By Phiwa Sikhondze
The first quarter of 2024 brought positive news for Savings and Credit Co-operative Societies (SACCOs) in Eswatini as the rate of non-performing loans (NPLs) declined significantly.
According to the Financial Services Regulatory Authority (FSRA) Quarterly Statistical Bulletin for Q1 2024, NPLs dropped to 8.65%, down from 9.50% in the previous quarter.
This decline in NPLs signals an improvement in credit health and reflects the effectiveness of SACCOs’ credit management strategies. The performance of loans also improved, with performing loans increasing to 91.35%, compared to the prior quarter’s 90.50%.
The reduction in NPLs follows a predictable seasonal pattern. Historically, the portfolio at risk tends to increase during the festive season as borrowers face heightened financial pressures but improves in the first quarter as repayments stabilize. The FSRA noted this trend, highlighting that the portfolio at risk decreased by 9%, mirroring previous years’ recovery patterns.
Loans and advances saw a notable increase of 2.44% in Q1 2024, climbing to E2.11 billion from E2.07 billion in the last quarter of 2023. On a year-on-year basis, the growth was even more significant at 10.90%. This growth underscores SACCOs’ continued confidence in lending, despite a cautious approach to credit risk.
Provision for loan losses, however, increased to 10.27%, signaling that SACCOs remain vigilant about potential future defaults. Doubtful debts rose to 1.05%, while loss classification loans climbed to 1.45% from the previous quarter’s 1.37%.
The decline in NPLs is a testament to SACCOs’ commitment to strengthening risk management practices. Enhanced credit assessment tools, coupled with effective member engagement strategies, have enabled SACCOs to improve repayment rates.
The decline in non-performing loans boosts confidence in SACCOs as a reliable source of credit for members. Improved credit health not only enhances financial stability but also fosters member trust, encouraging more savings and investments.
As the sector continues to grow, maintaining low NPL levels will be critical to ensuring sustainable operations. SACCOs must balance their growth in loans and advances with careful risk mitigation strategies to navigate future challenges effectively.