Londiwe Buthelezi
Despite what analysts believe is an indication that a bubble in the unsecured lending market has burst, credit provider Transaction Capital is still determined to grow its unsecured loan book to R10 billion by 2016, a target that would require the company to grow unsecured loans disbursed by 19 percent every year.
Analysts raised red flags that the boom in unsecured lending was over after African Bank issued a fall of profit warning last week. The fall in its share price since then has been flagged as a precedent of where the sector was heading.
But speaking to Business Report after the release of the firm’s first interim results as a public company, Transaction Capital chief executive Mark Lamberti said that relating what happened to one lender to the whole sector was a generalisation that did not reflect the true stance of the industry.
“Not all unsecured lenders are in the same position. Capitec reported fantastic results. Banks are offering unsecured lending in slightly different ways,” he said.
Capitec’s share price continued to gain yesterday, adding 0.25 percent to R202.
But African Bank’s shares fell 6.07 percent to close at R21.36, after having dropped more than 22 percent in the two previous sessions.
Transaction Capital’s share price lost 0.75 percent to R6.64.
Lamberti, who founded Massmart Holdings, said the slump in the share prices of some unsecured credit lenders was not a sector problem and when analysts understood the different ways in which different lenders conducted their business, there would be less effect on share prices.
“I believe the sector is a long way from collapsing,” he said, adding that Bayport, which the company acquired in 2010 and offers unsecured loans, was still a good business and that the regulators were much more equipped now to deal with the risks in unsecured lending.
The recently-listed Transaction Capital, which focuses on asset-backed lending, unsecured lending, credit and payment services, has adopted a more cautious approach towards unsecured lending and has tightened its credit criteria.
This saw new unsecured loans disbursed by Bayport decline to a 21-month low in January and the ratio of non-performing loans was relatively stable, rising from 28.2 percent in March last year to 29.9 percent in December.
Transaction Capital would, for now, keep its loan size at the current level of R14 800 and the average repayment term at 47 months to avoid inviting more risk to its books.
“The environment is tough because consumers are over-indebted. Every lender has to be careful,” Lamberti said.
In the period under review, Transaction Capital’s gross loans and advances grew by 27 percent to R10.79bn.
The company said its credit metrics were likely to decline marginally as advances slowed in the six months ahead.
Unsecured lending contributed 38 percent to Transaction Capital’s financials in the period under review. But unlike its other businesses, which dominate their specialist niches, Transaction Capital only holds a 3.3 percent market share in unsecured lending, which Lamberti said enabled it to be more selective and tactical in managing the lending book.
“If you have big market share you take a vertical slice of the market, which is why banks that hold a big market share feel the negative market reaction the most. We are happy to grow off at a low market share,” he said.
Transaction Capital lifted headline earnings by 36 percent to R233 million. Headline earnings a share rose 11 percent to 39.9c.
An interim dividend of 9c a share was declared.