Capitec earnings decimated by Covid-19 fallout

Financial services group Capitec on Wednesday (30 September) reported headline earnings of R650 million for the six month period ended August 2020 – a decrease of 78%.

Operating profit before tax decreased by 86% to R538 million, from R3.83 billion in the prior year, and headline earnings per share declined 78% to 562 cents, while income before tax was down 86% to R538 million.

The results were driven by the impact of the lockdown on all areas of the business, Capitec said.

Net income from operations (before net credit impairments) increased by 10% compared to the six months ended August 2019 and amounted to R11.0 billion, while net transaction fee income increased by 3% to R3.6 billion for the six months ended August 2020.

Despite the impact of Covid-19, the number of active retail banking clients grew by 6% to 14.6 million compared to 13.8 million at the end of February 2020, Capitec said.

Client numbers grew by 2.0 million compared to August 2019. Banking clients’ income was negatively impacted by the lockdown and decreased by 25% in April 2020 compared to March 2020, it said. By August income had returned to March 2020 levels.

The lower-than-expected increase is due to the impact of the lockdown on both transaction volumes and fees, mitigated by the increase in the number of active clients, the group said.

The bank’s board considered the guidance of the Reserve Bank and decided against the declaration of an interim dividend.

At the end of August 2020, Capitec said that there were 4 million app users (2019: 2.9 million) and 5.2 million USSD users (2019: 4.7 million). Digital transactions increased by 52% over the reporting period.

Loan sales for the period were down 35% compared to the prior-year period and 56% compared to the six months ended February 2020. Credit card disbursements decreased by 20% compared to the six months ended February but were 6% higher than the corresponding prior period.

Advances decreased by 64% compared to the six months ended February 2020 and by 59% compared to the six months ended August 2019, the bank said.

Looking ahead, Capitec said that economic conditions are expected to improve in the short term but the full impact of the lockdown will only be seen in the medium term.

“Higher income earners are expected to recover more rapidly than lower income earners and we therefore anticipate that the credit market will continue to be affected by the lockdown in the medium term.”

“Our focus is on decreasing the cost of credit for our clients, improving their experience and motivating them toward positive credit behaviour. The payment performance of the Covid-19 rescheduled loans is encouraging but payment success rates going forward will reveal the medium- to long-term impact of the lockdown on our clients,” Capitec said.

The group said that credit loss provisioning will remain conservative.

As the lockdown restrictions were relaxed, transaction volumes and revenue started returning to pre-lockdown levels. “We anticipate continued growth in quality banking clients, which will support transaction volumes and revenue.”

Capitec said that digital innovation in all areas of the business is a priority, as is building the business bank of the future.

“We will continue to meet the evolving needs of our clients by launching new products. Some employees will continue to work from home and will gradually and responsibly return to the workplace.

“Our fundamental principles will remain the basis of our strategies. Close co-operation between the government and the private sector will be required to grow the South African economy.”


Read: Capitec revises earnings outlook lower

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Capitec earnings decimated by Covid-19 fallout