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Banks now opening yuan accounts to ease China-Kenya trade

         Date: 2012-12-01

           Tag: China-Kenya trade, bank

Summary: The growing trade between Kenya and China has led to Kenyan businesses opening yuan accounts, creating new income opportunities for local banks. This measure will promote the developpement of busine…

The growing trade between Kenya and China has led to Kenyan businesses opening yuan accounts, creating new income opportunities for local banks. This measure will promote the developpement of business between Kenyan et China.

Banks now opening yuan accounts to ease China-Kenya trade

Banks now opening yuan accounts to ease China-Kenya trade

Local commercial banks say traders are seeking to reduce the currency costs incurred when converting shillings into dollars, then the dollars into yuan, referred to as a renminbi (RMB) transaction. The renminbi is the official currency of China, and its primary unit is the yuan.

“We have a significant number of clients who have RMB denominated transactions, and they have been growing. We now have accounts available for them,” said Charles Macharia, head of the China related desk at Citibank Nairobi.

The increased demand for yuan accounts has seen local banks rush to offer the service. CFC Stanbic is one of them, while Bank of Africa, Commercial Bank of Africa, and Barclays Bank are reportedly set to introduce the product soon.

Traders say going through the RMB transaction to settle their yuan denominated obligations raises the transaction costs and exposes them to significant currency volatility.

“We are exposed to volatility risks of three currencies if we use dollars; hence, the risk is reduced if we bypass the greenback. We are also supposed to pay a fee for the transaction and banking costs,” said Justus Ngugi, managing director at Stantech Motors.

“When our Chinese suppliers quote us in dollars, we’re paying higher prices than we should because they have to take a gamble on the dollars,” he added.

Mr Ngugi estimates that RMB transactions add an extra 5 per cent to the value of the 300 cars that his firm imports from China every year.

Kenya imported goods worth Ksh144 billion ($1.7 billion) from China last year, making the East Asian country its third largest trading partner after the United Arab Emirates and India.

The bulk of imports from China were machinery, vehicles and parts, steel, coal, electronics, textiles and household goods. The increase in yuan- denominated trade settlement is hence driven by real corporate need.

On average, goods from China are cheaper; Stantech says its car imports are on average priced 20 per cent lower than Japanese imported vehicles.

The increased demand for the yuan in Kenya has also been attributed to a surge in Chinese companies in the country.

The Chinese embassy in Nairobi estimates that there are 200 Chinese companies in Kenya, but says the number could be higher as some don’t report their presence to the embassy.

The Central Bank of Kenya has said it will consider including the yuan in its mix of reserve currencies given the growing trade between Kenya and China, and the rising indebtedness of Kenya to China.

“Some of the factors that inform the decision on the currencies in which to invest reserves are convertibility of the currency, trade volumes — especially imports — denominated in the currency, proportion of the country’s debt in that currency,” CBK said in an email response.


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