Capitec FY profits jump 15%, but credit book points to distressed consumer

South Africa’s largest lender by clients, Capitec, has posted a 15% rise in full-year profits after the bank dished out more loans during the reporting period.

The lender released its financial results for the year ending February 2023 on Tuesday, showing headline earnings of R9.7 billion, up from R8. 4 billion in its 2022 financial year.

The bank was one of the only lenders among its peers which saw a double-digit increase in loans and advances extended to its clients. Its credit book showed that gross loans and advances to clients jumped 16% to R97.8 billion, compared to R84.1 billion during the prior year.

In its core retail banking division, the bank saw Stage 3 loans (those held by clients that are becoming financially distressed) increase the most, soaring 33% to R18.4, from  R13.8 in the prior year, while Stage 1 and 2 loans, increased 13% and 6% respectively, to R50.3 billion and R13.5 billion.

Read: More clients have become financially distressed, Nedbank says

The bank nearly doubled its credit impairment charges for the retail banking unit which increased to R6.7 billion from R3.1 billion in the prior year, reflecting the current economic pain faced by consumers.

During early morning  trade, Capitec’s share price had dropped 5.24% to trade at R1,657.30.

The bank’s new loan sales charge of R4.1 billion was on the back of it relaxing its credit lending criteria, which was later tightened as the impact of higher interest rates and sticky inflation began to strain its clients.

The South African Reserve Bank joined many other central banks including those in major economies in a combative fight against stubbornly high inflation. Since it first launched its interest raising cycle in November 2021 it has delivered a combined 425 basis points increase in interest rates, which has made the cost of capital expensive, and put pressure on consumers’ spending power.

Read: Bigger rate hike brings more gloom for home and vehicle owners

“There was an increase in clients going into debt review, rolling into arrears and default, and balances being rescheduled,” Capitec said.

Debt review balances increased to R5.6 billion, from R4.9 billion in 2022, while handed-over balances, which remain on book while they perform in accordance with the payment arrangements made, increased to R4.9 billion, from R3.8 billion, the bank said.

The business banking unit saw growth in net credit impairment charges on its loans and advances of 18% to R208 million, from R176 million, while written-off bad debts cost the bank R192 million, compared to R75 million in the previous reporting period.

The bank earned R21.1 billion from interest, up 22% from R17.4 billion in the previous year.