NASTASSIA ARENDSE: Capitec Bank reported a 17% rise in half-year profit. The lender has grown rapidly over the past decade and has about 9.2 million active clients, up an average of 105 000 per month over the past year, to now account for 27% of the market. This is my conversation with Capitec CEO, Gerrie Fourie.
GERRIE FOURIE: We are quite happy with our results. Earnings grew by 17%. I think given the economy and the way South Africa is growing, we are quite happy with 17%. We are especially pleased with our client numbers’ growth going up to 9.2 million. But more importantly our primary banking clients, clients that bank with us, that number is at 4.1 million.
Even our credit side – in a tough environment we managed to grow that by 10%. So overall we are very happy with the results.
NASTASSIA ARENDSE: What do you attribute the growth to, because the previous times that I’ve interviewed you, you continue to impress me with your numbers and the way that you are taking the banking model, especially the Capitec model, forward. To what do you attribute the performance?
GERRIE FOURIE: Well, I think the performance is coming from our fundamentals. We know exactly where we want to go. We understand our fundamentals of accessibility, affordability, simplicity and personal service, and we’ve built the brand around those. So everything we do is in line with that. And then there is a big desire to understand the needs of the client and satisfy those needs. That’s what we do. We have a very strong focus. We are in a privileged situation where we only do retail banking. We’ve only got one product, so you’ve got 13 500 people that are focusing on that and making certain that we deliver on our promise.
NASTASSIA ARENDSE: Breaking down the numbers a little, I see here your return on equity is 26%. Is that the target or do you have a target where you’d like to see it – maybe at 22% or somewhere along those lines?
GERRIE FOURIE: Well, our target has always been 25%. I said a couple of times in the last year or two that I’ll probably see that coming down to 22%, and that’s probably in line with what we’ve done on the credit side. We are starting to reduce prices, making unsecured lending more affordable. So one will probably get down to 22, 23%. But we are quite happy. If we can get to that top of RoE performance our shareholders should be happy.
NASTASSIA ARENDSE: The one thing I liked about your Sens report this morning was that you are one of the few listed companies when it comes to delivering the numbers and articulating them, that you make it so simple for investors and journalists to understand where the money is coming from and what’s driving the business. The one thing you talk about is, “We make banking simple to suit the needs of our clients.” Making banking simple involves acclimatising to what’s happening in the environment, especially on the technology side, the evolving technology. When you look at the costs, what is the cost in terms of increasing staff in order to up the IT side of things, because that what makes banking evolve, makes people attracted to it. So to what extent did your increasing side on the IT part of the business contribute to costs?
GERRIE FOURIE: Well, we’ve got a passion to measure everything, to understand everything. To give you a little perspective on that, two years back 27% of our clients waited longer than 15 minutes to be served. Now it’s 4%. Our average client waits 1 minute and 46 seconds to be served. If you look at the cost of serving a client, that is R10 per minute. When he calls our help desk that’s R5 per minute. So if you are sitting with a client and you are sitting with your cost structures, you understand completely if you do this, this is the effect. So we analyse and do scenario planning in detail.
But for me it’s always about making the decisions as to what is in the best interest of the client in the long term, because otherwise if you chase cost to income [ratio] – we are currently at 36% and we can easily drop it to 32 or 30%, even – it’s going to have a definite impact on the client, especially in the short term. And that’s not what we want to do. So all our decisions that we take are what is the best for the client and what is best for the business – to build a business that can become 100 years old.
NASTASSIA ARENDSE: What’s the percentage of clients that are moving to the self-service side of things, as opposed to doing the whole walk-in branch thing?
GERRIE FOURIE: It’s a big portion of the clients. I don’t measure it in clients. What we do is we look at the type of transactions, and we have identified transactions that can move to self-help. What we managed to do in a two-year period is that we’ve moved 72% of those transactions to self-help, so there is 28% left, and we would like to ideally move all 100% away. You won’t get that right. But I think the one thing that we’ve learnt in the last year, 18 months, is a tremendous uptake on self-help, especially on the app. Our app now has 1.2 million clients who are actively using the app every single day. There are 2 million people registered. And the number of transactions and the volumes that go through it are tremendous.
NASTASSIA ARENDSE: A lot has changed, I think, over the past six months or year, depending on when you started looking at the way the world has changed – whether it was taking into consideration Brexit or Trump – and a lot of people would focus more on the economic risk. To what extent have you guys and your team had to factor in political risk as well when you look at say, South Africa and globally? What’s happening?
