Capitec shareholders will be the first not to get a dividend as the bank braces for the economic fallout of the lockdown imposed by President Cyril Ramaphosa three weeks ago.
Despite reporting a 19% increase in headline earnings for the year ending February to R6.28bn, the bank will not pay a dividend this year. It is the first bank to do so since the Reserve Bank provided guidance on ways in which banks can preserve capital buffers for the deterioration it expects in the economy in future.
Headline earnings is a widely watched measure of profitability that exclude one-off items.
Capitec also suspended the payment of cash bonuses and froze salaries and fees for executives and directors, respectively. The bank remains well capitalised, as evidenced by the capital adequacy ratio of 30.5% at year-end. The minimum for SA banks is 10%.
Capitec CEO Gerrie Fourie says it is too early to tell what the financial effect of the Covid-19 pandemic will be on the bank’s loan book, but it has developed 11 options to help its customers navigate the tough times ahead.
The pandemic is expected to lead to large-scale job losses and one of the deepest recessions SA has faced.
“We are evaluating every client on their own based on what is best for them, whether it be payment breaks or rescheduling loans.
“In our collections department we usually handle about 2,000-3,000 calls per day and we are now running at 10,000, so yes, there has been a big increase.
“It will be interesting to see how many companies are going to pay salaries this month,” said Fourie.
To alleviate the loss of functionality many of the bank’s 13.9-million customers have experienced due to the lockdown, which has prevented half of the branches from operating, Capitec has begun converting branches to call centres.
Any deterioration in the bank’s loan book moving forward will be a departure from the last financial year.
The bank grew its retail loan book by 17% to R62bn during the year. Gross credit impairment charges for bad debts rose 14% to R5.6bn. But the bank was effective in recovering bad debt already written off, and this caused its net credit impairment charge to decline 2% to R4.3bn. Write-offs for bad debt thus actually declined during the year.
Loans to higher-income customers continued growing. More than half — 51% — of all new loan volumes in February were made to people earning more than R20,000 per month, a trend that has been increasing over the last three years.
The bank will launch a new loan product, an access facility for higher-income earners, in May that functions similar to a revolving credit facility. Customers will only incur fees and interest as and when it is used and will have immediate access to any capital repaid.
“This is another way [in which] we are introducing responsible credit,” said Fourie.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.