Capitec pursues business banking

Bank to balance business ambitions with opportunities in retail banking.
Retail bank Capitec has set its sights on the business banking market. Picture: Reuters

Capitec intends to expand its product offering to business banking.

The retail bank made the announcement, alongside its interim financial results, stating that its plans to enter into business banking may include the acquisition of Mercantile Bank.

It submitted a formal bid to acquire the specialist bank on August 31, 2018 and expects a decision in mid-to-late October.

“It is not often that an opportunity like Mercantile comes on the market. We looked at it and we believe that there is an opportunity for us to use Mercantile as a foundation to focus on the SME (small and medium enterprise) market,” said Capitec chief executive Gerrie Fourie.

Renier de Bruyn, an investment analyst at Sanlam Private Wealth, said its business banking ambitions are the next logical step for growth. According to him Capitec has always been a very focused bank, traditionally having one transactional account and a lending business.

“The question has always been when will they start running out of growth runway? At what point do they start looking at other revenue streams? Certainly, they are looking at other revenue streams such as insurance income and moving away from pure consumer banking to business banking. It is the next logical if you start running out of growth runway.”

He added that if it were to just focus on its retail client base, now in excess of 10 million, it would incrementally find it harder to gain further market share as it already banks a decent share of the adult population.

Mercantile Bank is currently held by Caixa Geral de Depósitos (CGD), which is wholly owned by the government of Portugal. CDG, Portugal’s largest bank, announced its intention to sell Mercantile Bank in March 2017 as part of a plan to dispose of foreign assets. A decree law to facilitate the sale, which constitutes a privatisation of state-owned assets, was passed and promulgated in Portugal in December 2017.

Fourie told Moneyweb that Capitec is already in the early phase of building a business bank. Should its bid for Mercantile fail, it will resume focus on building business banking capabilities. However, a strategic decision will be taken to balance resources and efforts against potential opportunities in business banking and retail banking – including further growth in credit and insurance – which remains a top priority.

Capitec entered the insurance market with a funeral cover product, underwritten by Sanlam, in May 2018. According to Fourie, it is selling around 2000 funeral policies a day and has already paid out claims, one of which in under three hours. It built an insurance platform to roll out funeral plans and is widely expected to add more insurance products to the platform in due course.  

Capitec is the fastest growing retail bank in South Africa. An average of 109 000 clients joined the bank every month during the six months through to August, helping it grow its client base to 10.5 million by the end of the period. “The economy is helping because people are looking for value [and] for a simplistic, transparent offer to fulfill their banking needs.”

Of the 10.5 million clients around 4.9 million are primary banking clients, measured in terms of a constant inflow of money, typically in the form of salaries, entering their accounts. The bank is also making progress in growing its high-income client base, with Fourie telling Moneyweb that that segment of its market is growing by 28% compared with an average of 15%.  

That Capitec grew its client base by 15%, its branch network by 3% and headcount by only 1% is illustrative of very good efficiency gains, de Bruyn said.

Much of the pressure on its branches and employees was alleviated through its continued drive to migrate clients to digital solutions. The bank reported a 27% increase in self-service banking transactions to 295 million transactions and said app usage increased by 62% to 1.8 million clients.

For the six months ended August 31, Capitec reported a 20% increase in headline earnings per share to R21.28 and return on shareholders’ equity of 27%. It lifted its interim dividend by a similar margin to R6.30.

On the face of it, Capitec’s financial performance appears to defy weak macroeconomic conditions. But de Bruyn said the effect of stagnant economic growth can be seen in its loan book. It registered net loan book growth of 3% and shifted toward longer-term loans with lower interest rates which saw net lending, investment and insurance income fall 4% to R6.1 billion, he explained. He added that the change in accounting standards to IFRS 9 also makes year-on-year comparisons difficult.



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When will Capitec introduce a forex option to send money offshore?

At present can only receive forex.

A significant weakness imho.

South Africa is launching its own crypto-coin, if we don’t buy we f#$@ed, check it out…

End of comments.





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