Corporates and wealthy individuals are sitting on a cash pile worth Sh1.41 trillion in a soft economy where investment options are becoming limited.
Central Bank of Kenya (CBK) data shows that long-term and fixed deposits associated with the wealthy, money market funds and cash-rich corporates rose from Sh1.11 trillion in October 2017, reflecting a growth of 27 percent.
Foreign currency deposits also rose from Sh553.2 billion to Sh625.3 billion in the period under review, an indication that the wealthy are protecting their value and hedging against the local currency over investing their fortunes.
The revelation comes in the backdrop of data showing that the cash in Kenyans’ pockets dropped to a six-year low in September. CBK data shows that cash in circulation outside banks stood at Sh227 billion in October, down from Sh269 billion in the same month last year.
Analysts say high-net worth investors and companies with billions of shillings in fixed accounts have opted not to invest in expanding their businesses or starting new ventures, citing lower sales and returns.
This ultimately had the effect of reducing the amount of money in people’s pockets and cutting circulation of cash outside banks and short-term deposits.
Low returns from a bearish stock market and a slump in real estate has seen the rich opt to keep cash in banks and tap from interest returns that stood at 6.98 percent in September. While companies see the money in banks as a buffer against hard times, it has long riled investors, who say executives should invest it for growth or return it to shareholders. However, with reduced demand, most have preferred to keep cash in banks with money in fixed deposits now equivalent to what the Kenya Revenue Authority (KRA) collects annually from taxes.
A monthly survey that tracks business output in manufacturing and services sectors revealed that new orders that Kenyan companies received during the month expanded at the slowest rate in six months.
“The future output sub-index still indicates that firms are cautious on activity over the coming year,” said Jibran Qureishi, regional economist for East Africa at Stanbic — which tracks business through its monthly Kenya Purchasing Managers’ Index (PMI). This signals reduced investments and hiring plans and a continuation of job cuts as fairs protect profits.
Companies have been struggling with reduced sales and profits in a soft economy that has persisted since 2017 when Kenya went through a bruising General Election and a repeat presidential election.
Business owners have also accused national and county governments of delaying payments to suppliers worth more than Sh150 billion.
This has hurt businesses that trade with the government, leading some of them to be auctioned on failure to clear bank debts as others cut back on operations.
The government has started to clear pending arrears owed to the private sector in order to alleviate these cash flow constraints.
Last month, Kenya also removed a cap on commercial interest rates that had been in place since 2016. It had been blamed for stifling private sector lending growth and reducing the effectiveness of monetary policy.
Mr Qureishi said the change would boost business activity.
“As commercial banks begin to extend credit…, the private sector will be in a much better position than it …has been for the past two and a half years,” he said.
The rise in deposits has also strengthened bankers’ hand in influencing deposit rates, which have fallen from 8.26 percent in January last year to 6.98 percent in September.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.