FIFI PETERS: Capitec didn’t have the best day on the JSE immediately [September 29, 2022]. Its shares slumped over 10% following the discharge of its first-half outcomes. Capitec truly reported greater earnings. It mentioned that it elevated its retail banking shoppers in the interval below overview to round 19 million prospects, and much more of these prospects had been changing into digitally savvy, and banking on-line.
To unpack the numbers we’ve obtained the CEO of the financial institution, Gerrie Fourie, on the Market Update. Gerrie, thanks a lot in your time. Just beginning with the share value and the way the market has welcomed the discharge of your first-half report, do you suppose they’ve handled you pretty?
GERRIE FOURIE: Fifi, I don’t take a look at the market on a short-term foundation. I take a look at it over a long-term foundation. We consider our organisation is essentially very sturdy. To develop over a five-year interval by way of Covid and the KwaZulu-Natal unrest and the floods and financial uncertainty that we now are in, a 17% [growth] exhibits you that the corporate is performing effectively.
We had very sturdy growth, as you talked about, in consumer numbers. We had very sturdy growth in digital numbers. So general we’re fairly proud of it.
I feel the one purpose why the market didn’t just like the outcomes is that they in all probability anticipated 21% growth or 22% growth. It’s in all probability coming from our transactional earnings, the place we grew 8%, whereas historically we develop 18/19%. But we had a few R250 million price discount, and gave again to our shoppers, as a result of we minimize our SMS charges and in-app messaging we made without spending a dime. So we return to the shoppers. We gave one other R100 million again to the shoppers on our loyalty scheme. So it’s in line with what Capitec believes in – that we do what’s proper for the shoppers over the long run.
There had been alternatives to offer again, and we consider it’s the fitting factor to do, and we’ve executed that.
FIFI PETERS: That’s the factor, although, as a result of you may have executed very effectively over time, all through the pandemic and even previous to the pandemic, and the market obtained used to you doing actually, very well.
In truth, I learn a remark from an analyst who was even dissatisfied on the dividend. You elevated your dividend, however he was anticipating a bit bit extra, given how you may have executed issues in prior years.
But I wish to take a look at what you’ve executed now, and the speed of growth that you’re reaching now. Would you say that that is what your shareholders ought to develop into used to going ahead, or do you see room to do higher in the second half?
GERRIE FOURIE: I feel, simply coming again to dividends, the one factor about Capitec we consider to be constant is we mentioned to our shareholders we’re trying over the dividend coverage, that fifty% of our earnings might be paid out in dividends with about 37% paid out in the primary six months and the remainder in the second six months.
And we’ve been constant on that and we gained’t change our dividend coverage. So we consider in consistency, and that’s necessary.
If I look, I positively suppose we are able to get to double-digit growth in the longer term as a result of there are large alternatives.
If I take a look at Capitec Connect, which we’ve launched, if I take a look at enterprise banking, which we’re launching subsequent yr, we consider there are alternatives.
But you sit in an atmosphere and an financial system that’s very unsure and never conducive to growth. To actually develop 17% in an financial system that’s below extreme pressure I feel is a superb efficiency.
I feel individuals have to get their perceptions proper and perceive the actual threat or atmosphere in South Africa and worldwide.
FIFI PETERS: Certainly. I feel most individuals will agree with you, simply in phrases of what the primary six months of your yr included – the likes of the floods; there have been even strikes in sure sectors. In truth, the financial system contracted in the second quarter, [and] the load shedding is definitely getting rather a lot worse proper now. How is that impacting your small business?
GERRIE FOURIE: I feel it has an impact – 500 of our branches had been geared to deal with load shedding, 300 not.
We determined two months in the past to speculate one other R60 million in lithium batteries to get all of our branches up and operating. It simply exhibits you the price of load shedding.
I feel in the event you take a look at the South African financial system, nearly all of corporations have truly moved over to be self-sufficient on lithium batteries or turbines or photo voltaic panels. But it’s costing you.
FIFI PETERS: How a lot?
GERRIE FOURIE: Taking your eye off is costing rather a lot. In our case, in the event you take a look at what we’ve invested in photo voltaic and batteries, we’re in all probability now at over R150 million that we’ve invested.
It’s cash that you possibly can use truly for the good thing about shoppers. Instead, you make sure which you can function, since you’re sitting with an Eskom that’s not producing. So it positively has a huge impact on South Africa.
But our companies in South Africa are resilient. They carry on going. In Afrikaans they are saying ’n boer maak ’n plan’. So in South Africa that’s what they do.
FIFI PETERS: All proper. On the optimistic facet, although, Gerrie, you are interested price atmosphere that’s working in your favour and anticipated to doubtlessly work in your favour, on condition that when charges go up it means which you can cost a complete lot extra for the loans that you just grant or the loans which might be even on the market. Has the rising rate of interest atmosphere been useful to you to date?
