Capitec’s share price took a tumble on Thursday, 29 September, after the announcement of Capitec’s interim dividend, despite a 16.7% increase in dividend. 

After the interim results announcement, the share price plunged 10% to close at R1,615.14 and then fell another 4% to close at R1,553. Shareholders have taken a 33.29% hit in the past six months. 

Domestic and global uncertainty, caused by Russia’s war in Ukraine, rolling blackouts and flooding in KwaZulu-Natal, have added to an already uncertain economic environment, which further eroded consumer confidence and added significant strain. 

Capitec CEO Gerrie Fourie said clients were under increased financial stress in this period due to inflationary pressure, higher interest rates and record-high fuel prices.

A financially stressed client is defined as having less than 20% disposable income, after accounting for debts and expenses. In 2019, 11% of clients were stressed, whereas in 2022, this had risen to 13%.

Capitec’s up-to-date book has stayed virtually on a par year on year, whereas up-to-date with SICR (significant increase in credit risk but rescheduled) is at 75%. The book that didn’t improve is stage 3 — two to three months in arrears — at about 14%, compounded by the Sibanye strike (about R100-million), system problems in August (another R100-million) and an increase in debt review applications.

Bad debts written off decreased to R2.5-billion from R3-billion last year, due to lower write-offs of Covid-19-related reschedules that amounted to R312-million. Rollovers into default across all industries returned to levels previously seen during 2019. In the six months under review, applications for debt review rose 18%.

Loans that were more than three months in arrears, had a legal status or where clients had applied for debt review in the previous six months grew to R11.1-billion (from R9.3-billion).

Operating profit before tax and credit impairments grew 24% to R8.8-billion, compared with R7.1-billion a year ago. Lending income grew 13% to R8-billion and net credit life insurance and funeral plan income climbed 64% to R1.5-billion.

Shift in focus to higher-income clients

Capitec has shifted its focus towards higher-income clients in recent years, with almost no credit extended to lower-income clients. Credit granted to new clients earning more than R50,000 increased 49%. 

Last week, the bank entered the mobile virtual network operator market, through a partnership with Cell C. Capitec Connect combines low, flat prepaid rates with bundles that do not expire, unlike competitor bundles that are valid for varying periods up to six months from date of purchase. 

Eight million Capitec clients already buy pre-paid data and airtime on the bank’s digital channels and Capitec Connect will offer rates almost 50% below the average rate in the market. There are no out-of-bundle charges, data costs R4.50 per 100MB, voice minutes 90c per minute and SMSs 25c each. There are no transaction fees for recharging and clients can top up via USSD or their Capitec app.

The Live Better rewards programme has 8.5 million registered clients, who benefit from Bank Better rewards, automated savings tools and Spend Better partner discounts, which are on track to save customers about R1-billion by the end of February 2023.

Capitec’s business bank, which grew by 60%, contributed R201-million to group earnings for the period under review. Fourie said total business banking clients, including POS merchants, grew by 14% to 142,185 in the current period.

Capitec acquired Mercantile Bank in November 2019 and will be rebranding it to Capitec Business in the next financial year. 

Fourie struck an optimistic note, adding that Capitec had seen consistent growth over the past five financial years despite the tight environment.

Group headline earnings, which are based solely on operational and capital investment activities, increased by 17%, from R4-billion to R4.7-billion for the comparative period, which Capitec attributes to its more client-centric approach through technology.

Visit Daily Maverick’s home page for more news, analysis and investigations

Client numbers and transaction volumes

With clients migrating towards digital and POS transactions, transaction volumes increased by 26% and banking app volumes rose by 51% from R340-million to R515-million, comprising 65% of total digital transactions (compared with 55% in August 2021).

Capitec saw a sharp rise in customer numbers, increasing its client base by an average of more than 165,000 customers a month. Clients banking on the app, internet banking and USSD now represent 57% of total active clients, a rise of 21% to 10.8 million. Other banks average about two million.

Fourie said the company’s strong digital presence helps them communicate with their clients, and customers felt the bank was in their pocket, any time, anywhere, any place. 

Capitec has also appointed 1,642 new staff in the past year, with almost 330, or 20%, recruited for critical technology and data positions as it builds on its digital banking offering. 

It saw a 27% increase (to 791 million) in digital transaction volumes in the past six months, bringing in about R5.6-billion.

The insurance division, which sells credit life and funeral plans, performed  strongly. The active funeral insurance book grew from 88,000 five years ago to two million. Active policies are up by 34% and Capitec has become a market leader in this sector with 8.9 million lives covered.

Operating profit before tax and credit impairments grew by 24% to R8.8-billion, compared with R7.1-billion a year ago. Lending income grew by 13% to R8-billion and net credit life insurance and funeral plan income grew by 64% to R1.5-billion.

Claims from retrenchments and death have decreased from R15.5-billion to R15.7-billion, reflecting the drop in the number of clients retrenched and Covid-related claims. “It will be very interesting to see what happens with retrenchments in the next couple of months, given the economy,” Fourie said.

The net transaction, net foreign currency and funeral plan income to operating expenses ratio improved from 98% in August 2021 to 108% in the current year.

Net credit life insurance income grew by 60% due to growth in active policies and a reduction in claims paid. Funeral plan income grew by 72% based on growth in the active policy book, growth in average premiums and lower claims.

Term loans were “basically flat”, Fourie said, whereas credit card loans had grown by 11%. Access loans, which the bank has better control over, grew from R9.287-billion to almost R20-billion.

“What is nice about the access facility is that we can manage the risk. With term loans and credit card loans, if you grant that credit, you can do nothing — the money is in [the customer’s] belly… But with the access facility, we have the ability to reduce the term or reduce the exposure to the client. It’s a very nice product over such a tough period. We have pulled back where we see stress with particular clients.” 

The access facility is granted at an interest rate of 20%, compared with the National Credit Regulator’s short-term credit rates of 25%, so the former facility is granted at a lower interest rate. If the client is up to date, they don’t need to return to the branch to take up a loan, so the operating cost is much lower with this facility.

The interest rate increase does not affect the existing term book and there is no impact on customers with existing credit. New loan applications, however, are being granted at a higher interest rate. 

Asked about the share price decline, Fourie told Business Maverick: “I look at the share price over a long period not the short term because there are so many emotions and market volatility involved in the share price. We don’t look at the share price — we look at the fundamentals, the input and the basics of the company. We believe it is healthy and we are quite comfortable with where we are. [Our] focus [is] on the input and the client – the share price is the result.”

To mitigate the impact of rolling blackouts, Fourie said Capitec had approved the roll-out of lithium batteries in all its 850 branches – an investment of R58-million.

“You can’t have branches that are not operational. That’s the cost of load shedding. Everyone is investing in solar, batteries or whatever. The economy is much more resilient than you think. We’ve all adjusted to not having electricity. We’re becoming self-sufficient.” BM/DM