Capitec Bank’s headline earnings for the six months to August 31 shows the impact that the Covid-19 pandemic and the national lockdown had on the banking sector.
The bank reported headline earnings of R650 million – a decrease of 78%. Operating profit before tax decreased by 86% to R538 million, from R3.83 billion in the previous period and headline earnings per share declined by 78% to R5.62, while income before tax was down 86% to R538 million.
In an interview with City Press, Capitec CEO Gerrie Fourie said the results were driven by the impact of the lockdown and the extra provisions the bank had to make under the International Financial Reporting Standard.
“We put in an extra R4.2 billion provision for retail and R190 million for business banking. This is why you see the major drop in profitability.”
Fourie added: “I think all banks increased their provisions quite a lot. And by accounting laws, you have to do it because you need to look at a future view of possible impact on your book. And that’s what all the banks have done. So I think all the banks have been extremely conservative in the provisions.”
He said it was still too early to say whether or not banks were too conservative in making their provisions. He said the R4.2 billion provision was Capitec’s best estimate, given the economy, the different industries, the bank’s client base and client income levels.
But, unlike most banks, whose headline earnings were negatively affected by subdued non-interest revenue growth due to lower absolute volumes during the lockdown period, Capitec reported a non-interest income increase of 3% to R3.6 billion. The bank also reported that transaction volumes were up 15% to 2.4 billion for the period in comparison with August last year.
Fourie told City Press that Capitec’s client base grew by 2 million, from 12.6 million clients in August last year to 14.6 million.
“So if you’ve got more clients, 2 million clients, who are transacting, you should see an increase in transactional income, and that’s what we’ve seen.”
He added: “On the digital side, we are up 52% year on year. So that’s very strong growth. If I look at our card purchases, were down 6% because people could not swipe in April and May. And cash is basically flat. But I think the positive side is very strong growth on the digital side. Overall, if you look at our total volumes, our transactional volumes actually increased and a big driver of that is the extra 2 million clients.”
Fourie said that, including the provisions, 87% of Capitec’s income came from transactional banking.
The severe impact of Covid-19 can be seen in Capitec’s operating profit before tax, which fell 86% to R538 million from R3.83 billion previously. Credit card disbursements decreased by 20% compared with the six months to February, but were 6% higher than the previous corresponding period.
Advances decreased by 64% compared with the six months to February 2019 and by 59% compared with the six months to August 2019. Loan sales for the period were down 35% compared with the previous period and 56% compared with the six months to February 2020, the bank said in its financial results presentation.
Fourie told City Press that the bank tightened its loan criteria before the pandemic.
During the lockdown, Capitec offered relief to its clients in the form of payment breaks and variable payment reschedules, which amounted to R7.5 billion, he said.
“All of the clients who were rescheduled were in good standing at the end of February 2020, and most of these reschedules took place between March and July . By August, credit clients received on average the same salary as in February,” he said.
Fourie said that, while the performance to date of the Covid-19 rescheduled loans was encouraging, payment success rates going forward would reveal the medium- to long-term impact of the lockdown on its clients.
“The impact will most likely be softened by the clients employed in essential services, which comprise 60% of our performing loan book,” he said.
Fourie told City Press that if provisions were excluded, the bank’s profitability would be up 10%. Capitec’s net income from operations (before net credit impairments) increased by 10% compared with the six months ended August 2019 and amounted to R11 billion.
“So this gives you a very strong feeling that, overall, if it wasn’t for Covid-19, we would have been 10% up, but then with the pandemic, we had to bring in the extra provisions, hence the significant drop of 79% on earnings,” he said.
Capitec’s board considered the guidance from the SA Reserve Bank and, in line with the country’s other four major retail banks, decided against the declaration of an interim dividend.