Capitec Bank is currently adding customers at the rate of around 200 000 a month and expects to cross the 16 million mark “any day now”.
In its results briefing for the 2021 financial year, the bank said in the 12 months to the end of February it grew its active client base by “approximately 160 000 clients per month”.
CFO Andre du Plessis made the point that the bank had “one month of negative growth” during the last year, presumably during the hard lockdown in April.
The rate of growth in the last two years has been remarkable, with over 4 million clients added to the retail bank – an increase of 38%. By the end of February it had 15.7 million clients, with that number increasing to 15.9 million at the end of March.
‘Acceleration’ towards normal
Executives at the bank described an acceleration towards normalised levels in March, given that the more stringent lockdown regulations implemented in late December impacted activity in January and February.
CEO Gerrie Fourie says “people are looking for value for money, the brand has become extremely strong, and our digital offering is a very compelling one”.
However, he makes the distinction between adding any clients at any cost versus adding quality customers. It could, for example, chase headline numbers and open accounts for SA Social Security Agency (Sassa) grant beneficiaries, but account activity for these customers is limited – grants are typically withdrawn when they become available.
Of Capitec’s 15.7 million retail customers, only 1.1 million are credit clients. The bank has 5.9 million savings clients and four million banking clients (these are customers who have their salaries deposited in their Capitec accounts and who demonstrate a level of primary banking behaviour). It sees a significant opportunity to cross-sell products between these pools of customers.
It says it is the “biggest digital bank in South Africa with 8.6 million active users of either the Capitec banking app, USSD channel or a combination of digital channels”.
This means in 24 months it increased its number of digitally active customers by 60%.
As at end-February, it had 5.3 million active app users, with five million clients using USSD channels (with some overlap between these two bases).
On average, it says a digital client performs 10 transactions per month. It highlights that of its retail bank base, 64% are under 40. When looking at its digitally active base that number is, unsurprisingly, higher at 70%.
Use of its Send Cash product exploded in the year. Transaction volumes totalled 12.3 million, versus 3.8 million a year prior (it was launched in May 2019).
The bank says “more than 50% of the Send Cash transactions are performed via the banking app”.
Its home loans product, in partnership with SA Home Loans, has received in excess of 24 000 applications with 300 loans disbursed at an average size of around R950 000. Originally, the bank simply “re-sold” SA Home Loans products – in effect, it was an originator.
With its new offering launched last year, CEO Gerrie Fourie says the bank designed the product, with SA Home Loans underwriting the loan.
Read: Capitec launches its first full home loan offering (Nov 2020)
He stresses that the mortgage book is not on Capitec’s balance sheet, but on that of SA Home Loans.
Fourie says the market is misreading home loans as an opportunity for the bank to grow. Instead, he says, the product is a “defensive strategy”.
“If we don’t offer it, then our client will go to any one of the four traditional banks and say we’ll give you a mortgage but you must move your account.
“We don’t see it as a big money-making venture, we see it as defensive and a way to offer value to our clients”.
Its vehicle finance venture at WeBuyCars branches was hit hard by Covid-19, but Fourie says it remains “very small” at this stage. Its biggest challenge is to get its credit pricing to a level where it competes with a secured product.
Fourie sees opportunity for so-called “purpose lending”, where it can grant loans for building (home improvement), cars, education, or medical and the bank can be sure “the loan goes to the right supplier”.
Capitec says total retail “loans advanced and disbursements made decreased by 25% year-on-year to R29.3 billion” (2020: R39.1 billion).
“Term loan sales decreased by 55% to R13 billion, while credit card disbursements decreased by 1% to R9.7 billion. Disbursements of the new access facility totalled R6.4 billion for the 10 months since launch and credit facility sales amounted to R0.2 billion.”
Not all good news
The bank booked a net credit impairment charge for the year of R7.36 billion, which equates to a credit loss ratio of 11.3%.
Excluding its Covid-19 portfolio (which other banks term a “relief portfolio”), the credit loss ratio is 6.2%, which compares favourably with the 6.8% for the year ending February 2020.
The bank’s Covid-19 rescheduled book totals R7.5 billion, with R3.9 billion of this rehabilitated or settled. A further R1.7 billion of this comprises loans that are not yet rehabilitated (the majority so-called re-rescheduled), while R1.9 billion of the book is in arrears.
To date, performance of rescheduled loans has been “positive”, with the only sector still experiencing stress being travel and leisure (2% of its book). Inflows (salaries into accounts) in this sector are averaging 74% of normal levels as at February.
The business bank (formerly Mercantile) reported a R1 million loss in the period.
Its business lending book was “static” in the year with net loans and advances of R10.4 billion.
Du Plessis says “generally, there is always demand for credit” but that “companies are very cautious at present, especially for large developments”.
It is actively building a business bank, which is expected to launch around the middle of next year. Despite this, it managed to grow its business client base by 33% in the 12 months.
Capitec reported a 27% decline in (diluted) headline earnings per share to R39.63 (2020: R54.20). Return on equity was 17% (2020: 28%). It declared a final dividend of R16 per share.
Listen: CEO Gerrie Fourie discusses Capitec’s annual results