Financial risks and financial performance of deposit-taking savings and credit cooperative societies in Kenya.

Abstract

The study aimed to ascertain how the financial performance of Kiambu County`s DT-SACCOs is affected by financial risks. The effect of credit risk, operational risk, market risk and liquidity risk on the Kiambu County DT-SACCOs financial performance are the precise aims that were emphasized in the research to accomplish the study objective. The study was anchored on the financial intermediary theory, liquidity preference theory, steward theory and information asymmetry theory. Thirteen licensed deposit-taking SACCOs with their headquarters located in Kiambu formed the target population and a descriptive research design was used. Secondary data from 2013 to 2022 for the thirteen-deposit taking SACCOs was collected from SACCO's financial statements and SASRA records. The data collected was unbalanced due to different licensing years of the deposit-taking SACCOs by SASRA. To analyse the data, the mean, standard deviation, minimum and maximum values were utilized as descriptive statistics, while panel data regression was employed as inferential statistics. The diagnostic tests conducted before fitting the model were: heteroscedasticity test, Breusch – Pagan Lagrange Multiplier, Hausman and multicollinearity. According to the study's findings, credit risk had a small but beneficial impact on financial performance (=0.00337, t= 0.26, p>0.005). Financial performance was positively and significantly impacted by operational risk (=0.01395, t=4.88, p0.05), financial performance was positively significantly influenced by market risk (=0.7909, t=32.36, p0.05), financial performance was significantly impacted negatively by liquidity risk (=-0.0023, t =-4.28, p0.005). The study recommends that it is important for deposit-taking SACCOs to embrace financial risks even if it means hiring experts in risk management and should ensure that risk management practices incorporate other financial risks components.