Bank accounts reveal Kenya’s pay inequality

A customer is served at a bank branch. FILE PHOTO | NMG

Only 2.65 percent of Kenya’s 66.3 million bank accounts held more than Sh100,000 last year, reflecting Kenya’s growing income inequality and the country’s poor savings culture.

The Central Bank of Kenya (CBK) data shows that the number of high-quality accounts increased to 1.65 million in the year to December, reflecting a growth of 4.2 percent.

This offers a sneak-peek into Kenya’s growing income inequality, where wealth is concentrated in the hands of a small segment of the population.

The earnings inequality has partly been attributed to the previous centralised system of government, which guided sharing of resources since Independence.

The devolved system of government, which took off in 2013, raised hopes of addressing the economic imbalance, as analysts say there is a need to offer incentives to attract private investors to counties and spread the wealth.

Modest economic activity in the past three years has entrenched the income inequality with fewer jobs and stagnant pay hurting the middle-class most.

The share of bank accounts with more than Sh100,000 matches the earnings power of Kenya’s formal sectors workers

Those earning more than Sh100,000 accounted for 2.9 percent of the 2.7 million formal workers captured in the Kenya Revenue Authority (KRA) database in 2020.

The high-quality bank accounts defied the Covid-19 economic hardships to grow by 72,461 last year and 134,000 in 2020.

It was expected that layoffs, job cuts and closure of small businesses due to the coronavirus-induced slump would cut the number of bank accounts by more than Sh100,000, especially those held by salaried workers.

Analysts say the growth of accounts with more than Sh100,000 in a pandemic year was driven by a cut in spending for workers that remained in the job market.

The reduced spending was linked to the uncertainty about jobs and loss of pay, and closure and restriction of service businesses like schools, bars and restaurants, which traditionally drive consumer expenditure.

As a result, household savings rates and bank deposits increased to a new peak.

“Total deposits increased by 12.2 percent to Sh4.6 trillion in December 2021, from Sh4.1 trillion in December 2020. The growth was supported by the mobilisation of deposits through digital platforms,” said the CBK in the annual banking sector report.

The mounting bank deposits are an indication that wealthy individuals and firms opted to save rather than seek new areas in which to invest.

Top lenders continued to command the lion’s share of high-quality accounts, with the leading nine banks, including KCB, Equity, Co-operative Bank and NCBA Group, accounting for 82.4 percent of the accounts holding more than Sh100,000.

Equity Bank, which focuses on the low-income segment of the market, marked by small individual deposits in many accounts, leads with 399,641 accounts.

It is followed by KCB (297,610), Co-operative Bank (272,837) and NCBA with 132,972.

I&M Bank had the largest proportion of high-quality savings, with 31 percent of its 59,036 accounts having more than Sh100,000.

Standard Chartered followed with 27 percent of its accounts being the top savers, while Stanbic Kenya and DTB had 18 percent and 11 percent, respectively.

Stanbic Kenya followed with 19.8 percent of its accounts being the top savers, while DTB had 10.8 percent.

Wealthy savers have been moving their cash from small banks in the years that followed three mid-sized banks being placed under receivership in 2015 after failing to meet their obligations.

This emerges despite the large lenders offering lower returns on deposits compared to the small banks.

Small lenders saw a drop in bank accounts with more than Sh100,000 as wealthy savers preferred well-known brands.

The 21 small banks — classified by the Central Bank of Kenya (CBK) as low-tier — had 114,588 bank accounts with more than Sh100,000 in 2020, up from 114,604 a year earlier.

Depositors and investors in Kenya were rattled in 2015 when the CBK took control of three mid-sized lenders -- Chase Bank, Imperial Bank and Dubai Bank-- after the banks ran into financial trouble.

This triggered panic withdrawals from smaller banks and a shift of cash to the larger lenders that were considered stable in what was dubbed “flight to quality”.

The CBK data shows that small banks controlled 6.5 per cent of the high-quality accounts, down from 13.2 per cent in 2017, as depositors sought safety in larger institutions.

The Kenya Deposit Insurance Corporation (KDIC) — an independent State agency that manages deposit refunds in collapsed banks — in July 2020 raised compensation for depositors in collapsed banks to Sh500,000 from Sh100,000 to help ease the discomfort with the small banks.

But this has done little to boost the share of accounts with more than Sh100,000 in the smaller banks.

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