Africa-Press – South-Africa. Shares in Capitec slumped more than 5% on Tuesday after the bank reported a deterioration in creditworthiness among its customers, even as demand for borrowing remains strong.
The bank announced its financial results for the year to end-February on Tuesday morning, reporting an 80% spike in impairments to R6.3 billion. Its lending criteria are now three times stricter than regulatory guidelines, Capitec said.
Still, Capitec saw a 20% increase in its loans and advances as the number of new applications grew significantly. New loans grew to 5.3% of Capitec’s gross loan book, more than double what it was two years ago.
By law, these new loans required provision for R1.2 billion in new impairments (of the R6.3 billion raised), said Capitec CEO Gerrie Fourie.
But that still left R1.6 billion in additional bad loan provisions.
Fourie said many of these loans were among those rescheduled during the pandemic. While most clients resumed normal repayments in the previous year, during the past year, some started to struggle again. Capitec also saw an increase in customers enrolling for debt review. Additionally, its loan book is not performing in line with the bank’s expectations.
According to Fourie, debt review has been positioned to clients as a solution that solves all their problems. But in his view, it doesn’t, and Capitec is trying to “find a solution” to educate its clients about this.
He said Capitec has seen a large number of clients that should have come to the bank to reschedule their loans as a first option – instead they are being enrolled for debt review.
Tightening the lending taps
Capitec has tightened its credit appetite significantly over the last few months.
The bank made 972 changes in its affordability assessment and credit granting criteria.
For instance, it has increased the percentage of client income that should be going towards living expenses – to a higher level than what is demanded by the National Credit Regulator (NCR), motivated by an escalating cost of living since the beginning of 2022.
“We are now three times stricter than the NCR,” said Fourie.
As a result, Capitec’s loan approval rate has fallen to 45% from 48% in February 2022 and is now 10% below the 2020 high of 54%. Capitec is also cutting credit limits of existing clients if they show consistently bad payment behaviour. Sometimes credit limits are cut to zero.
“If a person has got a limit of over R100 000 and he’s not performing well, we’ll cut that limit to, let’s say, R80 000, or we’ll even cut it to zero,” he said.
Capitec also discontinued its short-term access facility that used to give people loan facilities for one to 18 months. Fourie said that the product wasn’t performing as the bank wanted. So, it decided to stick to term personal loans.
But the bank is tightening lending appetite at a time when more people seem desperate for some line of credit to keep their heads above water.
At the end of February, Capitec’s new credit applications were very close to the record numbers reached in February 2020.
“I think that’s the sign of the economy. Everyone is suddenly looking for credit, and you have to say no. We’ve seen many more people coming in asking for credit,” Fourie said.
On Tuesday morning, Capitec’s shares slumped more than 5% to R1 655, having lost more than a fifth of their value over the past year.
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