Foreign currency deposits also rose from Sh553.2 billion to Sh625.3 billion in the period under review. FILE PHOTO
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.
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