Loan default rate and members deposits threaten Sacco’s


Savings and Credit Co-operative Organizations in Kenya are facing an imminent crash due to high loan appetite, default and low deposits by members.
According to the 2016 Sacco supervision report released by the Sacco Societies Regulatory Authority, the industry's loan portfolio risk increased to 5.23 per cent up from 5.12 in 2015, with the value of non-performing loan increasing from Sh13.21 billion to Sh15.57 billion.
The loan portfolio risk of 5.23 per cent is higher than five per cent recommended maximum by the World council of Credit Unions and three per cent recommended by the local Sacco regulator.
The report further shows that the number of loan ratio to deposits remained unchanged at 108 per cent above the 70-80 per cent recommended by WOCCO, an indication that members are borrowing more than their deposits.
This has forced Sacco’s to turn to borrowing from local banks to fund members' high loan appetite, exerting more pressure on their balance sheets.
''The fact that deposit taking Sacco’s have continued to lend much more than the deposits that they mobilize continues to hamper their liquidity, as many DT-SACCOs are forced to borrow from external sources in order to meet the shortfall,'' said Sasra's board chair Sammy Ruto.
He explained that loans remain the key assets for Sacco’s, comprising 73.42 per cent of the total asset base, adding that it calls for consideration of the quality of the loan portfolio, with adequate safeguards to provide for any non performing portfolios.
He lamented that lack of a legal framework for a stability fund for crisis management, as well as the absence of a deposit insurance facility to spur confidence in the deposit investing members of the public is hurting gains made towards prudential supervision front to ensure a sustained compliance with the prescribed minimum standards
Only 69 of the 175 deposit taking Sacco in the country met and maintained the prescribed minimum Institutional Capital Adequacy ratio of eight per cent, meaning that 106 Sacco’s risk being suspended for breaching compliance law.
Even so, the sector registered growth in all sectors compared to the previous financial year.
Total savings and deposits in 2016 grew by 14.79 per cent to Sh272.56 billion up from Sh237.44 billion in 2015, with membership growing from 3.1 million to 3.6 million.
The industry report showed that the aggregate core capital held by Sacco’s rose by 31.72 per cent to Sh54.94 billions in 2016 from Sh41.71 billion in 2015, way above the prescribed limit of Sh10 million.

https://www.the-star.co.ke/news/2017/10/02/loan-default-rate-and-members-deposits-threaten-saccos_c1645034

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