The number of Kenyans with more than Sh100,000 ($1000) as savings in their bank accounts has dropped for the first time in more than 13 years, reflecting the cash flow problems in an economy plagued by job cuts and modest economic activity.
Central Bank of Kenya (CBK) data, set for release next month, is expected to show that savers with more than Sh100,000 in their bank accounts dropped to 1,450,000 last year, down from 1,583,000 in 2017 — the first fall since 2006 when the regulator began making public such deposit data.
The drop comes in a period when corporate Kenya has witnessed reduced profitability that has ushered in job cuts, freezes in hiring and near stagnant wages in the race to protect profit margins.
Bankers say this has in turn shrunk savings as well as cash flow for both individual and small firms.
Although CBK data shows that the number of bank accounts increased by 13.4 percent to 53.83 million last year, a large number of them have savings of less than Sh100,000.
Denied loans
Since 2016, bankers have denied loans to individuals and small firms because they consider them risky after the government introduced the interest rate caps regime.
“Individuals’ cash flow has come down. We may be seeing GDP growth, but in reality, the flow of money in the economy has reduced,” said a banker who sought anonymity because he is not authorised to speak to the media.
“The middle class tend to bear the brunt in an environment where companies are shedding jobs and pay increases frozen. This environment lowers workers’ ability to save.”
Between 2008 and 2018, the number of bank customers with more than Sh100,000 as savings in their accounts more than doubled from 620,000 persons in 2008.
Banks increased the number of savers with more than Sh100,000 at between 120,000 depositors and 200,000 annually in the five years to 2017, on the back of increased economic activity.
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However, the number of top savers dropped by 130,000 persons last year, shrinking their share of bank accounts to 2.6 percent from 3.4 percent in 2017.
The CBK data also offers a sneak peek at Kenya’s growing income inequality problem where wealth remains concentrated in the hands of a small segment of the population.
The data shows that that 97 percent of bank accounts have less than Sh100,000, which is in line with earlier comments from the banking regulator, which indicated that less than one percent of savings accounts had more than Sh1 million.
Modest economic activity in the past two years has entrenched the income inequality with fewer jobs and stagnant pay hurting the middle class most, which is captured in their downgrade among top savers.
While Kenya’s economy expanded 5.8 percent last year from 4.8 percent in 2017, private sector activity — which translates to jobs and higher pay — has remained muted.
“If you look at employment index (in the PMI) since the beginning of 2017, it’s been quite neutral, meaning it’s not like there has been improvement in new jobs,” said Jibran Qureishi, regional economist for East Africa at Stanbic Bank — which tracks company performance monthly through Purchasing Managers’ Index (PMI).
Official data
Official data show that 78,400 new formal jobs were created in the economy in 2018 compared to 114,400 in 2017, according to the Economic Survey2019 data.
This is the slowest pace of formal job growth since 2012 when the economy churned out 75,000, adding to the crisis of youth unemployment. The data does not capture job cuts and net employment.
Companies are struggling with reduced sales and profits in a soft economy that has persisted since 2017 when Kenya went through a bruising General Election.
Key firms have put on hold hiring of new staff in an economy that has also witnessed a string of job losses in recent months affecting nearly all sectors.
This is reflected by a record number of firms listed on the Nairobi Securities Exchange (NSE) issuing profit warnings.
More than 15 of the 62 companies listed on the NSE reported net income drops by at least 25 per cent last year compared with 2017.
Firms complain that the government takes years to settle bills for goods and services supplied to it, mainly due to below-target revenue collection and pressing expenditures like public debt payments that take half of the tax collections.
This has hurt businesses that trade with the government, forcing a number of them to be auctioned on failure to clear bank debts.
OTIATO GUGUYU writes for Business Daily Africa
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world