Lower than one p.c of Kenya’s financial institution accounts held greater than Sh500,000 final yr, highlighting Kenya’s poor financial savings tradition and the rising earnings inequality.
Central Financial institution of Kenya (CBK) knowledge reveals that 800,000 high-quality depositors accounted for 0.74 p.c of all banks accounts that held 85 p.c of Sh5.83 trillion deposits.
The small share of moneyed accounts gives a sneak peek into Kenya’s rising earnings inequality, the place wealth is concentrated within the fingers of a small phase of the inhabitants.
Kenya’s economic system has grown on common by 5.0 p.c yearly over the previous decade, however the advantages haven’t been equally distributed, and the hole between wealthy and poor is rising, analysts argue.
The variety of super-rich in Kenya is among the many quickest rising within the continent, but the financial advantages haven’t trickled all the way down to the vast majority of Kenyans fast sufficient.
CBK knowledge reveals that the variety of high-quality accounts elevated from 600,000 within the yr to December 2022, reflecting a leap of 33 p.c.
The Kenya Deposit Insurance coverage Company (KDIC) — an unbiased State company that manages deposit refunds in collapsed banks — in July 2020 raised compensation for depositors in collapsed banks to Sh500,000 from Sh100,000 to assist ease the discomfort with the small lenders.
“Banks held Sh5.8 trillion buyer deposits as of December 2023. Out of this, deposits insured by the fund amounted to Sh857.8 billion, translating to 14.7 p.c of absolutely insured deposits within the occasion of a financial institution failure,” CBK mentioned.
The banks’ high-value accounts are cut up between just a few rich people and the mix of funds from private and non-private sector enterprises.
The earnings inequality has partly been attributed to the earlier centralised system of presidency, which guided sharing of sources since Independence.
The devolved system of presidency, which took off in 2013, raised hopes of addressing the financial imbalance, as analysts say there’s a want to supply incentives to draw personal traders to counties and unfold the wealth.
America’s largest financial institution JPMorgan Chase has neglected Kenya’s multi-millionaires and high-net-worth traders after deciding to not supply asset and wealth administration (AWM) providers in its upcoming Nairobi workplace.
Analysts reckon the small share of multimillionaires in Kenya relative to Nigeria and South Africa was much less engaging to JPMorgan, whose property of greater than $4.2 trillion (Sh542.6 billion) are practically 43 occasions greater than Kenya’s GDP.
The entire money in accounts with over Sh500,000 has elevated to Sh4.98 trillion from Sh4.02 trillion final yr.
The mounting financial institution deposits are a sign that rich people and companies opted to avoid wasting quite than search new areas during which to spend money on Kenya’s tender economic system.
The well-wheeled and cash-rich companies have been additionally inspired to pile their financial savings by the excessive deposit charges that rose to double digits for a similar time in over a decade.
Prime lenders continued to command the lion’s share of high-quality accounts, with the main three banks — KCB, Fairness and NCBA Group — accounting for greater than two-thirds of the accounts holding greater than Sh500,000.
Fairness Financial institution, which focuses on the low-income phase of the market, marked by small particular person deposits in lots of accounts, had 124,098 excessive worth accounts from 419,736 in 2022, says CBK.
NCBA Financial institution Kenya held the very best variety of high-quality depositors with 416,481 accounts, up from 146,396 in 2020.
KCB Financial institution had 113,368 of the high-value accounts.
UBA Kenya Financial institution Restricted held the least variety of accounts with deposits in extra Sh500,000 at 603. The Improvement Financial institution of Kenya had 714 accounts whereas the Center East Financial institution had 883.
Depositors and traders in Kenya have been rattled in 2015 when the CBK took management of three mid-sized lenders — Chase Financial institution, Imperial Financial institution and Dubai Financial institution– after the banks bumped into monetary bother.
This triggered panic withdrawals from smaller banks and a shift of money to the bigger lenders that have been thought of secure in what was dubbed “flight to high quality”.
The CBK knowledge reveals that small banks managed 4.95 p.c of the high-quality accounts, says the CBK.
The elevated compensation within the occasion of a collapsed financial institution to Sh500,000 was the primary in over 30 years.
The low compensation had uncovered rich savers to greater losses within the occasion of financial institution closures as a result of the refund was not adjusted to take note of altering financial realities over the three many years.
The revised cap now covers 14.7 p.c of all financial institution deposits from the earlier eight p.c, however stays under the 20 p.c mark, which is taken into account greatest follow by the Worldwide Affiliation of Deposit Insurance coverage (IADI).
KDIC is funded by charging industrial banks a small proportion of their deposits within the type of insurance coverage.
