Global Credit Ratings (GCR) has affirmed Stima Sacco Society Limited’s long-term and short-term national scale ratings of BB+(KE) and B(KE) respectively, with the outlook accorded as stable. The ratings are valid until May 2018.
These ratings ratings reflect Stima Sacco’s consistent diversified membership growth and established franchise supported by operations that commenced in 1974. The society’s position as the second largest deposit taking savings and credit cooperative society (Sacco) in Kenya, with a market share of c.6% relative to total assets of the 164 registered deposit taking Saccos, is a further consideration.
To enhance its risk management structure in line with best practices, the society established a risk management and compliance department in November 2016.
The society’s core capital, institutional capital, and total capital and reserves increased by 18.6%, 23.5% and 15.6% in the financial year 2016 to Ksh2.9 billion, Ksh2.1 billion, and Ksh3.1 billion respectively. Consequently, Stima Sacco was in compliance with all the capital requirements of the Sacco Act.
The society reported a lower core capital to total assets ratio of 11.9% in the year under review compared to 12.1% in 2015, against a regulatory minimum of 10%, mainly as a result of strong (20.8%) growth in total assets. From a gearing perspective, external borrowings at 2.6% of total assets were within the statutory cap of 25%.
Meanwhile, Stima Sacco maintained an acceptable asset quality profile, reporting a lower gross non-performing loan ratio of 1.7% in 2016 down from 2% the previous year, below the prudential benchmark of 5% despite a challenging operating environment.
Specific provisions increased by 2.2 times as management took a prudent and conservative approach, partly in anticipation of the impact of International Financial Reporting Standards (IFRS) 9 implementation. Consequently, specific provisions covered 36.7% of the year under review (FY15: 18.9%) of gross NPLs. Specific provisions are raised in line with prudential guidelines.
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Net profit before tax grew by 89.5% to a five year high of Ksh547.4 million in 2016, supported by an increase in net interest income (due to high loan growth), despite increases in impairment charges and operating expenditure. The net interest margin increased to 7.2% in 2016 (5.1% in 2015) and the cost ratio decreased to 64.6% last year compared to 73.1% in 2015 .The society’s return on assets and return on equity increased to 2.2% and 17.1% respectively.
Member deposits, the society’s main source (89.9%) of funding, grew by 19.7% in FY16 to KES19.0bn supported by a 57.8% increase in members. Stima has consistently maintained its liquidity ratio above the prudential requirement of 15%, registering 23% at FY16.
OUTLOOK
The society’s ratings could be positively impacted by significant improvements in capitalisation, positive earnings trend, improved risk management oversight, sound credit protection factors, the success of the society’s ambitious growth strategy, business reorganisation and capital/fund raising initiatives.
Stima’s ratings could, however, be negatively impacted by downward pressure on earnings and capital adequacy, increasing liquidity risk and asset quality problems, as well as a breach of prudential benchmarks (capital, asset quality, liquidity etc).
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