CBK sanctions Absa Bank for irregular forex trading

The Central Bank of Kenya (CBK) has flagged Absa Bank Kenya for irregular foreign exchange trades conducted in March.

According to the reserve bank, investigations into the lenders activity have determined the bank did not follow standard checks on authenticating the transactions.

“It is evident that Absa Kenya did not have satisfactory assurance of the underlying commercial transactions supporting these trades, as it is required, nor did the bank ensure standard checks on anti-money laundering and combating financial terrorism (AML/CFT) guidelines and know your customer (KYC) requirements,” noted CBK in a statement issued Thursday.

Subsequently, CBK has suspended Absa Bank Kenya as an authorised foreign exchange dealer from Thursday to Wednesday April 15 while ordering the lender to reverse the market positions created from the flagged transactions.

Further, Absa has been ordered to put in place a robust framework to ensure the availability of all relevant documents relating to foreign exchange transactions.

In response to the charges levelled against its forex unit, Absa has cancelled two foreign exchange forward transactions executed on behalf of what it says are reputable global financial institutions while underlining its compliance to benchmark regulations.

“These were being executed on behalf of highly reputable global financial institutions, which are regulated in line with best international practice. The transactions were executed at prevailing market rates. The decision to cancel the transactions was taken to demonstrate our willingness to address fully the concerns of the regulator,” noted the lender in a statement

The flagging of Absa’s forex transactions coincided with CBK purchase of dollars from the domestic financial market with the reserve bank seeking to grow its usable foreign exchange reserves above normal levels in the wake of the Covid-19 pandemic.

Early March, CBK announced the purchase of a maximum $100 million (Ksh.10.6) billion per month to June to grow the reserve.

The exercise has however resulted into greater dollar demand impacting the shilling’s nominal exchange rate.

CBK has previously linked the depreciation of the local unit to misunderstandings among dealers and malicious transactions.

“We expected a reduction on the demand of US dollars from significant savings made from oil importers. We therefore expected to build our reserves without destabilizing the market. Some dealers understood this. There also has been some indiscipline from malicious actors in the market,” said CBK Governor Patrick Njoroge at a March 24 news conference.

Financial sectors had however warned of the artificial creation of demand for the US dollar under volatility to the local unit.

“Already the currency is yielding to pressure arising from the CBK’s move on foreign currency reserves as well as anxious investors exiting the local equities and fixed income markets. There is no telling how far this will go, but if sustained the ramifications are serious,” noted a report by the Kenya Bankers Association (KBA).

CBK’s usable foreign exchange reserves fell to Ksh.Ksh.837.4 ($7.9billion) last week or an equivalent 4.76 months import cover against the targets of growing the buffer from a higher stock of Ksh.890.4 billion ($8.4 billion) at the start of March.

The shilling has meanwhile continued to erode last year’s gains on the dollar, losing 3.3 per cent of its value against the green buck in the first quarter of the year.

The local unit closed trading Wednesday at Ksh.106 improving slightly from a previous close of Ksh.106.47 on Tuesday.