Capitec’s future lies in transactional banking

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Chief executive Gerrie Fourie says Capitec depends on unsecured lending far less than African Bank. Photo: Simphiwe Mbokazi

Johannesburg - The next phase of Capitec’s growth would come from transactional banking as the era of extending credit to the previously unbanked had come to an end, analysts said yesterday.

The bank, which has grown headline earnings by an average 49 percent a year for the past decade, yesterday reported growth of 27 percent to R2 billion for the year to February.

Deterioration in the quality of its loan book increased Capitec’s loan impairment expense from R2.65bn to R3.97bn.

This, coupled with an 8 percent increase in net loans and advances – against double-digit increases in past years – led analysts to predict that the latest year’s growth levels could be a recurring trend.

The value of new loans advanced declined to R18bn from R25bn in the previous year.

“It’s certainly not a once-off,” Harry Botha, an equity analyst at Avior Research, said.

“It’s related to the credit cycle. In past years, Capitec’s growth was driven by new advances and you can clearly see this is changing.”

Capitec’s chief executive, Gerrie Fourie, said it would be difficult for any bank to grow at a rate of 40 percent a year with a base profit of R2bn.

“The percentages are always difficult to look at. One needs to look at the base and the market itself.”

Fourie said customers’ financial circumstances took a turn for worse.

“The striking season we had last year was the worst,” Fourie said.

Bonus and overtime income, which in the past contributed 45 percent to Capitec’s banking customers’ income, decreased to 38 percent.

Even though the slump in the credit cycle had begun to affect Capitec’s growth trajectory, Fourie said Capitec was not comparable to African Bank, which suffered a major blow when the unsecured lending market slumped.

“We have a different provisioning. Ours remains conservative – it’s 7 percent for new loans. Most of [African Bank’s] income comes from unsecured lending. With us, R1.9bn is net transaction fee income and we don’t generate income out of credit life [policies],” he said.

In the year under review, Capitec’s net transaction fee income grew 43 percent and net banking income was up 15 percent to R6bn.

The bank added more than 400 000 banking clients who had their salaries deposited to their Capitec Bank accounts, mainly high-income earners.

Of Capitec’s 2.5 million banking customers, 1.1 million are retail deposit clients.

“They have taken a bit of market share in that space,” said Stephen Meintjes, the head of research at Imara SP Reid.

“The second phase will be to take it from their established competitors and grow their transactional banking.”

Meintjes said that while Capitec grew rapidly because it provided a product that suited the government’s objective to bank the unbanked population, the phase for new lending to that market was over.

But Capitec’s growth was not.

Botha said Capitec could still grow its banking clients consistently for “quite a long period”.

“There are a lot of high-income earners moving to Capitec who are not even using their credit offering. It shows a lot about how the Capitec brand has evolved to be appreciated as a bank that can compete with the big four,” he said.

Fourie said Capitec would announce some improvements in its electronic banking channels later this year to grow its transactional banking.

Capitec’s headline earnings a share increased by 15 percent to R17.52 and it declared a final dividend of R4.60 a share.

Capitec shares advanced 2.62 percent to close at R191.90 on the JSE yesterday. - Business Report


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