Market News

Kenyans’ long-term savings fall to Sh1.4trn as Covid bites

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Central Bank of Kenya building in Nairobi. FILE photo | nmg

timothy odinga

Summary

  • Latest data from the Central Bank of Kenya (CBK) shows that fixed deposits held in commercial banks shrank for the fourth straight month in November, dropping to Sh1.478 trillion from the all-time high of Sh1.553 trillion recorded in July.
  • At the same time, demand deposits—cash available for withdrawal in banks— maintained an upward trajectory to hit an all-time high of Sh1.44 trillion, indicating that people were looking to have their cash within easy reach.
  • Fixed deposits accounts hold cash for a specified period of time and cannot be freely withdrawn until the end of the set period, with those breaking the fixed deposit liable to pay a penalty or earn lower interest.

Kenyans ate into their long-term savings in the second half of last year as they looked to make ends meet amid job losses and economic hardships brought about by the Covid-19 pandemic.

Latest data from the Central Bank of Kenya (CBK) shows that fixed deposits held in commercial banks shrank for the fourth straight month in November, dropping to Sh1.478 trillion from the all-time high of Sh1.553 trillion recorded in July.

At the same time, demand deposits—cash available for withdrawal in banks— maintained an upward trajectory to hit an all-time high of Sh1.44 trillion, indicating that people were looking to have their cash within easy reach.

Fixed deposits accounts hold cash for a specified period of time and cannot be freely withdrawn until the end of the set period, with those breaking the fixed deposit liable to pay a penalty or earn lower interest.

The shrinking in long-term savings has been largely blamed on the Covid economic hardships as people continue to struggle with reduced income and have less cash to save compared to the pre-Covid period.

“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,” KCB Group CEO Joshua Oigara told the Business Daily in an earlier interview.

“Most customers are still looking for opportunities and are opting to put their money in demand deposit accounts.”

Lower returns on deposits and savings at 6.37 percent (the lowest level since July 2015) and 3.49 percent respectively have also encouraged more individuals and businesses to leave cash in the current accounts.

The situation is however likely to change as the economy continues to recover from the Covid hit, with many businesses and schools now reopened.