Capitec Bank, a prominent lender in South Africa, has shared an optimistic forecast regarding its loan losses. The bank expects to see a decrease in its loan losses, bringing it in line with target ranges by 2025. This positive forecast comes after the bank reported an impressive 16% rise in its full-year profits. As a result, Capitec’s shares have risen by 7.43%.
Capitec has established a niche in the financial services sector by primarily serving low-income earners, a demographic often overlooked by larger, more established banks in the country. However, this focus has also exposed the bank to higher credit risks, especially as its customer base faces a series of economic challenges such as ten consecutive interest rate hikes and escalating food inflation.
Despite these challenges, Capitec, the largest retail bank in South Africa by customer numbers, is experiencing a positive shift in its financial operations. Gerrie Fourie, the CEO of Capitec, informed investors that the migration from performing to underperforming retail credit loans had slowed down in the latter half of the fiscal year that ended on February 29, 2024. Additionally, there has been an improvement in client cash flow, which is evidenced by a decrease in customer transactions with insufficient funds.
Capitec Bank has been facing some challenges lately, with an increase in estimated credit losses leading to a rise in the credit loss ratio. The bank’s credit loss ratio-a key measure of bad loans as a percentage of total loans-rose from 80 basis points (bps) in 2023 to 101 bps in the full-year period. However, Capitec’s CEO Gerrie Fourie is confident that the credit loss ratio will normalize to the bank’s through-the-cycle target of 85 bps by February 2025.
Despite these challenges, Capitec continues to show robust growth. The bank’s overall credit impairment charges surged by 38% to 8.7 billion rand (approximately $453.21 million). Meanwhile, the credit loss ratio increased to 87 bps from 70 bps at the group level. To mitigate further risk, Capitec has tightened its credit-granting criteria.
Apart from its banking operations, Capitec is also expanding its presence in the insurance sector. The bank plans to introduce life cover options after the termination of its funeral product cooperation arrangement with insurer Sanlam. With this move, Capitec aims to diversify its service offerings and reinforce its position in the market.
Capitec has reported a significant growth in other financial metrics as well. Its headline earnings per share, a critical profit measure in South Africa, climbed to 9,171 cents. Moreover, Capitec’s net transaction and commission income saw a substantial increase, rising by 29% to 14.8 billion rand.
Capitec Bank is prioritizing managing credit risk and expanding its product range, which will help it grow and thrive even when the economy fluctuates. The bank is taking proactive steps to stabilize and reduce loan losses by 2025, which should increase investor confidence and customer loyalty during these challenging times.
Source: Reuters
