Savings and Credit Co-operative Societies (Saccos) increased their provisions for non-performing loans by 42.5 percent to Sh15.26 billion in the year ended December 2018 driven by adoption of new accounting standard.
This beat the previous year where provisions grew by 23.44 percent and pushed non-performing loans (NPL’s) provision as a share of Saccos’ total expenses to 5.59 percent from the previous year’s 3.62 percent.
The huge increase in the loan loss allowance from 2017’s Sh10.71 billion came in the period saccos switched to International Financial Reporting Standard (IFRS) 9 from International Accounting Standard 39.
“The sharp increase in the provisioning for loan losses was occasioned by the implementation of IFRS 9 by saccos, which led a relatively higher provision than previously undertaken,” Sacco Societies Regulatory Authority (Sasra) says in an industry report.
IFRS 9 is forward-looking as opposed to the historic-looking IAS 39 and therefore calls for increased allowance for loans that remain unpaid for 90 days.