Sacco Societies Regulatory Authority Prudential Regulations and Financial Perfromance of Deposit Taking Saving and Credit Co-Operative Societies in Kenya
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Date
2024-09
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Kenyatta University
Abstract
Financial performance of Deposit Taking Savings and Credit Co-operative Societies in Kenya has been a source of concern, as evidenced by declining indicators over time. According to Saccos Societies Regulatory Authority, there has been a significant decline in profitability, as evidenced by a decrease in the Return on Assets from 2.65% in 2020 to 1.59% in 2021. The general objective of this study was to investigate the effects of Saccos Societies Regulatory Authority prudential regulations on financial performance of Deposit Taking Savings and Credit Co-operative Societies in Kenya. The specific objectives of the study were to examine the effects of liquidity, capital adequacy, and asset quality regulations on the financial performance of Deposit Taking Savings and Credit Co-operatives in Kenya. The principles of public interest theory, buffer theory of capital adequacy, and agency theory served as the foundation for this study. The research used correlational research design and positivist philosophy. The population of the study was 175 licenced Deposit Taking Savings and Credit Co-operatives. Secondary data was used which was analysed using descriptive and inferential statistics. The statistical software Stata was used to conduct the analysis. A multiple linear regression model was used to forecast financial performance. Diagnostic tests were performed to ensure that the linear regression model assumptions were not violated. Liquidity has a negative correlation of (-0.0497) with Return on Assets, according to correlation analysis. Capital adequacy, on the other hand, showed a positive correlation of (0.6710) with Return on Assets. Similarly, asset quality had a positive correlation with Return on Assets of (0.5663). Panel regression results confirmed the importance of capital adequacy and asset quality in driving financial performance, as evidenced by highly significant coefficients of (0.7140 and 0.2087, respectively) with p-values of 0.0000. The liquidity coefficient, on the other hand, was found to be -0.0008 with a p-value of 0.7380, indicating that changes in liquidity have a negligible impact on Return on Assets. The study found that liquidity, capital adequacy, and asset quality explain 62.65% of the variation in financial performance (Return on Assets). According to the study, Deposit Taking Savings, and Credit Co-operative Societies should take a balanced approach to liquidity management to optimise financial resources and potentially increase returns. Furthermore, Savings and Credit Co-operatives Societies should prioritise in maintaining a strong capital base to improve financial stability and capitalise on profitable opportunities. Compliance with capital adequacy requirements, as well as collaboration with regulatory bodies, are essential for long-term growth. Furthermore, to maintain a healthy loan portfolio and minimise credit losses, effective credit risk management should be prioritised. Savings and Credit Co-operatives' long-term sustainability and financial performance will be ensured by regular reviews and updates to credit policies and risk management practises. Implementing these recommendations can significantly improve Savings and Credit Co-operatives Societies overall stability and financial performance. The variation in financial performance for this Savings and Credit Co-operatives is explained by liquidity, capital adequacy, and asset quality, which account for 62.65% of the variation. Additional factors, such as external influences and governance practises, should be investigated further. Comparative research with other financial institutions can provide useful information.
Description
A Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirement for the Award of Degree of Master of Science (Finance) of Kenyatta University, September 2024
Supervisors:
1.Caroline Kimutai
2.Bernard K. Njehia