Wealthy individuals and big companies, seeking a safe haven for their wealth, stockpiled a record Ksh 1.4 billion each day for a 6-month period ending September 2020.
Central Bank of Kenya (CBK) data shows that Kenyan banks recorded Ksh 3.94 trillion in savings during this period, which was an increase from the Ksh 3.68 trillion reported in the six months ending March 2020.
This signalled a shift from investing into 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.
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.
A scenario where savings are very low means that the economy is choosing short-term consumption over long-term investment. To starve the economy of investment can lead to future bottlenecks and shortages.
The Harrod-Domar model of economic growth suggests the level of savings is a key factor in determining economic growth rates.
However, it is also important to note that whilst in the long-term, savings are an important factor in determining investment, in the short-term, a rapid rise in savings could cause a fall in consumer spending which could lead to a recession.
The continued reluctance of Kenyans to spend is a significant factor that could lead to economic stagnation.
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.
The latest report on banks came just a day after CBK Governor Patrick Njoroge released a statement in which he endorse digital platforms as the future.
“Digital platforms have been the lifelines in accessing essential financial, health, education, medical, entertainment and other services. We must embed these gains and leverage them as we pursue global resilience and growth post Covid-19. Towards this end, we shall over the next few days, deliberate on various strategies,” the CBK Governor elaborated.
His three-pronged strategy comprised of restoring Small and Medium Enterprises (SMEs). Described as the engines of economies globally and more particularly in Africa, SMEs have borne the brunt of Covid-19 containment measures including movement restrictions and curfews.
A recent report revealed that over 19,000 small retail shops were forced to closed 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.
“Agility will be imperative particularly for incumbent institutions as they respond to changing customer preferences,” he elaborated.
Lastly, the Governor called for sustainable finance. He further announced that at the heart of post Covid-19 recovery would be a renewed focus on people, purpose and planet, “For resilience, finance must take into account environmental, social and governance considerations” he reiterated.