Record-High Fuel Prices as Banks Reap Big Lending to Govt - Money Weekly

It’s Thursday again, and as always, I’m here to bring you a roundup of the financial news that has been making the waves over the past one week. 

From changes in the price of fuel and increased net inflows at the NSE, to introduction of a new payments solution aimed at ecommerce merchants, let’s take a look at some of the top financial news from the last 7 days and how they affect you.

Fuel Prices Through The Roof In September Review

In yesterday’s review, the Energy and Petroleum Regulatory Authority (EPRA) removed the subsidies on petrol, diesel, and kerosene, a move that has pushed the prices of these products to the highest point the country has ever seen.

The subsidies of Ksh11.36 on kerosene, Ksh9.90 on diesel, and Ksh7.10 on petrol were introduced in April this year in a bid to keep fuel prices low and manage the high cost of living.

Following the subsidy removal, Kenyans in Nairobi will pay Ksh134.72 for a litre of petrol, Ksh115.6 for a litre of diesel, and Ksh110.82 for a litre of Kerosene. In areas like Mandera, Kenyans will pay as high as Ksh147.75, Ksh128.64, and Ksh123.86 for a litre of petrol, diesel, and kerosene respectively.

The subsidy, which was supported by money raised through the Petroleum Development Levy, has kept fuel prices unchanged since April, despite volatility in global crude prices during this period. 

Starting from July last year, Kenyans pay Ksh5.40 per litre in Petroleum Development Levy, up from just Ksh0.40 per litre before the levy was increased last year.

Aside from the Petroleum Development Levy, Kenyans pay six other levies on fuel, which is why fuel prices in Kenya are typically higher compared to prices in neighboring countries. Currently, taxes and levies account for close to 50% of the cost of fuel in Kenya.

So, what do the increased fuel prices mean for you?

In developing countries like Kenya, increase in fuel prices usually have an inflationary impact on the economy. The hiked fuel prices will lead to an increase in the cost of living in an economy that is already staggering under the weight of the pandemic-induced recession.

Since Kenya’s manufacturing and agricultural industries rely heavily on fuel, particularly diesel, for production, the increase in fuel prices will lead to higher production costs, which will undoubtedly be passed to the consumer. Kenyans should therefore expect a hike in the cost of consumer goods, such as cooking oil and food products, over the next few weeks.

The increased fuel prices will also lead to higher transportation costs as transporters seek to recoup the extra money paid at the fuel pump.

The pinch will also be felt by the majority of Kenyans who rely on LPG and kerosene for cooking. You can also expect the cost of electricity to go up following the rise in the cost of petroleum.

Parliament has already summoned Energy CS Charles Keter and Petroleum CS John Munyes to appear before the House to explain why the State has removed the fuel subsidy at a time when Kenyans are still struggling under a high cost of living.

Top Banks Increase Loans to Government By Ksh132 Billion

In the 12 months to June 2021, tier one banks increased the value of their loans to the state by Ksh132.8 billion. In the said period, holdings of government securities experienced faster growth compared to private sector loans. 

This is an indicator of top lenders’ preference of government securities, which carry less risk than customer loans, while paying as much interest.

The 9 tier-one banks in the country had, as at the end of June, invested a combined Ksh1.245 trillion in government securities, compared to Ksh1.12 trillion in the 12 months to June 2020, which is a 12% increase. 

These lenders earned a combined Ksh65.4 billion in interest from these securities, a 20.4% increase from the interest earned in a similar period last year.

Lenders have been gravitating towards government securities due to ease of deployment, risk-free status, and almost similar interest rates. Currently, banks lend to the private sector at an average lending rate of 12.02%, compared to 11-12% on government bonds with 5 to 10-year maturity periods.

NSE Records Ksh242 Million in Foreign Investor Net Inflows

Foreign investors recorded net inflows of Ksh242.3 million at the Nairobi Securities Exchange (NSE) last week, a reversal of the Ksh208.5 million net outflows recorded the previous week.

The reversal was driven by increased purchase of shares from Safaricom and large banks like Equity and KCB. This, coupled with increased participation by local investors, led to a 1.9% gain in the benchmark NSE 20 share index.

The increased buying activity at the bourse can be attributed to the increased net profits announced by major companies in the first half of the year, as well as payment of interim dividends.

Co-op Bank Launches E-Commerce Payments Solution

Ecommerce has been growing steadily in Kenya, driven by the high internet penetration in the country, as well as the convenience offered by online shopping. However, there has been one thing keeping the industry from growing even further – payment.

Most ecommerce businesses in the country rely on mobile money transfers and cash to handle payments. 

Co-op Bank has introduced an ecommerce solution that will make it easier for merchants to accept online card payments. The solution works both for merchants with a website or mobile app, as well as those selling through digital channels like Facebook, Instagram, or WhatsApp.

Finserve Africa Named Kenya’s Best E-commerce Company

Finserve Africa, a fintech subsidiary of Equity Group, won the best E-Commerce Banking/Financial and Insurance Services Gold Category in the 2021 Kenya E-Commerce Awards. The award was issued as a recognition of the fintech’s commitment to customer-centricity and innovation.

In his award acceptance speech, Lanre Bamisebi, the Managing Director for Finserve Africa praised the company’s range of products, which can be used by any business in any industry, as well as the fintech’s application of data, insights, machine learning, and artificial intelligence to provide better solutions for its customers.

Meanwhile, Mwananchi Credit was feted at the Real Estate Excellence Awards for being the best land title-based lender. 

Speaking at the awards, Mwananchi Credit’s Head of Operations, Edwin Kagiri, highlighted the institution’s title loans product, which has made it possible for property owners to take loans without fully charging their properties.

CBK Governor Worried By Kenya’s Ballooning Debt

In a presentation to the Senate Budget and Finance Committee on Wednesday, Central Bank of Kenya (CBK) Governor Dr Patrick Njoroge decried the massively growing debt in the country, stating that it would negatively affect financial stability, even as the country tries to recover from the effects of the Covid-19 pandemic.

Dr Njoroge emphasized on the need to create policy responses to help the country better manage its debt. He noted that out of every Ksh100 collected by the government, Ksh40 goes to debt servicing, leaving the government with only Ksh60 to run its regular operations.

The CBK governor further pointed out to the Senate team the need for a reconfiguration of the country’s external debt, which has blown up massively over the last couple of years due to government borrowing to finance massive infrastructure projects.