Kenyans Are Ditching the Big Banks - Money Weekly 

Kenya’s industries almost ground to a halt on August 9, 2022, as Kenyans took to the polls. The day had been declared a public holiday but business was already slowing down a few days prior.

However, there were still headline makers in the world of money over the period. For example, new fuel prices were announced by the Energy and Petroleum Regulatory Authority (EPRA), Unga prices went back up and so did loan rates.

Here’s a look at the news that made the headlines over the last few days and what means for your pocket.

Loan Rates Increase to Over 16% 

Data published by the Central Bank of Kenya (CBK) shows that more than half of the commercial banks in Kenya raised their lending rates to both businesses and individuals in the 2nd quarter of 2022.

A 4.8% spike compared to the rate in March 2022, meant that some of these banks charged as much as 16.8% for business loans.

According to experts, this is a result of the accelerated approvals of risk-based lending plans by the CBK.

The line of thought is that by being allowed to charge a premium rate when it comes to lending to riskier customers, commercial banks will now be more open to offering loans to SMEs and individuals.

Kenyans Ditch Big Banks

A survey by the Kenya Bankers Association (KBA) and data from the Central Bank of Kenya (CBK) show that Kenyans are shifting from major banks to lower-tier ones.

This points to improved client confidence in the smaller banks as well as improved services among the lower-tier banks.

Just 6 years prior, these lower-tier banks were caught in a storm following a major drop in confidence among clients when 3 of them (Imperial, Dubai, and Chase Bank) went under.

According to the KBA report, the digitization of the banking sector has helped the smaller banks gain access to a larger pool of the market.

They can now collect deposits and disburse loans in a much easier way, which could explain why they are currently experiencing a growth in their customer base compared to their bigger competitors.

Traders & Manufacturers Take Lion’s Share in Loans

According to the Financial Stability report published over the week by the CBK, manufacturers, and traders took the biggest piece of the pie when it came to loans in the private sector.

Trade took 17.1% of all loans, with manufacturing accounting for 15.2% in the year ended June 2022.

Households came in third with 15.9% of the loans followed by real estate with 12.7% of the pie. Although the report did not include a figure for loans outstanding for the year ended June 2022, Ksh3.21 trillion was captured in May of the same year.

This means manufacturing and trade alone received Ksh1.037 trillion in loans over the period. 

Since last year, the majority of industries have experienced significant growth, signaling a turnaround from the slowdown and contraction seen in 2020.

Saccos Top on Savings Returns 

The recently published Sacco Societies Regulatory Authority (SASRA’s) annual report shows that Saccos have an edge over commercial banks in terms of interest rates on savings.

In fact, the interest rate on saving under these institutions has been deemed as the most competitive in the financial sector, offering from 6.83% to 10.55% in the year ended December 2021.

These rates were significantly higher than the 4.02% interest rate that banks charged during the same time period.

This was also a significant spike as just a year prior, the interest on savings by Saccos ranged from 5.63% to 8.26%.

What this also means is that Sacco members enjoyed more returns from their deposits and shares compared to their counterparts who preferred commercial banks.

World Bank NHIF Recommendation

The World Bank has raised some recommendations for Kenya’s health finance model, key among them being the elimination of user fees in hospitals.

In a document published by The Standard on August 14, 2022, the global financial institution pointed out that the government, in its Universal Health Coverage program, seemed to be more focused on specialized care as opposed to primary healthcare.

“To further reduce out-of-pocket expenditures in Kenya, it is critical to address the role of the private sector, such as through the inclusion of more health facilities under the National Hospital Insurance Fund arrangement and coverage of pharmaceuticals,” the World Bank advised in its report.

On a positive note, the World Bank noted that improved health services in the country have led to an increase in life expectancy in Kenya.

Unga Price Back Up 

Ugali is back on the rich-list menu as the price of maize flour shot back up to Ksh200 over the week.

The national government’s Ksh100 subsidy was suspended on August 13, citing that the treasury could no longer shoulder the expensive burden, with the subsidy ending on August 18, 2022.

“This is to remind you that your contract for the sifted Maize Flour Subsidy Program 2022 lapses on Thursday, August 18, 2022,” Crop Development and Agricultural Research Principal Secretary (PS) Francis Owino communicated.

Millers have warned that the prices will remain high or go higher as the country is facing an acute shortage of the commodity.

A month ago, outgoing President Uhuru Kenyatta directed that the Railway Development Levy and the Importation Declaration fee be suspended, effectively lowering the cost of a 2-kilogram packet of Unga.

Fuel Prices Remain Unchanged

On August 14, Kenyans breathed a sigh of relief after EPRA announced that the cost of fuel would remain unchanged for the third consecutive month.

In Nairobi, a litre of super petrol will continue to retail at Ksh159.12, diesel at Ksh140.00, and kerosene at Ksh127.94.

EPRA went on to announce that it would utilise the Petroleum Development Levy (PDL) to cushion consumers from the otherwise high prices.

The commodities would have cost Ksh214.03, Ksh206.17, and Ksh202.11 per litre, for petrol, diesel, and kerosene respectively without the subsidy.

Hacking Attacks on Kenya's Financial Sector 

According to the Kenya Financial Sector Stability Report,  hacking attacks on Kenya’s financial systems, including mobile banking, rose from 158.4 million in 2021 to 444 million in the year ending June 2022.

Due to Kenya's highly digitized economy, the nation has become a target for cybercrime and online fraud, with banks suffering yearly losses of hundreds of millions.

According to the report, increased Internet usage, the adoption of e-commerce services, cloud-based services to support remote working, as well as an increase in social media use are all to blame for the rise in cyber threats aimed at local targets.

In 2022, 52% of companies in Africa (including financial institutions) believed that they were unprepared to handle a large-scale cyber attack.

Booming Miraa Business in Somalia

Farmers in Meru are making a ‘killing’ as the resumption of the sale of khat (miraa) to Somalia has seen them rake in billions in just a few weeks.

Head of Miraa Pyrethrum and other Industrial Crops, Felix Mutwiri, revealed that Kenya had so far exported 375 tonnes of the product over the last three weeks.

A kilogram of miraa in Somali is now going for $23 (Ksh2,730).

He went on to explain that the earnings could be even higher were it not for the 19 tonnes a day export limit currently in place.

Kenya started issuing export licenses to miraa traders in July 2022 after bilateral talks between Kenya and Somali resolved a long-standing trade tiff.

President-Elect focused on Fiscal Discipline

Kenya President-Elect William Ruto, on August 17, announced that restoring fiscal order was top on his list of priorities once he assumes office.

The country’s public finances have been in disarray over the last few years. For example, in 2020/2021 alone, the fiscal deficit hit nearly Ksh1 trillion. 

As it stands, servicing of public debt continues to divert away critical resources. 

On the other hand, data from the exchequer covering the fiscal year ended June 2022, shows that the state’s pending bills the President-Elect is inheriting currently stand at Ksh504.7 billion.

Of the Ksh504.7 billion, Ksh488. Billion accrue to State Corporations, with most of it (65.5%) tagged as pending bills belonging to contractors/projects and suppliers.

In the current financial year ending June 2023, Kenya’s fiscal deficit is budgeted at about Ksh846 billion.