Effect of Financial Risk on Financial Performance of Deposit-Taking Savings and Credit Cooperatives in Nairobi County, Kenya
DOI:
https://doi.org/10.70619/vol6iss4pp52-66-829Keywords:
Financial Risk, Financial Performance, Deposit-Taking Savings and Credit CooperativesAbstract
This study examined the effect of financial risk on the financial performance of deposit-taking Savings and Credit Cooperative Societies (DT-SACCOs) in Nairobi County, Kenya. The study was motivated by the increasing financial challenges facing SACCOs, particularly rising non-performing loans, liquidity shortages, operational inefficiencies, and market uncertainties that threaten the profitability and sustainability of cooperative financial institutions. Financial risk management has become increasingly critical for financial institutions because exposure to unmanaged risks can significantly reduce profitability and institutional resilience. Specifically, the study investigated the effects of market, credit, liquidity, and operational risk on financial performance, measured by Return on Equity (ROE). A descriptive research design was adopted to examine the relationship between the selected risk factors and institutional performance. The target population comprised 43 licensed DT-SACCOs in Nairobi County as registered with the SACC Societies Regulatory Authority (SASRA), and a census approach was employed to include all the institutions in the study. Secondary data was collected from audited financial statements and SASRA annual reports covering the period 2020 to 2024. Descriptive and inferential statistics were used in the analysis, with multiple regression analysis applied to determine the influence of each financial risk factor on financial performance. The findings revealed that credit and operational risk had a negative and statistically significant effect on financial performance, whereas liquidity risk had a positive and statistically significant effect. Market risk showed a positive but statistically insignificant effect on financial performance. The study concluded that effective financial risk management is critical to the sustainability and profitability of DT-SACCOs and recommended stronger credit appraisal systems, improved internal controls, effective liquidity management, and enhanced regulatory compliance to improve institutional performance.
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