South Africa’s Capitec Bank warned on Tuesday that it was cutting back on lending to cash-strapped consumers from lower income groups as it posted a 19% rise in half-year profit on steady growth among more affluent clients.
Weak economic growth in South Africa, where Capitec does nearly all of its business, has cost many casual workers their jobs and firms have cut back on overtime pay and bonuses, chief executive Gerrie Fourie told Reuters.
“We have limited credit extension to lower income earners,” the bank said in a statement accompanying its results, adding that workers in industries such as mining and small-scale retail are “at high risk of having unstable income”.
A large number of South Africans do not use formal banking services and for many their first contact with regulated financial institutions is when they get a microloan without having to provide collateral. This unsecured lending grew for years until Capitec’s rival African Bank had to be rescued in 2014.
Capitec, which is also known for lending to poorer borrowers, has in recent years worked on attracting more well-to-do clients, who do more transactions.
The bank said its net transaction fee income rose to 37% of its net income, compared with 32% a year ago.
“Our transactional banking continues to grow rapidly in line with the increased client numbers and increased transactions by clients,” the bank said.
The lender grew active clients to 7.9-million from 6.7-million in August last year. Many of these new accounts are for consumers who earn more than R10 000 after tax a month, Fourie said.
“We would like to grow our market share of that group to 20% in the next two to three years, so that is where our focus is,” said Fourie, adding that it stood at 11%.
Around 90% of South African workers take home less than R20 000 rand a month, he said.
South Africa has a working-age population of 36-million and a labour force of 21-million, with unemployment above 25%. Official data says there are about 15-million people of working age who are not economically active in the country.
Capitec’s headline earnings a share, the main profit measure in South Africa, which strips out certain one-off items, increased to 1 517 cents for the six months ended in August, from 1 271 cents a year earlier.
The bank increased its interim dividend a share by 20% to 450 cents and its shares were up 0.9% at R609.50 by 9.07am GMT, compared to a 0.6% fall in the Johannesburg Stock Exchange’s benchmark Top-40 index. – Reuters