South Africans Living Beyond Their Means Are Troubling Capitec

Adelaide Changole, Bloomberg News

(Bloomberg) -- South African consumers living beyond their means are troubling Capitec Bank Holdings Ltd., the nation’s biggest lender by accounts.

Capitec increased its retail segment’s credit impairment charges by 61% in the first six months to 4.6 billion rand ($239 million), according to earnings published on Thursday.

“People are not disciplined enough and they’re not living within their means,” Chief Executive Officer Gerrie Fourie said in a briefing from the bank’s headquarters in Stellenbosch. “They want to keep up with the Joneses.”

South Africa’s household debt to disposable income ratio was 62.5% by June, according to Reserve Bank data. The cost of repaying that debt as a percentage of disposal income rose by 180 basis points to 8.8% by June from a year earlier.

South Africans are struggling to keep heads above water with the central bank’s key lending rate at the highest level in 14 years after more than doubling the benchmark since November 2021.

Fancy Fashion

“What we are seeing is people are dressing up quite fancy, and if you go look at restaurants, it’s actually quite crazy how restaurants are fully booked,” Fourie said in an interview. “Use credit to educate yourself, or go buy an asset, but a lot of South Africans are using credit to consume.”

As a result of the higher impairments, Capitec’s credit loss ratio — a measure of bad loans as a percentage of the total book — climbed 170 basis points to 5.5% for its retail loans. Bigger rivals are at about 1%.

The lender is now joining peers in tightening lending criteria, which caused a reduction in the value of disbursements by 9% during the six months. Gross loans and advances in the retail segment still climbed 8% to 83.8 billion rand.

Instead, Capitec is focusing on its business unit, with lending to corporates up 22%. It’s also building its insurance segment and expanding payment services. The diversification boosted non-lending income to 44% of operations.

Read more: Capitec Bank Shares Rally as Lender’s 1H Profit Climbs (1)

Capitec shares halted a four-day slide Thursday, jumping as much as 9.4% to touch its highest intraday level in more than seven weeks, helped by a 9% increase in the interim dividend.