Capitec Set for Legal Battle Over Reckless Lending Charges

  • Court papers to be filed early in June, Capitec CEO says
  • Fourie is ‘extremely worried’ about South African economy

Capitec Bank Holdings Ltd., South Africa’s biggest provider of unsecured loans, said it has lodged its opposition to reckless-lending charges filed by Summit Financial Partners and will submit responding court documents early next month.

“We’re not payday lenders,” Chief Executive Officer Gerrie Fourie said in an interview in Stellenbosch, near Cape Town. “We’re confident we can win against Summit, but we’re worried about reputational damage.”

Earlier this month Summit, which helps consumers work their way out of debt, said in court papers filed in both Cape Town’s High Court and the Magistrates Court in Stellenbosch that Capitec breached the National Credit Act. Summit focused on Capitec’s so-called multi loans and its alleged refusal to supply paperwork when requested to do so by clients.

With a multi loan, a customer signs one contract and can access the facility every month for 12 months. Summit said that after the first month, affordability assessments are no longer done, while a 12 percent initiation fee is charged every month.

Regulator’s Probe

“We do an affordability check every month and charge a proportional initiation fee,” Fourie said. “There is a cost to providing credit. I would love to get out of this market because it’s completely unprofitable, but South Africans want these types of loans.”

Capitec differs from payday lenders in that many of its loans have a longer duration and the money is spent on education and improving peoples’ homes, he said.

South Africa’s National Credit Regulator this year started its second investigation into Capitec’s lending practices. The two parties have met and made progress in their talks in the past two weeks, according to Fourie. The court cases linked to Summit may be over within 12 months, Fourie said, adding that NCR cases can take longer.

Amid the legal challenges Capitec is the second-best performing bank stock this year after Standard Bank Group Ltd., having gained more than 10 percent. It remains over-capitalized and expects double-digit profit growth in 2016 even as South Africa’s economy slows, Fourie said.

“We’re extremely worried about the economy,” Fourie said. “The slowdown in areas like manufacturing will reduce clients’ income with them getting no overtime pay, no bonuses and then retrenchments.”

The lender is starting to see the effect in arrears on loans, he said. South Africa’s central bank last week revised its estimate for gross domestic product growth to 0.6 percent, from 0.8 percent.

‘Manage Down’

“We’ll only see the real impact in the third or fourth quarter,” Fourie said. “We’ve pulled back on the credit side in anticipation, but it’s a big opportunity for client acquisition. We’ve seen tremendous uptake this year.”

The company plans to “manage down” its return on equity, a measure of profit, to 25 percent from about 27 percent this year, Fourie told shareholders at its annual general meeting later on Friday. Capitec is also seeking to boost the income it makes from transactional fees so they cover operational costs by 2020, he said.

Capitec, which is signing on about 150,000 customers a month for a total of 7.6 million, will add 1,000 ATMs so that it has 3,000 by the end of the year, the CEO said. It will also start a credit-card offering by the end of the year to move away from depending on unsecured lending as it grows into a fully fledged bank, he said.

Chairman Michiel le Roux stepped down at the AGM and will be replaced by former CEO Riaan Stassen. Le Roux will remain as a non-executive director on the board.

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