Effect of liquidity risk on the financial performance of deposit taking savings and credit cooperative organisations (SACCOs) in Kenya

Abstract

Liquidity risk is the potential that an entity will be unable to acquire the cash required to meet its short and intermediate-term obligations. Deposit-taking Savings and Credit Cooperative Organisation (SACCOs) face liquidity risk when they are unable to fund their operations and lending requirements to their members as and when circumstances demand. Given that liquidity is a key phenomenon on the optimal functioning and financial performance of deposit-taking SACCOs, this study critically analyzed the effect of liquidity risk on the financial performance of DT SACCOs in Kenya. The study used a descriptive survey design and employed regression methods to model the relationship between liquidity risk and financial performance of DT SACCOs. The data were analyzed at a 5% level of significance. The study findings revealed that at a 5% level of significance, liquidity risk had a statistically significant influence on the financial performance of deposit-taking SACCOs. Basing on the findings, DT SACCOs are encouraged to focus on enhancing the mobilization of deposits to ensure that an asset portfolio that minimizes liquidity risk is maintained.

Financial Risk and Profitability of Microfinance Banks in Kenya

“…2017) demonstrated a negative relationship between Kenya's commercial banks' net stable financing ratio and their financial performance. Otwoko and Maina (2021) showed KaKstatistically substantial association between liquidity risk 2 and 2 financial 2 performance 2 was shown 2 by 2 the 2 research 2 conclusions Market 2 risk 2 has 2 a 2 negative 2 and 2 insignificant relationship 2 on 2 the 2 profitability 2 of 2 microfinance banks in Kenya (r =-0.0697, P=0.5811). The findings are in tandem Abdellahi, Mashkani and Hosseini (2017) who showed 2 that 2 market 2 risk 2 had 2 no significant 2 impact 2 on 2 ROA.…”

“…Muriithi and Waweru (2017) demonstrated a negative relationship between Kenya's commercial banks' net stable financing ratio and their financial performance. Otwoko and Maina (2021) showed aKstatistically substantial association between liquidity 2 risk 2 and 2 financial 2 performance 2 was shown 2 by the research conclusions From 2 the 2 findings, 2 market 2 risk 2 had 2 a 2 regression co-efficient 2 (β 3 ) 2 of 2 0.049789, 2 p=0.931 2 implying that when 2 credit 2 risk, 2 liquidity 2 risk 2 and operational 2 risk 2 are 2 controlled, 2 a 2 unit 2 increase in market 2 risk across 2 time 2 and 2 among 2 microfinance banks 2 would 2 result 2 in 2 a 2 insignificant 2 increase 2 of 0.049789 2 units in 2 profitability. 2 The 2 t 2 value 2 is greater 2 than 2 1.96 2 and 2 P 2 value 2 is 2 greater 2 than 0, therefore 2 the 2 third null 2 hypothesis 2 was 2 not rejected 2 as 2 market 2 risk 2 does 2 significantly 2 affect profitability 2 of 2 Kenya's microfinance 2 banks.…”

Bank Credit and Loan Repayment Rates During Covid-19 In Kabale District: A Case of Lyamujungu Sacco

“…Loan terms are another way of explaining the characteristics of a customer's loan, as embodied in the customer's loan agreement (Otwoko, & Maina, 2021). When a customer borrows money, your customer and lender agree to specific terms or "terms" of the customer's loan.…”

Loan portfolio planning and financial performance of Savings and Credits Cooperatives in Uganda: Evidences from SACCOs in Rubirizi District, Western Uganda

“…The complexity and size of Savings and Credit Cooperatives' (SACCOs') operations tend to increase the liquidity risk, and the degree to which they are susceptible to it varies (Otwoko & Maina, 2021). SACCOs have historically been an important source of funding for loans on the continents of North America, Asia, Europe, and Africa.…”