- Written by Timothy Odinga | Business Daily Africa
Interest on fixed deposits dropped to an eight-year low on bankers’ reduced appetite for savings following a slowdown in demand for loans.
The Central Bank of Kenya (CBK) data shows that the deposit rate dropped to 6.3 per cent last December from 7.1 per cent in December 2019.
This is the lowest level since February 2013.
The fall is linked to a rise in deposits from wealthy investors and firms in a year when restrictions imposed to curb the spread of Covid-19 reduced investments opportunities that also cut demand for loans.
The falling returns on savings is a blow to high net worth investors and cash-rich firms who last year opted to hold onto cash, leading to a pile-up in bank accounts.
“Generally a decrease in the rate shows decreased appetite for the banks to mobilise funding for onward lending,” said Habil Olaka, the chief executive officer of Kenya Bankers Association.
“When demand for loans is not high, banks prefer not to keep deposits that they are not going to lend, but when loan uptake improves, the ripple effect is that banks will offer more returns for savings.”
The bulk of savings accounts do not earn interest because most banks have set a threshold below which they take the deposits for free.
Interest rate on the savings dropped to a five-year low in December to 2.7 percent from 4.25 percent in January last year. This is a sharp contrast to 2018 when interest on savings accounts averaged 6.37 percent.