Londiwe Buthelezi
Retail bank Capitec announced a record increase in headline earnings yesterday, saying the figure jumped 68 percent to R1.078 billion in the year to February.
But the bank, whose innovative lending methods have been adopted by its bigger rivals, said it was losing market share in the unsecured lending space.
Capitec said the value of loans increased by 35 percent to R19.4bn from R14.3bn in the previous financial year.
Loan revenue grew by 49 percent to R5.7bn. However, the ratio of loan revenue to average gross advances decreased to 38.6 percent from 46 percent a year earlier as interest rates on all Capitec loan products were reduced during the year.
Capitec chief executive Riaan Stassen said the formalisation and proper regulation of the unsecured lending sector in 2007 encouraged South Africa’s big banks to enter the market and compete. South Africa’s big four lenders are Absa, Standard Bank, FNB and Nedbank.
“We expect a decrease in margin going forward but we continue to be price leaders. We have not faced competition on the price side,” he said.
Stassen said the bank was confident it would manage to keep its lending price lower for longer as its cost to income ratio was expected to decline further.
Stassen said Capitec was comfortable with the slight decline because it did not want to increase its risk appetite.
According to the National Credit Regulator (NCR), unsecured credit granted during the year to September 2011, excluding credit card facilities, grew by 56 percent. Loan sales reported by Capitec to the NCR for the same period grew by 71 percent. But because Capitec stripped out loans that were used to pay for previous loans, the bank reported loan advances growth of 35 percent.
The bank said although there was the perception that a credit bubble was developing in South Africa’s unsecured credit market, it believed that growth would continue and that there would not be a significant threat to the market.
Net loan impairments rose 62 percent to R1.6bn.
Capitec posted headline earnings a share of R11.25, 49 percent higher than the R7.57 reported in 2011. Transaction income grew by 57 percent to R836 million, notwithstanding the transaction fees were not increased in March 2011.
Retail deposits increased by 66 percent year on year to R10.4bn. About 877 000 new active clients joined the bank during the year under review, bringing the total number of active clients to 3.7 million at the end of February 2011.
Stassen said the customer service method used in Capitec’s new “designer” branches would be rolled out to all existing branches in the next 18 months. Capitec also planned to add 55 new branches in the current year.
Jean Pierre Verster, an analyst at 36One Asset Management, said Capitec was not losing market share because loan sales reported by the bank grew by 71 percent compared to 56 percent reported by the NCR for the industry as a whole.
But the fact that half of this was used to repay previous loans was an amber light flashing, he said.
“Paying off debt with borrowed money is unsustainable when interest rates eventually rise, but the impact is delayed because one would still have a good credit record and banks would even lend more to such a client because it looks like they can afford it,” he said.
Verster said even though the big four banks had shown growth in the unsecured lending space, they were still behind the growth rate of Capitec and African Bank.
“Those two are the specialists of unsecured lending. The big four haven’t shown the rate of growth shown by Capitec and African Bank.”
Verster said there were also players that extended loans to customers who wished to consolidate pre-existing debt, often the reason their credit records appear healthier than they are.
Capitec shares closed 0.26 percent higher at R203.