Will focus on building a high-quality loan book going forward.
Capitec Bank has reviewed its appetite to grant credit to certain pockets of its personal banking clients following the favourable outcome of the national and provincial elections in May this year.
The Stellenbosch-headquartered bank announced its results for the six months ended 31 August 2024 on Tuesday.
Speaking to Moneyweb after the results announcement, CEO Gerrie Fourie said the bank had already “opened up” credit provision in June after the establishment of the government of national unity (GNU).
South Africa held national and provincial elections in May, during which the ANC lost its outright parliamentary majority for the first time since 1994. The ruling party was forced to form a GNU with opposition parties, a move that has buoyed markets.
“We were looking at strategies for a good scenario and a bad scenario [following the elections]. We got a good scenario that surpassed everybody’s expectations,” Fourie notes.
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Tighter lending criteria paying off
In the 2024 financial year, Capitec significantly tightened its credit-granting criteria – more aggressively than the rest of the market – in response to the higher inflation and interest rate environment, which severely impacted spending and the ability to service debt.
Thanks to the group’s more stringent approach to granting credit, its credit loss ratio for the interim period dropped to 8.3% (2023: 11%) – below the group’s through-the-cycle target of 8.5%.
Fourie emphasises that Capitec will still apply strict lending criteria, evaluating prospective credit applicants based on behaviour, affordability, and source of income.
“In terms of behaviour, we look at spending patterns, and with ‘source of income’ the industry and employer play a role,” he says.
“There are certain economic sectors such as mining where there is greater uncertainty in terms of employment and where we will be more cautious [about granting credit].”
When load shedding was at its worst, Capitec tightened its lending criteria in the small, medium, and micro enterprise (SMME) space, where small businesses struggled to absorb the costs associated with alternative energy generation or the loss of business due to no electricity.
“When inflation was sky-high, we were stricter with lending criteria for lower income groups who were severely impacted by exorbitant food prices,” Fourie notes.
Capitec now has the opportunity to continue building a high-quality loan book while easing credit-granting criteria sustainably.
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Focus areas for credit
Capitec will now place greater emphasis on purpose-lending products, such as vehicle finance, education and home loans, and remote lending through its app and telephonically.
“Credit risk management has become even more agile through the use of all available data, our enhanced data platforms, machine learning, and artificial intelligence [AI],” Fourie says.
The bank intends to expand its market share in credit card loan sales from the current 9% to 15%, with a particular focus on clients over 25.
In the review period, there has also been significant growth in purpose lending loan sales, including vehicle, home and education loans.
In 2020, Capitec partnered with SA Home Loans to launch a home loan offering. Fourie said the bank recently approved a special purpose vehicle of R5 billion with SA Home Loans to enhance this offering to clients.
This article was republished from Moneyweb. Read the original here.
