South African rating agency Global Credit Ratings (GCR) has upgraded the rating of Kenya Police Sacco, citing good asset quality, healthy funding and liquidity.
The agency said in a notice that it has raised the sacco’s Kenyan long and short-term issuer ratings to “BBB+/A2” from “BBB/A3”previously and assigned it a positive outlook.
GCR said that the sacco should continue to register a strong capital position into the long term, sustained by a conservative dividend policy and strong earnings.
“The ratings on the sacco reflect its favourable asset quality relative to financial sector peers, good capital and leverage and sound funding and liquidity, counterbalanced by its limited competitive position in the context of the broader banking/financial institutions sector,” said GCR.
“The society’s dividend policy dictates that the dividends declared and approved by the board are the net surplus after retention of Sh1 billion or 20 percent of the net earnings and fulfilment of the capital adequacy requirements.”
GCR added that it also upgraded the rating due to the sacco’s low-risk rating, due to a stable membership base and low non-performing loan (NPL) ratio of 0.8 percent compared to the industry average of 6.15 percent.
“99 percent of the sacco members are mostly police officers and salaried civil servants and we view the member base as possessing asset quality supportive characteristics such as, stable government-based salaries and deduction at source,” said GCR.
“While an increase in NPLs were noted in the 2020 financial year (due to the pandemic and other operational environmental factors), we expect NPLs to trend below 1.5 percent over the next 12-18 months.”
The sacco, which was registered in 1972, has a membership base of 63,000, with an asset base of Sh39.1 billion and a loan portfolio of Sh32.6 billion.
In 2020, the Sacco recorded a 22.5 percent fall in net profit to Sh1,93 billion, largely on the back of higher interest expenses amid flat interest income as the industry offered softer repayment terms to members affected by the economic difficulties occasioned by the Covid-19 pandemic.