Ann Crotty
The share price of Capitec, whose activities are focused on the unsecured lending market, gained R6.80 to close at R208.75 yesterday following news that headline earnings a share had increased 35 percent to R15.19 in the 12 months to February.
And while the four major banks have indicated they were taking a more cautious approach to unsecured lending, Capitec chief executive Riaan Stassen told Business Report yesterday that he believed there would continue to be a fundamental shift towards unsecured lending.
He acknowledged there had been a significant shift in lending towards the unsecured market by the major banks between 2007 and 2012 and said he believed that over the long term there would continue to be a shift to unsecured lending at current rates.
Although the group’s pace of earnings growth has slowed from the 40 percent recorded in recent years, Stassen described the 35 percent achieved as “good”, adding: “This sort of superior earnings growth is possible going forward.”
Stassen’s upbeat approach to the unsecured market, which he maintains despite the 80 percent hike in provisions for doubtful debts, is in stark contrast to the four major banks.
He describes the growth of the unsecured market as a “triumph for the government’s ambition to extend banking to those previously excluded from banks”.
He refers to the chaos in the microloan market that followed the initial deregulation of interest rates in 1994, noting that eventually more structured players became dominant, reducing interest rates and offering a complete banking service.
“The National Credit Act, which came into force in 2007, was a landmark: the rules of credit granting were legislated and abusive practices were banned. With this regulation the market took off.
“In 2007, the unsecured lending industry totalled R29 billion; the industry now has a total book of R171bn, which is equivalent to 14 percent of the total South African credit market.”
During financial 2013, Capitec’s share of that market increased to 17 percent from 14 percent. The company, which has increased its customer base by almost 1 million, benefited from a 70 percent increase in retail fixed deposits and a significant increase in transaction fee income.
The value of loans advanced increased by 31 percent to R25.4bn. Reflecting the lengthening of the loan periods, the net loan book grew 66 percent to R27.9bn.
In line with the tougher economic conditions, doubtful debts almost doubled to R2.7bn from R1.5bn.
Stassen explained that the unsecured market would continue to flourish because in terms of existing regulation nobody could grant a home loan on an informal house or on a house built on communal land.
“Most houses in townships do not qualify for a mortgage, yet every one of these homes requires financing when a bathroom or a fence is added.”
Although he remains bullish about the long-term prospects, Stassen expressed concern about the level of indebtedness in the market and the extent to which demand remained strong although all major lenders were applying more stringent credit scoring criteria. This implied indebted consumers were shifting to smaller, more informal lenders.
Stassen estimated that the reckless lending component of the unsecured market was less than 5 percent of the total and was largely attributable to “informal cash lenders” who were lending between R100 000 and R250 000 a month.