July 2012 Riaan Stassen, CEO of Capitec Bank, standing next to the bank's latest technological leap the ATM cash recycler. July 2012 Riaan Stassen, CEO of Capitec Bank, standing next to the bank's latest technological leap the ATM cash recycler.
Riaan Stassen, the chief executive of Capitec, made a pre-tax profit of R80 million from exercising share options and share appreciation rights during financial 2013.
In addition, Stassen, who is regarded as the driving force behind Capitec’s success in the unsecured lending market, was awarded a remuneration package worth R10.8m, marginally up on the R10.5m Stassen received for financial 2012, when Capitec increased its earnings by 47 percent.
The substantial profit made by Stassen, revealed in the Capitec annual report released on Friday, was from options and rights granted in 2006, 2008 and 2009 when the Capitec share was trading at R30 to R35.
When the options and appreciation rights were exercised in April last year, the Capitec share was trading at about R216.
The profit earned during financial 2013 reflects the sharp appreciation in the Capitec share price since 2008, which in turn reflects the dramatic growth in the unsecured lending market in which Capitec specialises.
The R80m comprises R36.2m profit on the share appreciation rights and R43.6m profit from exercising share options.
Given that Stassen’s shareholding in the company reduced by 158 000 shares to just more than 2 million shares, it appears that he sold most of the shares after he exercised the options.
In the company’s annual report, chairman Michiel le Roux’s comment is headed: “The Revolution continues”. Le Roux notes that Capitec’s share of banking clients has grown from 5 percent of the market in 2010 to 9 percent in 2012.
“We have huge growth opportunities,” writes Le Roux.
In the report, he argues that the growth of the country’s unsecured lending market “is a triumph for the government’s ambition to extend banking to those previously excluded from banks”.
Le Roux recalls how the implementation of the National Credit Act in 2007 legislated the rules of credit granting and banned abusive practices. “With this legislation the market took off: in 2007 the unsecured lending industry totalled R29 billion (according to the National Credit Regulator). The industry now has a total book of R171bn, 14 percent of the total South African credit market.”
However, Friday’s collapse of the share prices of several companies related to the unsecured lending market indicates that investors are nervous about the outlook for the industry.
This nervousness has been aggravated by evidence of the government’s growing concern that consumers are over-extended. As one industry participant noted, “Government and its various regulatory authorities increasingly fear that unsecured lending is looking too much like reckless lending.” An estimated 9.3 million consumers have impaired credit records.
The government’s concerns, combined with weak economic growth and growing evidence from retail sales figures that consumers are over-stretched, appear to be behind the sharpness of the decline in the shares on Friday.
African Bank, which had issued a trading update on Thursday, led the decline with a 17 percent drop in its share price; Capitec was down 6.5 percent; JD Group and Lewis were both down 6 percent.
In its trading update, African Bank advised shareholders that earnings for the six months ended March were expected to be down between 25 percent and 28 percent. The bank, whose operations include banking and furniture retail, said in a Stock Exchange News Service statement that earnings were expected to fall by 19 percent to 22 percent.
“The retail unit achieved marginal profitability as a result of a high fixed cost base and lower sales”, said the statement. A slowdown in trading and increased bad debts were key factors behind the expected drop in profits, the bank said.