Banks slashed interest on customer savings to a 40-month sub-inflation low in December, reflecting the impact of removal of controls amid growing profits.
Central Bank of Kenya (CBK) data shows the average savings interest fell to 4.02 percent, the lowest since September 2016 when it was at 3.79 percent.
The rate recovered slightly to 4.2 percent in February, coinciding with the month in which banks also slashed interest rate charged on loans to a 15-year low of 12.19 percent.
Interest rate on savings averaged 4.31 percent last year while average inflation rate was 5.2 percent, meaning the purchasing power of money held in savings accounts dropped.
This is a sharp contrast to 2018 when interest on saving accounts averaged 6.37 percent, way above the average inflation of 4.69 percent.
However, interest paid on large deposits from cash-rich clients, who usually have room to negotiate touched seven percent for the first time since last June. It closed last December at 7.11 percent and averaged 7.06 percent in February.
In August 2018, the National Assembly voted to tweak the Banking (Amendment) Act 2016 and removed a clause compelling banks to pay depositors at least 70 percent of the Central Bank rate (CBR).
This was followed by a total overhaul to the 2016 laws, handing power back to banks to price loans as opposed to limiting margins to a maximum of four percent above CBR.
The latest cut on interest paid to savers came in the period banks’ pre-tax profit grew by 4.99 percent to Sh159.9 billion from Sh152.3 billion, marking the final year under the rate-cap regime.
The top eight lenders saw Sh463.2 billion or 18 percent growth in customer deposits to Sh3.029 trillion. However, interest paid on customer deposits rose by Sh5.78 billion or 5.9 percent to Sh103.2 billion.