Towards the latter parts of 2023, the global and local economy is likely to stabilise, says Gerrie Fourie, the CEO of Capitec.
Speaking to BusinessTech following the publishing of the group’s latest results, Fourie said that the next few months of the year are tough to call – with things either getting better or getting worse – but in either case, the situation will likely normalise by September or October.
This includes things like inflation, which surprised on the upside for March. Echoing sentiments from the South African Reserve Bank, the Capitec CEO said that headline inflation would start coming down as the year progresses, while interest rates should stabilise alongside the supply chain.
“If you look at it really, China was locked down until about February, and it takes you normally four to six months to get that production cycle going. So China is really starting to produce. So the supply side is going to be sorted out,” he said.
“Because of artificial inflation, what we see now in America, the inflation rate has dropped from 7 to 5%. We see the similar trend in the UK.”
Fourie said it will be “very interesting” to see what worldwide inflation rates will look like in the next couple of months.
“All economists say it will normalise, and we will get back to normal trends; that will then force us and the US Fed to stop increasing interest rates. Now that’s what everyone is predicting. The signs look like that, but one will have to wait and see how it pans out.”
South Africans have been taking major blows to their financial stability with record-high interest rates and skyrocketing inflation moving more people to rely on credit for day-to-day living expenses.
According to the most recent data from StatsSA, consumer price inflation climbed up to 7.1% in March, up from 7% in February – surprising analysts who suspected a slight decrease.
The inflation uptick comes after another surprise to cash-strapped South Africans where on 30 March, the South African Reserve Bank (SARB) pushed interest rates up by 50 basis points.
The hike marked the ninth in the rate cycle that started back in November 2021. Rates are now on par with those seen during the global financial crisis of 2009.
SARB’s rate hikes are, however, considered by Fourie to be the right move for inflation. He said that the central bank has got two responsibilities: one, responsibility is looking after inflation – the other is protecting the rand.
“If the US Fed increases the interest rates in America, you are basically forced to increase here as well…because if you don’t do it, then the rand/dollar will just weaken,” said the CEO.
“And if the rand-dollar weakens, it costs more to import, and then you will have higher inflation. So, the moment the Fed stops increasing interest rates, we will all probably see that our interest rates here will also remain stable.”
Fourie said that South Africa is not operating as an island on its own but rather within a whole worldwide economy. This was also raised by the SARB during its last Monetary Policy Committee meeting in March.
However, idiosyncracies still exist – and local inflation drivers like load shedding continue to have an impact. As a result, South African households remain under pressure and are cutting spending, changing habits and increasingly turning to credit and debt to stay afloat.
In Capitec’s latest financial results, the bank flagged these challenges, recording a massive 80% increase in credit impairments, which amounted to R6.3 billion.
The company attributed the rise in credit impairments to borrowers facing difficulties in repaying loans.
In light of dire economic strain on average South Africans and an undesired turn to relying on credit for everyday living expenses, Fourie said the bank had limited its credit facilities – making over 900 changes to its credit policies, purely because of the risk the bank sees with people turning to credit currently.
The bank further reported in its results that in 2022, consumers faced various challenges. Due to the bank’s over 20 million active clients, the bank has a vast amount of financial data on approximately one-third of the country’s population.
This data allows the bank to understand its clients and the impact that the current deteriorating economic conditions are having on South Africans, Capitec said.
“Our clients expended on average 8% more on groceries and 16% more on fuel for the 2023 financial year than in the previous financial year.”
“The increase in spending on groceries was tempered by the effect of clients buying more affordable products. The value of the average annual home loan debit orders increased by 20%, and the average amount of vehicle finance debit orders grew by 15%.”
Capitec also reported that the average increase in income into client accounts only grew by, on average, 4% compared to 10% for the comparative period.