Financial sector defies economic stagnation to expand by 0.7pc

By James Anyanzwa

Nairobi, Kenya: The country’s financial sector recorded an improved performance last year fueled by increased optimism over the likelihood of an economic take off after a peaceful General Election.

The sector attained an overall growth of 7.2 per cent in 2013 compared to 6.5 per cent in 2012 despite general economic stagnation.

According to the 2014 Economic Survey, the financial sector experienced an upsurge in demand for credit in the wake of increased confidence in the economy after peaceful elections, which ushered in the devolved system of government.

The economy, however, performed dismally growing by only 4.7 per cent compared to the previous year’s 4.6 per cent weighed down by uncertainty over the general election, rising incidents of insecurity and insufficient rains during the fourth quarter of 2013.

“At the start of the year credit demand was generally low due to uncertainty associated with the general election. However, with the peaceful conclusion of March 2013 General Election the demand for credit greatly improved,” says the report.

The report which was officially launched by the Cabinet Secretary in-charge of Devolution and Planning ministry Anne Waiguru Tuesday shows that interest rates recorded a mixed movement during the period under review.

Gradual rise

The 91-day Treasury bill rate dropped to 6.21 per cent in June 2013 from 8.3 per cent in December 2012 before gradually rising over the second half to stand at 9.52 per cent in December 2013.

Over the same period, the interbank interest rate rose to 7.17 per cent in June 2013 and 8.98 per cent in December 2013 from 5.84 per cent in December 2012.

During the first six months (January to June) of the year 2013, Central Bank reviewed its benchmark lending rate (Central Bank Rate) downwards to 8.5 per cent from 11 per cent in December 2012 in order to consolidate the policy gains achieved by the low and stable inflation rate.

According to the report the total commercial banks loans and advances to various economic sectors expanded by 17.1 per cent to Sh2 trillion in December 2013 from Sh1.74 trillion in December 2012.

“This was attributed to the drop in cost of borrowing and increased available investment opportunities owing to the fairly stable macroeconomic environment,” according to the economic survey.

Financial inclusion

Available studies indicate that Kenya’s financial inclusion landscape has experienced a considerable and positive transformation, particularly during the 2006 to 2013 period.

On the African continent, Kenya has risen to claim the second highest level of financial inclusion after South Africa, according to FinAccess 2013 survey .The percentage of the population who use more than one financial service has also increased significantly from 19 per cent in 2006 to 46 per cent in 2013.

This indicates nearly half of them use various combinations of services to meet different financial needs.