Johannesburg - Although Capitec - the local bank that prides itself on offering lower costs - grew in the year to February, bad debts are starting to make themselves felt.
The listed group on Wednesday reported headline earnings per share up 26 percent to 2 787 cents as headline earnings rose by the same percentage to R3.2 billion. It declared a 680c a share dividend, taking the total dividend for the year to 1 055c a share, a 26 percent gain on the previous financial year.
In a statement, Capitec said the year to February saw the largest growth in its client base since the bank was started in 2001 and it added a million new customers, to take its client base to 7.3 million active customers.
The bank adds its cellphone banking app has seen good uptake and is now used by a million clients.
It says the continued economic slowdown should help it grow its base as consumers seek more value for money.
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In its statement, Capitec says its earnings were boosted by continued growth from loan and transaction fee income combined with conservative credit granting”. Gross loans and advances increased by R4.6 billion to R40.9 billion, while its net transaction fee gained 16 percent to R3 billion.
Its net transaction fee income covered 66 percent of operating expenses and contributed 33 percent of its net income.
However, the bank - which had 11 440 permanent employees at year-end as it grew its staff 1 179 - noted operating expenses grew 14 percent to R4.6 billion because of the increase in staff and branches, as it opened 52 new outlets during the year.
Capital expenditure for the year was R704 million, a 70 percent increase that it attributes to its growing ATM and branch network, as well as the purchase of land and property.
Consumer debt
Yet, Capitec has not been immune to the economic slowdown and, as a result of the deteriorating climate, it made changes to the credit granting model in December. Arrears as a percentage of gross loans and advances increased to 5.6 percent, as arrears increased from R2 billion in 2015 to R2.3 billion in 2016, an increase of 17 percent.
“Arrears performance was on track for most of the year, but increased in the last quarter of 2016.”
Capitec also notes it has rescheduled some accounts to help out clients who experienced cash flow stress.
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Loans rescheduled during the last six months of the year (which were in arrears at the time of rescheduling), grew 75 percent to R1.5 billion (February 2015: R884 million).
“This is due to the expansion of our higher margin short-term book, and is also an indication of the economic challenges faced by clients.”
The bank has also introduced two additional provisions to take into account the rescheduling and the economic climate. These provisions, as well as the provision model changes, contributed to a 33 percent increase in provision for doubtful debts to R5.1 billion at February 2016.
The total provisions compared to the gross loan book increased to 12.5 percent from 10.6 percent. The level of provisions to arrears increased from 196 percent in 2015 to 223 percent in 2016.
It says its gross loan impairment expense increased by 14 percent to R5.3 billion for the year ended February, while its net loan impairment expense to loan revenue improved from 37.7 percent in 2015 to 36.2 percent. The net loan impairment expense to average gross loans and advances decreased slightly from 11.5 percent in 2015 to 11.4 percent.
“The book is performing within our risk appetite. We expect continued pressure on employment and the economy. We are prudent when providing credit, we manage our book meticulously and we make conservative provisions.”
Capitec notes, however, that recoveries increased 42 percent year-on-year from R602 million in 2015 to R854 million in 2016. “The increase resulted from growth in the handed-over book, the implementation of a new strategy with our debt collectors and debt sales.”
IOL