Kenyans are not earning much from their bank deposits. The incomes of cash-savers with Kenya’s biggest banks dipped by close to Sh10 billion in the first nine months of the year as the lenders cut deposit rates aggressively to protect their profit margins. Kenya’s six largest banks paid out Sh16.7 billion in interest for deposits down from Sh26.1 billion in a similar period last year, according to the latest sector report. This amounts to poor returns for the savers compared with other investment options such as the equities market that recorded double-digit growth during the same period. Cash deposits stood out as a rewarding investment option in the past two years as banks aggressively sought cash to maintain their liquidity. The lower payout was despite a Sh70 billion rise in customer deposits, indicating that the banks cut the savings rate by a larger margin than the one percentage point indicated by Central Bank of Kenya data. CBK data shows that the deposit rate dropped to 6.5 per cent in September 2013 from 7.4 per cent in September last year. KCB was the greatest beneficiary of the rate reduction, cutting its interest payout by Sh3.2 billion after letting go of some of the expensive deposits. Depositors have accused banks of reducing deposit rates at a faster pace than the lending price, allowing them to enjoy higher margins. Reduction in interest expense was the key driver of the banks’ profit growth during the first nine months of the year when they also witnessed a slight drop in their core business of lending. “Large banks have been more aggressive in re-pricing their deposits and have been willing to give up costly deposits,” said Standard Investment Bank head of research Francis Mwangi. The payment of low returns to depositors has been cited as one of the challenges to the mobilisation of long-term savings in Kenya. In the past year, investor wealth at the equities market grew by an average 27 per cent going by the movement of the NSE 20 share index. Increased investor interest in the equities market has seen the value of shares listed on the Nairobi Securities Exchange rise to a historic high of Sh1.99 trillion by last week. Government securities have also outperformed the bankers’ payout with the 91-day Treasury bill averaging more than 10 per cent. Last week, the government offered bills and bonds worth Sh17 billion but received bids of Sh28.8 billion, underlining investor appetite for more rewarding options. During the high interest rate period, banks were forced to price cash deposit higher than the government debt to attract investors and avoid taking money from the more expensive sources such as loans from their peers or the CBK. Investment companies such as Centum and pension fund managers liquidated their investments to deposit the cash with banks that were offering higher returns. Banks benefited from the CBK’s decision earlier in the year to cut the benchmark borrowing rate sending the lending rates down to a low of 14 per cent from 25 per cent a year ago. Deposit rates dropped by more than half but the lower borrowing costs saw the banks report flat earnings from lending to households and companies, making deposit expenses a key profit-driver.
Posted on: Mon, 02 Dec 2013 12:34:22 +0000
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