Borrowings in deposit-taking (DT) saccos outpaced deposits by a record Sh92.2 billion in the year ended December 2024, reflecting the growing appetite for credit among members.
Latest Sacco Societies Regulatory Authority (Sasra) data shows gross loans rose 11 percent to Sh842.8 billion in the period when deposits grew by 10.7 percent to Sh750.6 billion.
The faster growth of Saccos’ loan books compared with the pace of deposit mobilisation was amid the rising cost of credit issued by commercial banks —a scenario that pushed more borrowers to seek affordable loans from co-operatives.
This marks the eighth straight year of the widening gap between loans issued by deposit-taking saccos and the deposits they hold, according to Sasra data. The gap was at Sh49.7 billion in December 2021 and has continued to expand, nearly doubling over the past three years.
The latest financing shortfall of Sh92.2 billion is the highest on record and more than four times the gap of Sh19 billion recorded in 2016. The widening gap highlights the rising demand for loans among members, even as deposits grow at a slower pace.
The 11 percent growth in DT saccos’ loan book was in contrast to a 2.7 percent or Sh113.2 billion decline in banks’ loan book to Sh4.07 trillion last year.
Saccos’ attractiveness increased last year on the back of the rising cost of bank loans. The Central Bank of Kenya raised the Central Bank Rate (CBR) to a 22-year high of 13 percent in February last year and kept it at this level up to August of the same year.
The rise in CBR sent the average cost of credit to an eight-year high of 17.2 percent by November last year, with some banks charging as high as 25 percent. The 25 percent rate was nearly twice the pricing of Sacco loans. For instance, Stima Sacco and Police Sacco loan products were priced between 12 percent and 14 percent.
The increasing demand for Sacco loans reflects the rising stature of Saccos in providing affordable credit to households and small businesses.
However, the widening loan-deposit gap poses a challenge on how the Saccos will continue funding the fast-growing loan books without running into liquidity pressures.
Saccos have struggled to mobilise deposits at a faster rate in a soft economy where salary increments have remained below inflation over the past five years to 2024.
There have also been new or enhanced deductions towards affordable housing, social healthcare and retirement, reducing the income available for saving.
Apart from the rising loan-deposit gap, saccos have concerns around non-performing loans (NPLs). The stock of NPLs surged 19.7 percent to Sh53.1 billion last year from Sh44.4 billion in 2023.
The Sh8.7 billion rise in defaulted loans took the NPLs ratio to 6.3 percent from 5.85percent even as saccos raised the provision for NPLs by 26.6 percent to Sh55.5 billion.
Some saccos have been turning to retained earnings and external borrowings for lending. However, overall, Sasra data shows external borrowing by Saccos dipped 5.9 percent to Sh25.2 billion in the review period, suggesting limited reliance on debt.
