Rich Kenyans put Sh1bn daily in fixed accounts

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Central Bank of Kenya. FILE PHOTO | NMG

Wealthy Kenyans and companies banked Sh1.03 billion daily in fixed bank deposits last month in search of safety for their investments amid the gradual recovery of the economy from Covid-19 hardships.

Central Bank of Kenya (CBK) data shows that fixed bank deposits held by Kenyans hit a historic high of Sh1.598 trillion in July, up from Sh1.567 trillion in June, marking one of the biggest monthly jumps.

The Sh30.85 billion cash increase in fixed accounts, equivalent to Sh1.03 billion daily, is an indication that rich individuals and big companies are protecting their value rather than seeking new areas to invest their fortunes.

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

Uncertainty at the stock market and a slump in real estate have also seen the rich opt to keep cash in banks and tap interest returns, which stood at an average of 6.37 percent in June.

Chief Economist at Mentoria Economics Ken Gichinga says the investment environment remains fragile amid concerns about the spread of new Covid-19 variants. The mounting cash in fixed deposits comes amid fears that the highly contagious Covid-19 Delta variant may spark the fourth wave of infections in Kenya.

The US and the United Kingdom have tightened restrictions on travel to Kenya by their nationals due to the spread of the variants. “This (rise in fixed deposits) talks of limited options for investors. It also means they see the interest rates offered on their money as high enough to beat the returns in the current real economy, said Mr Gichinga.

“Investors are not spending as much as they should to support growth in real economy and this is a worry. The high return on government paper worsens the situation further.”

A July CBK survey found that many companies expected moderate to weak economic growth due to a slow vaccine rollout, subdued activities in sectors such as hospitality and a possible return of containment measures that could dent economic recovery.

The survey showed 54 percent of non-bank private firms drawn from sectors such as agriculture, real estate and manufacturing expected moderate economic activity while a quarter saw weak prospects.

“Across all sectors, reduced consumer demand and increased taxation were identified, among others, as significant factors that could constrain expansion/growth of private sector firms over the next 12 months,” said the CBK.

About 43 percent of CEOs expected their production volumes to remain the same while 13 percent expected a drop, offering a glimpse into reasons why expansion is not top of their agenda.

Kenya emerged from prolonged lockdown measures in October last year, giving the economy a boost, but it has since been forced into several partial lockdown measures by new waves of infections.

The CBK survey findings echoed those of Stanbic Bank Kenya Purchasing Managers’ Index (PMI), which showed the pace of growth in Kenya’s private sector slowed down for the second straight month in July.

This was weighed down by sluggish orders for firms and higher costs of materials.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) fell to 50.6 in July from 51.0 the previous month. The 50.0 mark separates growth from contraction.

“Domestic demand improved by the second slowest pace since the lifting of public health restrictions after the first wave of pandemic,” said Kuria Kamau, fixed income and currency strategist at Stanbic Bank.

The latest figure means fixed deposits have now increased by 14 percent or Sh196.2 billion since the onset of Covid-19 in Kenya in mid-March last year.

The performance of Kenya’s economy in 2020 was hit by the effects of the pandemic and restrictions that were put in place to contain its spread, forcing many businesses to close and send their employees home or subject those retained to pay cuts.

Firms have shelved expansion plans under the current economic setting, pushing them to keep funds in fixed accounts awaiting full recovery of the economy.

Kenya’s economy has been picking up after likely posting a slight contraction of 0.1 percent in 2020, the IMF said.

The IMF forecast a sharp swing to growth of 7.6 percent in 2021 and 5.7 percent in 2022, but said Kenya continued to face challenges returning to durable growth, and its past gains in poverty reduction had been reversed.

While companies see the money in banks as a buffer against hard times, it has long riled investors, who say executives should invest it for growth or return it to shareholders.