Capital Markets

Savings interest rate falls to 5-year low

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • Central Bank of Kenya (CBK) data shows that the savings rate dropped to 2.55 percent in May, the lowest since August 2016 when it stood at 1.68 percent.
  • It stood at 4.18 percent in May last year.
  • The rate is payable to savings accounts, which allow depositors to add funds to the account occasionally but are limited on withdrawals and transfers — unlike the transactional accounts that do not earn interest.

The rates offered to customers for savings in banks have dropped to a near five-year-low, indicating that cash-rich lenders are not under pressure to pick up money for onward lending.

Central Bank of Kenya (CBK) data shows that the savings rate dropped to 2.55 percent in May, the lowest since August 2016 when it stood at 1.68 percent.

It stood at 4.18 percent in May last year.

The rates offered to customers for savings in banks have dropped to a near five-year-low, indicating that cash-rich lenders are not under pressure to pick up money for onward lending.

Central Bank of Kenya (CBK) data shows that the savings rate dropped to 2.55 percent in May, the lowest since August 2016 when it stood at 1.68 percent.

It stood at 4.18 percent in May last year.

The rate is payable to savings accounts, which allow depositors to add funds to the account occasionally but are limited on withdrawals and transfers — unlike the transactional accounts that do not earn interest.

Interest rates paid on large fixed deposits with short term maturities of between three months and one year remained constant at 6.3 percent between April and May but dropped from 7.01 percent recorded a year earlier.

The lending rate, however, increased to 12.06 percent in May from 11.95 percent a year earlier, indicating that the lenders are enjoying wider margins in their financial intermediation business.

Lenders have been reluctant to lend to borrowers deemed risky—such as small businesses and individuals—since the start of the Covid pandemic, preferring instead to go for the safety of government securities.

This abundance of caution— informed by a rise in non-performing loans ratio to 14.2 percent in April from 12.5 percent in March last year—has left them holding on to excess liquidity.

CBK data shows that their liquidity ratio has now climbed to 56.5 percent, from 51.4 percent at the onset of the pandemic in Kenya in March last year.

The banking sector gross deposits stood at Sh4.16 trillion in April, up by 11.2 percent from a year earlier, while gross loans were up by 7.3 percent to Sh3.08 trillion in the period.

As a result, annualised private sector credit growth slowed down to 6.8 percent in April 2021, from nine percent in April 2020.

People keeping cash in their accounts, as a precaution in an economy that has since last year seen massive job losses, caused the higher banking sector liquidity and lower savings rates on offer.