Capitec Bank expects 70% plunge in H1 profit due to bad loans

Headline earnings per share expected to fall by more than 1 782 cents.
Image: Supplied

Capitec Bank forecast a fall of at least 70% in first-half earnings on Friday due to a spike in bad loans from the coronavirus crisis, the first major South African lender to detail its full effect.

Concerns over a jump in bad loans after a nationwide lockdown to contain the coronavirus have hit South African banks and Capitec’s shares, which were already down 42% so far this year, were 2.5% lower at 1359 GMT.

Capitec, which had forecast a drop of at least 20% in first-half profit in May, said it expects headline earnings per share, the main profit measure for South African firms, to fall by more than 1 782 cents from the 2 545 cents it reported for the six months to the end of August 2019.

The bank said its credit impairment charge was 145% higher than forecast, mainly due to R5.75 billion and R236 million in retail and business credit balances being rescheduled or granted payment breaks due to the lockdown.

Capitec said in a statement that it does not expect to return to pre-lockdown levels of credit sales before the start of its next financial year.

“We do, however, believe that the results for the second half of the 2021 financial year could return to normal levels,” it added.

Major banks across the United States and Britain have set aside billions of dollars in provisions to handle loans that sour as customers become unable to make payments as a result of unemployment triggered by the coronavirus crisis.

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haha…it starts

What’s so funny? What starts?

Let the pain begin

Why did they proceed to launch the new credit product before concluding such analysis? They are going to bait customers with easier loans knowing very well that a bulk of their customers are struggling right now.

I think its called greed

I the good old days of my banking we used to put aside funds into a hidden reserve and these funds would be pulled out just for scenarios like this – this tends to smooth the results of the institution. Now they will suffer for their riskier lending models and it will take years for them to recover

Is this going to end up like African “Bank”. Lots and lots of taxpayer money to save the “poor” from losing deposits? That is modern banks “reserve fund”. Of curse the executive (and auditors) walk away smiling.

They must regret buying Mercantile

So another JSE darling company to bite the dust. It is obvious that the growth path was unsustainable. What would you expect from a depressed local economy. Stock price about to take a severe beating and future prospects not promising either.

So negative. I think u over reacting.

A slight exaggeration Juan !!!

Capitec has won awards as the best bank in the world for more than one year running. If the best bank in the world suffers this kind of loss due to lockdown, what do the other banks look like? The banking system was not designed for lockdown measures. The only system that was designed for lockdown measures is the centrally planned communist system and we all know how that one panned out.

If you don’t own shares in Capitec, then you shouldn’t own shares in any bank on earth. Disclaimer – I don’t own shares in any bank.

Asher Bohbot – ex-ceo of EOH, won numerous awards for being the “best”. Award givers generally follow a heard mentality. And never forget….. a great business can be a bad investment, if the price is wrong and a “dogs breakfast” business can be a great investment if the price is right. One thing which boggles me, do you not have to takeout unemployment insurance before buying a product? Where is the guaranteed cash flows, since you are protected against your clients losing their jobs?

Capitec is mostly unsecured lending. Other banks have assets they can sell like homes and cars and already took the hit on unsecured lending. If a complete collapse happens nothing will save you, even secured assets, but generally unsecured takes a bigger hit than secured.

Result : Somewhat less tax money for the ANC elite to waste and steal.

Covid has finally given our comrades (Accountants), the opportunity to push those impairments and write-offs we have been carrying for a while to the fore.

Never let a good crisis go to waste.

You get a temporary loss but also an opportunity to realise better value from your investment going forward.

End of comments.

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