New products in Capitec pipeline

Tightening of credit criteria will also help the bottom line

CAPITEC aptly characterised its annual financial results as “unaccustomedly modest”, a sign perhaps that the darling of the banking sector is running out of steam.

But plans to offer home loans, credit cards and vehicle finance could be a long-term game changer for the 13-year-old bank.

Former Capitec CEO Riaan Stassen’s dream was to see his business become a fully fledged bank that had all the traditional bank offerings. He retired before this was realised, and passed on the baton to his chief of operations, Gerrie Fourie.

Fourie, who presented his first set of results as CEO this week, has set his sights on growing the company’s market share to 25% in 2020 from 12.7% this year.

But Fourie is tight-lipped on when exactly his group will open the door to new products, which he said was where the opportunities lay.

Capitec will offer unsecured mortgages for low-end houses valued at up to R350 000.

“Unfortunately for me, R350 000 is little bit low,” said Fourie. “I was prepared to go to R500 000, but the National Credit Regulator split this to R350 000 and R750 000, but R750 000 is little bit too high for me.”

The home-loan sector has grown from R28-billion in the fourth quarter of 2012 to R34billion in last year’s fourth quarter. Over the same period, mortgages in the middle-income segment rose from R26-billion to R32-billion.

However, similar growth was not realised in the low-end housing segment, in which loans fell from R2.5-billion to R2.4-billion.

Capitec will also finance vehicles up to R220 000.

The group said there was no difference between an unsecured loan of R220 000 and a hire purchase contract of a similar amount, as long as the pricing was right.

Harry Botha, an equity analyst at Avior Research, said if the bank did introduce a credit card, as promised, the new service would create an additional revenue stream and attract more high-income customers.

He said Capitec could do well with its proposed new offerings but he viewed them as aspirations; the bank has still not introduced a credit card, which it has been punting for years.

The bank needs to get these products right because pressure on its bottom line is evident from the annual results it released this week.

This time last year, Capitec reported a 47% increase in earnings. This time round earnings rose 27%.

The group’s return on equity (RoE) was 27% in the previous period. This week it reported that RoE was at 23%. Its target is 25%. And though it reported a 35% rise in headline earnings per share in the prior year, this time round headline earnings per share rose only 15%.

It has been a torrid year for

Impairment expenses have increased from R2.7bn last year to R4bn

lenders of unsecured loans, such as Capitec and African Bank.

Capitec’s impairment expenses have risen from R2.7-billion last year to R4-billion.

The Stellenbosch-based bank has been stealing clients from its rivals, predominantly from Absa, which has refused to play in the unsecured loans market.

Capitec said this week that loans granted in 2012 were performing “worse than expected”. But Fourie is adamant that performance is still within the group’s original risk appetite limit. The bank’s risk appetite has been reduced, and so new loans were performing better.

“We have tightened our criteria,” the group said. But it still signs on 100 000 new customers a month — roughly 450 an hour or seven a minute. The bank has 5.4 million active customers as against 4.7 million in the previous reporting period.

Capitec said its new tighter credit rules meant fewer loans were granted, loan sizes had decreased and repayment periods were shortened.

Previously, Capitec’s granting of bigger loans for extended periods perturbed analysts immensely because that policy meant the group would often not identify bad debts until it was too late.

The number of loans fell 19%, and their value dropped 28% to R18.2-billion from R25.4-billion. The average loan came down from R6 756 to R6 003, and the average term was reduced from 48 months to 37 months.

Provision for doubtful debts rose 34%.

Loans revenue grew 23% to R9.8-billion compared with 41% growth in 2013.

Capitec’s results were boosted by its transactional banking arm, and it managed to control costs well.

Net transaction-fee income now covers 59% of operating costs, up from 45% in the previous year. The cost-to-income ratio was down from 38% last year to 32%.

Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.timeslive.co.za