SLOWDOWN

High living costs slowed Saccos growth in 2018 - CBK report

The industry registered a four basis points growth in assets in the year to 12.44 per cent.

In Summary

•The average inflation in 2018 was 4.70 per cent according to the Kenya National Bureau of Statistics, marking a high of 5.71 per cent in December compared to 4.50 per cent in a similar month in 2017.

•The report has stated that the Saccos also faced high risks in the year mainly in credit, operational and governance.

Bandari SACCO trustees outside bandari Sacco offices on April 7,2016- PHOTO / JOHN CHESOLI
Bandari SACCO trustees outside bandari Sacco offices on April 7,2016- PHOTO / JOHN CHESOLI

Deposit-taking Savings and Credit Co-Operatives (Saccos) experienced a slowdown in growth in 2018 due to the prevailing high cost of living.

According to Central Bank of Kenya's Financial Sector Stability Report 2018, the industry registered a four basis points growth in assets in the year to 12.44 per cent growth compared with 12.40 per cent in 2017.

This was despite the growing popularity of the financial institutions in terms of membership.

 

During the review period, CBK reports that there were five new applications from Saccos to conduct deposit-taking (DT-Sacco) business.

Savings deposits remained the single largest source of their finance for their loans which accounted for 75 per cent of total assets of DT-Saccos.

“Deposits savings growth slowed due to high cost of living affecting members, thus leading to reduced ability to save,” states the report.

Sustained regulatory interventions led to growth in core capital by 16.95 per cent, which has in turn enabled of DTSs to adopt technology in delivery of new products and services

The average inflation in 2018 was 4.70 per cent according to Kenya National Bureau of Statistics, marking a high of 5.71 per cent in December compared to 4.50 per cent in a similar month in 2017.

The report has stated that the Saccos also faced high risks in the year mainly in credit, operational and governance.

The credit risk exposure was associated in areas of financing such as housing, manufacturing and trade.

Cybercrime, in particular, has been pointed as the emerging risk, due to limited capacity to hire and retain professionals with necessary ICT skills and experience to keep abreast with modern technological trends in the financial services sector.

 

In the year, Kenya’s economy lost Sh29.5 billion to cybercrime and related activities as criminals stepped up attacks on banks, Saccos and government agencies.

The report from cybersecurity firm, Serianu showed the companies had become a threat due to the skills shortage in the sector and integration of technology in service delivery.

This led to misappropriation of members deposits by Sacco managers by accumulating risky assets and flout prudential guidelines, CBK added.

“The industry also lacks the framework to effectively deal with third-party service providers who collaborate with DT-Saccos’ to provide management information system, agency and mobile banking platforms among others.” 

However, CBK's stability indicators show that Sacco societies have adequate buffers to absorb business risks as measured by capital adequacy and liquidity to generate earnings and members’ confidence.

This has seen credit uptake in the market bend towards the institutions despite existing competition from banks and digital apps between 2006 and 2019.

The regulator's FinAccess Household Survey Report, 2019 showed that most households used bank loans to buy vehicles, land or house, while SACCO loans were mainly used to undertake long-term investment such as buy land, house or invest in education by paying school fees and farming activities.

Mobile banking loans are mainly used to meet short-term household.