Fear and loathing grip Capitec

What’s behind the R49bn decline? What’s behind the 39% share price slide?
Simplistically, the concern in the market seems to be about the quality of the bank’s unsecured lending book. Image: Supplied

There is nothing rational about market movements right now.

After a 28% decline on Wednesday, shares in Capitec Bank slid a further 31% on Thursday morning to trade just above the R550 level. Shares in the bank closed at 15% lower than Wednesday at R682.50. This brings the drop over the past two days to 39%.

In that time, the bank has lost R49 billion in market value. It is likely that derivative structures caused the steep and rapid declines as margin calls were triggered at various levels through trading on Wednesday and Thursday.

In a “general statement” to the market on Thursday afternoon, Capitec states: “Globally, markets are in economic turmoil due to the effects of Covid-19, and many companies, including the banks, have seen big declines in their share prices.”

It says it believes “that the sharp decline in the Capitec ordinary share price since [Wednesday] may be attributable to the following technical reasons”:

  • International shareholders are impacted by the continued weakening of the rand which, over and above the declining share price, further motivated the disposal of their Capitec shares.
  • The algorithms applied by professional traders enforce disposal of a share when the price of that share declines below a certain limit.
  • Banks that are counterparties to collar transactions are inclined to sell the underlying share when contracted limits are breached.

Read: Covid-19 crash: R2.3trn wiped out

Unsecured lending

Simplistically, the concern in the market seems to be about the quality of the bank’s unsecured lending book. As at end-August, it had gross loans and advances totalling R60.25 billion. However, its provision totalled R12.85 billion, equal to 21.3% of the book. Even on up-to-date loans, it provides for 6.4% immediately. This, however, has decreased from 7.3% in August 2018.

Source: Capitec 2020 interim results

Given the impact of the Covid-19 pandemic, there is an expectation that defaults on these unsecured loans will skyrocket. Using the aftermath of the 2008 financial crisis as a guide, bad debts across a number of loans and vintages never really exceeded 10% (this level was only breached on shorter-term loans of 12 months). Bad debts on 18-month and 24-month loans peaked at 8%, while on 36-month loans never got to that level.

There is an argument to be made that Capitec may actually be better off than other banks, in relative terms.

A decade ago, this was a bank significantly more reliant on interest income than on non-interest income (net fee income).

2019 2009
Net lending, investment and insurance income R6.306 billion R2.259 billion*
Net transaction fee income R3.529 billion R0.295 billion (R295 million)

* Previously disclosed as net interest income and net loan fee income

In 2009, net interest income (including loan charges) was nearly eight times the non-interest income reported by the bank. In the last financial year, this was not even 1.8 times. By 2019, Capitec was able to cover 91% of operating expenses with net transaction fee income and funeral income.

Read: How much could Covid-19 impact the SA economy?

In its statement, Capitec Bank notes speculation around the impact of Covid-19 on its unsecured book, but says: “Shareholders are reminded of the following important features of Capitec’s business model as highlighted in the FY2020 interim results published on SENS on 26 September 2019″:

  1. Only 1.1 million of Capitec Bank’s 12.6 million active clients (9%) have credit with Capitec Bank.
  2. Capitec’s business model is well diversified and income is strengthened by transaction fee income and funeral cover sales. Net transaction fee and funeral income contribute 46% of net income and covers 91% of operating expenses.
  3. There has been a significant migration in Capitec Bank’s client base to the middle and higher income segment. 81% of credit granted in August 2019 was to clients with a gross salary of over R10 000 per month, and 47% to clients with a gross salary of over R20 000 per month.
  4. The bank has a strong retail deposit base.

Stock rating

Given recent events, questions about Capitec’s ability to grow at the same rates as it has been able to in an economy that is widely expected to contract this year are justified.

After all, this is a bank that has managed to almost-metronomically produce earnings growth in excess of 20% each year.

Even for the most recent financial year (ended February 29, 2020), which includes a recession of at least six months, Capitec expects headline earnings to increase by between 18% and 21%.

At a share price of R1 300 a year ago (end February 2019), the bank’s price-to-earnings (PE) ratio was 28.5. The bank has always enjoyed far higher ratings than other banks, given its historical earnings growth.

With share price movements in recent days, the PE ratio (factoring in 20% growth in earnings) now sits at under 13 (close to 12.5).

Read: JSE plunge: A perfect time for share buybacks?


One concern that seems to have missed the broader market is around the lending book of Mercantile Bank, which Capitec acquired last year. In its acquisition announcements, Capitec noted that: “Mercantile’s core business offer is banking for established small to medium sized enterprises and entrepreneurs.”

Mercantile says it focuses on the following industries: finance, business and professional services, manufacturing and engineering, wholesale, retail, trade and franchising, and transport and logistics.

With the fundamental disruption to the economy caused by Covid-19, many of these businesses are already under severe strain and defaults are likely to increase significantly (albeit off a somewhat low base).

Mercantile had total on-balance sheet exposures (excluding derivatives and security financial transactions, but including collateral) of R13.446 billion as at end-November. Previously, as at June 30, 2019, Mercantile reported impairments of R220 million on total loans of R13.246 billon.

Notably, this is one area of its business that Capitec does not reference in its statement at all. This could possibly be due to the fact that it is still far too early to quantify potential losses or provisions.

