Banks cut deposit rates to 3-year low

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Banks reduced interest to 40-month sub inflation low in December on customer’s savings, shows the impact of doing away with controls amid growing profits.

Data from Central Bank of Kenya (CBK) shows the average saving interest has dropped to 4.02 percent, which is the lowest since 2016 when it was 3.79 percent. The interest rate recovered slightly to 4.2 percent in February this year.

The interest rate on saving was 4.31 percent last year, while the inflation rate was 5.2 percent.

This shows a significant difference when compared to 2018 when the interest rate on saving was an average of 6.37 percent, which was way above the average inflation rate of 4.67 percent.

However, interest paid on large deposits from loaded clients who usually have room for negotiation reached 7 percent for the first time since last June. It was an average of 7.11 percent in December and 7.06 percent in February. The interest rate recovered slightly to 4.2 percent in February this year.

The latest cut on deposit rates paid to savers was when the bank’s pre-tax profit grew by 4.99 percent. They moved from Sh 152.3 billion to Sh 159.9 billion.

The average growth from the top tier lenders was 11.5 percent in net profit to Sh 108 billion. These top lenders saw an 18 percent rise in customer deposits, which was an average of Sh 463.2 billion to 3.029 trillion. However, the paid customer interest deposit rose by Sh 5.78 billion.

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Anthony Kiratu is the Founder of Finsolutions. He is a financial analyst with over 5 years experience in research, investment advisory, valuation and financial modelling. Anthony is a member of the Institute of Certified Investment and Financial Analysts and Institute of Certified Public Accountants of Kenya. He is passionate about development of African Capital Markets through training of investors and dissemination of information for sound financial and investment decision making process. He is also a part-time lecturer in the Certified Investment and Financial Analyst course in the subjects of International Finance, Portfolio Management, Equity Investment Analysis, and Fixed Income Securities. Email: anthony@finsolutions.co.ke Contact: +254 780216631

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