Capitec opens the taps

Capitec has opened its lending floodgates as it sees new opportunities to grow its book as inflation and interest rates come down while the South African economy recovers towards the end of 2024. 

South Africa’s largest bank by clients has taken a dynamic approach to lending over the past few years, banking on its agility to minimise the rise in bad debt while still growing its lending book and generating revenue. 

In late 2021, the bank relaxed its lending criteria for certain clients that had shown a recovery in their financial health after the Covid-19 pandemic. 

However, following the poor performance of the South African economy since then and the Russia-Ukraine war, the bank began closing its lending taps. 

“We opened up our credit extension just before the Russia-Ukraine war, and you can see what we have done since then. We have pulled back about 28% in the market,” CEO Gerrie Fourie said. 

It maintained its tight lending criteria throughout its 2023 financial year and deep into its 2024 financial year. 

The bank said the economic climate in South Africa throughout this period had been characterised by high interest rates and inflation, putting severe financial pressure on its clients. 

Apart from tightening its lending criteria, Capitec also supported its clients through debt restructuring and pre-delinquency counselling. 

As a result, its credit loss ratio has come down markedly in the past six months to 7.6% from 9.6%, and debt-review roll-ins have decreased. This has enabled the bank to begin opening its lending taps again. 

“We are happy with how we have handled the crisis and how agile we have been. We are fairly happy with the result,” Fourie said during the bank’s interim results presentation for the six months to the end of August. 

“We put tremendous effort into the collection side of things to ensure we could improve the collection with an entirely new system and help our clients during this time.” 

The graph below shows how sharply Capitec shut its lending taps from the first quarter of, keeping them closed until the first quarter of 2024.

 Now, as inflation and interest rates come down, Capitec is relaxing its lending criteria to meet increased consumer demand for credit. 

“What we have done now actually is to open up, with loan disbursements in August being at R4.5 billion – one of our highest figures ever,” Fourie said. 

“We believe there are opportunities given what we have seen with inflation and the economy. So, we are opening up in the credit space.” 

Fourie explained that the relaxing of lending criteria will focus on three key growth areas the bank has identified –

1. Credit cards – Capitec currently has an 8% to 9% market share within this pace and Fourie wants this to grow to between 15% to 20%. This is crucial for the bank to get its hands on the spending data of millions of South African consumers, which it can use to enhance the client experience and offer new products. 
2. Vehicles, building, and education – Fourie said there is a big opportunity within the vehicle financing space for Capitec, with sales of this product growing 215% in the past financial year from a low base. The bank has also launched a new partnership with SA Home Loans to grow its mortgage business, committing R5 billion to building its book in this space. 
3. App sales – As part of its relaxed lending criteria, Capitec wants to make it easier for clients to apply for credit cards and increase their credit limits on its app. Once again, this gives the bank valuable data regarding consumer behaviour and the financial health of its clients. 

Fourie has previously told Daily Investor the bank would start opening its taps when inflation trends downwards and the performance of the South African economy improves. 

As a result, with these factors now playing out, the bank has begun extending credit to its clients and plans to take market share from the incumbent banks. 

The green shoots Fourie has seen in the local economy include interest rate cuts, lower inflation, and the formation of a Government of National Unity. 

The opening of Capitec’s lending taps can be seen in the graph below.