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Capitec’s core earnings plummeted to R650 million, a 78% decrease from R2.9 billion in the first six months of 2019.
- Capitec released its provisional results for the six months ended Wednesday, August 31.
- The bank’s gross credit impairment charge for the six months was R6.3 billion, of which R4.2 billion was directly attributed to the freeze.
- Capitec says low-income people have borne the brunt of the pay cuts and job losses under the ongoing lockdown.
Capitec has reported a 78% drop in overall profits after losing transaction fees and loan sales during the lockdown, as its clients borrowed and transacted fewer.
Capitec, South Africa’s largest bank by number of clients, is highly exposed to the low-income segment of the population that suffered the most from job losses during the ongoing lockdown.
Capitec said the lockdown negatively affected all areas of its business during the six months ending August 31, except for the number of active clients that grew 6% from 13.9 million at the end of February 2020 to 14 , 7 million at the end of August 2020.
Capitec’s operating profit before tax decreased by 86% to R538 million, from R3.83 billion in August 2019. Its overall profit fell to R650 million, a 78% decrease from R2.9 billion in the first six months of 2019. The bank elected to conserve cash and not declare an ordinary interim dividend.
Capitec customers severely affected
Capitec CEO Gerrie Fourie told investors during the bank’s earnings release on Wednesday morning that the lower-income segment it predominantly serves, especially those earning less than R7,000 a month, was seen ” much more affected “by the crash.
“For people who earn more than R20,000 a month, we are basically at the same levels [of income] like before. But we have seen a sharp reduction in overtime and bonuses. Everything has basically stopped, “Fourie said.
He said some of the bank’s SME clients cut salaries by as much as 80% in the first months of the shutdown. Contract workers were also severely affected as SMEs reduced their costs.
“I think that’s why we are seeing a huge driver in the 2 million people who have lost their jobs in the last six months,” Fourie added.
Increase in provision for bad debts
Capitec said that when Covid-19 hit the shores of SA, it had already hardened its loan criteria. It reduced the granting of credit by about 20%, Fourie said.
But because it had to provide relief to clients affected by the lockdown, its gross credit impairment during the six months amounted to R6.3 billion. The bank said that the blockade contributed R4.2 billion to this. The provision also included R1.1 billion for losses expected beyond the six months ended in August.
In absolute value, Capitec’s impairment charge appears lower than that of the four big banks: Absa recorded a credit impairment charge of R14.7 billion, Standard Bank amounted to R11.3 billion, Nedbank grew to R7.67 billion while FirstRand was forced to increase its loan provision by 199% to R15.2 billion.
However, these banks have much larger loan books than Capitec, which does not offer secured credit products like home loans and vehicle financing. Fourie said the bank’s increased provision was due to the bank choosing to err on the side of caution.
“What is very important is that from a Covid perspective, we have made the provisions in advance to the best of our ability to make sure we are covered. We should see normal performance going forward. But I think everyone is still concerned about what it’s going to happen in September, October and November, “Fourie said.
