Economy

Kenyans defy Covid to save an extra Sh483bn

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Summary

  • Data from the Central Bank of Kenya shows that banking sector gross deposits closed in January at Sh4.03 trillion, translating to a 12 per cent jump from Sh3.55 trillion in a similar period last year.
  • The latest jump is the biggest in over a decade, with savings having risen by Sh224.6 billion in the preceding similar period.
  • This means that Kenyan households and businesses were on average adding Sh1.32 billion daily on their deposits.

Kenyan households and businesses have stockpiled an additional Sh483.3 billion of savings over the Covid-19 pandemic period, the biggest in over a decade, highlighting the impact of precautionary spending and thin investment opportunities in an environment fraught with uncertainties.

Data from the Central Bank of Kenya shows that banking sector gross deposits closed in January at Sh4.03 trillion, translating to a 12 per cent jump from Sh3.55 trillion in a similar period last year.

The latest jump is the biggest in over a decade, with savings having risen by Sh224.6 billion in the preceding similar period. This means that Kenyan households and businesses were on average adding Sh1.32 billion daily on their deposits, up from Sh61.5 million that was being recorded in the pre-coronavirus year.

The amassed savings came on the back of consumers tightening their spending in an environment of rising uncertainty over stability of jobs and other income streams.

Many businesses in sectors such as transport and communication, manufacturing, hospitality and tourism have shut or scaled down their activities, reducing spending.

KCB Group CEO Joshua Oigara recently told Business Daily that many customers were stockpiling deposits and withdrawing less for investment.

"A lot of customers are bringing in deposits but they are not using it for any economic activities. Lending is not as high and so the deposits are sitting with us much longer," he said in November.

"Most customers are still looking for opportunities and are opting to put their money in demand deposit accounts. We are in a strong position to take advantage of any recovery in the economy and lend more given the strong deposit base."

Activities such as schooling were also disrupted, forcing parents to hold the money in banks.

Employees spared from Covid-19-related layoffs and pay cuts enjoyed some temporary financial relief after the government extended to them a series of relief measures to cushion households and businesses from the economic fallout of the pandemic.

These included payroll and income tax cuts as well as lifting of charges on mobile phone-based transfers of small amounts of cash to encourage cashless transactions and curb the spread of the virus.

Kenya’s growth in savings is in line with findings by credit rating agency Moody’s, which said consumers around the world had by March stockpiled an additional Sh584 trillion ($5.4 trillion) of savings since the pandemic began due to cautious spending and support from government stimulus schemes.

The huge stockpile of savings is expected to help power the recovery of the economy from the Covid-19 disruption that has led to massive job losses, pay cuts and collapse of businesses.

A slowdown in business activities and the uncertain future caused by the virus forced many companies and investors to hold onto cash, leading to a pile-up in bank accounts.

Low returns from a bearish stock market and a slump in real estate forced many investors to keep cash in banks and tap interest returns that stood at 6.46 percent in February.

Commercial banks do not have many options for deploying cash without loan growth and this has seen them raise investment in government securities. Top banks — KCB, Equity, Co-operative Bank, NCBA, Absa Kenya, Standard Chartered Kenya, I&M, DTB, Stanbic — last year increased their investment in government securities by 24 percent or Sh234.2 billion to Sh1.22 trillion.

While a strong deposit growth looks set to help banks reduce their funding costs, the falling interest rates mean the yields that lenders can get from loans have also dipped.

Deploying cash profitably also remains a challenge with the share of loan defaults having risen to 13-year high in the wake of Covid-19 economic fallout.

Data to February showed that 14.5 percent of all loans or Sh432.45 billion was in default, up from Sh349.94 billion a year ago.

This means credit for which principal or interest has not been paid for 90 days or more grew by Sh82.52 billion in contrast with additional Sh22.05 billion that fell into default status in a similar timeline in 2019.

Kenya’s economy shrank by 5.7 percent in the second three months of 2020, its first quarterly contraction since the global financial crisis 12 years ago, as the pandemic shut businesses and kept people at home.

The government expects last year’s economic growth to be less than 2.5 percent, compared with a pre-pandemic forecast of about six percent, due to the impact of the infectious disease.

Economic recovery especially for tourism, hospitality and aviation was dealt a fresh blow late last month after the State reintroduced strict measures to stem a fresh wave of Covid-19 infections.