/ 26 March 2014

Capitec gears up for more bad debt

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

Capitec Bank Holdings, South Africa's second-largest provider of unsecured loans, said it is setting aside more money for bad debt as a sluggish economy and mine strikes hurt borrowers.

"We see pressure in the consumer market and are providing more," Gerrie Fourie, who became Capitec's chief executive in January after Riaan Stassen retired, said in a phone interview from Johannesburg on Wednesday. "We're in for a difficult year economically."

Capitec increased provisions for doubtful debts by more than a third to R3.64-billion ($339-million) in the year through February as loans in arrears grew 22% to R2.17-billion, the company said in a statement on Wednesday. Mining- related clients, some of whom have been affected by the eight- week strike in the platinum industry, account for 7.5% of Capitec loans, according to Fourie.

"We're working with management and unions to understand the issues," Fourie said. "We've tightened up our lending in the mining industry quite a lot."

Anglo American Platinum, Impala Platinum Holdings and Lonmin Plc, the largest platinum producers, said on Tuesday that the strike by more than 70 000 members of the biggest union at their South African operations has started causing irreversible damage to the mines, with sales losses exceeding R10-billion. Workers have lost more than R4.4-billion in wages, they said.

Profit gain
Capitec's full-year profit climbed 28% to R2.04-billion after the bank added 711 000 new clients, the lender, based in Stellenbosch near Cape Town, said on Wednesday. Earnings per share excluding one-time items rose 15% to R17.52, beating the R16.95 median estimate of 12 analysts surveyed by Bloomberg.

Capitec advanced 1.3% to R189.51 as of 11.17am in Johannesburg trading, paring this year's decline to 8.8%. The bank increased its total dividend by 16% to R6.63 per share.

Unsecured lending, which targets lower-income consumers with loans not backed by assets, may risk a political backlash as annual interest rates of as much as 31% mire borrowers in debt. The National Consumer Tribunal heard allegations that the bank contravened credit laws on March 13 and judgment was reserved, according to Capitec.

While the tribunal said it will hand down a judgment within 40 days, the bank expects it could take as long as six months, according to Fourie. The hearings centred on the technical functioning of one of Capitec's products, he said, adding that it's not yet possible to quantify the size of a potential fine. – Bloomberg