Capitec says its liquidity position as of Thursday “remains strong” and its liquidity ratios “remain in line” with that published on December 12, 2019, being:

  • Capital adequacy ratio – 28.4%
  • Liquidity coverage ratio – 1 444%
  • Net stable funding ratio – 186%
  • Leverage ratio – 16.6%

It also notes that its “excess deposit base has grown by more than 5%” from August 31, 2019.

Finally, Capitec Bank says: “Management continuously assesses changes in the economy and trading conditions and make appropriate adjustments to business and granting models as required. This is particularly relevant in these uncertain times.”

The bank will report its results for the year ended February 29 on April 14.



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I think the shares was over prized, but what do I know?

PE ratio 28.5, priced for extended growth, but already 12.6 million active accounts, with only 10million formally employed people in SA. I wouldn’t call them over-priced. I just wouldn’t call them.


Just watch the reaction to this news. Capitec will make a new high soon. All those clients of Capitec are not going to die after all. They will stay healthy and will be able to service their loans. Interest rates came down plus another round of QE kicked in. Now we have a cheaply available treatment for covid-19 that cures 100% of cases. This is the most bullish setup in a long time.

Panic selling of the best bank in the world is pure irrational stupidity. Some people should not be investors. They should walk around dressed in a helmet, safety boots, a buoyancy vest, a surgical mask and eat Xanax every minute.

In your dreams.

Is Capitec up by 25% in an hour, or am I dreaming?

Fully agree. Provision for bad debt is the highest %wise in the banking industry, while default on unsecured loans are the smallest by %, and the days when this bank was an unsecured loan business is long past. However, the perfect storm has hit Capitec. Recovery will take a while. Good time to buy, but there are so many bbargains around.

at the moment I AM BUYING Sasol and TRANSACTION Capital, watching Shoprite, Capitec and Brimstone, OM, ARC.

how abt redefine : almosr free currently !!

Very wary of anything to do with property/real estate. Even with the virus-depressed prices. Anything else appears to be good right now.

AND growthpoint 9GRT)
But property may take a long time to recover from the general economic decline over the past year.The virus panic is responsible for R8 of the R15 decline.
I would rather take a chance on Sasol and Transaction Capital.

From Googling:

ABSA down 44% in past month
SBSA down 39% in past month
FirstRand down 44% in past month
Nedbank down 22% in past month
Capitec down 51% in past month

So yeah, the big boys didn’t do too great either. Capitec slightly worse, due to over valued share price initially and being “newer”?

Any comment from the guys who have written off the JSE?

At R17,50 per USD the S&P is a turnoff, probably ok if you 10 year horizon.

So the Rand dropped 15% in the past month, the S&P 500 dropped 28.9% over same period, so would still get a benefit from S&P 500’s drop.

This article is total nonsense. Capitec is currently 44% off it’s 52 week high.Nedbank has lost 65%,Standard 52%,Firstrand 50%,Absa and Investec both 54%.In other words Capitec has lost the least!

and the ‘Fear and Loathing’ in the headline?
sensationalist headline bordering on Fake News.

The success and/or failure of a bank lies in public confidence. While all the ratios add up, if depositors start to lose confidence and shift cash to the banks they consider to be systemic then the capital ratios & dynamics of the loan book will become academic. SA has a long history of this type of herd mentality – let’s hope Capitec doesn’t become the next victim as it does offer something different to the Big Four and in some segments of the market it keeps them honest (or less dishonest!)

Public confidence is too broad a concept here. The small bank crisis of the 2000s showed that it is the confidence (or not) of wholesale depositors that matter and not the confidence of retail depositors. Capitec has been careful to not fall into this trap with no wholesale deposits. Rather, they use bond financing to raise wholesale capital without the duration risk of deposits + retails deposits. Capitec is not going to fail in the traditional SA manner of small banks.

A massive share price drop is expected.

Let do some sums. Health minister says up to 70% of the population can get infected.

57 million x 70% => 40 odd million people with corona.
Currently 4% death rate world wide average

57 million x 4% => 2.3 million people dying taking current world wide average available.

2.3 million people is a massive number and you can imagine the effect on a company like Capitec.

God forbid anything like this happening and we can only hope for a cure / vaccine that will help reduce the fatalities.

Labs in Russia are already testing a prototype vaccine. Other pharma labs in Europe and Asia are making rapid progress as well.

US labs not progressing so well. I think Trump is not a happy boy.

the longer the delay… and if we dont shut down many activities … the rate will increase …. we at 202 in a short space of time…

once this hits the informal settlements … this will spread like wild fire

Gauvament needs to do what the italians (too late though) have done … total shut down …. otherwise we will end up in an unfavourable situation

also, incidence of TB and aids higher in SA…. potential higher impact on these individuals

Capitec is a ticking time bomb waiting to go off.

You can put a lipstick on a pig,but it’s still a pig.

Search Results
Finance results
Capitec Bank Holdings Ltd
88 371,00 ZAC +20 121,00 (29,48%)
20 Mar,

Wait ……wait !

Piglets…..does anyone remember the name Viceroy ?

Ahem !

Doesn’t this whole scenario sound familiar ??? [ go online and research Viceroy/ Capitec from a while ago ]

Memories are short these days hey

I would rather buy Capitec through Transaction Capital, at least that’s cash in the bank collected not some fantasy.

Capitec is too good to be true. African Bank+Steinhoff too good to be true and it’s not too big to fail.

I’d trust capitec before FNB, standard or any others.The others are less transparent and if open to forensic scrutiny you’d see just how bad they really are. What about the other mickey mouse banks trying to muddy the waters for a quick buck. Bidvest?????

End of comments.



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