GERRIE FOURIE: We don’t see a rising rate of interest as a possibility to make earnings.
We see with rising rates of interest it is advisable be truthful to your shoppers. So what we do, as lending charges go up, is enhance our deposit charges as a result of we fund our lending e book by our deposit e book.
So we’re pretty impartial. If you take a look at the influence of rates of interest, they’ve obtained a small impact on our profitability as a result of we consider it’s at all times greatest to have a look at what’s truthful to the consumer.
FIFI PETERS: How about its influence on the flexibility of the Capitec buyer proper now to repay what it has borrowed from you, and to take action on time? Are you seeing areas in which a few of your buyer base is beginning to really feel a little bit of stress, given what is going on in the financial system, the slowdown, the speed of employment that continues to tick greater, and the truth that the price of servicing debt has risen?
GERRIE FOURIE: I feel what one should perceive, in the event you take a look at our e book, we’ve obtained a e book now of about R78 billion; R50 billion of that’s time period loans the place the rates of interest had been mounted, and if the rates of interest go up these rates of interest should not affected. So the consumer base remains to be precisely on the identical [point] as what they [have been paying].
We’ve additionally elevated our residing bills – which we use in the calculation of affordability – by about 15%, to make sure that our shoppers can actually afford it.
But I feel, like anybody, the truth that meals is costing you extra, that petrol is costing you extra, has an influence on the best way you reside. I feel that’s the place it is advisable be very self-disciplined to make sure that you just dwell inside your means.
If you take a look at our cash-stressed shoppers, these are the shoppers which have an earnings, and in the event you take a look at their bills plus their debt that they should repay, if they’ve lower than 20% free circulation, that has elevated from 12% to 13% – nonetheless not main – you begin seeing indicators of people who find themselves taking pressure.
FIFI PETERS: What does that imply about your place in direction of lending, then, in this atmosphere going ahead?
GERRIE FOURIE: I’ve proven immediately in the presentation that we’ve in the reduction of.
Interestingly, in the event you take a look at our take-up price of our loans, that’s now spherical about 20%. During Covid it was 22% and pre- Covid it was about 27%. It exhibits you that we’re extra conservative than we had been throughout Covid.
So we’re managing our credit score in a really conservative method.
We are very agile, we make fast selections to chop again. I feel we’ve additionally obtained the pliability in our entry facility the place we are able to cut back limits and modify the danger from that perspective. It’s simply one thing that it is advisable handle.
FIFI PETERS: Just lastly, circling again to your small business financial institution, I see that it’s in for a makeover, a rebrand someday in a while in this yr.
I wish to speak to you about this area, as a result of the pitch to the SME buyer seems to be prefer it’s changing into actually heated, not solely from present gamers like yourselves and African Bank and TymeBank that have gotten transactions to beef up their enterprise choices, but additionally from the likes of bizarre rivals like Shoprite that are additionally now offering finance to small companies and the like.
How would you describe the aggressive atmosphere proper now, and what does that imply in your growth targets?
GERRIE FOURIE: I feel that’s a market everyone seems to be beginning to enter. We’ve been monitoring that market very fastidiously.
Everyone goes into the lending area, and the massive query there’s how do you get knowledge, as a result of in the event you’ve obtained knowledge you possibly can rating that individual enterprise higher.
So our strategy is to supply these shoppers a full banking answer so the consumer can transact, save and get credit score. It’s at all times concerning the monetary companies and whoever makes it in their methods is the most effective, and whoever takes care of the consumer the most effective, they’re in the end going to go and win.
FIFI PETERS: And one closing query simply on regulation. There’s rather a lot that’s being spoken concerning the threat of South Africa’s banking sector being placed on the gray record, what this might imply, and the implications and ramifications. What’s your view on this and the way apprehensive are you – or not?
GERRIE FOURIE: I’m apprehensive from a South African perspective, as a result of I feel it’s extremely possible that it’s going to happen.
If you take a look at the influence on Capitec, it will likely be very oblique, as a result of we don’t make use of a variety of wholesale funding. Wholesale funding is about 2%, 3% of our funding facet, and we don’t use any worldwide funding. But it’s positively going to have an effect on corporations which might be making use of worldwide funding, after which the notion of buyers into South Africa. That will have an effect on the long-term growth of South Africa.
So it’s regarding. It’s one thing we watch, however one holds thumbs and hopefully we come by way of positively.
FIFI PETERS: As you say, hopefully the federal government adopts the ‘boer maak ’n plan’ mentality and we do come out proper.
Gerrie, we’ll depart it there. Thanks a lot in your time. Gerrie Fourie is the CEO of Capitec.
