Absa bank loses forex profits, locked out of market for flouting rules

Absa Kenya #ticker:ABSA, formerly Barclays, will lose part of profits made from foreign exchange trading on March 20 after the regulator flagged some transactions and locked the lender out of currency market for flouting rules.

The Central Bank of Kenya (CBK) said Absa has been suspended from the forex market for seven days starting today (Thursday) for failing to keep details on transacting customers, effectively denying it forex revenue for a week.

Absa Kenya forex trading income grew 11 percent to Sh3.64 billion last year, being more than a third (34.4 percent) of non-interest income.

The regulator flagged transactions conducted on March 20, saying Absa failed to provide details on the said deals. CBK did not, however, give the value of money involved.

“In investigating these and other earlier transactions, it is evident that Absa Kenya did not have satisfactory assurance of the underlying commercial transactions supporting these trade as is required,” CBK said in a statement on Thursday.

CBK further said Absa did not observe standard checks on anti-money laundering and combating the financing of terrorism (AML/CFT) and know-your-customer (KYC) requirements. 

The regulator has ordered Absa to reverse the market positions that were created as a result of the flagged transactions.

An investment banker who spoke on anonymity said this will mean cancelling all the flagged buy or sell transactions it had undertaken that day whether on their behalf or that of clients.

“That is like forfeiting all the gains it had made from the flagged transactions. Forex trading involves taking long positions (buying) or short positions (selling) depending on the direction a trader expects a currency to take,” said an investment banker.

The purge comes at a time CBK is buying $400 million (Sh40 billion) from banks. CBK governor Patrick Njoroge said on March 24 that the shilling had partly weakened on “indiscipline by malicious traders in the market” after the buying of dollars started.

Commercial banks usually buy or sell currencies on their own behalf or that of clients at a commission.

Absa’s return into forex trading next week Wednesday has also been pegged on it strengthening its systems.

“By Wednesday April 15, put in place a robust framework that ensures all relevant documents for such foreign exchange transactions are available as required and also ensures the AML/CFT and (KYC) requirements are adhered to,” CBK ordered. 

Commercial banks quoted the shilling at 106.85 per dollar on Wednesday due to lack of dollar inflows and thin trading activity amid slowing economic activities due to coronavirus, Reuters news agency reported. The shilling was exchanging 100.40 units in February.