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Saccos face spike in bad loans on Corona shocks

By Nicholas Waitathu
Thursday, July 23rd, 2020
Grounded Chania Sacco vehicles at a Thika town petrol station in Kiambu County. Covid-19 shocks have led to job cuts and traders struggling to cope with reduced cash flow. Photo/PD/File
In summary
    • Loans worth Sh679.6 billion accounting for 23.4 per cent of the total loan book due to the coronavirus disease economic hardships that have hurt the borrowers’ ability to repay.
    • Central Bank of Kenya data shows cash circulating outside banks stood at Sh194.2 billion in April and Sh197.8 billion in May compared to Sh192.4 billion in January and Sh195.1 billion in February.

A surge in attempts to restructure loans coupled with a dip in borrowing will significantly increase the stock of non-performing loans among Savings and Credit Co-operative Organisations (Saccos).

The surge comes on the back of Covid-19 shocks which have led to job cuts and unpaid leave as workers and traders struggle to cope with reduced cash flow.  Firms have also complained of reduced demand for goods and services. 

Sacco members stopped borrowing and instead are pushing management to restructure their loans as the effects of  Covid-19 continue to bite.

Evans Kibagendi, the national chairman of Hazina Sacco says already depositors have requested for loan moratorium while others have stopped remitting their dues as the economy continues to be hard hit by the effects of the pandemic.

“Some of our members have requested for three to four months deferment of loans as their income sources continue facing challenges.

This is likely to affect our profits as well as our annual projections,” said Kibagendi. 

Credit unions

He estimates the pandemic has led to 10 per cent decrease in their business as some members are not paying their dues in time, while others are remitting reduced dues as their employers reduced salaries.

“We have members drawn from the private sector and were affected as their employers reduced salaries.

Further we have members from the small and medium enterprise segment majority of who have requested for restructuring of their loans,” added Kibagendi.

Kenya Union of Savings and Credit Co-operatives Ltd (KUSSCO) managing director George Ototo warned that Saccos whose members are not salaried are facing low levels of cash as members are not remitting payment as agreed following snail performance of their businesses and job losses. .

“Co-operative societies in the affected economic sub-sectors like travel, tourism and hotels and horticulture are reeling under challenging times when their businesses dwindle.

Some Saccos if no meaningful measures are put in place might collapse or take a long time before attaining optimal business levels,” he said.

He added: “We fear owing to the impact of the coronavirus to the economy Non-Performing Loans are likely to increase this year and thus might deeply affect the operations of the credit unions,” he added.

Ototo said some Saccos are grappling with requests for mass withdrawals and low deposits from members who’ve been laid off due to effects of the pandemic.

Joan Cheruto, chief executive of Wanandege Sacco, whose members are drawn from the airlines industry, said they had witnessed reduced cash flows since March when the first case of Covid-19 was announced in the country.

Current performance

 “Member savings have gone down by close to 70 per cent monthly and loans have equally declined,” she said.

National Co-operative Housing Union chairman Francis Kamande argues that the rescheduling of loans will lead to an increase of NPLs and thus have more impact to the performance of the Saccos.

Sacco Societies Authority John Mwaka agreed that current performance of the deposit taking Saccos have attested to likely increase of  outstanding loans. 

“Delaying of loans by the member’s signals challenging times for the institutions and in the long run will affect the operations,” said Kamande on phone.

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