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Capitec, one of South Africa’s largest banks, warned in May that the Covid-19 shutdown would dent earnings. But the full effect of South Africa’s strict lockdown on the bank’s books took investors by surprise. On Friday, Capitec announced that profits were likely to plunge by a staggering 70%. Its customers, many low-income earners, have been unable to find funds to keep up with loan repayments. Capitec was among the corporates urging the government to relax lockdown restrictions to boost business activity. South Africa’s economy probably contracted more than 30% in the second quarter when restrictions to curb the spread of the coronavirus shut down almost all activity for five weeks, according to central bank forecasts. The annualised drop in gross domestic product is forecast at 32.6% for the three months through June from the previous quarter, the SA Reserve Bank said earlier this month. – Editor
Capitec forecasts 70% profit fall in blow to shares
Capitec Bank forecast a fall of at least 70% in first-half earnings on Friday due to a spike in bad loans from the coronavirus crisis, the first major South African lender to detail its full effect.
Concerns over a jump in bad loans after a nationwide lockdown to contain the coronavirus have hit South African banks and Capitec’s shares, which were already down 42% so far this year, were 2.5% lower at 1359 GMT.
Capitec, which had forecast a drop of at least 20% in first-half profit in May, said it expects headline earnings per share, the main profit measure for South African firms, to fall by more than 1,782 cents from the 2,545 cents it reported for the six months to the end of August 2019.
The bank said its credit impairment charge was 145% higher than forecast, mainly due to 5.75 billion rand ($338 million) and 236 million rand in retail and business credit balances being rescheduled or granted payment breaks due to the lockdown.
Capitec said in a statement that it does not expect to return to pre-lockdown levels of credit sales before the start of its next financial year.
“We do, however, believe that the results for the second half of the 2021 financial year could return to normal levels,” it added.
Major banks across the United States and Britain have set aside billions of dollars in provisions to handle loans that sour as customers become unable to make payments as a result of unemployment triggered by the coronavirus crisis.
($1 = 17.0275 rand)
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