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Why you should not expect a hefty salary increment from your employer

First quarter of 2016 has just ended with a bang as another bank goes into receivership under the watch of Central Bank of Kenya Governor Patrick Njoroge. Chase bank was the third bank to go under receivership after Dubai and Imperial bank in a span of less than a year. This will not only affect employees and stake holders of the banking industry but also any other employee expecting a pay rise this year.

This may be old news to most of you who keep in touch with current trends. So I will go straight into explaining why the receivership of banks will have an impact in your pay rise.

Commercial banks have a simple role to play in any economy. They act as intermediaries between individuals with excess cash and individuals with minimal or no cash. The individual with minimal cash is willing to take a risk by borrowing money from the bank and invest in projects which may earn a return in the future. The return earned is used to pay back the bank initial loan and interest incurred. These activities of taking money and lending it by commercial banks lead to fluctuation in the economic prosperity of a country depending on the intensity of the activities.

Receivership of the three banks has reduced the money supply in the Kenyan economy. Money supply is the total amount of money available in circulation at a given time in an economy. To put it in simple words, a total of about Kenyan shilling 170 billion has been removed from the economy due to receivership of the banks.

Also Read: The Death and Resurrection of Chase Bank

Decreased money supply has significant impact in the growth prospects of the country’s economy. Assuming all other factors that affect an economy remain equal, decreased money supply tends to raise interest rates.

Raised interest rates will in turn cause commercial banks to increase interest rates on loans to cover for their overhead costs. The increased interest rates on loans mean that individuals and institutions will shun from borrowing money from the banks.

This whole cycle would lead to a slowdown in the economy as decreased intake of loans by individuals would lead to decreased spending which would in turn lead to reduced production in the economy. The producers would then decrease borrowing from banks due to reduced consumption hence decreasing production further.

The overall effect would be decreased income for companies due to the slowdown in the economy. And here is where you come in. Since your employer would not be making as much profit as expected, it would be wise management to give little or no salary increment to you as the employed. Now that you know what to expect, you may plan your future expenditure so that you may avoid hitting a financial snag.

Also Read: Brace Yourself for Economic Slowdown as Chase Bank Reopens

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Posted by sammiekiogora