Lights illuminate the windows of the Discovery Ltd. headquarters office in the Sandton district of Johannesburg, South Africa. Photographer: Waldo Swiegers/Bloomberg
JOHANNESBURG -  Discovery Ltd. is on track to start a South African bank by the end of this year after agreeing to buy FirstRand Ltd.’s stake in a credit-card venture, a transaction which had delayed the lender’s launch.

Johannesburg-based Discovery is joining a rush into South African retail banking by a range of entrants spanning from insurer Old Mutual Ltd. to local banking-veteran Michael Jordaan, who is looking to start a digital-only offering. The country’s largest medical-insurance administrator is adding to its businesses in life, property and casualty cover, and a loyalty program that rewards customers who keep healthy through partnerships around the world.

The insurer will pay 1.8 billion rand ($120 million) for FirstRand’s 25 percent stake in Discovery Card, which it started with the country’s second-largest banking group in 2004, Discovery said in a statement on Tuesday. The deal will be implemented as “as soon as practically possible,” to meet one of the conditions imposed by the South African central bank when the regulator granted Discovery its banking license, the company said.

The transaction will be funded by issuing stock and is still subject to regulatory approval, Discovery said. Discovery Bank will hold all rights to the credit-card book once the transaction is finalized and the assets will be migrated over time, it said.

"Although these developments have delayed the process slightly, the bank-build is progressing well and remains within budget, and the launch is expected before the end of 2018,” Discovery said. Profit at the Discovery Card venture increased by 17 percent to 414 million rand in the 12 months through June, while revenue rose 6 percent to 1 billion rand.

The price of the transaction was fair to both parties as the Discovery Card, which is integrated into the insurer’s loyalty program, had performed well, Chief Executive Officer Adrian Gore said at a presentation in Johannesburg. Clients that engaged with the program spent more and remained with the insurer for longer, he said.

"Amazingly these things are all correlated,” Gore said. “People who drive better have lower default rates."

Here are other highlights from Discovery earnings statement:
Normalized profit from operations up 17% to 8.27 billion rand Embedded value rises 15% to 65.6 billion rand Discovery spent 7% of earnings on new initiatives, including the bank, in the last year “Setting apart the effect of the bank, Discovery expects continued growth without recourse to additional capital. The investment in bank will impact earnings for the 2019 year, as post launch the amortization of the build cost will emerge. Thereafter, the organic growth model is expected to revert to its long-term average”

- BLOOMBERG