Financial Risk and Profit Persistence of Deposit-Taking Savings and Credit Cooperatives in Kenya
DOI:
https://doi.org/10.53819/81018102t4121Abstract
Compliance with the prudential standards as prescribed in the saving and Credit Cooperatives Societies Act 2008 and the subsequent regulation of 2010 has continued to be a problem. The study sought to establish the effect of financial risk on profit persistence of deposit taking savings and credit co-operatives. To achieve this, the study was directed by specific objectives that included: establishing the effect of credit risk, risk of liquidity, market risk and risk of investment on profit persistence of deposit taking savings and credit co-operatives. The study also sought to establish the moderating effect of operational efficiency on the relationship between financial risk and profit persistence of deposit taking savings and credit co-operatives. The study targeted 174 deposit-taking saving and Credit Cooperatives as per the records at Sacco Societies Regulatory Authority 2022. This study was anchored on the agency theory, stakeholders’ theory, and the enterprise risk management theory. This study used a descriptive study approach. The sample population of the study included 174 deposit-taking savings and credit cooperatives, this was a census study. The study used secondary data from audited financial statements. The study findings revealed that credit risk was negatively and significantly related with profit persistence of deposit taking savings and credit co-operatives in Kenya (β=-0.0224311, p=0.000); liquidity risk was negatively and significantly related to the profit persistence of deposit taking savings and credit co-operatives in Kenya (β= -0.0522383, p=0.001); market risk positively and significantly related to the profit persistence of deposit taking savings and credit co-operatives in Kenya (β=0.0305016, p=0.025) and investment risk was negatively and significantly related to the profit persistence of deposit taking savings and credit co-operatives in Kenya (β=-0.0811061, p=0.040). Moreover, the study established that operational efficiency had significant moderating effect on the relationship between financial risk and profit persistence of deposit taking savings and credit co-operatives in Kenya. The study concludes that financial risks exposure for deposit taking savings and credit co-operatives in Kenya influences their profit persistence significantly because of their nature of operation. The study thus recommends that the managements of deposit taking savings and credit co-operatives in Kenya should consider employing portfolio-level controls to mitigate financial risks in their establishments.
Keywords: Financial risk, credit risk, risk of liquidity, market risk, risk of investment operational efficiency, profit Persistence
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