- Data from the Central Bank of Kenya (CBK) shows that Kenyan-held bank term deposits reached an all-time high of 1.5 trillion shillings in May, compared to 1.5 trillion shillings in March.
- Bank deposits in foreign currencies fell by 34.6 billion shillings, suggesting that the rich were transferring their savings to fixed accounts in local currency.
Wealthy Kenyans and businesses have amassed a record 33.8 billion shillings in two months in bank term deposits following withdrawals from dollar accounts and seeking security for their savings.
Data from the Central Bank of Kenya (CBK) shows that Kenyan-held bank term deposits reached an all-time high of 1.5 trillion shillings in May, compared to 1.5 trillion shillings in March.
Foreign currency bank deposits – which jumped at the height of the Covid-19 pandemic – fell by 34.6 billion shillings, suggesting the wealthy were transferring their savings to fixed local currency accounts which are currently earning a return average of 6.3%.
Analysts say the change was triggered by the strengthening of the shilling against the dollar, which reduced appetite for placing money in foreign currencies in the hope of earning both bank interest and earnings. in capital.
Savings on fixed accounts, which have increased by 165 billion shillings since the start of Covid-19 in Kenya in March of last year, indicates that the rich are protecting their worth and hedging themselves rather than looking for new areas in which to invest their fortune amid the economic fallout of the pandemic.
“The expected external inflows which were to start in April and throughout the end of the second quarter strengthened the shilling and depositors who anticipated this strengthening of the shilling reduced their holdings of US dollars,” said Churchill Ogutu, head of the shilling. research at Gengis Capital. .
The Kenyan shilling strengthened against the dollar as the market benefited from healthy inflows through the sale of government debt and new funding from the International Monetary Fund.
The shilling traded on average at 107.42 Sh in May to the dollar, compared to 109.73 Sh in March and 110.59 Sh in December.
These changes followed the IMF’s approval of a new financing package of $ 2.34 billion for Kenya in early April.
The strengthening of the shilling came at a time when foreign exchange savings rose from a peak of Sh 779.7 billion in March to Sh 745.1 billion in May.
The CBK said earlier that bankers and corporations informed it via a survey that investors were hoarding dollars for speculative purposes following forecasts showing the shilling would remain weak against the US dollar.
With the stable and stronger shilling, investors shift their savings to term deposits.
“The decline in dollar deposits shows greater confidence in the underlying strength of the Kenyan shilling, especially given the recent funding deal with the IMF,” said Ronak Gadhia, director of sub-Saharan banks at EFG Hermes.
Cash in circulation remained stable in the two months leading up to May, reflecting the shift from dollar accounts to term deposits.
A slowdown in business activities and the uncertain future caused by the virus has forced many companies and wealthy investors to hold onto cash, resulting in bank accounts piling up.
Uncertainty in the stock market and the fall in real estate has also caused the rich to choose to keep their cash in banks and exploit interest yields.
The performance of the Kenyan economy in 2020 has been affected by the effects of the Covid-19 pandemic and the restrictions put in place to contain its spread, forcing many businesses to shut down and fire their employees home or subjugate those withheld from pay cuts.
Companies have put their expansion plans on hold in the current economic climate, prompting them to keep funds in fixed accounts until the economy fully recovers.
Kenya’s economy has recovered after likely contracting a slight 0.1% contraction in 2020, the IMF said.
The IMF forecast a sharp acceleration in growth of 7.6% in 2021 and 5.7% in 2022, but said Kenya continued to face challenges to return to sustainable growth and that its past gains in poverty reduction had been reversed.
While companies see money in banks as a buffer against hard times, it has long annoyed investors, who say executives should invest it for growth or return it to shareholders.
Almost a third of the roughly 400 companies polled in Stanbic Bank Kenya’s Monthly Purchasing Managers Index (PMI), conducted by UK researcher IHS Markit, said they plan to resume investment in growth companies over the next year.