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Capitec Bank posts strong profits despite huge tax and credit write-downs

(Ecofin Agency) – Most of Capitec Bank’s financial indicators have shown resilience in a post-covid context marked by stagflation, the consequences of the war in Ukraine, unrest and floods in KwaZulu-Natal. However, the bank must monitor its loan portfolio.

JSE-listed Capitec Bank, the third-largest bank by market valuation in South Africa, posted pre-tax profit up nearly 5.9 billion rand ($327 million) for the six months to on August 31, 2022.

Year-over-year, pre-tax profit increased 17% on the back of a 64.7% increase in insurance revenue and 21.5% growth in revenue from banking activities of business. Its revenue from the retail banking business – which accounts for 79.5% of its overall revenue in South Africa – increased by a slight 2%.

Its exceptional profit during the period under review was also the result of contained operating expenses. Over the period, its operating expenses remained stable (+1%), with virtually no expenses in the insurance segment.

During the period, the bank added 2,196 customers to its base, up 13% year-on-year. This momentum was mainly stimulated by the acceleration of the digital transformation.

In its half-year report, Capitec Bank reports that its digital banking customer base increased by 21% to 10.8 million. They now represent 57% of total active customers. At the same time, the volume of transactions through its electronic platforms increased by 27% to 791 million.

“Shifting to digital transactions allows us to scale future transaction volumes at minimal additional cost,” explains the bank, which launched a prepaid mobile offer, Capitec Connect, in early September 2022, after integrating contactless digital payment solutions such as Samsung Pay or Google Pay into its platforms.

Despite its positive performance in a context marked by unfavorable events, Capitec Bank’s loan portfolio is up sharply. During the period, it rose 42% year-on-year, to reach 2.9 billion rand ($161 million).

The negative performance of its loan portfolio affected the operating result. Its operating profit before tax and credit write-downs rose 24% to 8.8 billion rand ($489 million). When tax and credit write-downs are taken into account, pre-tax operating income drops to around 17%.

Overall, the South African group’s assets rose 10% to 182.7 billion rand ($10 billion), driven by the bank’s net loans and advances. It claims 856 branches in South Africa, with more than 19 million customers and 26.5 billion rand ($1.4 billion) in loans in the six months under review.

Carriage E. Kakpo