Capitec joins the chorus of warnings for consumers in South Africa
Capitec has seen a boost in interim profits despite customers struggling to repay their loans.
In its unaudited financial results for the six months ended 31 August 2023, Capitec said that its headline earnings grew by 9% from R4.3 billion in the six months ended 31 August 2022 to R4.7 billion.
“Tough economic conditions continued to put pressure on South African consumers and businesses. Pre-provision operating profit grew by 26%, which was partially offset by an increase in the credit impairment charge,” the group said.
The net credit impairment charge grew by 62% to R4.8 billion, with the higher charge mainly due to an increase in the migration of balances into stages 2 and 3 of the retail loan book.
Stage 3 loans are loans that are technically impaired and comprise R21 billion of the bank’s R100 billion loan book. Stage 2 loans are loans that show an increased risk of impairment, but interest payments are still counted in the books. Just under R14 billion of loans are at stage 2.
“The migration was driven by the impact of economic constraints on clients’ ability to remain up to date with their loan instalments. Consequently, the group’s overall credit loss ratio increased to 4.8% (August 2022: 3.3%),” it added.
Looking through the results, the group’s credit impairments also rose by 62% to R4.7 billion (August 2022: R2.9 billion).
More positively, the bank noted that its various mitigation strategies are reducing the number of clients moving into stage 2 and stage 3. It also said that the tide appears to be turning, with ratios reflecting similar levels to August 2019.
However, Capitec is not the only financial services provider to see an increase in credit impairments, with several other banks and retailers highlighting the strain on consumers.
In the first six months of 2023, Nedbank saw a 57% rise in credit impairments, which it attributed to the heightened interest rates, higher levels of inflation and record levels of load shedding, particularly retailers.
Standard Bank also saw its credit impairment charges rise across all of its portfolios, as its overall credit loss ratio increased to 97 basis points, which is at the upper end of the group’s through-the-cycle range of 70 to 100 basis points.
“The impairment rate for the 12 months ended 30 June 2023 was 7.3%, compared to 4.7% in the prior year, reflective of increased pressure on consumers in the current macroeconomic climate,” Woolworths Financial Services said.
Other Capitec financials
Capitec’s net interest income grew from R6.9 billion in 2022 to R8.0 billion in HY 2023.
It added that the loan book and investment portfolio profited from a 275 basis points increase in the repo rate since August 2022, with net interest-bearing assets growing by 25%.
The 10% increase in total deposits and funding also saw interest expense grow by 47%.
“The net transaction and commission income was 40% of income from operations (August 2022: 39%) and grew by 24% to R6.9 billion (August 2022: R5.6 billion),” the group added.
“The performance was driven by our consistent investment in innovation and an increase of 11% in the number of active clients which led to an 18% increase in retail transaction volumes.”
Net insurance income also increased by 33% from R1.2 billion in August 2022 to R1.5 billion in August 2023, with funeral insurance and credit life insurance income growing by 59% and 20%, respectively.
The group’s total expenses increased by 14% to R6.6 billion (August 2022: R5.8 billion), with IT and employee expenses comprising 66% (August 2022: 61%) of all the group’s total operating expenses.
That said, the cost-to-income ratio dropped from 41% to 38%.
“The return on ordinary shareholders’ equity of 24% (August 2022: 25%) reflects the group’s solid performance in the face of tough economic conditions,” it added.
The interim dividend was thus upped by 9% to 1,530 cents per share (August 2022: 1,400 cents per share)
The group’s key financials can be found below:
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