Stima Sacco has been accorded negative outlook by South African-based Global Credit Rating (GCR) due to piling non-performing loans.
But the its management has defended itself saying the changes in the rating were occasioned by the sacco’s deliberate provisioning for non-performing legacy loans.
Chief executive Chris Useki, on Wednesday said this was because Stima wanted to cushion itself from the effects of the dud assets.
“Going forward, Stima Sacco has strengthened its collection mechanisms to ensure that all non-performing loans are collected with a view to restoring the stability of the rating,” said Mr Useki.
The sacco still maintains the BB+(KE) and B(KE) for long-term and short-term national scale ratings respectively. The ratings are valid until May 2019.
Established in 1974, it is currently the second largest deposit taking sacco in Kenya, with a total asset market share of six per cent out of the 164 registered saccos. It has 103,748 members.
GCR said the ratings reflect its conservative credit profile supported by a positive earnings trend, moderate capitalisation and liquidity metrics.
“Offsetting these positive rating factors is asset quality deterioration stemming from legacy loan exposures, coupled with execution risk of new exposures outside the society’s specialised sectors,” the agency said.
The agency said non-performing loans (NPL) increased significantly by 463 per cent to Sh2.053 billion in 2017 from Sh364.7 million in 2016.
GCR said this was on the back of a weak governance and control environment during 2014 to 2016 financial years that saw non-compliance with the society’s credit policies on a number of large loans advanced, coupled with system challenge that understated loan delinquencies.
The gross NPL ratio increased significantly to 8.8 per cent in 2017 from 1.7 per cent in 2016, breaching the prudential maximum of five per cent.
The agency also noted that a large quantum of loans was issued to SMEs outside the society’s specialised energy sector.
The agency also noted that a large quantum of loans was issued to SMEs outside the society’s specialised energy sector.
However, in 2017, the Sacco pre-tax profit grew by 17.7 per cent to Sh644 million supported by an increase in non-interest income and a decrease in operating expenditure.