Sh60bn loan-deposit gap piles pressure on saccos

Sacco borrowings are surging at a faster rate than that of deposits, leaving the savings and credit unions facing a negative wealth position and exposed to expensive debt to fund member lending.

The gap between the loans and deposits grew by a larger margin to Sh60 billion in 2022, indicating that members sought money from the cooperatives via loans and withdrawals at a faster pace than they made new savings in a period of economic challenges like high inflation.

Latest data from the Sacco Societies Regulatory Authority (Sasra) show that by the end of last year, saccos held deposits worth Sh620.45 billion, while they had loaned out Sh680.35 billion to members.

The loan book grew by 11.8 percent from Sh608.75 billion in 2021, while the deposits expanded by 9.8 percent from Sh564.89 billion in 2021.

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Sasra has been warning that the mismatch between deposits and loans leaves saccos with huge loan demands facing high finance costs as they borrow from other financial institutions to top up their lendable pool of funds.

The regulator cited high inflation and interest rates as factors that have reduced the ability of members to make savings, while the cost of external borrowing has also gone up.

“Consequently, regulated Saccos are entreated to be ingenious in sourcing for the funding of their assets, especially their loan book in order to maintain their competitiveness in the short to medium term,” said Sasra in the 2022 Sacco supervision annual report.

While the saccos have been lending in excess of deposits for years, the gap grew by a wider margin last year, partly fuelled by the heightened withdrawal of saved funds by distressed members.

The institutions also lend to members in multiples of three to five times of savings, raising the prospect of a mismatch between deposits and savings.

The Sasra disclosures show that the withdrawable deposits (also known as Fosa savings), which are usually held by saccos as demand deposits, dropped by 26.9 percent to Sh83.78 billion from Sh114.59 billion.

This marked the second straight year of savers dipping their hands in their savings, having cashed out Sh10.46 billion the previous year.

Economic challenges also saw the number of dormant members in deposit-taking (DT) and non-withdrawable deposit-taking (NWDT) saccos jump from 1.18 million to 1.22 million.

Sasra defines dormant members as those who had not made any financial transactions with their respective saccos for six- and 12-month periods for DT-Saccos and NWDT-Saccos, respectively, before the end of last year.

Economic hardships, primarily the high cost of living, resulted in members withdrawing their savings for consumption purposes.

High-interest rates also discouraged borrowing from financial institutions, pushing businesses and households to lean on savings to fund expenditures that would have otherwise been covered by credit facilities.

Kenya had 359 regulated saccos at the beginning of this year, with a membership of 6.42 million individuals.

The institutions have become a popular choice for savings and loans due to the ability to lend multiple times of savings, and also for friendlier loan rates compared to banks.

They also pay interest on call deposits at a rate that is much higher than that of commercial banks.

In 2022, regulated saccos paid an average interest of 6.92 percent on member deposits, a marginal increase from the 6.86 percent paid in 2021, in line with their goal of encouraging thrift and building up the country’s savings base.

“These returns on members’ savings were, however, higher than the interest rates paid by commercial banks on savings which averaged three percent during the year 2022, and thus cements the dual comparative edge of savings in saccos which not only earns interest but also applied as collateral against loans advanced to members,” said Sasra.

Saccos charge between 12 and 16 percent interest on most loan products, while commercial banks’ loans attract costs above 20 percent (interest plus other charges).

In addition to the interest on deposits, the saccos also paid their members a return on their share capital at a mean rate of 10.47 percent last year (2021: 9.87 percent).

Read: Farmer saccos top loan defaults on drought hit

These returns compare favourably with those on offer in short-term government securities, whose yields at the end of last year were averaging between 9.3 and 10.4 percent.

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