Capitec CEO Gerrie Fourie has defended the bank’s loan book, often a source of scepticism from the bank’s handful of critics, saying he is comfortable with its quality and it has admirably weathered the storm caused by Covid-19.
Fourie spoke to Business Day on Friday after the bank delivered another set of stellar results showing attributable earnings rose 531% to R3.916bn in the six months to end-August 2021. Capitec increased its active clients to 16.81-million, from 15.83-million at the end of February, when it reported full-year results.
However, the one question that critics have always asked of Capitec is the strength of its loan book, which has a greater exposure to unsecured debt granted to lower-income consumers than more established rivals such as Standard Bank and FirstRand’s FNB.
In its latest interim results Capitec’s retail loan book, the bulk of its lending, stood at just over R66bn. However, only a bit more than R40bn of that amount, or about 61% of the total retail loan book, was regarded as fully up to date stage 1 credit.
The remaining 39% of the book was at various levels of stage 2 and stage 3 credit, while loans that were more than three months in arrears where borrowers had applied for debt review stood at R9.328bn, or 14.11% of the total retail loan book. By way of contrast, Standard Bank’s credit impairments amount to less than 3.8% of its R1.37-trillion in total gross loans and advances.
“Covid has distorted a lot of the figures,” Fourie said of Capitec’s loan book. “You’ve got an abnormal credit book composition because of Covid.”
While about R3.3bn of Capitec’s total loan book was comprised of rescheduled debt as of end-August 2021, Fourie said this is in the wake of Covid-19, which saw rescheduled debt spike to above R10bn in August 2020. Excluding the impact of the July 2021 unrest and looting, rescheduled loans fall to about R2.9bn, which is not too far off the pre-pandemic level of R2.5bn reported in August 2019.
“You’ve got this Covid-19 impact that is affecting everything,” said Fourie. “The critical part is how do we provide for it.”
On Capitec’s gross loan book of R77.7bn, which includes its R11.6bn business banking book, its expected credit loss provisions totalled R18.2bn, up moderately from the R17.8bn reported in February 2021 at its year-end results.
“On pricing and risk profile we’re very happy,” said Fourie. “On average, our pricing for the total book is around 17% to 18%.”
Wayne McCurrie, a portfolio manager at FNB Wealth and Investments, said Capitec’s comparatively high interest rate renders criticism of its loan book a moot point. While the loan books of Capitec’s more traditional rivals might have lower impairments as a proportion of their total, the interest rates they charge are also anchored far closer to the prime rate due to their larger exposure to secured rather than unsecured debt.
“In banking, there is no such thing as being caught out by bad debts,” McCurrie said.
“What matters is whether the bank anticipated that bad debt and priced its loan book correctly [to] provide for it. Capitec prices for a higher risk because of the market they serve.”
This pricing power has helped Capitec recover from Covid-19, as evidenced by the 26% surge in its share price this year. That gives it a market value of just over R207bn, slightly less than the combined value of Absa and Nedbank.
McCurrie said Capitec’s share price and market value are the only question marks hanging over a bank he called the envy of most financial services groups.
There is also the infamous Viceroy report, which recently earned the activist short-seller a R50m fine from the Financial Services Conduct Authority (FSCA). On that Fourie had
little to say. “We handled the Viceroy allegation in 2018,” said Fourie. “This is a fine that the FSCA has imposed and it’s between FSCA and Viceroy. We’ve got no comment on it.”
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