Effects of Firm Size and Prudential Regulations on Financial Stability of Deposit Taking Saccos in Nakuru County, Kenya

Abstract

The purpose of the study was to assess the effects of firm size and prudential regulations
on financial stability of deposit taking saccos (DTS) in Nakuru County, Kenya. Further,
in recent times, DTS have been facing financial instability especially those that wait for
check off deductions in order to sustain their finances. Members have to wait for long,
more than two months to be awarded the loan. The specific objective of the study was: to
examine the relationship between capital adequacy and the financial stability of DTS.
The theories used in this study are the CAMEL model and the capital buffer theory of
capital adequacy. The study adopted survey research design. This research was done in
Nakuru County, in which case, according to SASRA website, 4 out of 172 registered DTS
in Kenya were the target population. Data was analyzed by various tools such as excel
and SPSS version 20. The target population of the study comprised of licensed DTS
SACCOs in Nakuru county for a period of five years between 2016-2020. The study used
data from DT-SACCOs in Kenya found in the recently published financial statements by
SASRA annual report. The study used panel data regression analysis model. Descriptive
statistics and inferential statistical techniques were used to analyze the data. All
inferential statistics was tested at 0.05 significance level. The findings revealed that there
is a positive relationship between the capital adequacy and financial stability of deposit
taking SACCOs (p=0.037<0.05). From the findings, the study concludes that capital
adequacy has a statistically significant relationship with financial stability of DTSACCOs in Nakuru. In conclusion, the study recommends that saccos should hold more
capital to cover the related risk, higher provisions and prepare for the losses. Finally,
Sacco’s should focus on improving their investment assets levels in order to improve
their financial performance.
Keywords: firm size, prudential regulations, financial stability, capital adequacy