Capitec slowly opening the taps – but there’s a catch
Capitec says it is considering opening the taps to “certain pockets” after aggressively cutting back its lending over the past year – but customers should not expect easy access to credit.
The group said that while it expects some relief for its consumers as food inflation and the intensity of load shedding decline, it remains cautious about extending credit in its unsecured retail segment.
Capitec has responded to the challenging economic environment in South Africa over the past year by cutting back aggressively on the unsecured lending market.
While data from the National Credit Regulator shows a 9% year-on-year cut in quarterly unsecured credit sales in Q3 2023, Capitec responded with a 32% decrease.
Capitec also used stricter affordably rules with its lending, which included 141 behaviour risk changes.
However, Capitec chief executive Gerrie Fourie believes the group may have been too conservative with this move and is looking to open up “certain pockets” of lending.
Despite running credit education campaigns across social media and its app, Capitec still saw debt review grow from R5.5 billion in February 2020 to R6.3 billion in February 2024.
“This, for me, is a big concern in the industry. There is a place for debt review, but only if you are in extreme debt distress. First come to your bank and make certain that we can’t assist,” said Fourie.
The group’s loan book remained largely consistent year-on-year, in line with the nation’s minimal economic growth of 0.6% in 2023.
Credit losses
Like most banks in South Africa, Capitec’s credit loss ratio increased from 8.5% in February 2023 to 11.0% in August 2023 following increases in interest rates in South Africa.
However, the group was able to bring this back down to 9.2% by February 2024 and expects it to return to the through-the-cycle target of 8.5% by February 2025.
Fourie also noted that the group will continue to exercise caution when extending credit in the unsecured retail segment amid the challenging economic environment.
Easier time – but still challenging
While consumers are still under significant pressure, there are positive signs in the economy.
Despite original expectations that the repo rate could start to drop in May, Fourie said that any cuts would likely only happen in September or November – but expectations remain that a cutting cycle is on the way.
Crucial to this are South Africa’s inflation figures, which have remained above the South African Reserve Bank’s target midpoint of 4.5%.
Food inflation has been particularly high in South Africa, reaching 14.1% in February 2023, primarily affecting low-income earners.
However, food inflation has slowed substantially recently, dropping to 6.1% and 5.1% in February and March 2024, respectively.
Fourie is also optimistic about load shedding—which has been suspended for almost a full month in South Africa—as it has a major effect on inflation.
Looking ahead, the biggest risks to inflation remain largely out of South Africa’s control, with many eyes on global oil prices due to uncertainty in the Middle East, particularly Israel and Iran’s growing hostilities.
One of the signifiers that things are turning more positive for households is Capitec’s tracking of insufficient fund notifications received by clients after debit orders, card payments of withdrawal attempts.
Fourie noted that this figure has dropped from the peak of 10.7% in February 2023 to 9.8% in February 2024 – even if it was well above the 7.3% seen at the start of the decade.
With the decrease in load shedding and food inflation, he expects this figure to drop down to around 7%.
That said, significant challenges remain, particularly around retrenchments.
Fourie noted that most retrenchment figures remain lower than pre-Covid and Covid periods.
Retrenchments are notably down in the travel and leisure sector as more foreigners come to South Africa following the lifting of travel restrictions.
However, mining retrenchments are expected to increase in the next two to four months as platinum, gold, and coal miners are under increasing pressure, which would place thousands of households under even more pressure, he said.
Read: Huge jump in profit for Capitec – which counts over a third of South Africans as customers
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