CBK wields big stick on forex dealers

Wednesday, March 30th, 2022 09:40 | By
CBK governor Patrick Njoroge. PHOTO/File

Central Bank of Kenya (CBK) has begun a crackdown on commercial bank’s treasury activities to stem predatory trading trends.

In a move that sends warning signals against speculative practices in the industry, the regulator barred Ecobank Kenya from the foreign exchange trading market over concerns it breached guidelines on the foreign exchange exposure limit.

“The bank is barred from forex trading between March 29 and April 4 as part of regulatory action for unsafe trading practices, the regulator said on Monday,” CBK said.

Hardline stance

Under governor Patrick Njoroge, who was appointed in 2015, CBK has taken a hardline stance over the years, saying that discipline in the market is paramount.

“Ecobank did not have sufficiently robust risk controls to prevent breaches on its foreign exchange exposure limits, or the inaccurate reporting of its position,” CBK said in a statement.

The lender noted in a statement that the matter raised by the regulator pertains to a request for foreign exchange from a corporate client for which they duly submitted a bid. 

“The deal was subsequently executed the following day,” the lender said in statement yesterday, adding that they are engaging with the regulator on all concerns it had raised.

Kenya’s foreign exchange market has become an edgy arena as the currency continues to sway in a market where demand for dollars is increasing on rising cost of imports.

Speculative deals

The regulator which has over the years maintained a tough stance, especially against currency dealers, warning them against speculative trading.

Ecobank is required to remedy the lapses identified by a CBK investigation. It has up to the end of this month to do so.

“The remedial plan should also point to specific measures to address the unsafe trading practices that led to the non-compliance,” CBK said.

Central Bank is facing the prospect of a weakening currency putting it between a rock and hard place on whether to raise interest rates and save the currency or keep the policy rate unchanged.  “Concerns continuedregarding the ongoing Russian-Ukraine conflict. International oil prices rose during the week ending March 24, owing to inventory drawdowns,” said CBK in its weekly bulletin.

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