Capitec gears up for ‘reckless lending’ battle
CAPITEC Bank, South Africa’s biggest provider of unsecured loans, has lodged its opposition to reckless-lending charges filed by Summit Financial Partners and will submit responding court documents early next month.
“We’re not payday lenders,” CEO Gerrie Fourie said in an interview. “We can win against Summit, but we’re worried about reputational damage.”
Earlier this month, Summit, which helps consumers work their way out of debt, said in court papers filed in the High Court in Cape Town and Stellenbosch Magistrate’s Court that Capitec breached the National Credit Act. Summit focused on Capitec’s “multiloans” and its alleged refusal to provide contracts and other paperwork when requested to do so by clients.
With a multiloan, a customer signs one contract and can access the facility every month for 12 months. After the first month, Summit said, affordability assessments were no longer carried out. A 12% initiation fee is charged every month.
“We do an affordability check every month and charge a proportional initiation fee,” said Fourie.
“There is a cost to providing credit. I would love to get out of this market because it’s completely unprofitable, but South Africans want these types of loans.”
Capitec differed from payday lenders in that many of its loans had a longer duration and the money was spent on education and improving people’s homes.
The National Credit Regulator (NCR) this year started its second investigation into Capitec’s lending practices. The two parties have met and made progress in their talks in the past two weeks, according to Fourie.
The court cases linked to Summit may be over within 12 months, but NCR cases could take longer, he said.
Capitec is the second-best performing bank stock this year after Standard Bank Group, having gained more than 10%. It remains overcapitalised and expects double-digit profit growth this year despite the slowing economy.
“We’re extremely worried about the economy. The slowdown in areas like manufacturing will reduce clients’ income, with them getting no overtime pay, no bonuses, and then retrenchments,” said Fourie. The lender was seeing the effects in arrears on loans, he said.
The Reserve Bank has revised its estimate for GDP growth to 0.6% from 0.8%.
“We’ll only see the real impact in the third or fourth quarter,” said Fourie. “We’ve pulled back on the credit side in anticipation, but it’s a big opportunity for client acquisition. We’ve seen tremendous uptake this year.” —