NAIROBI, Kenya, Feb 3 – CfC Stanbic Bank has denied that it was suspended from trading in the foreign exchange market last year over speculative currency activities.
In a statement released on Friday, the bank said that the only ban that was imposed by the Central Bank of Kenya (CBK) was in regard to trading in forex funding swaps.
“The CBK action limited CfC Stanbic Bank from trading in foreign exchange funding swaps for 30 days but subsequently approved the resumption of trading in funding swaps,” the statement from the bank’s communications department said.
A Foreign Exchange Swap is an instrument that enables a party to swap one currency for a different one at an agreed foreign exchange rate. The contracting parties then agree to swap the currencies back again at a future date at a price agreed upon at the time of the initial swap.
Swaps are mostly used to hedge against interest rate risks and can sometimes be used to speculate which direction prices might take.
CfC Stanbic however maintains that its action did not amount to speculation.
“The flows reverse leaving the contracting parties in the same position as they were in, prior to entering into the contract. The interest rates applied in pricing these contracts are derived from the market and have no impact on the prevailing exchange rate,” the bank argued.
On Wednesday, the chairman of the Parliamentary Select Committee (PSC) on the Depreciation of the Shilling Adan Keynan asked the CBK governor Prof Njuguna Ndung’u to confirm whether CfC Stanbic was suspended and fined Sh1 million for flouting its guidelines to check speculative tendencies.
The governor however declined to publicly confirm or deny whether CfC Stanbic was among rogue banks behind the weakening of the shilling but opted to do so in camera.
CfC Stanbic does not deny either that it was slapped with a fine.
“The fine imposed arises as a result of a single foreign exchange swap transaction that was executed under the guidelines for such transactions whereas a new set of guidelines had been issued,” it asserted.
A panel of MPs has been grilling banking industry players and other stakeholders since November last year to try and determine what could have been behind the rapid devaluation of the shilling which touched an all time low of Sh107 to the dollar in October 2011.
The committee has rejected the theory that external factors such as the eurozone crisis and high energy costs could have triggered the depreciation saying some of the factors cited then are still present now.
The PSC strongly feels that some powerful people could have colluded to speculate on the currency and made super normal profits at the expense of the ordinary Kenyan and the economy in general.
The Keynan-led committee is currently compiling its findings which will be tabled in Parliament when it re-opens.