Capitec takes a hit from unpaid loans

SA’s deteriorating economic conditions have affected Capitec profoundly, with the bank’s unpaid loan book surging 44% in the half-year to August.

Overdue loans reached R2.6bn during the period, up from the previous comparable period’s R1.8bn, although credit losses remained in the same ballpark as those of its larger rivals, Capitec’s results released on Monday showed.

CEO Gerrie Fourie said as the economy slowed down, smaller firms took strain and tended to close, which meant people with lower incomes suffered the brunt of the weaker economy.

Some companies had failed to pay employees — who had borrowed cash from Capitec — on time, or at all, Fourie said.

Capitec’s credit losses — or its soured debt as a percentage of gross loans — for the six months came in at 6.2%, 0.5 percentage points higher than a year ago.

Larger rival Nedbank’s consumer banking unit reported credit losses of 7.01% in its personal loan portfolio at the end of June. This comprises loans granted in SA and abroad, while Capitec grants loans only in SA. Barclays Africa’s retail bank posted a 5.85% credit-loss ratio, and Standard Bank’s personal and business bank, 5.25%.

Capitec has allowed some customers to reschedule their

repayments. Arrears rescheduled for less than six months rose 41% to R1.6bn. This is more than half the increase of 75% to R1.5bn experienced in its previous full-year period.

Customers with up-to-date accounts to the value of R1.5bn also asked to reschedule their payments.

Fourie said the banker had changed lending strategies in February 2015, paring back the number of loans it approved, and granting loans to higherquality customers. Among the factors it took into consideration were applicants’ employment history and the size of the company for which they worked.

“The principle of ‘last in, first out’ is used by many companies. The person working the shortest period gets retrenched first,” said Fourie.

A team of JP Morgan analysts, led by John Storey, welcomed the bank’s strategic shift ahead of its results.

“Capitec believes SA’s economy is getting tougher and that its clients are under more stress now than [a] year ago,” they said. “This is evidenced by an increase in debt-review cases and a spike in retrenchments among its client base. A portion of Capitec’s loan book, mostly nongovernment employees, is insured for unemployment, but not voluntary retrenchment, which is increasing.”

Capitec has also kept the average loans small.

“You see risk, and when you see risk, you scale back. When the economy is under pressure, banks pull back, and when the economy does well, banks open up.”

The bank was focusing on its transactional offering, piloting a credit card in the Western Cape before launching nationally. Fourie said that the credit card would be charged at rates of 15%21%, depending on individual credit profiles, unlike most credit card providers who simply charge the maximum allowed rate of 21%.

“The major difference on our credit card is the fact that it is the card with the highest interest you can earn on positive balances,” said Fourie.

Capitec’s transactional account has seen customers seeking value beating a path to the bank, with 46% of its 7.9million customers making regular deposits or receiving salaries. The bank has now cornered a 22% share of the retail banking market.

“Our packaging is attraction,” Fourie said. the main