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Johannesburg - Capitec Bank [JSE:CPI] posted headline earnings growth of 21% for the six-month period to end-August 2014.
The bank reported that income was driven by client growth, up by 16%, which in turn grew bank transacting income by 34% to R1.2bn for the six month period.
Transaction income now constitutes 41% of net lending and transactional income, the other 59% being derived from net credit income, which grew by 5% for the six month period.
Net transaction income now covers 63% of operating costs, up from 55% in the comparable period.
CEO Gerrie Fourie stated that conditions in the transacting sector of the industry was favourable for Capitec Bank and good client growth was achieved as a result of the ongoing quality service-support the bank offered at the best prices in the industry.
This perspective is supported by the results of the recent Solidarity report on banking fees, where Capitec Bank was regarded as the best value transactional banking offer in the industry.
“We continue to make inroads into the market and we have further improved our in-branch client flow processes, to monitor capacity and service quality on an ongoing basis. This ensures better client support, which is always a challenge in retail banking,” said Fourie.
“We have also expanded our remote banking offer with a new banking app that is the easiest to use in the industry. It is unique in that it has a safety feature which is phone connected which negates SIM-swap fraud. We have had an excellent take up of over 100 000 clients over the past eight weeks, including positive feedback on its simplicity and functionality.”
When referring to the credit market, Fourie said the credit industry remains under pressure and Capitec is pleased with its conservative approach to both credit extension and provisioning which it has applied over the past 24 months.
"Our performance is within our risk appetite and we are seeing new higher income clients taking up our credit offer,” said Fourie.
Ongoing shift
He expressed his satisfaction with the ongoing shift in the overall income profile of the bank.
“Our transacting income now is 41% of our total lending and transacting income and we are covering 63% of our expenses with this recurring income,” he said.
New active bank clients grew by 418 000 to 5.8 million on a six month basis. The bank has further expanded its current offer of home loans in Gauteng, in partnership with SA Homeloans, to the Western Cape and KwaZulu-Natal, with other provinces following soon.
Branches and ATMs were extended by 18 and 290 respectively for the six month period and this growth was focussed primarily on malls in urban areas to improve retail presence.
Credit extended amounted to R9.3bn, 2% less than for the corresponding six months in 2013. Tighter credit granting rules resulted in the number of loans declining by 20% on the previous year.
“We see an ongoing trend of higher income clients taking life improvement credit, and the National Credit Regulator (NCR) statistics now show that 50% of unsecured credit goes to clients with income over R15 000 and 82% of unsecured credit extended is greater than R15 000,” said Fourie.
Declined credit applications at the bank remain high at 57% and ultimate take up rate by clients is only 30% of all loans offered. Fourie stated that this was indicative of the present debt-state of clients and the pressure in the economy.
Arrears to gross loans and advances was at 5.5% which is the same as the six month period as at August 2013.
Net loan impairment expenses for the period increased marginally by 2% to R1.9bn on the comparable period.
Cautious provisioning for doubtful debts increased the level of provisions by 18%. This in turn increased the arrears coverage ratio from 177% of arrears for 2013 to 194% of arrears for 2014.
Fourie stated that conditions remained tough, but that he was satisfied with how the bank was managing its credit client profile and its risk appetite.
Robust growth
Robust growth was experienced in retail deposits which grew by R3bn to R26.6bn for the six months to August.
“This is testimony to the trust in the Capitec Bank brand and of the value we offer in our savings products,” said Fourie.
Capital adequacy remained strong at 38%. Capitec Bank meets the requirements of the new international liquidity measures.
The bank remains positive about its growth prospects and is confident that the value of its transacting offer will continue to attract higher income clients.
Expanded remote banking services and extended distribution in urban areas will further enhance the bank’s offer and make its services more relevant to higher income clients.
The conditions in the credit market remain under pressure, however, significant opportunity does exist when regulatory conditions regarding affordability and credit life are finalised by the Regulators and extended monitoring is implemented.
“We remain committed to delivering accessible credit at reduced prices to the entire market and believe we have an advantage over competitors in this segment at present,” said Fourie.
“Our singular focus on retail banking only and ensuring efficiency in our processes has given us a solid foundation from which to expand our business.”
