Clients earning less than R10,000 are bearing the brunt of the surge in food and fuel inflation, said Capitec CEO Gerrie Fourie, while small businesses are taking major strain from load-shedding.
“Inflation in petrol has a major impact on people earning less than R10,000 and that is where we cut back the most” in terms of lending, he said.
“If you look at businesses, we are seeing typically people who run the biltong shop around the corner, they are struggling in these times. We have seen strain in the really small businesses that are run by two or three people,” he said
Fourie was speaking after the release of the bank's results showed a 62% surge in its impairment to R4.8bn in the six months ended August. Capitec is South Africa's largest retail bank by customer numbers, which increased in the six months under review by almost a million, bringing the total number of active clients to 21.1-million.
“At the top end of the income level, one concern for me in South Africa is that people are not disciplined enough to live within their means. They want to keep up with the Joneses. That is a culture thing we need to address not a credit thing, that we all take ownership of our future, and that we are tightening.”
There will be pressure for a while, [but] once we see interest rates come down and food inflation coming down, we will see consumers in a much better position
— Old Mutual CEO Iain Williamson
As a result of higher living costs, the bank took a decision to tighten its credit criteria for retail loan products, including cutting back on clients who increased their instalments to income ratio by more than 30% in the six months under review.
Fourie said: “Interest rates are 100% in line with where they were just before Covid. People got used to the low interest rates and increased their spending.”
Insurance group Old Mutual said this week that with high inflation and unemployment customers’ disposable income remained under pressure, leading to disinvestments as customers sought to boost their liquidity.
The group raised additional short-term provisions for its mass and foundation cluster business after the persistency ratio — which measures the number of policy holders paying their premiums — worsened in the six months ended June.
The foundation cluster services low-income consumers while the mass business services customers including teachers, police and nurses. Both divisions are sensitive to households' ability to pay their monthly bills.
Old Mutual CEO Iain Williamson told Business Times the group had to absorb the impact of a tough economic climate on customers' ability to service their policies.
“In that market in particular, customers are under a lot of pressure from a combination of transport inflation, food inflation and higher interest rates, meaning that affordability challenges become a real issue and people get to a place where they cannot afford to continue with their policies.
“That has a fairly material impact on us because in our modelling of how we set up our liabilities we make assumptions about how many policies will stop paying in a particular period and when that gets worse it has a negative effect. We have put aside provisions to take account of the fact that persistency has got worse in the first half of the year and made an assumption of that continuing into the future,” he said.
Williamson said while consumers have been through the worst as food inflation has peaked and interest rates appear to have peaked, there is not going to be dramatic relief soon.
“There will be pressure for a while, [but] once we see interest rates come down and food inflation coming down, we will see consumers in a much better position.”
Global information group TransUnion on Thursday reported higher demand for unsecured lending as consumers increasingly rely on credit to meet basic needs. It said lenders issued 10.2% more credit cards in the second quarter of 2023 compared to a year earlier.
TransUnion said personal loan volumes were up 8% year-on-year, while loan amounts were 14.7% lower over the same period.
Weihan Sun, director of financial services research and consulting for TransUnion in South Africa, said: “As the cost of living continues to increase, growth in demand and growing balances could signify that many consumers are reliant on credit to help pay for everyday living expenses.”
Old Mutual reported a fall in half-year profit as headline earnings per share slipped 8% due to hyperinflation issues in Zimbabwe in the six months ended June. Despite the performance, the insurer hiked its dividend 28%.
Capitec recorded a 8.9% increase in headline earnings per share for the six months to end-August and announced a 9.3% hike in the interim dividend.
Capitec, which has diversified its income stream from predominantly lending, said it added 1.3-million SIM cards since launching Capitec Connect using Cell C's mobile network infrastructure in September 2022.
Its branch numbers grew from 856 in August 2022 to 866 at the end of August this year and its premises-related expenses grew by 13% to R767m.
“Where everyone is closing branches, we believe it's an important part of our future,” Fourie said.
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