Sasra says that only 69 of the 175 deposit-taking saccos met and maintained the prescribed minimum institutional capital adequacy (ICA) ratio of eight per cent, meaning more than half the lenders are in breach of the law.
Continued non-compliance could see the regulator suspend and eventually withdraw licences of the defaulters.
The data is specific to deposit-taking saccos that are regulated by Sasra.
More than 100 deposit-taking savings and credit co-operatives (saccos) did not meet the mandatory capital ratio requirement in 2016, raising questions over their fitness in the key credit market.
Market regulator, the Sacco Societies Regulatory Authority (Sasra) says in its report for the period ending December 31, 2016 that only 69 of the 175 deposit-taking saccos met and maintained the prescribed minimum institutional capital adequacy (ICA) ratio of eight per cent, meaning more than half the lenders are in breach of the law.
Continued non-compliance could see the regulator suspend and eventually withdraw licences of the defaulters.
Institutional capital refers to the portion of the core capital that belongs to the sacco as an institution and no member can individually lay claim to. Institutional capital is principally built from retained earnings and forms a key component of the core capital.
“The poor level of compliance with the ICA ratio thus demonstrates that many deposit-taking saccos are not retaining sufficient earnings to build capital, proportionately to the growth of their asset base,” the report says.
It also shows that many deposit-taking saccos tend to pay out (as dividends on shares or interests on deposits), most of the surpluses rather than retain the same to build capital.
The report raises mounting concern that most saccos may be using whatever cash is available to pay out dividends -- even in the face of apparent insolvency -- to lure new customers rather than invest in the business.
Saccos use members’ savings to disburse loans and some sacco managers have insisted that if members are not rewarded appropriately through dividend payouts, they will not save and ultimately starve the sacco of funds it needs to lend.
Sasra says about 80 saccos are at between 2 per cent and the required 8 per cent level.
The data is specific to deposit-taking saccos that are regulated by Sasra.
Kenya has thousands of Saccos that only take in member savings and are not therefore subject to the minimum capital rule.
Sasra yesterday said in a statement that it had asked all the saccos in violation of the capital requirement to prepare a plan of how they intend to achieve the ratio within specific timelines.
It, however, warned that the race to comply may have an effect on sacco members’ returns. “Unfortunately, some saccos may resort to reducing dividend payouts or do away with it altogether inorder to build institutional capital,” Sasra said.
The report further shows that 11 deposit taking saccos were not compliant with the minimum Sh10 million core capital during the period under review.
Core capital in the deposit taking sacco legal framework is composed of the member’s shares, reserves, retained earnings and donations.
A total of 168 were compliant with this requirement during the period compared with the 175 a year earlier.
“This means that there was a drop in the level of compliance by five deposit taking saccos in terms of the prescribed absolute core capital requirements,” says the report.
Loans remain the key assets for deposit taking saccos comprising 73.42 per cent of the total asset base, according to the report which also indicates there was an increase in non-performing loans to Sh15.57 billion last year from Sh13.21 billion in 2015.
“The total loan portfolio at risk, measured as a ratio of the non-performing loans to gross loans increased as such to 5.23 per cent from 5.12 per cent registered in 2015,” the report says.
The total deposit-taking sacco membership stood at 3.6 million in 2016 up from 3.1 million a year earlier while the gross loans during the year 2016 rose to Sh297.6 billion from Sh258.18 billion recorded in 2015.
The total savings and deposits on the other hand increased to Sh272.56 billion in 2016 from Sh237.44 billion registered in the previous year.
