East African banks cash in on forex crisis

East Africa's top retail banks have capitalized on the scarcity of hard currency, raking in an impressive $204.9 million in additional income. The success can be attributed to the volatile forex market, significant investment in government securities, and the central bank's contractionary monetary policy aimed at curbing soaring inflation. Raphael Agung, the chief economist at NCBA Group Kenya, shed light on these developments in a recent interview with CNBC Africa. Agung highlighted the implications of the Federal Reserve's tightening monetary policy, which has increased the attractiveness of dollar assets. This trend has triggered a surge in forex revenue for financial institutions across the region, as investors seek stability and higher returns post-pandemic. The global dollar rally, fueled by interest rate hikes, has further contributed to the profitability of East African banks. Looking ahead, Agung emphasized the likelihood of sustained volatility throughout 2023, driven by ongoing balance of payment adjustments and external uncertainties. Despite potential challenges, the region's banking sector is poised for a busy first half of the year, with continued revenue growth expected. Agung also touched upon the recent Kenya Economic Update, which forecasts a 5% growth for the country in the next fiscal year. While acknowledging external risks such as a drop in exports and tourism, Agung remains optimistic about Kenya's economic trajectory. He highlighted the government's commitment to fiscal consolidation and macroeconomic stability as positive indicators for the country's recovery. The forthcoming supplementary budget is expected to provide further insights into the economic outlook for Kenya, offering a clearer picture of the expenditure framework going forward. Despite external headwinds, Agung expressed confidence in Kenya's ability to navigate challenges and continue on the path to economic growth.