News and Analysis
November 21, 2024
The global economy is facing uncertainty following the intensification of the conflict between Russia and Ukraine this week.
In today’s edition of Money Weekly, we’re taking a look at how the conflict between the two Slavic could affect your personal finances, as well as other top news from the last 7 days that affect the money in your pocket.
The conflict between Russia and Ukraine might be happening thousands of miles from Kenya, but its effect will certainly be felt in the country, particularly when it comes to the cost of living.
With Russia being the world’s third-largest supplier of oil and gas, the ongoing conflict could result in decreased supply for the precious commodity from Russia, leading to higher global prices.
Global oil prices are already at a 7-year high, with a barrel of crude trading at $94.20 (Ksh10,765.18). Continued conflict between the two Slavic neighbours could see the price of crude rise to as much as $150 (Kshs17,142) per barrel.
Such a high increase would have a significant effect on the prices Kenyans pay at the pump, which would, in turn, lead to high inflation due to the high costs of transport, electricity, and manufactured goods. The increase in global oil prices could also potentially overwhelm the government’s fuel subsidy, leading to even higher prices at the pump.
Aside from higher energy costs, the Russia-Ukraine conflict could also lead to an increase in the prices of bread, cake, chapati, and other baked goods, since Kenya imports over 75% of its annual demand of 1.2 million metric tonnes of wheat from the two countries. With bread being a staple at the breakfast table, any changes in price will be keenly felt.
Farmers are also going to feel the heat, with Russia being a major export destination for Kenyan tea. Between January and November 2021, Kenya imported tea worth Ksh6.2 billion to Russia, making Russia the fourth largest market for Kenyan tea.
If Russia continues its incursion into Ukraine, it will be hit with sanctions by western powers, including being denied the chance to use the dollar in global trade. This would affect Russia’s ability to trade with other countries, including Kenya, leading to the loss of a major market for Kenyan tea.
The Central Bank of Kenya (CBK) wants mobile and digital payments platforms to cut their money transfer costs in a bid to strengthen the national payments landscape.
According to CBK, the charges levied on customers by mobile and internet-based payments platforms are way higher compared to what banks charge for cash transfers and payments, thus giving them (mobile and digital payments platforms) the headroom to lower their charges.
The banking regulator made this announcement through the National Payments Strategy 2022 – 2025 paper. The aim of the price regulation is to enhance competition and choice at the retail level, while at the same time ensuring seamless payments across different payment channels. This, CBK hopes, will lead to increased uptake of mobile digital payment services.
Customers have in recent times been complaining about the high costs of sending money through mobile and digital platforms like Safaricom’s M-Pesa. Currently, sending between Ksh501 – Ksh10,000 via M-Pesa will cost you anywhere between Ksh12 to Ksh97, depending on the transfer amount.
In contrast, sending a similar amount on Pesalink, a person-to-person payment service for banks, would cost you a flat rate of Ksh40.
Sending Ksh999,999 via Mpesa would cost you over Ksh600, and would take about 4 days due to M-Pesa’s daily transaction limit of Ksh300,000. Meanwhile, sending the same amount via Pesalink would only cost you Ksh250, and would be done as a single transaction.
Fortunately, there is some hope for mobile and digital payment platform users, since the implementation of the new CBK regulations will significantly reduce transaction costs.
Households and the trade sector are the key drivers of demand for new loans as the country forges ahead with its Covid-19 recovery. This is according to the Credit Officer Survey done by the Central Bank of Kenya between October and December 2021.
According to the survey, which polled senior credit officers from a mortgage lender and 38 commercial banks, the personal sector topped demand for credit at 67%, while the household sector came in second at 60%.
The survey attributes the increasing demand for credit to the retention of the Central Bank Rate (CBR), the flat cost of borrowing, as well as increasing investment opportunities. This increase in demand saw the private credit sector grow from 7.8% in October to 8.6% in December 2021.
Capital adequacy levels and strong liquidity in banking institutions have also contributed to the growth in lending. Meanwhile, with the economy recovering, the ratio of non-performing loans (NLPs) is expected to continue falling.
Over the survey period, gross loans grew from Ksh3.193 trillion to Ksh3.249 trillion, a 1.7% increase, while the ratio of NLPs fell from 13.6% to 13.1%.
A new customer satisfaction survey by the Kenya Bankers Association (KBA) shows that Kenyans have reduced their holdings of multiple bank accounts, owing to woes brought about by the effect of the Covid 19 pandemic on the economy.
According to the survey, the number of Kenyans holding two or three bank accounts fell from eight out of every 10 in 2020, to six out of every 10 in 2021.
According to KBA, this is an indicator of the reduced economic activity and decreased incomes due to the effects of the pandemic, pushing bank customers to consolidate their funds to avoid the maintenance costs of multiple bank accounts.
Meanwhile, the percentage of Kenyans holding single bank accounts grew from 23% in 2020 to 25.2% in 2021, while the percentage of Kenyans holding four or five bank accounts decreased from 12% in 2020 to 11.4%.
In the survey period, Kenyans held Ksh4.123 trillion in 69.88 million bank accounts.
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