’ currencies are not freely tradable which leaves businessmen with the option of trading only in dollars.

READ: India topples UAE as chief exporter of goods to Kenya

Dirham is the UAE currency. Co-op Bank’s move will offer relief to traders who have had a hard time exchanging their shillings to dirhams and vice versa, while potentially earning the lender significant forex gains.

Most Kenyan banks do not accept the dirham given the absence of a reciprocal agreement and clearing agreement between the two central banks, while only a few bureaus in the UAE accept the Kenya shilling.

The Business Daily could not immediately get a comment from Co-operative Bank on the volume of exchange between the dirham and the shilling.

The Central Bank of Kenya (CBK) confirmed that there is no official clearing house for the UAE currency in Kenya.

“The Central Bank of Kenya enjoys a cordial relationship with Central Bank of UAE, however we do not currently have a clearing house/exchange for the Kenyan shilling and the UAE Dirham,” said CBK in a statement.

Kenya mainly imports oil, vehicles, clothing, household and construction goods from the UAE, while exporting mainly tea.

The use of the dirham would likely go up if there were to be a clearing agreement given that it would stabilise the exchange rate and remove any risk factor carried by traders who accept payments in Kenya shillings in the Emirates.

Commercial Bank of Africa senior currency dealer Joshua Anene said that most traders importing goods from the UAE pay using dollars.

“It is a fairly strong currency, and it also enjoys the advantage associated with the Dubai Free Port that sees a lot of export business,” said Mr Anene.

While the dirham is not a restricted currency like the Chinese Yuan, it does have a fixed exchange rate against the dollar at 3.65 units.

Its exchange rate against the shilling has ranged between 21 and 23 shillings per dirham in the past five years.

As per Tuesday’s CBK indicative rates, the shilling is quoted as exchanging at 23.13 dirham.