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Tuesday, 23 April 2024 13:27

Capitec reports a 16% increase in profit as customer numbers continue to grow.

By Nqobile Dludla and Lehlohonolo Lehana.

Capitec Bank reported a 16% rise in full-year profit on Tuesday, helped by a strong performance during the second half as its net transaction and commission income grew by 30%.

The group's headline earnings per share — the main profit measure in South Africa — rose to 9 171 cents in the year ended on February 29, from a restated 7 938 cents a year earlier.

Capitec said transaction and commission income, including value added services (VAS), increased to R13.9 billion ($724 million), driven by growth in clients transacting digitally and client adoption of its VAS and new payment channels.

The company said credit impairment charges rose by 38% to R8.7 billion, which increased its credit loss ratio — a measure of bad loans as a percentage of total loans — to 87 basis points (bps) from 70 bps.

Capitec said it began relaxing its credit-granting criteria in late 2021 as certain clients began showing signs of recovery after the Covid-19 pandemic, but as the Russia-Ukraine conflict pushed inflation and interest rates higher, the lender started tightening again in June 2022.

"By the end of February 2023, there had been an increase in clients going into debt review and rolling into arrears and default," Capitec said.

However, Capitec chief executive Gerrie Fourie believes the group may have been too conservative with this move and is looking to open up "certain pockets" of lending.

Despite running credit education campaigns across social media and its app, Capitec still saw debt review grow from R5.5 billion in February 2020 to R6.3 billion in February 2024.

"This, for me, is a big concern in the industry. There is a place for debt review, but only if you are in extreme debt distress. First come to your bank and make certain that we can't assist, "said Fourie.

The group's loan book remained largely consistent year-on-year, in line with the nation's minimal economic growth of 0.6% in 2023.

Like most banks in South Africa, Capitec's credit loss ratio increased from 8.5% in February 2023 to 11.0% in August 2023 following increases in interest rates in South Africa.

However, the group was able to bring this back down to 9.2% by February 2024 and expects it to return to the through-the-cycle target of 8.5% by February 2025.

Fourie also noted that the group will continue to exercise caution when extending credit in the unsecured retail segment amid the challenging economic environment.