Transaction Capital’s results a sobering window into SA’s economic plight

Written by Ciaran Ryan. Posted in Journalism

The ultra-poor have become poorer; the rest are on the rebound. From Moneyweb.

Image: Karel Prinsloo, AFP via GettyImages

Image: Karel Prinsloo, AFP via GettyImages

We learn from Transaction Capital’s results for the year to September 2020 that 77% of unsecured loans across the economy are overdue, as are 23% of vehicle and mortgage loans.

These should be frightening figures to anyone paying attention, and show the devastation caused by the lockdown. With SA’s unsecured lending valued at just over R300 billion, and mortgage and vehicle loans at R1.4 trillion, that’s a sizeable proportion of financial sector assets now in some level of distress. Part of this would be accounted for by the repayment holidays extended by the banks at the start of the lockdown in March this year.


What’s also alarming is the plight of the ultra-poor, defined as those households living on less than R8 000 a month.

Figures from University of Cape Town’s Liberty Institute of Strategic Marketing show the number of ultra-poor adults has climbed to 77% from 56% of the population in just over three years.

Transaction Capital’s business – focused around financing and servicing minibus taxis, debt collection and more recently the used car business, following the acquisition of 49.9% of WeBuyCars – withstood the Covid lockdown with some dignity. For the five years to September 2019, the company delivered blistering compound annual growth of 23%. That trend was interrupted by the events of the last few months with a 66% drop in core headline earnings per share.

Read: Transaction Capital swoops on WeBuyCars

Though the poor have been hardest hit by Covid, they are also least likely to qualify for credit.

Non-performing loans may increase

Transaction Capital’s CEO David Hurwitz says collection rates on non-performing loans are back to roughly 90% of pre-Covid levels. “At the start of the lockdown, the banks were primarily focused on providing debt relief to customers. We saw very little evidence of customers being handed over to their legal departments, but we expect to see an increase in non-performing loans coming out of the banking sector.

“Our experience is that there has been a rather sharp recovery in customers’ ability to service outstanding loans.”

There are 27 million credit-active consumers in SA, of which almost 40% or 10 million had impaired credit records in June 2020.

Transaction Capital’s Consumer Credit Rehabilitation Index (CCRI), which measures South African consumers’ propensity to repay debt, had deteriorated 3.4% at September 2020 compared with the prior year. This was the largest annual decline since the CCRI’s inception in June 2017.

“The 2.2 million jobs lost in the second quarter of 2020 alone, will escalate economic strain in the consumer sector with concomitant reductions in credit extension and retail sales,” says the Transaction Capital results statement.

The economic outlook for the coming years gives little cause for optimism.

SA Taxi, WeBuyCars

“The recovery of South Africa’s fragile economy is in any event likely to lag that of the global economy, with GDP only expected to reach 2019 levels by 2024, says the results commentary for the 2020 financial year. “Although SA Taxi, (Transaction Capital Risk Services (debt collection) and WeBuyCars are well placed to return to their long-term track records for growth, further sharp downturns in socioeconomic conditions in South Africa remain the primary downside risk to our expectations for growth and returns in the years ahead.”

Transaction Capital is arguably the largest taxi-focused business in the country, providing finance, insurance, auto repairs and loyalty programmes to taxi operators. Hurwitz told Moneyweb the R1.8 billion purchase of a half-share in WeBuyCars was executed with speed when it became clear that South Africans faced with lower disposable incomes would switch from purchasing new to used cars.

This was a prescient move: WeBuyCars increased monthly sales to more than 6 250 in the last three months, up from 5 900 at the start of the year.

This will make a substantial contribution to profits going forward.

The SA Taxi division offered repayment holidays to taxi owners at the start of the lockdown, and longer relief measures to some 3 000 taxi clients engaged in long-distance travel, which had been prohibited from operating in the early months of the lockdown. The cost of this relief was about R400 million.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.