It is Capitec’s second lockdown quarter that the market has chosen to focus on, after a 78% drop in first-half headline earnings to end-August prompted a rally in the bank’s share price last week.
"In our first three months to May there was almost no economic activity," says Capitec CEO Gerrie Fourie, "and we made a R404m loss. But there was enough of a recovery in June, July and August to bring interim earnings up to R650m."
Though its short-term results have been little better than those of other banks, Capitec has been the most robust on the JSE, losing only around 20% from its 12-month peak to its present levels of about R1,040, though this was after a 24% recovery in September, in the wake of confirmation that PSG would be unbundling the majority of its shares.
Capitec has certainly matured from its days as a predatory microlender providing payday loans to the desperate.
It is now the largest bank in SA by number of clients, a considerable 14.7-million — a rise of 6% year on year.
But Fourie admits that the credit loss ratio of 8%, up from 6% in the six months to August 2019, is far worse than its competitors’, which reported credit losses in the 1.5%-3% range in the six months to June.
But he says it is in line with the losses from unsecured loan books in the market.
Absa, for example, had a 15% credit loss on unsecured loans.
Fourie says Capitec has taken the pain upfront by providing R4.2bn in additional write-offs for Covid-related arrears, on top of the R7.5bn in payment breaks and reschedules.
Still, the quality of the Capitec book has improved over time.
The proportion of clients with Capitec loans earning less than R7,500 a month has fallen from 16% in 2017 to 7%, and those earning R20,000 a month or more now make up the majority of its customers.
Capitec has the advantage of higher exposure to the government sector where, in spite of the minister of finance’s efforts, jobs have remained secure.
About 45% of Capitec’s clients are in the civil service or SOEs, and they make up 35% of all jobs.
"We have low exposure to most of the vulnerable industries," says Fourie. "Mining makes up about 11% of customers, travel and leisure about 2%."
Fourie says that even as the lockdown shuttered trade, Capitec continued to roll out new products: its access facility, or revolving credit, which is a lifetime facility; emergency loans which are granted overnight; and a package of behavioural incentives to reward early repayment of extended loans.
He says Capitec is reducing its dependence on its traditional credit clients, with numbers down 5% to 1.1-million.
"We will soon introduce the Capitec mortgage, which will still be managed by our partner SA Home Loans, but as it will carry our brand we will have more skin in the game," says Fourie.
Capitec now also a year to headline earnings.
Coronation portfolio manager Sarah-Jane Alexander says she is impressed with the way Capitec has leveraged its customer franchise: "It now offers most of the products its clients need. The main exception is secured products such as mortgages and vehicle loans. But it has found creative ways to give loans to these customers."
With all the Covid noise, the bank’s recent acquisition of business bank Mercantile has faded into the background.
Mercantile made a R47m loss over the six months, which hardly moves the needle at the now supersized Capitec. It had much higher impairments and operating expenses, but within two years it will be a fully integrated part of Capitec and take on the Capitec brand and low-cost culture.
Old Mutual Equities portfolio manager Neelash Hansjee says that, with hindsight, had we known Covid-19 was coming Capitec would perhaps have considered building its business bank organically.
Capitec has come on the radar at Old Mutual, but never got through the vetting process.
Says Hansjee: "Potential shareholders must take into account that, for all the noise, Capitec is primarily focused on unsecured loans, the hardest-hit sector of the market."
In its favour, he says, "is the growth of non-interest revenue through its transactional accounts and funeral policies. It now equals 97% of operating costs."
Capitec is now also SA’s largest digital bank, with 7.3-million clients.
It regularly tops consumer surveys of client satisfaction, with only First National Bank providing any serious competition. It also has a sizeable 8.7% market share of retail deposits.
Louis Chetty, head of financials at Stanlib, says retail deposits are the best indicator of trust in a bank, and clearly the public is happy to give money to Capitec for the long term.
"Do not underestimate the advantages of scale through more than 900 branches," says Alexander. "Many people still like to transact in a branch setting, which gives Capitec an advantage over digital newcomers [such as TymeBank, Discovery Bank and Bank Zero]."
Chetty says TymeBank initially tried to service clients from Vietnam with all the language and time zone barriers, and it has been slow at raising deposits.
In contrast, Discovery has gathered deposits faster than he expected.
Chetty says Stanlib, in contrast to the other large managers, has been a consistent investor in Capitec.
"It might look pricey on a 30 p:e ratio, but the management team has done a phenomenal job and should deliver again."
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.