André highlights the impact of IFRS 9 on Capitec Bank's results, saying the quality of the book has improved.
Capitec Bank has announced its financial results for the six months ended August on 26 September, reporting a 20 percent increase in headline earnings year-on-year and a 28 percent return on equity (ROE).
“Overall we are pleased with the results,” Capitec Bank CFO André du Plessis said. “When analysing the results it is important to understand the impact of IFRS 9, which was implemented in March.”
André explained that the impact of IFRS 9 resulted in:
- Interest income and the related credit impairment charge are netted off for stage-three loans. The effect is that interest and the credit impairment charge are lower by R764 million. If taken into account the decrease in the net impairment charge would be 4 percent versus the 17 percent.
- The gross loan book has increased by 17 percent however under IFRS 9, loans are only written off when there is no reasonable expectation of further recovery, whereas previously loans were written off when they were more than three months in arrears or had a legal status. The result is that loans remain on the book for a longer period of time (an appropriate provision is carried against these loans).
He continued, saying:
“The quality of the book has improved and this can be seen in the decrease in arrears up to three months of 11 percent. The credit loss ratio decreased to 7.2 percent compared to 10.2 percent in the six months ended August 2018.”
According to André, further drivers include:
- Average client growth of almost 200,000 per month over the last six months (total clients 12.6 million).
- 6.8 million clients now making use of the bank’s digital channels (up from 4.7 at the end of August 2018).
- Net transaction fee income increased by 12 percent despite the decrease in transaction fees. The net transaction fee and funeral income covered 91 percent of operating expenses (August 2018 90 percent).
- Operating expenses have increased by 14 percent.
- Implementation of IFRS 16 resulted in a depreciation charge of R199 million (included in opex) and R134 million of interest costs (included in interest expense). These costs replace operating lease charges for the period ended August 2018, of R245 million. IFRS 16 has the impact of front-loading the total lease cost. Over time, the interest cost will reduce as the lease liability reduces.
- Capitec has sold more than 1 million funeral policies since the product launched in May 2018 (100,000 per month for the last 2 months). 67 percent of all policies sold are active and funeral insurance has contributed R107 million to the bottom line for the 6 months ended August 2019.
“Going forward, the Debt Intervention legislation does not compromise our credit portfolio as less than 5 percent of our credit book falls within the scope of the act. Currently, clients addressed in the act have the option to approach a debt counsellor or apply for debt review in which case we raise an appropriate credit impairment,” André said.
