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Capitec’s digital strategy leads to strong interim results

‘We believe in a branch model as well as a digital model … to create that unique client experience’: CEO Gerrie Fourie.

FIFI PETERS: Capitec released its first-half results today and they have seen a phenomenal change in fortunes, with profits in the six months to June soaring over 500% and the group resuming its interim dividends. This is after dividends were frozen last year because of the Covid-19 pandemic.

Read: Capitec results show recovery – and continued growth

We have the CEO of Capitec, Gerrie Fourie, with us on the Market Update to review the numbers.

Gerrie, thanks so much for your time. I know that last year banks took out quite large provisions to protect themselves for the worst-case scenario of the pandemic. That didn’t quite happen because it seems as though the consumer was in much better shape than expected. But how much of this profit growth that you have reported today is as a result of the provisions now coming back into the system, or how much of it is due to other factors?

GERRIE FOURIE: I think the majority is due to other [factors]. In August 2020 we provided R4.5 billion for Covid, and by February 2021 we dropped that to R3.2 billion – and we’ve kept the R3.2 billion. So the crisis you’ve seen is all other factors, and has got nothing to do with extra provisions that we are keeping for Covid or for the economy.

I think the best comparison is because we had an abnormally low year last year as [opposed] to 2019. If you compare our profits this year to August 2019, we are up 35% and I think that shows you how strong the performance was – and we had exceptionally strong performance on the transactional growth side whereby year on year our transaction income has grown 33%.

I think it’s more those factors that are impacting on our profit growth.

FIFI PETERS: We do know that some consumers have been under pressure, particularly those who have fallen into the unemployment line, which now sits at a record. How much of your loans did go sour, and what percentage of the entire loan book did these sour loans represent?

GERRIE FOURIE: If I look at our Covid reschedules that we’ve done, payment breaks, we’ve given R7.5 billion to that. Of that, 15% has gone into arears and 15% has gone into [being] written off – so about 30%. But that’s all been provided for, and it’s all been accounted for.

What we are seeing is that clients are now performing [better]; [on] our book we’ve seen a dramatic improvement in their reserves. We look at [it as] cash-stressed if you’ve got less than 20% spending money, and we’ve seen a tremendous improvement in our performing book with clients having less cash stress.

FIFI PETERS: And then some of your colleagues in the banking sector, perhaps just one – the CEO of Absa – said that South Africans are saving quite a bit, and it is making it difficult for the economy to grow, given that spending spurs consumption growth, and if you’re saving that’s not happening. Are you seeing the same in your corridors?

GERRIE FOURIE: Yeah, we’ve increased our market share by about 2%, and I’ve shown stats today on the BA900s of the Reserve Bank that are showing that in the last 18 months, your savings have increased by R400 billion. That’s where I think government needs to play a big role, where they need to give clarity and confidence, so that the private sector and the individuals can invest. But for sure the saving side has definitely increased, which is actually surprising given the economy. But I think it’s a big opportunity for us to have clarity and confidence.

FIFI PETERS: Let’s talk about the future and what growth looks like. I see that you are employing quite a number of people – 300 or so – to ramp up your digital banking offering. Talk to us about that side of the business and the plans there.

GERRIE FOURIE: We believe there are still opportunities and strong growth. We are sitting with business banking [since the acquisition and integration of Mercantile Bank], which we want to rebrand – no control – [and] we want to rebrand bonds [Capitec Home Loans, offered in association with SA Home Loans] in the third quarter of next year. So we’re still investing heavily in the digital space, the IT space, the data space, because if you look at digital payments, QR payments, e-commerce, there are a lot of opportunities in that income area. So we still very optimistic and we are still looking to see how we can innovate and create value to our clients.

FIFI PETERS: Before the pandemic, when I spoke to you, Gerrie, you were saying that South Africans’ behaviour – [to] the South African consumer cash is still king – and Capitec was talking about opening new branches. With the pandemic we’ve just seen this huge growth in online and digital banking. My question to you is how much of the changed consumer behaviour that we have witnessed over the past 18 months does Capitec think will stay, and what does that mean for your future branches?

