Capitec has entered the vehicle finance market through what it terms a “purpose lending” product.
It is testing this in partnership with WeBuyCars and has opened its first on-floor outlet inside the car dealer’s Brackenfell warehouse in the Western Cape.
Capitec CEO Gerrie Fourie has previously said the bank’s challenge over the longer-term is to get the cost of credit to below 20%. In its term-lending business, it is now writing a not-insignificant portion of new loans at an average interest rate of 18.7%.
At these sorts of levels, it can begin to compete in the “so-called secured market”, says Fourie.
The first client bought a 2010 VW Touareg for R189 950 using a 60-month loan at an interest rate of 16.7%. The loan remains an unsecured one – in other words, it is not ‘secured’ against the vehicle being bought. So far, Capitec has granted nine loans at the car warehouse. This was in the roughly two weeks before the countrywide lockdown began.
Fourie makes the point that, unlike other vehicle and asset finance providers, there are “no hidden costs”. The only fees charged are the initiation fee and a standard monthly fee.
Capitec has signed agreements with another 80 dealerships across the country, which points to a fairly aggressive rollout of this product across its financial year (post-lockdown, of course).
It will also debut a new access facility in May which it describes as a “lifetime product”. This will be granted to a client who will only pay a monthly admin fee and interest when the facility is used.
Fourie says Capitec will no longer be granting short-term credit (1-4 months).
All new short-term loans will be made as access facilities. Under the National Credit Act, interest of up to 5% a month can be charged on these sorts of products. However, Capitec will offer rates of “20% and lower” (linked to prime) on loans of up to R250 000. It says this could be as low as 13.45%.
Loans with ‘purpose’
It sees these access facilities being used for some sort of “purpose”, such as home improvements, education-related expenses or emergency finance. This is the foundation of the product it has begun offering in the vehicle finance space.
Fourie downplays the tension with its existing credit card product, saying that “clients can choose” the product that best suits their requirements.
The attraction for Capitec on these “purpose lending” products, he explains, is that it can grant the credit for a particular big-ticket purchase and pay the third-party provider directly. This means it knows exactly what the credit is being used for.
It aims to sign up partners in the home improvement and education markets later this year.
The bank reported a 19% increase in headline earnings per share for the year to February 29, 2020. Of the R2.2 billion increase in net income, 73% came from non-term loan products. The bulk of the year-on-year increase (R895 million) was from net transaction fees, with a further R349 million increase from credit cards and a R359 million increase from the 1.1 million funeral policies sold during the year. Return on equity is flat at 28%.
Its (retail) credit impairment charge is down 2% year-on-year as a consequence of the adoption of IFRS 9. On a comparable basis, impairments for its retail book are up 23% which Fourie says is in line with advances growth.
It ended the year with 13.9 million active clients (it has since crossed the 14 million mark). So-called quality bank clients (with stable inflows) total 3.6 million, and it has 5.1 million savings clients. The bank has 1.2 million credit clients.
Fourie says it is simply too early to tell what the real impact of the Covid-19 pandemic and lockdown will be.
The bank had not yet seen “any uptick” in the number of retrenchment letters until the end of March. It will start seeing the impact at the end of this month and in May.
Capitec has not stopped the disbursement of credit to clients in any particular sector, however Fourie makes the point that it has “cut down on certain sectors where we believe there is risk, such as those where lots of overtime is paid and with contract workers”.
As far as collections go, Fourie notes that the “impact of the lockdown was very small in March” (around four or five days). The bank typically handles 2 000 to 3 000 collections related calls per day. This spiked to as many as 10 000 calls at the start of the lockdown. In Mercantile, it has been handling between 300 and 400 calls per day, but this “quietened down” after the first week of the lockdown.
About a third of Mercantile’s business customers have requested payment breaks or loan rescheduling, while in the first 10 days of lockdown, 80 000 of Capitec’s 1.2 million credit customers made similar requests.
“The one area that we have seen is quite a lot of clients have disputed debit orders,” says Fourie. He euphemistically refers to this as “cash flow management”.
He says the further 100 basis point interest rate cut by the South African Reserve Bank (Sarb) on Tuesday shows it “is serious in assisting” businesses and households through these challenging times, even though he did expect the move to be made next month. However, Capitec will only pass through half of this cut to its savings customers (ie. reduce its savings rates by 50 basis points).
Fourie also welcomed the speediness of changes by the Sarbs’s Prudential Authority to banks’ capital requirements to release capital into the economy.
Given the Prudential Authority’s Guidance Note issued last week, the bank did not declare a final dividend. This is the first time it has not paid a dividend since listing in 2002.