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Trading Statement And Quarterly Disclosure In Terms Of Regulation 43 Of The Regulations Relating To Banks
Capitec Bank Holdings Limited
Registration number: 1999/025903/06
Registered bank controlling company
Incorporated in the Republic of South Africa
JSE ordinary share code: CPI ISIN code: ZAE000035861
JSE preference share code: CPIP ISIN code: ZAE000083838
(“Capitec”)
TRADING STATEMENT AND QUARTERLY DISCLOSURE IN TERMS OF REGULATION 43 OF THE
REGULATIONS RELATING TO BANKS
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 impact of the lockdown on the business is detailed below.
Total lending income (including credit life insurance):
The total lending income is 7% below expectation. This is due to retail and
business loan sales being 43% and 25%, respectively, below expectation.
Net funding expense:
The average deposit balance is 7% above expectation. As a result, interest
income on investments was 6% above expectation. There was a decrease of 2.5%
in the repo rate that led to the interest expense being 13.5% lower than
expectation.
Credit impairment charge and provision:
The credit impairment charge is 145% higher than expectation. This is
predominately due to R5.75 billion and R236 million in retail and business
credit balances, respectively, being rescheduled or granted payment breaks
due to the lockdown. These clients were in good standing at the end of
February 2020 and we believe the increased risk is not as high as normally
associated with rescheduled balances.
Due to our conservative approach the group provision for credit impairments
increased by R3.3 billion since February 2020. The tables below show gross
loans and related provisions by category for retail and business banking:
Retail banking
R’m Stage 1 Stage 2 Stage 2 Stage 3 Total
and 3*
2021 Up-to- Up-to- Up to 1 COVID-19 2 and 3 Reschedu More
date date month in related months led (not than 3
loans arrears reschedul in yet months
with es arrears rehabili in
SICR tated) arrears,
and legal
applied statuses
for debt and
review applied
more for debt
than 6 review
months less
than 6
months
Balance
at 31
May 2020
Gross 36 624 5 680 1 557 5 749 2 236 3 675 7 971 63 492
loans
and
advances
Provisio (2 531) (1 219) (853) (1 593) (1 711) (1 827) (6 886) (16 620)
n for
credit
impairme
nts
(ECL)
34 093 4 461 704 4 156 525 1 848 1 085 46 872
ECL 6.9 21.5 54.8 27.7 76.5 49.7 86.4 26.2
coverage
(%)
2020
Balance
at 29
February
2020
Gross 48 311 4 446 1 172 - 1 550 2 601 7 358 65 438
loans
and
advances
Provisio (3 304) (1 061) (651) - (1 130) (1 022) (6 257) (13 425)
n for
credit
impairme
nts
(ECL)
45 007 3 385 521 - 420 1 579 1 101 52 013
ECL 6.8 23.9 55.5 72.9 39.3 85.0 20.5
coverage
(%)
*Stage 2 and 3 – reschedules from 19 March to 5 April are stage 3 (R610 million) and
reschedules from 6 April are stage 2 (R5.139 billion).
Business banking
R’m Stage 1 Stage 2 Stage 2 Stage 3 Total
and 3
2021 Up- Up to 1 Up- 2 and 3 Reschedu COVID-19 More than 3
to- month in to- months led(not related months in
date arrears date in yet reschedu arrears,
loans arrears rehabili les legal
with tated) statuses and
SICR applied for
business
rescue/liquid
ations
Balance
at 31
May 2020
Gross 8 775 26 97 10 357 236 564 10 065
loans
and
advances
Provisio (124) - (17) (7) (40) (16) (202) (406)
n for
credit
impairme
nts
(ECL)
8 651 26 80 3 317 220 362 9 659
ECL 1.4 0.9 17.7 66.8 11.1 6.9 35.7 4.0
coverage
(%)*
2020
Balance
at 29
February
2020
Gross 9 230 85 124 28 297 - 581 10 345
loans
and
advances
Provisi (84) (1) (11) (4) (27) - (188) (315)
on for
credit
impairm
ents
(ECL)
9 146 84 113 24 270 - 393 10 030
ECL 0.9 0.7 8.6 15.9 9.1 32.5 3.0
coverage
(%)*
*The provision % is calculated before rounding.
