Capitec bank says people earning less than R7,500 a monthly now account for less than 5% of its loan book.
Capitec, which developed into SA ’ s biggest bank by customer numbers by focusing on those traditionally barred by commercial lenders, says it has been actively reducing its exposure to low-income earners in expectation of the recently approved debt relief regulation.
In a statement released on Monday, the bank said people earning less than R7,500 a month now accounted for less than 5% of its loan book. The Bank’s effort appear to be a reaction to new credit-relief law signed by President Cyril Ramaphosa last week.
Capitec, which was started as a microlender in the late 1990s and listed on the Johannesburg Stock Exchange in 2002, has been praised for improving financial inclusion in SA by lending to the entry-level income segment at a time when more established rivals were hesitant to increase credit to poorer South Africans. Its retreat will likely be a setback for efforts to cast the lending net wider.
“During the two years leading to the amendment, Capitec Bank planned and managed our exposure to the consumer market earning less than R7,500 per month, being well aware of the regulatory development,” said CEO Gerrie Fourie according to Business Tech.
Ramaphosa signed the National Credit Amendment Bill last week, which proposes among other things, expunging debt for overextended consumers under certain circumstances. The Banking Association of SA (Basa) said the bill, which is aimed at bringing debt-relief intervention to consumers who earn no more than R7,500 a month and have unsecured debt of up to R50,000, will hurt the economy by making it more difficult for low-income earners to access credit.
Capitec, the country’s third-largest bank by market capitalization, is one of the biggest lenders to the low-income segment and its move will reduce the chances of affected consumers accessing credit through the formal sector, said economist Mike Schussler.
“They will struggle to find debt again, and then where will they go? They will go to the underground market, which has high-interest rates and unscrupulous practices.”
Harry Botha, an analyst at Avior Capital Market, said Capitec was the only big bank that was heavily serving the low-income portion.
“The other big banks’ don’t have as much exposure to this market and the other smaller ones probably have as much or less than Capitec.”
Basa, which opposed these proposals, has warned that the bill would restrict banks’ ability to lend to low – income earners.
Schussler said that while the government was trying to protect low-income earners, it was adding a layer of uncertainty for law-abiding lenders.
“There are definitely unintended consequences. I don ’ t think this has been thought through. I wouldn’t be surprised if other banks are doing the same because it ’ s the legal lenders that will struggle.”
Speaking to Business Day TV, African Bank CEO Basani Maluleke also said banks would start limiting their exposure to the affected market segment. African Bank is also one of the biggest lenders in this market.
The move away from low-income earners will likely reverse SA’s efforts to increase financial inclusion.
Although inclusion has improved over the years, with about 80% of the adult population now having bank accounts, Finmark Finscope data shows that 63% of consumers still use the services of the informal sector to meet some of their financial needs.