Capitec earnings may make up for bad credit

Analysts are banking on better revenue from fees to offset an expected rise in bad credit when Capitec releases its annual results for the year to end-February.

Brad Preston, chief investment officer at Mergence, said he expected impairments to increase at a slightly higher level than the big four banks.

But a deterioration in its credit book was not expected to be unmanageable, given that the company had indicated its earnings per share would grow.

In a trading statement released this week, the bank said it expected that headline earnings per share would be between 15% and 19% higher than the previous period.

Avior banking analyst Harry Botha said that this didn't imply any major surprises in terms of credit impairment.

Preston expected Capitec to continue showingstrong transactional and deposit growth.

The half-year results for the six months to August showed that Capitec had 7.9million customers. At the time that these results were released, the bank said that it was signing up around 120000 customers a month.

If the bankmaintained this pace, its customer numbers would be around 8.5million when it releases its annual results on March 28.

Part of Capitec's strategy is extending its credit offering, and last year in October it launched credit cards at selected branches.

Botha said: "It's early days yet, and Capitec is expected to play it small on the credit card pilot before rolling out the product to the rest of their consumers."

It was unclear over what timeframe the credit card would be made available to all its customers, but Botha added that the lender would want to build a solid track record first.

"They are going to make sure that they understand the product and customer appetite; then take it from there in terms of expanding their offering and risk appetite," he said.

Capitec's share price, which closed at R794.57 on Friday, has been the subject of much contention. Although some might feel it has reached its peak - Preston said the share was not on Mergence's buy list - others feel that there is still some meat left on the bone for investors.

Botha said there was an opportunity for growth because the bank continued to attract customers and would be able to cross-sell offerings to that base.

"A lot of the customers they are attracting don't necessarily use credit from Capitec. [Customers could use] the Capitec credit card down the line as they change their appetite."

Botha saidCapitec would become more like a full-service bank in the next few years. "They already offer home loans through their partnership with SA Home Loans; the only major product missing is vehicle finance," he said.

tsamelad@sundaytimes.co.za