Credit life reinsurance:
The retail bank’s reinsurance agreements expired on 30 April 2020. We self-
insure claims with event dates (i.e. retrenchment notification date, date of
death or date of disability) from 1 May 2020. The reinsurance cover in place
up to 30 April 2020 covers all claims with an event date up to 30 April 2020.
We are negotiating with reinsurance companies for death cover that provides a
meaningful transfer of risk that, given the cost, would be acceptable to both
parties. Our clients continue to be covered for retrenchment, death and
disability. To date we have not seen any significant increase in retrenchment
or death claims.
Net transaction fee and treasury foreign currency income:
The net transaction fee and treasury foreign currency income is 20% below
expectation. Retail transaction volumes are 11.5% below expectation. On a
monthly basis volumes were 2.7% down in March, 25.3% in April and 7.1% in
May. The merchant acquiring business was 33% below expectation.
Banking client behaviour shifted to fewer, higher value transactions during
the quarter and was most severely impacted during level 5 of the lockdown.
Subsequent to level 5 lockdown, volumes improved but have not yet recovered
to pre-lockdown levels.
Funeral insurance:
Funeral insurance income is 17% above expectation, although the number of
policies issued was below expectation. The increase in income is due to an
increase in the average premium, as well as collection rates being above
expectation for April and May. The collection rates increased to above 80%
in May 2020.
Operating expenditure:
Operating expenditure is 12% lower than planned. We will continue to apply a
conservative approach in the management of operating expenditure.
Prospects:
Stricter credit granting criteria were implemented at the start of the
lockdown. As the economic fallout of the lockdown is assessed, credit
granting criteria will be adjusted to reflect market conditions. We
anticipate reaching pre-lockdown credit sales at the start of the next
financial year. We are currently focused on credit pricing and client
experience to stabilise our credit market share.
Repayment of rescheduled loans and commencement of payments after payment
holidays will determine whether we were too conservative or lenient in our
provisioning. The first payment due at the end of June gave a positive
indication, however, July and August payments will clarify the effect.
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.
There is a reasonable degree of certainty that Capitec’s headline earnings
per share and earnings per share will decline by more than 70%, or more than
1782 cents and 1784 cents, respectively, compared to the headline earnings
per share of 2545 cents and earnings per share of 2549 cents for the six
months ended 31 August 2019. We do, however, believe that the results for the
second half of the 2021 financial year could return to normal levels.
We will provide a more specific guidance range when there is reasonable
certainty of the range of headline earnings and earnings.
The financial information on which this trading statement is based has not
been reviewed and reported on by Capitec’s auditors.
Regulation 43:
Capitec and its subsidiaries (“the group”) have complied with Regulation 43
of the Regulations relating to banks, which incorporates the requirements of
Basel.
In terms of Pillar 3 of the Basel rules, the consolidated group is required
to disclose quantitative information on its capital adequacy, leverage and
liquidity ratios on a quarterly basis.
Both Capitec and Capitec Bank Limited (“Capitec Bank”) have maintained
healthy buffers above the minimum capital adequacy requirements, despite the
breakout of the COVID-19 pandemic during the quarter.
The group’s consolidated capital and liquidity positions at the end of the
first quarter of the 28 February 2021 financial year are set out below:
1st Quarter 2021 4th Quarter 2020
31 May 2020 29 February 2020
Capital Capital
Adequacy Adequacy
R’000 Ratio % R’000 Ratio %
COMMON EQUITY TIER 1
CAPITAL (CET1) (1) 23 660 789 28.4 24 457 242 29.5
Additional Tier 1 capital
(AT1)(2) 51 794 0.1 51 794 0.1
TIER 1 CAPITAL (T1) 23 712 583 28.5 24 509 036 29.6
General allowance for
credit impairment 752 664 756 767
TIER 2 CAPITAL (T2) 752 664 0.9 756 767 0.9
TOTAL QUALIFYING REGULATORY
CAPITAL 24 465 247 29.4 25 265 803 30.5
REQUIRED REGULATORY
CAPITAL(3) 8 742 528 9 525 692
(1) Capitec incurred a loss during the 1st Quarter of 2021 which amounted to
R404.1 million. Also included in the movement in Common Equity Tier 1 Capital
for the quarter is the additional phase-in of IFRS 9 in accordance with
Directive 5 of 2017, which amounted to R162.0 million, and amounts arising
from unused tax losses which amounted to R267.8 million. The remainder of the
movement for the quarter relates to movements in intangible assets and other
reserves, which include the cash flow hedge reserve, foreign currency
translation reserve and the net impact of the share option scheme for the
group.
