“The confidence is still wavering. The funders are nervous after ABIL and the Moody’s downgrade that came through the sector, people talk about difficulties in accessing funding,” First Avenue Investment Management head of financials and retailers, Matthew Warren, told CNBC Africa.
“Capitec hasn’t been to the market – they’ve been raising retail deposits quite aggressively so there’s a funding issue there. You also see credit problems show up with the likes of Bayport as well, putting up some rather large credit losses, so we’re still in the middle of this thing at this stage.”
[DATA CPI:Capital Bank], one of the major players in the unsecured lending space, recently reported 21 per cent growth in its first half headline earnings per share.
While Warren admitted that Capitec stands out in terms of being relatively the strongest in the space, with a decent set of results in a tough environment, he further emphasised the hesitation surrounding unsecured loans in general.
“There’s a problem in unsecured loans across the entire ecosystem – you see it in the credit retailers, the furniture retailers, the specialty banks, the big four banks,” he explained.
“The thing of note is that when a bank slows down lending to its own customers, the bad debts spike once you’re not extending new credit into your customer base.”
However, he did acknowledge that Capitec, in particular, is rolling its book quite quickly and topping up its existing customers with new loans.
“As long as that momentum keeps going, and the bad debts are at 10 [or] 11 per cent, they [won’t] have trouble at this stage. But if there’s a turn for the worst in the economy, it would exacerbate the problems across the sector,” said Warren.
In its recent first half results, Capitec also reported client growth of 16 per cent. Warren stated that this should aid the bank in the short term.
“In the short term, it’s helping them dramatically. Transaction revenue is up 30 odd per cent which is helping the balance sheet and the income statement quite a bit. They’re getting deposit customers which they’re offering higher rates [to] than the market,” he said.
“But on the transactional side they’re also getting a lot of traction, in the middle market too. They have a lower-cost offering, it’s a tough economy [and] they are finding people trading down to their cheaper offering. Is the credit a bit loose on some of the loans where they’re bringing customers across with the transactional account? That’s to be seen in the next set of results.”