Lenders give their depositors raw deal on savings

Top banks in the country held on to huge cheap deposits even as customers across sectors suffered from an unprecedented credit crunch last year.

The filings of eight tier I banks that have so far reported their 12-month earnings for last year show that while customers enriched the lenders’ coffers with Sh235.3 billion worth of deposits, their loan books registered a marginal expansion.

Loan book

The eight banks - Kenya Commercial Bank (KCB), Equity Bank, Co-operative Bank, Standard Chartered Bank of Kenya, Barclays Bank of Kenya (BBK), Diamond Trust Bank (DTB), Stanbic Bank and NIC Bank - had an average loan book growth of 6.29 per cent.

This is despite the additional money from customers pushing their deposits to Sh2.1 trillion, which is just Sh500 billion shy of what the country would have spent by the end of the current financial year.

Most of the deposits were put in current accounts.

On average, while customer deposits grew by 12.5 per cent, interest paid by banks on these deposits grew by only 1.02 per cent. This means that customers failed to benefit from a provision in the Banking Amendment Act, 2016 that deposits held in interest-earning accounts should earn at least 70 per cent of the Central Bank Rate.

Banks increased their portfolio of government securities even as the private sector credit growth remained constrained for most of the key sectors. Lenders view such securities as safe bets and also liquid instruments in the computation of the liquidity ratio.

“Therefore, banks can easily access additional liquidity in the event of potential risks using these securities as collateral if unencumbered, unlike other assets,” said Central Bank of Kenya in its recent survey on the impact of the rate cap.

Of the eight lenders, only Stanbic Bank grew its loan book by double-digit percentage points (12.9 per cent). The bank received additional Sh31 billion from customers during the period. The growth in the loan book saw its interest payment on deposits grow by just 1.2 per cent.

New deposits

During the period under review, KCB received an additional Sh51.4 billion deposits, translating into an 11.5 per cent growth. This was despite its loan book growing by 9.6 per cent or Sh36.9 billion.

However, interest paid on customer deposits dropped by six per cent to Sh13.6 billion. According to KCB, 65 per cent of its deposits were demand deposits while only five per cent were savings deposits.

Investment in government securities earned it 13 per cent growth in interest from the segment to Sh12.4 billion.

Equity Group, whose profits grew by 14 per cent despite the rate cap, received an additional Sh36 billion in deposits. The bank grew its government securities portfolio by 27.2 per cent to Sh128 billion.

In the process, it grew interest income from this segment by 70 per cent to Sh14 billion. This was the fastest growth among its peers.

However, its loans and advances to customers grew by 4.9 per cent to Sh279 billion even as interest expense on customer deposits climbed by just 2.44 per cent.

Co-operative Bank received additional deposits of Sh27.2 billion while DTB and Standard Chartered Bank received Sh28 billion and Sh26.7 billion respectively. NIC Bank grew its deposits by 24 per cent to Sh138.9 billion.

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