Whopping 70% drop in earnings forecast for Capitec Bank

High-flying Capitec Bank has announced that it expects a massive 70% drop in first-half earnings due to the impact of the coronavirus.

The bank said on Friday in a report to the Stock Exchange News Service that this was due to a rise in bad loans, as well as lower transaction volumes as the economy all but ground to a halt.

Capitec is first big bank to quantify pandemic’s impact

Capitec is the first of the big South Africa banks to give details of the impact of the lockdown and resulting business slowdown. Other banks will likely have broadly similar results when they make their reports to the stock exchange.

“The COVID-19 national lockdown resulted in increased credit impairment charges and lower loan sales and transaction volumes and, as a result, Capitec incurred a loss of R404-million for the quarter ended 31 May 2020,” the bank said its Trading Statement And Quarterly Disclosure.

Loans were rescheduled and payment breaks granted

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.

However, it noted that those clients which had been granted rescheduled payment terms “were in good standing at the end of February 2020 (i.e. before the effects of the pandemic) and we believe the increased risk is not as high as normally associated with rescheduled balances.”

Better times ahead in 2021, management predicts

Capitec noted 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.

More digital innovation and new product launches

“There will be continued focus on digital innovation. As the country exits the lockdown we expect transaction volume and revenue to increase, supported by growth in quality banking clients in both the business and retail banks.

“We will continue to launch new products to meet the needs of our clients. We see an opportunity to grow our business banking footprint and there is still a focus on building our future business bank,” Capitec said.