Fifty-three percent of saccos exceeded the recommended maximum loan default rate of five percent in the year ended December 2024, with the value of bad debt surpassing Sh70 billion.
Sacco Societies Regulatory Authority (Sasra) data shows 167 out of the 355 deposit-taking (DT) and non-withdrawable deposit-taking (NWDT) saccos kept their non-performing loans (NPLs) ratio below five percent.
The remaining 188 saccos under Sasra's regulation posted default rates above the recommended maximum of five percent for co-operatives.
The five percent is the global benchmark adopted by the World Council of Credit Unions from the Basel framework — a set of international financial sector regulations.
The breaches in the NPL ratio occurred across the industry a year when the stock of defaulted loans rose by 10.6 percent to Sh70.87 billion, up from Sh64.06 billion in 2023.
In response to the increased number of defaults, saccos increased provisions for loan defaults to Sh58.61 billion from Sh53.79 billion.
Most sacco loans are secured by members’ deposits, and in cases of default, guarantors are required to repay the loans on behalf of the borrowers.
Sasra acting CEO David Sandagi said in an interview that there were positives in the year under review, given that DT saccos cut their NPL ratio to 8.56 percent from 8.6 percent in 2023, while that of NWDT saccos improved to 7.07 percent from 7.12 percent.
He added that Sasra continues to engage with saccos on improving their ratios and that the co-operatives bucked the trend last year by maintaining the lowest default rates in the financial sector.
During this period, the NPL ratio for commercial banks rose to 17.1 percent from 15.58 percent, while microfinance banks saw their default rate hit 33.6 percent from 27.99 percent.
“Many saccos continued to show resilience as demonstrated by the decline in the NPL ratio. The NPL above five percent for different saccos speaks to the specific challenges in different sectors they draw most of their members from,” said Mr Sandagi.
“For instance, saccos with heavy leaning in the agricultural sector are likely to see a bit of elevated NPLs because of the cyclical challenges in the sector. We have seen saccos enhance cushioning through appropriate and adequate provision for loan losses and this speaks to prudence approach.”
He added that non-remittances have also impacted some saccos’ NPL ratios. For instance, Sh3.1 billion or 74.5 percent of the Sh3.49 billion that employers deducted from employees and failed to remit to saccos, related to loan repayments. The problem affected 85 saccos.
“Higher defaults mean saccos take a hit on their net surplus given that they have to increase provisions to mitigate against the likely loan losses,” said Mr Sandagi.
The Sacco Societies (Non-Deposit Taking Business) Regulations, 2020 require saccos to assess and provide for loan loss allowance at one percent for loans classified as performing, five percent for those under watch and 25 percent for those rated as substandard. Those classified as doubtful require 50 percent provisioning, while those classified as loss are provisioned fully.
