Capitec keeping the taps closed

Capitec CEO Gerrie Fourie said the bank will remain cautious and maintain its stringent lending criteria until South Africa’s economy improves.

For its latest financial year ended 29 February 2024, Capitec reported that its net credit impairment charge on gross loans and advances increased by 37% to R8.4 billion (2023: R6.1 billion).

Its credit loss ratio was 10.1% compared to 8.0% for 2023. The H1 2024 annualised credit loss ratio was 11.0%, which improved to 9.2% annualised for H2 2024.

This comes after the bank tightened its lending criteria in 2023 in response to mounting bad debts.

In November 2021, Capitec relaxed its credit granting criteria for certain pockets of clients that had begun showing recovery after the Covid-19 pandemic. 

This led to book growth, particularly in the access facility book. 

However, due to the impact of the negative economic conditions after February 2022, when the war in Ukraine began, Capitec started tightening credit granting criteria in June 2022.

It maintained its more stringent credit granting criteria for the remainder of the 2023 financial year. 

In September 2023, the bank said that the economic climate in South Africa had been characterised by high interest rates and inflation above the government’s target.

“This led to consumers being under financial pressure, which impacted the retail bank loans and advances and resulted in a higher credit impairment charge and credit loss ratio,” the company said in a trading update.

Capitec Bank’s net credit impairment charge grew 62% to R4.8 billion in the six months ended 31 August 2023.

“The higher charge was largely due to an increase in the migration of balances into stages 2 and 3 of the retail loan book,” it said.

Capitec, therefore, adjusted access facility limits down by R3.5 billion during H2 2023. 

By the end of February 2023, there had been an increase in clients entering debt review, rolling into arrears, and defaulting. 

The stage 3 loan book had grown to R18.5 billion from R13.9 billion at the end of February 2022. Therefore, the credit granting criteria for all retail products were further tightened during the 2024 financial year.

Income to instalment criteria were made stricter, and the average term offered decreased. 

Net loan sales and disbursements for 2024 were R48.5 billion, a decrease of 8% compared to 2023 net loan sales of R52.9 billion.

In addition, access facility disbursements decreased by 37% compared to 2023. Total new limits granted decreased to R5.6 billion from R18.7 billion in 2023. 

Limits granted for H1 2024 amounted to R3.8 billion, and R1.8 billion for H2 2024. 

Disbursements also decreased further during H2 2024 as only clients that met stricter affordability criteria could draw down on their facilities. 

The credit impairment charge for 2024 reflected the continued migration of the pre-June 2022 loan book to stages 2 and 3. 

The total migration of balances into default for the 2024 financial year amounted to R12.8 billion, with R4.1 billion relating to clients that went into debt review (2023: R3.5 billion). 

The remaining roll into default of R8.7 billion comprises balances that are subject to collection activities and do not meet the write-off requirements (2023: R7.0 billion). 

The migration into debt review in H2 2024 was R303 million lower than in H1 2024 and contributed to the credit impairment charge for H2 2024 being R643 million lower than the charge for H1 2024. 

In Capitec’s results presentation, Fourie said the bank will remain cautious regarding its lending criteria.

“If you look at the economy, we all know it’s on thin ice,” he said. “In August I said Ukraine/Russia looks like it stabilised, and nothing else must happen in the world. Then Israel happened, and now two to three weeks ago, Israel/Iran took place, and all of that has an impact on South Africa.” 

“So, our focus on the credit side is going to be on business banking on the secured side, but we will be very cautious in the retail space.”

Fourie told Daily Investor that Capitec would only consider relaxing its lending criteria if South Africa achieves high economic growth and interest rates are down. “Then we can open up,” he said.