Rich Kenyans and big companies, seeking a safe haven for their wealth, stockpiled a record 1.4 billion shillings each day for a 6-month period ending September 2020.
Data from the Central Bank of Kenya (CBK) shows that Kenyan banks recorded 3.94 trillion shillings in savings during this period, which was an increase from the 3.68 trillion shillings reported in the six months ending March 2020.
This is an indication that the wealthy are protecting their value and hedging rather than seeking new areas in which to invest their fortunes.
This signaled a shift from investing in new frontiers, with most opting to secure cash reserves during the peak of the pandemic in the country. Banks also reported a significant increase in deposits via digital channels, mostly via mobile money transfers.
“The rise is due to the removal of charges on transactions and also given that there is now a higher limit to transact,” KCB CEO Joshua Oigara explained to the media
Demand at home and in export markets slumped as consumers stayed indoors to avoid catching the virus and because of government containment measures, forcing firms and the rich to freeze investment plans.
In economics, the level of savings equals the level of investment as this needs to be financed from savings. Basically, if people save more, it enables the banks to lend more to businesses and individuals for investment.
In this circumstance, a rapid rise in saving does not cause an equivalent boost in investment. Although banks see a rise in their deposits, they may be reluctant to lend to firms because of uncertainty caused by the Covid-19 pandemic.
According to a recent report, revealed that over 19,000 small retail shops were forced to close down during the pandemic that continues to hurt numerous businesses.
“We will need to accelerate digital ecosystems that will enable the SMEs to reconnect with their customers, markets and access the much-needed finance for recovery,” the CBK governor explained.
His second focus was detailed as fostering partnerships and collaborations between banks and telecommunication companies to keep up with the new anytime anywhere services phenomenon.
The rise in foreign currency bank deposits emerged in a period when Kenya announced its first Covid-19 cases and imposed tough restrictions, including a dusk-to-dawn curfew.
The CBK says that bankers and firms had informed it via a poll that investors were hoarding dollars for speculation purposes in the wake of forecasts showing that the shilling would remain weak against the US currency.
A slowdown in business activities and the uncertain future caused by the virus have forced many companies and rich investors to hold onto cash, leading to a pile-up in bank accounts.