GERRIE FOURIE: I think this behaviour change is permanent. I think that it will increase. People are getting more confident to shop online and to use digital. We see that as opportunity, because you create capacity in your branches, and if you create capacity in your branches then you’ve got more opportunities to connect with your clients and inform your clients, and create brand ambassadors. So we very strongly believe in a branch model, as well as a digital model, and see how these two can support each other to create that unique client experience.

FIFI PETERS: But will you still be opening new branches – and if so, how many?

GERRIE FOURIE: No, I don’t think we will open more branches. We will reposition branches. We look at branches on a continuous basis and look to say if it makes sense to have a branch here – yes or no? If you look at the last 18 months, our branches are fairly flat and I think will stay fairly flat. We’ve got about 840 branches and it will stay there, because there is that move to digital.

FIFI PETERS: When you say it will stay there, does that mean you won’t be closing down any branches either?

GERRIE FOURIE: It could be that we will close. I’ve used the example of where we’ve retail spaces where the client has moved, where a particular area is not profitable, or the environment is not conducive. Then we will close that branch and probably open up somewhere else. So I’m quite happy if we stay round about 840 branches and we’ll monitor on a continual basis.

FIFI PETERS: You have invited a former competitor who now is a friend into the fold to help Capitec on its path forward in the form of Ms Basani Maluleke. Just tell us about that appointment, how it happened and what she is bringing to the table.

GERRIE FOURIE: I think we continuously are looking for people who can add value to Capitec, and we approached her about three, four months ago. We thought she’s got very high potential and she can add value to the company. She is going to be a divisional executive and she’s going to look at purpose lending in our banking-client space. So we are very excited about the appointment and it will be very interesting to see how her career develops in Capitec.

FIFI PETERS: I think we’re all quite interested to see how that develops. This is of course, the former CEO of African Bank, for the purpose of our listeners who might not know who she is.

You recently received a vindication from the Financial [Sector] Conduct Authority [FSCA] against Viceroy, the short-selling company that had falsely accused you – in the words of the FSCA – of being a loan shark. How did that make you feel?

GERRIE FOURIE: We answered the Viceroy allegations very clearly in 2018. We provided very detailed Sens on every single accusation, and we clearly stated that we believe we are correct. We believe this is a matter between the FSCA and Viceroy. We are not involved in them, so we don’t comment on it.

FIFI PETERS: I imagine they haven’t been in touch with you since that ruling.

GERRIE FOURIE: No, they’ve not been in touch with us directly. We’ve invited them a couple of times, but they’ve never been in touch.

FIFI PETERS: Gerrie, just lastly, we’ve spoken about digital banking and your excitement for that part of the business. Talk to us about the outlook for other parts of the business – which ones you are excited about and which ones you are concerned about.

GERRIE FOURIE: I’m excited about every part. We’ve got business banking, so I think there’s a massive opportunity for ourselves. And it’s interesting – we’ve got about a 32%, 35% market share on prime numbers. But if you look at our market share on credit and insure and save, we’ve got about a 10% market share, even lower. So overall we believe there’s still a lot of runway and we’ll continue focusing on adding value to our clients and innovating new products. We’ve just launched Live Better, there is Purpose Lending. You can now remote onboard. So there are a lot of initiatives taking place to make the client experience more unique.

FIFI PETERS: All right, Gerrie, we’ll leave it there. Thanks so much for your time. Gerrie Fourie is the CEO of Capitec.

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Maybe they should invests some of that R3.84 bn in developing a digital product which is actually available, not “Currently unable to connect”. 2x this month since payday alone.

And no card payments, cash withdrawals.

I say this as a customer & a shareholder – stop talking about future digital & fix your current product offerings. That would lead to more content customers & better value for shareholders Gerrie.

End of comments.





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