The state of restriction meant that Capitec not only granted fewer loans, but also had to build up an expensive buffer to make up for bad debts that might follow.
The bank said in a trading statement on the JSE’s news service, Sens, on Friday that it suffered a loss of R404m for the three months to the end of May as a direct result of the effect of the restriction.
Its provision for bad debts is now 145% higher than last year. It has increased by R3.3 billion since February.
Capitec says it’s mainly because it granted payday loans on loans to individuals and businesses affected by the restriction.
The value of the paid holidays amounts to R5.75 billion to individuals and R236 million to businesses.
Capitec is conservative in its approach to the potential effects of these huge pay holidays. He says he would rather make a big deal of bad debt than he is too optimistic about.
But the bank still thinks there shouldn’t be as much bad debt as the vast majority of pay holidays have been granted to customers with a good payment history.
Loans, the bank’s bread and butter, also fell under the state of restriction.
Its total income from loans, including credit life insurance, was projected at 7% for the three months to the end of May.
According to Capitec, this is mainly due to a 43% decline in loans to individuals and of 25% to companies, as business cases largely ceased during the state of limitation.
On the positive side, the bank’s income from funeral policies increased by 17%. This was not so much because more policies were sold than premiums increased and people paid their policies more faithfully. In May, more than 80% of the premiums were paid. Capitec does not explain why this is so.
The bank now expects its earnings per share to decline significantly for the six months to the end of August and will only stabilize in the second half of its 2021 financial year.
His earnings per share is expected to fall by around 70% from R25.49 to R17.84, while his headline earnings per share are down from R25.45 to R17.82.
“Repayments of loans that have been rescheduled and the start of payments after holiday pay will determine whether we were too conservative or too lenient in our planning,” says Capitec.
“The first payments that started again at the end of June gave a positive indication, but July and August’s payments will make clear what the real effect was.”
Just after the announcement, Capitec’s share price fell 3.82% from R865.19 to R832.13. It later recovered somewhat to R845.60.