Election jitters drive Sh10bn fall in bank deposits
Customers at a Kenya Commercial Bank branch. The bank saw its deposits decline by 2.8 per cent in the last quarter of 2012. Photo/File
What you need to know:
Central Bank data show that the deposits fell from Sh1.76 trillion in December to Sh1.75 trillion in January.
Some analysts attributed the drop to commercial banks discharging expensive deposits and increased government spending.
Uncertainties surrounding the March 4 General Election saw banking sector deposits drop by Sh10 billion amid fears of net capital outflows by residents and foreigners seeking safer havens.
Central Bank data show that the deposits fell from Sh1.76 trillion in December to Sh1.75 trillion in January underlining how economic activities slow down around the General Election every five years.
“Some people become nervous around election time and they may have withdrawn some of their cash for one reason or the other. Obviously people were also spending on the campaign but some of the cash would definitely find its way back to the banks,” said John Kamunya, an analyst at international financial advisory firm StratLink Global.
Other analysts attributed the drop to commercial banks discharging expensive deposits and increased government spending.
“Banks held expensive deposits last year and could have been keen to shed them early this year. So they offered lower deposit rates and people decided to look for other alternatives,” said Francis Mwangi, the head of research at Standard Investment Bank.
The level of decline around the elections, however, is the sharpest this decade with minimal changes in bank deposits seen in December 2002 and December 2008.
Despite the post-election violence of January 2008, high investor confidence in the run-up to the poll saw the deposit level increase in the month to Sh803.5 billion. The deposits, however, fell by Sh1 billion in February after the skirmishes escalated.
After the 2002 poll, some people may have been uncertain how the policies of the new government would affect them as they withdrew Sh8 billion from the commercial banks.
The sharp drop this year suggests some people may have been afraid of the prospects of election violence flaring up again. Banking insiders, however, said the institutions were keen to get cheaper deposits after the Monetary Policy Committee (MPC) reduced the Central Bank Rate to 9.5 per cent in January.
Central Bank of Kenya (CBK) data show that deposit rates fell to 6.5 per cent in January compared to 6.8 per cent in December and 8.3 per cent last July.
The banks were forced to lower the deposit rates after lending rates fell to 18.1 per cent in January compared to more than 20 per cent last July in response to the policy rate reviews.
The deposit base of banks grew steadily last year from Sh1.54 trillion in January 2012 to Sh1.76 trillion last December, helped by remittances and higher deposit rates.
Mr Mwangi said investors found a haven in the Treasury Bill rates that have been rising this year from 8.1 per cent in December to 10.3 per cent in the latest auction, reflecting the government’s appetite for funds. In December the government borrowing exceeded target for the half year by more than Sh30 billion.
Mr Mwangi said the General Election could have made companies that were planning to invest to adopt a wait-and-see attitude, delaying particular funds from overseas.
Mr Kamunya said increased inflation in the last couple of months also pointed to increased spending in the run-up to the polls which could have led to withdrawal of money from banks.
“We also normally see an increase in government spending in the second half of the year and this could have contributed to the decline in the deposits in the commercial banks,” said Mr Kamunya.
Other major payments associated with January at the household level are school fees and renewal of annual contracts. In the last quarter of the year commercial banks also experienced a reduction in their deposit base.
Kenya Commercial Bank and CFC Stanbic, for example, saw their deposits decline by 2.8 and 11.8 per cent, respectively, amid indications that customers were reallocating their cash, some to the Nairobi Securities Exchange which has been on a sustained rally.
At the end of December, KCB’s deposits stood at Sh288.04 billion while CFC Stanbic Bank was at Sh75.6 billion.
For KCB, analysis by South-African-based Lagae Securities shows that it expects its profits to rise faster than its deposits. The brokerage firm projects the ratio of profit to deposits would be 4.7 per cent this year from 3.9 per cent last year.
