Bank deposits from Households reached a record Sh2 trillion

Household bank deposits have surpassed Sh2 trillion for the first time, indicating that individuals’ cash holdings have grown over time.

According to new Central Bank of Kenya (CBK) data, household deposit holdings increased by 6.9 percent in the first quarter of 2023, reaching Sh2 trillion from Sh1.876 trillion in the year ended December.

The increase in household deposits comes amid a difficult macroeconomic environment defined, in large part, by runaway high inflation over the last month.

Inflation, for example, has remained outside the government’s target range of 2.5 to 7.5 percent since last June, and was at eight percent at the end of May, reflecting pressure on households from lower purchasing power.

The CBK has not given credit for the increase in household deposits, but an increase in foreign currency holdings of 9.2 percent was the main driver of the growth.

In the quarter, household foreign currency deposits increased to Sh350 billion from Sh320 billion in the prior three months to December 2022.

However, the local currency’s depreciation, which makes the same amount of hard currency held over time more valuable in local currency terms, partially hides the increase in foreign currency deposits.

Household demand deposits, which represent the money kept in savings and current accounts, increased by 9.1% to Sh730 billion at the end of 2020 from Sh669 billion.

All types of deposits have increased, and time and saving deposits, which include holdings in fixed deposit accounts, increased by 4.5 percent to Sh927 billion over the course of three months.

Despite suggesting a rise in consumer deposits, analysts assert that the growth in deposits is partially attributable to higher credit extended to individuals and households over the previous year as consumers turned to loans to survive the current operating environment.

Private sector borrowing typically appears as a credit on bank balance sheets even though payments are debited from borrower accounts as deposits.

“If credit was falling and deposits were rising, one would attribute the rise in deposits to increased savings,” noted a banking sector analyst.

“When deposits grow at the same time as private sector credit, this growth is likely traceable to the growth in private sector credit and implies that households have been more reliant on credit to stay afloat.”

Since the end of the interest cap regime, private sector credit growth has been on the mend and in March of last year, for the first time since June 2016, reached a double-digit growth rate.

Lenders have bailed out of increasing their holdings of government securities as a result of the private sector lending finding an anchor in the higher risk-adjusted returns. As banks accommodate customers who were previously priced out, the implementation of risk-based pricing is predicted to energize lending.