GERRIE FOURIE: I think if you typically look five years back, any scenarios that you’ve built, or stress-testing that you take through, everyone look at the economy. I think with what happened with Brexit, what happened with Trump, what happened with Pravin Gordhan in South Africa, you suddenly realised the political risk – and you need to bring that into all your scenarios. Unfortunately, political risk is much more uncertain and you can’t play. So you need to go the high road, low road type of scenario. I can sketch a couple of scenarios, given whoever is the new president of the ANC in December – it can have different scenarios. So you need to play with that and see, alright, if this happens how are we going to react and what are we going to do? So ja, political risk is much more important these days than it used to be two, three, four years ago.
NASTASSIA ARENDSE: Talking about political risk, let’s look at the economy side, especially when you look at South Africa. Growth is looking not so great right now. What perceptions have you received from your clients in terms of how the economy is affecting them? Have you understood them and what are some of the circumstances they’ve had to adjust to? And how does it affect your banking operations?
GERRIE FOURIE: Well, if I look at the economy, I tend to look at it as half-full. The reason I’m saying that is that I believe the economy is in a better state than it was a year ago. I’m not saying it’s healthy. I’m just saying it’s more stable because, if you look, inflation, food inflation was much higher and came down. Inflation now is 4.8%. If you look at the exchange rate, last year a couple of times it went to R16.17/dollar. This year it’s round about R13. If you look at the interest rates, the Reserve Bank has started to pull back. I think we all wanted to have a second reduction in interest rates; it’s looking as though interest rates will reduce. So even if we look at retrenchments and things like that, that’s more stable.
So the economy is much more stable. I don’t think we are in a healthy space. We’ll have to first see who is the next president of the ANC, and that person will have to come in and get his strategies implemented, and then we’ll start seeing growth.
What we’ve definitely seen on our side on the client base – because we analyse the clients from their transactional side, we analyse them according to different industries, even on mines we analyse it per shaft to understand what the effect is – even on cash flow we’ve seen that the clients are in a little better state than they were a year ago.
If you look at the credit side we’ve pulled back quite a lot. Last year, if you brought in 100 clients, we would have said yes to about 40 clients. Now it’s only 27. And that’s typically what’s happening in the economy. We’ve definitely pulled back what we call small and tiny companies, especially on the manufacturing side where we saw a lot of companies down-scaling or closing down, etc. So we had to make adjustments and we’ve made those adjustments, and that’s why we are pleased with how the credit side panned out.
NASTASSIA ARENDSE: What will you and your team be focusing on as the year progresses?
GERRIE FOURIE: The year is basically finished. We had a couple of strat sessions and we actually focused more on 2025, thinking about 2025. What are the opportunities there? What opportunities are there in South Africa, and what opportunities are there in the retail space, other forms of banking and the internationals? Those are the sort of debates we are having.
But most important is probably understanding the changing needs of the clients – what they are going to be in 2025 – and be able to be agile to satisfy those needs, because a child now five years old is going to 15 then, and the needs of that child are going to be completely different from a 15-year-old now. Technology is going to change. A lot of things are going to change and we need to be agile and adapt to that.
NASTASSIA ARENDSE: Speaking of technology – I ask a lot of your peers this, especially having had a conversation with the guys from Standard Bank and Nedbank – where do you sit when it comes to the cryptocurrency, Bitcoin, blockchain development?
GERRIE FOURIE: I think it’s definitely going to change the way we are transacting. It’s going to change the way we file contracts and handle contracts, the way the JSE is going to operate. But for me it’s very similar to fintech companies. Mobile payments are going to change completely. It’s that ability to work with the right fintech companies and understand what’s coming through. I think what one needs to understand with Bitcoin, for example, is what the view of the regulators is going be.
Maybe on a lighter note, about two weeks ago, three weeks ago, there was an article on the ATM being 50 years old. The heading “This is the end of the cashiers” heralded ATMs coming in. It’s 50 years later and we’ve got more cashiers than we had then. So one needs to look at technology and say how you can assist and what is going to work and what is not going to work. That’s our view – to say how we actually work with that and optimise client needs.
NASTASSIA ARENDSE: Gerrie, thanks so much for your time.