South African billionaire Michiel Le Roux's Capitec Bank projects 25-35-percent earnings surge amid improved credit loss ratios

Oluwatosin Racheal Alabi -

Key Points:

  • Capitec Bank forecasts earnings growth of 25 percent to 35 percent for the six months ending Aug. 31, 2024.
  • Improved credit loss ratios and increased net transaction and commission income contribute to the bank’s impressive earnings projections.
  • The acquisition of a majority stake in Avafin Holdings boosts Capitec’s income statement.

Capitec Bank, under the leadership of South African billionaire Michiel le Roux, is anticipating a boost in its earnings for the six months ending Aug. 31, 2024. In a recent voluntary trading update, the JSE-listed bank forecasted earnings growth of between 25 percent and 35 percent.

The Stellenbosch-based financial institution expects group headline earnings per share to range from 5,090 to 5,497 cents, a notable increase from the 4,072 cents per share recorded for the same period in 2023. Similarly, group earnings per share are projected to be between 5,085 and 5,492 cents, up from 4,068 cents in the corresponding period last year.

Improved credit loss ratios and strategic acquisitions

This impressive growth can be attributed to continued improvements in credit loss ratios as the bank progresses into the 2025 financial year. Additionally, there has been a substantial rise in net transaction and commission income, bolstered by the bank’s expanded value-added services. These services include licence disc renewals, prepaid airtime and electricity, cash send, and voucher purchases.

Capitec faced considerable credit impairment charges due to high inflation, elevated interest rates, load shedding, and a challenging economic environment during the six months ending Aug. 31, 2023. These factors contributed to only single-digit year-on-year growth in earnings and headline earnings for that period. However, an improvement in the credit impairment charge and credit loss ratios was observed during the six months ending Feb. 29, 2024, leading to a 22-percent year-on-year growth in earnings for the second half of the 2024 financial year.

Avafin Holdings acquisition bolsters Capitec’s income

Another contributor to Capitec’s projected earnings surge is its acquisition of a majority stake in Avafin Holdings, an international online consumer lender. Following approval from the South African Reserve Bank in March, Capitec increased its shareholding in Avafin from 40.66 percent to 97.69 percent. Effective May 1, 2024, Avafin’s profits have been consolidated into Capitec’s income statement, with 97.075 percent of Avafin’s profit for the period under review included.

Capitec plans to release its financial results for the six months ending Aug. 31, 2024, on Oct. 1, 2024.