Covid-19 a bit like an ice­berg

Financial Mail - - DIAMONDS & DOGS -

Per­haps the most alarm­ing fea­ture of Capitec’s trad­ing state­ment, in which it an­nounced a loss of R404m for the quar­ter ended May 31, was the level of un­cer­tainty it por­trayed.

It’s a bit like the mo­ment in Ti­tanic when the cap­tain re­alises he’s just ploughed the ship full speed ahead into a thump­ing great ice­berg, but he hasn’t dis­cov­ered the ex­tent of the dam­age be­low the wa­ter­line, so he doesn’t know whether to slip into his din­ner jacket or his swim­ming trunks.

Capitec has raised its pro­vi­sion for credit im­pair­ments by R3.3bn, on the back of R5.75bn of re­tail bal­ances and R236m of busi­ness credit bal­ances be­ing resched­uled or granted pay­ment breaks dur­ing the lock­down.

It is hop­ing that the risk here is less than nor­mal with resched­uled bal­ances, given that the clients were in good stand­ing at the end of Fe­bru­ary, but it ad­mits there is con­sid­er­able un­cer­tainty as to whether it was too con­ser­va­tive or too le­nient in its pro­vi­sion­ing.

Capitec states that the first pay­ment due at the end of June was largely pos­i­tive, but the full im­pact of the dam­age will be re­vealed only in July and Au­gust. It is abun­dantly clear that great swathes of the econ­omy have taken a ham­mer­ing, GDP is tum­bling and un­em­ploy­ment out of con­trol, and much will de­pend on the coun­try’s suc­cess at adapt­ing to the pan­demic and get­ting back to some sem­blance of pro­duc­tive re­al­ity. Capitec is con­tin­u­ing to develop prod­ucts and to grow its busi­ness book, but the sad re­al­ity is that if a com­pany as well run as this is strug­gling, heaven knows what the rest are do­ing.

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