Rise in fixed deposit rates points to bank cash thirst
Customers at KCB Bank in Nairobi. The interest rates on fixed deposit accounts rose to a 24-month high of 6.74 per cent in July, indicating increased demand by cash-thirsty banks seeking to grow their lending activities.
The interest rates on fixed deposit accounts rose to a 24-month high of 6.74 per cent in July, indicating increased demand by cash-thirsty banks seeking to grow their lending activities.
The latest data by Central Bank of Kenya shows that the deposit rate is the highest since 6.78 per cent recorded in July 2020.
Locked up for months
Conventionally cash-rich firms and individuals dominate the fixed deposit market where most accounts have millions of shillings locked up for months to one year.
Banks don’t pay interest on most savings accounts, with those that do earning substantially lower rates than those on fixed deposit accounts.
The jump in deposit rates is a signal that banks are ready to raise funds to lend more amid increased economic resurgence as the country continues to recover from the aftershocks of the Covid-19 pandemic.
Several sources of funds
Banks depend on several sources of funds to support their lending business. These include retained profits and borrowed money, including fixed deposits.
In the first half to June, scores of banks opted to withhold interim dividend payments to shareholders amid caution to preserve capital buffers.
Equity Bank, Stanbic Bank, and Standard Chartered Bank are among tier-I lenders that didn’t pay an interim dividend despite posting considerable net profit increases during the half-year.
The lenders listed on the Nairobi Securities Exchange made about Sh90 billion net profits in the six months to June but withheld dividends to preserve work capital amid economic uncertainty. The performance of the nine lenders, including Equity, KCB, Co-op Bank surpassed the profits they reported over a similar period (January-June 2021) by more than Sh21 billion.
Borrowing target
Filings show that the banks grew their profits by an average 34 per cent to hit Sh85.4 billion cumulative profits between January and June 2022, up from cumulative profits worth Sh63.86 billion in the first half of 2021.
As a sign of cash uncertainty in the market, the Treasury missed its domestic borrowing target for the year to June by Sh82.8 billion.
