A failure by cash-strapped universities and counties to remit savers' contributions to their Savings and Credit Cooperative Societies (SACCOs) saw the industry's non-performing loans (NPL) deteriorate to 8.45 percent in 2023 compared to 8.34 percent in 2022.

A 2023 report by the industry regulator notes that the uptick in NPL ratio was attributable to the worsening of loan books of Deposit Taking (DT) Saccos during the year which hit 8.66 percent even as regulated Non-Withdrawable Deposit-Taking (NWDT)-Saccos improved marginally to 7.12 percent from 7.99 percent in 2022.

In 2023, DT-SACCOs disbursed a total of KES652.27 billion to their members even as NWDT-SACCOs gave KES106.03 billion in gross loans to borrowers.

"The government-based DT-SACCOs had the highest deterioration in their loan portfolio with an NPL ratio of 11.27 percent in 2023 compared to an NPL ratio of 9.14 percent reported in 2022," stated the 2023 Sacco Supervision Annual Report in part.

"It is observable from the overall analysis of the loan quality that a large proportion thereof was defaulted as a result of non-remitted funds owed by various employer institutions to regulated SACCOs which amounted to KES2.57 billion in 2023."

For instance, universities' based DT-SACCOs and the county–government based DT-SACCOs, experienced a jump in their NPL ratios on account of defaulted loans occasioned by non-remitted loan repayment deductions.

The report shows that six universities' based DT-SACCOs saw their NPL ratio increase to 10.53 percent last year, compared to 7.97 percent reported in 2022. At the same time, the NPL ratio of seven-county government-based DT-SACCOs grew to 9.97 percent during the year under focus from 8.35 percent prior.

At the same time, Kenya's 40-teachers-based DT-SACCOs were also not spared. SASRA data shows that their asset quality worsened last year, with the NPL ratio hitting 13.20 percent compared to 10.68 percent a year earlier.

However, SASRA noted that the sector experienced better loan quality under the NWDT-SACCOs segment compared to their DT-SACCOs counterparts due to the former’s business model.

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NWDT-Saccos are largely associated with restricted common bonds and employer-based loan recovery models, making it efficient in making collections. Currently, Sasra said NWDT-SACCOs have opened their common bonds, further easing their reliance on employers-based loan recovery models.

The analysis shows that there was a general deterioration in the quality of loan books in the sector except among the 20 private sector–based DTSACCOs whose credit quality improved with an NPL ratio of 6.18 percent compared to 6.36 percent in 2022.

Additionally, community-based DT-SACCOs, which largely operate on free common bonds, suffered with the ratio of bad loans hitting 15.71 percent last year. This was a deterioration from 14.18 percent reported in 2022.

Meanwhile, agriculture-based DT-SACCOs, which account for highest concentration of membership in the industry at 42 percent, had an almost flat NPL ratio of 18.89 percent.

The report adds that regulated SACCOs paid their interest rates on the members’ deposits at an average of 7.45 percent last year, an increase from an average rate of 6.92 percent paid in 2022. While the average rate of dividend paid during the year was 10.92 percent, representing an increase from an average 10.47 percent paid in 2022, overall, SACCOs paid higher rates than commercial banks on customers’ savings at an average of 3.84 percent in 2023.

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