EFFECT OF ASSET QUALITY ON THE FINANCIAL PERFORMANCE OF SAVINGS AND CREDIT SOCIETIES IN KENYA
DOI:
https://doi.org/10.47672/ajf.160Keywords:
asset quality, financial performance, savings and credit societiesAbstract
Purpose: The purpose of this study was to establish the effect of asset quality on the financial performance of savings and credit societies in Kenya.
Methodology: The study employed an explanatory research design. The target population was 83 registered deposit taking SACCO’s in Kenya that have been in operation for the last five years. The sample size for the study was all 83 SACCOs that have remained in existence since 2011-2015. Census methodology was used in the study. Both primary and secondary sources of data were employed. Multiple linear regression models were used to analyze the data using statistical package for the social sciences (SPSS) and STATA. A pilot study was conducted to measure the research instruments reliability and validity. Descriptive and inferential analysis was conducted to analyze the data. The data was presented using tables and graphs.
Results: Based on the findings the study concluded that asset quality influenced the financial performance of savings and credit societies in Kenya. This can be explained by the regression results which showed that the influence was positive and also showed the magnitude by which asset quality influenced the financial performance of savings and credit societies. The univariate regression results showed that asset quality influenced the financial performance of savings and credit societies by 5.827units.
Unique contribution to theory, practice and policy: The study recommended that management need to be cautious in setting up a credit policy that will not negatively affects profitability and also they need to know how credit policy affects the operation of their banks to ensure judicious utilization of deposits and maximization of profit. The study also recommended for credit information sharing between SACCO's. This will play a significant role in determining performance of deposit taking SACCO’s. Further, the study recommended that SACCO’s opt for equity financing instead of debt financing to improve on its leverage. SACCO’s should also avoid excessive lending, maintain high credit standards and limit lending to un-hedged borrowers.
Downloads
References
Arnould, R. J. (1985). Agency costs in banking firms: an analysis of expense preference behavior. Journal of Economics and Business, 37(2), 103-112.
Chaudhry, S., Singh, S. (2012); Impact of Reforms on the Asset Quality in Indian banking .International Journal of Multidisciplinary. 5(2), 17-24.
De Nicolò, G. Boyd, J. H., & Jalal, A. M. (2006). Bank risk-taking and competition revisited [electronic resource]: new theory and new evidence. International Monetary Fund.
Friedman, B. M. (1987). Lessons from the 1979-1982 monetary policy experiment (No. w1272). National Bureau of Economic Research.
Gitonga, J. K. (2014). The effect of loan loss provisioning on profitability of deposit taking SACCO societies in Nairobi county. (Doctoral dissertation, University of Nairobi).
Gropper, D. M., & Oswald, S. L. (1996). Regulation, deregulation and managerial behaviour. Applied Financial Economics, 6(1), 1-7.
Hannan, T. H. (1979). Expense-preference behavior in banking: A reexamination. Journal of Political Economy. 87(October), 891-895.
ICA (2009). 59th Annual Annual Conference.Chicago,IllinoisUSA
Chicago Marriott
Infeacho, C & Ngalawa, H. (2014).Performance of the south African banking sector since 1994. Journal of applied business research (jabr),30(4)1183-1196
John, A. (2002). Rochdale Pioneer. The Oxford Companion to British History .
Kinyua, J. W. (2013). Relationship between financial performance and size of deposit taking Savings and Credit Cooperative Societies in Kenya (Doctoral dissertation, University of Nairobi).
Kinyua, J. W. (2013). Relationship between financial performance and size of deposit taking Savings and Credit Cooperative Societies in Kenya (Doctoral dissertation, University of Nairobi).
Kioko, C. (2014). Credit information sharing influence on performance of licensed deposit taking SACCO businesses in Kenya. Strategic Journal of Business & Change Management, 1(2).
Kioko, C. (2014). Credit information sharing influence on performance of licensed deposit taking SACCO businesses in Kenya. Strategic Journal of Business & Change Management, 1(2).
Luqman, O. S. (2014). The Effect of Credit Risk on the Performance of Commercial Banks in Nigeria. Journal of Social Science Research Network, 45: 4, 117-139.
Manyuanda, M. O. (2014). The effect of nonperforming loans on the financial performance of savings and credit co-operative societies in Nairobi County, Kenya.
Ngaira, L. (2011). The impact of SACCO regulatory authority guidelines on SACCO operations in Kenya-the case of Nairobi deposit taking SACCO’s (Doctoral dissertation, School of Business, University of Nairobi).
Ngo’mbe, B.W. & Mikwamba, E. (2004). Know more about SACCO. A handbook for SACCO study circle programme. Malawi Union of Savings and Credit Cooperative, Lilongwe, Malawi.
Rees, R. (1974). A reconsideration of the expense preference theory of the Firm. Economica, 41(2), 295-307.
Sonja, K. (2010). Effect of computerization on performance of saccos in Uganda. Unpublished MBA research project Reutlingen Germany.
Wanyama, F. O., Develtere, P., & Pollet, I. (2008). Encountering the evidence: Co-operatives and poverty reduction in Africa. Journal of Co-operative Studies, 41(3), 16-27.
Zerfeshewa, B. (2010). Determinants of Saving and Credit Cooperatives (SACCO’s) Operational Performance in Gondar town, Ethiopia (Doctoral dissertation, Mekelle University).
Downloads
Published
How to Cite
Issue
Section
License
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work’s authorship and initial publication in this journal.
