/ 18 July 2013

Capitec takes strain as SA consumers take out fewer loans

Capitec Bank's share price took off
Capitec Bank's share price took off

Capitec Bank, South Africa’s second-largest provider of unsecured loans, said growth in new loans is stalling as consumers grapple with rising unemployment and increased costs for fuel and power.

While in March Capitec expected growth in loans disbursed would be in single digits, “our latest opinion is the growth will be flat,” Andre du Plessis, chief financial officer of the Stellenbosch-based lender, said yesterday at the company’s headquarters near Cape Town. “We’ll still have significant book growth, but it will have an effect on profitability.”

South Africa’s gross domestic product expanded 0.9% in the first quarter, the slowest pace since a 2009 recession, while unemployment climbed to 25.2%, up from 24.9% in the previous three months.

The price of gasoline in the country has gained about 22% from July last year. Capitec started about 14 years ago offering small loans to low-income earners who didn’t have the assets needed to back loans from South Africa’s largest banks.

Bad debt
African Bank Investments, its biggest competitor, lost about half its market value this year after reporting a decline in profit and rising bad debt. Capitec has gained 3% and is the country’s second-best performing bank stock after Investec.

“Capitec has been fairly unscathed but it won’t be spared the slow down in the unsecured lending market,” Patrice Rassou, head of research at asset manager Sanlam Investment Management in Cape Town, said in an interview.

“The key question is if it’s well-provided enough.”

Capitec’s total capital adequacy ratio, which measures how much money it carries against liabilities, was 40.1% at the end of May, compared with 27.6% for African Bank at the end of March.

Capitec boosted its provision for doubtful debts 76% to R2.7-billion by the end of February. “We’ve already pulled back on our credit criteria by either not allowing people to take a loan or by alternatively specifically decreasing the tenure of the loans,” Du Plessis said. “We’re seeing more people struggling.” – Bloomberg