Influence of Loan Loss Provisioning Ratio Prudential Regulations on Financial Performance of Deposit Taking Savings and Credit Cooperatives in Kenya

Abstract

The purpose of this study was to examine the effect of loan loss provisioning ratio regulations on the financial performance of deposit taking Savings and Credit Cooperatives (SACCOs) in Kenya. The study was based on the modern portfolio theory and used a positivist philosophical approach. A mixed study strategy was employed that incorporated both primary and secondary data sources spanning the years 2014 to 2021. The study population consisted of 175 deposit-taking SACCOs (DT-SACCOs) and stratified random sampling was used to choose 105 DT-SACCOs that are regulated by the SACCO Societies Regulatory Authority (SASRA). Additionally, purposive sampling was used to select the chief executive officers (CEOs) of the selected DT-SACCOs. The primary data for this study was obtained by the administration of questionnaires to CEOs. The secondary data was gathered from published financial reports of the 105 DT-SACCOs. The gathered data was analyzed using both descriptive and inferential statistics. The results of the study indicated that the loan provisioning ratio had a significant and negative effect on the financial performance of DT-SACCOs in Kenya (β = -0.502, t = -5.987, p < 0.05). The study recommends to management of DT-SACCOs to always adhere to prudential guidelines on loan loss provisioning ratio, and implement credit control mechanisms like performing evaluations of credit policy and ensuring that there are skilled personnel authorizing and approving loans. The study also recommends to leaders in DT-SACCOs to adopt and execute effective strategies to minimize non-performing loans engaging in effective and detailed customer profiling.