(2) Starting in 2013, the non-loss absorbent AT1 and T2 capital is subject to
a 10% per annum phase-out in terms of Basel 3.
(3) This value is currently 10.500% (February 2020: 11.500%)of risk-weighted
assets, being the Basel global minimum requirement of 8.000% and the Capital
Conservation Buffer of 2.500%, disclosable in terms of a SARB November 2016
directive in order to standardise reporting across banks. In terms of the
regulations relating to banks the Individual Capital Requirement (“ICR”) is
excluded. The Prudential Authority issued Directive 2 of 2020 on 6 April 2020
and temporarily relaxed the Pillar 2A South African country-specific buffer
of 1.00% to provide temporary capital relief to banks during the time of
financial stress following the outbreak of the COVID-19 pandemic, in a manner
that ensures South Africa’s continued compliance with the relevant
internationally agreed capital framework.
1st Quarter 2021 4th Quarter 2020
31 May 2020 29 February 2020
R’000 R’000
LIQUIDITY COVERAGE RATIO (LCR)
High-Quality Liquid Assets(1) 37 327 479 32 989 868
Net Cash Outflows(2) 2 085 404 1 944 872
Actual LCR Ratio 1 790% 1 696%
Required LCR Ratio(3) 80% 100%
(1) As at 31 May 2020, R987.9 million (29 Feb 2020: R1.15 billion) of the total
High-Quality Liquid Assets is attributable to Mercantile Bank Limited
(“Mercantile Bank”).
(2) Capitec has a net cash inflow after applying the run-off weightings,
therefore outflows for the purpose of the ratio are deemed to be 25% of gross
outflows. As at 31 May 2020, R563.6 million (29 Feb 2020: R550.7 million) of
the total net cash outflows is attributable to Mercantile Bank.
(3) The Prudential Authority issued Directive 1 of 2020 on 31 March 2020 and
decreased the minimum LCR requirement from 100% to 80% effective from 1 April
2020. The decrease is attributable to the current financial market turmoil
which has decreased market liquidity, and the expectation that banks will
remain under increased pressure to comply with the currently prescribed LCR
requirements.
1st Quarter 2021 4th Quarter 2020
31 May 2020 29 February 2020
R’000 R’000
NET STABLE FUNDING RATIO (“NSFR”)
Total Available Stable Funding(1) 126 572 021 121 040 963
Total Required Stable Funding(2) 59 955 245 61 883 875
Actual NSFR Ratio 211.1% 195.6%
Required NSFR Ratio 100% 100%
(1)As at 31 May 2020, R9.7 billion (29 Feb 2020: R9.5 billion) of the Total
Available Stable Funding is attributable to Mercantile Bank.
(2)
As at 31 May 2020, R8.1 billion (29 Feb 2020: R7.9 billion) of the Total
Required Stable Funding is attributable to Mercantile Bank.
1st Quarter 2021 4th Quarter 2020
31 May 2020 29 February 2020
R’000 R’000
LEVERAGE RATIO
Tier 1 Capital 23 712 583 24 509 036
Total Exposures(1) 140 850 287 135 022 285
Leverage Ratio 16.8% 18.2%
(1)As at 31 May 2020, R14.1 billion (29 Feb 2020: R14.5 billion) of the total
exposures is attributable to Mercantile Bank.
For the detailed LCR, NSFR and leverage ratio calculations refer to the
“Banks Act Public Disclosure” section on our website at
www.capitecbank.co.za/investor-relations
By order of the Board
Stellenbosch
3 July 2020
Sponsor - PSG Capital Proprietary Limited
Date: 03-07-2020 03:30:00
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