Share of bank accounts with more than Sh100,000 shrinks

A Nairobi market trader counts money after the day’s sales. CBK data shows the share of the high quality accounts dipped to 2.49 per cent in 2019. PHOTO | FILE | NATION MEDIA GROUP

By PATRICK ALUSHULA
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Summary

• CBK data shows the share of the high quality accounts dipped from 2.62 per cent in 2018 and 3.94 per cent in 2014.
• The fall came despite the number of bank accounts holding more than Sh100,000 having increased by 105,639 last year to 1.55 million.

The share of bank accounts holding more than Sh100,000 dropped to 2.49 per cent last year, reflecting the cash flow problems in an economy plagued by job cuts and Kenya’s growing income inequality.

Central Bank of Kenya (CBK) data released on Tuesday showed that the share of the high quality accounts dipped from 2.62 per cent in 2018 and 3.94 per cent in 2014.

The fall came despite the number of bank accounts holding more than Sh100,000 having increased by 105,639 last year to 1.55 million.

But the share was squeezed by the sharp rise in new bank accounts by 7.1 million or 12.7 per cent to 62.3 million, an indicator that lenders are tapping poorer savers under the financial inclusion drive.

The rise in the high quality accounts marked a reversal from the drop witnessed in 2018 when savers with more than Sh100,000 dropped to 1,450,000 from 1,583,000 in 2017.

The CBK delayed releasing the report and does not capture the impact of the Covid-19 economic fallout on the savings.

While individuals and corporations hold diverse assets, including land, the cash deposits paint a picture of rising inequality as a relatively smaller number of people reap the benefits of a thriving formal economy and financial system.

About 97.51 per cent or 60.83 million accounts hold less than Sh100,000, offering a sneak peek at Kenya’s growing income inequality where wealth remains concentrated in the hands of a small segment of the population.

Before Covid-19 pandemic, corporate Kenya had 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, which has led to a large number of workers and businessmen holding less than Sh100,000. Modest economic activity in the past two years has entrenched the income inequality with fewer jobs and stagnant pay hurting the middle class most.

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.

About 78,500 new formal jobs were created in the economy, unchanged from 2018 and down from 114,400 in 2017, according to the Economic Survey 2020 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.

The drop in new jobs combined with stagnant wages raise queries over equitable distribution of the growth dividend among Kenyans considering the economic growth expansion witnessed recently.

About 1.72 million workers lost jobs in the three months to June when Kenya imposed a coronavirus-induced partial lockdown that led to layoffs and pay cuts.

Industries and other businesses have since cut down on their activities in response to the infectious disease, leading to job cuts and unpaid leave for retained staff as profitable firms move into losses.

Top lenders continued to command the lion’s share of high quality accounts, with the leading nine banks accounting for 81.96 percent of accounts holding over Sh100,000.

Equity Bank leads with 347,787 accounts followed by KCB (253,958), Co-operative Bank (241,260), Absa (108,177) and Standard Chartered Bank (71,645). However, 31.1 percent of StanChart’s 230,497 total accounts had more than Sh100,000.

I&M Bank had the largest proportion of high quality savings, with 32.6 percent of the accounts having in excess of Sh100, 000. Wealthy savers have been moving their cash from small banks in the four years that followed three mid-sized banks being placed under receivership after failing to meet their obligations.

Depositors and investors in Kenya were rattled three years ago when the CBK took control of Chase Bank, Imperial Bank and Dubai Bank after they ran into financial trouble.

This triggered panic withdrawals from smaller banks and shift of cash to the larger ones that were considered stable in what was dubbed “flight to quality”.