Abstract:
Saving and Credit Cooperative Societies (SACCOs) have consistently employed various financial models to
evaluate their financial performance. Nonetheless, recent research indicates a rise in the number of Sacco
Societies facing financial challenges. These challenges have hindered their performance. Despite this,
Saving and Credit Cooperative Societies have not adequately identified the factors contributing to financial
distress or the extent of their impact on financial performance. The main objective of this study therefore,
was to assess the impact of asset quality on financial performance. This study was anchored on Wrecker’s
financial distress theory. It employed a correlation research design where a census study was conducted on
all deposit taking Saving and Credit Cooperative Societies registered with the Sacco Societies Regulatory
Authority (SASRA). A data extraction sheet was used to collect panel data for all deposit taking Sacco
Societies in Kenya for the period between 2018 and 2022. The study collected data from Audited Financial
Reports which enhanced the validity and reliability of the data. Descriptive analysis and inferential analysis
such as regression analysis and model specification tests was used to analyze data with the help of STATA
software version 15. Using panel regression models, asset quality was regressed against financial
performance. The results indicated that between 2018 to 2022 the asset quality ratio was in an increasing
trend. The results also indicated that asset quality had a statistically negative significant impact on financial
performance of deposit taking Sacco Societies (β1
=-1.118, 0.000<0.05). The study concluded that an
increase in asset quality led to a significant reduction of financial performance and vice versa. The study
recommended that saving and Credit Cooperative Societies should consider low level of asset quality to
achieve higher financial performance.
