Historically focused on lending to low-income consumers, Capitec Bank has seen a 44% growth over the past year in clients with a net income higher than R15 000, according to CEO, Gerrie Fourie.
“We believe the economy is going to help us penetrate the middle- to higher-income market,” Fourie said, noting that growth in the Gauteng area was particularly strong.
Currently in pilot phase among staff, Capitec will introduce a credit card later this year, which will help it grow market share among wealthier customers.
For the 12 months to February 2016, the bank grew primary customers (i.e. those clients who make deposits, mainly salaries, into a Capitec account) by 582 000 to 3.3 million, increasing retail banking market share to around 21%.
The bank wants to grow market share to 25%, Fourie said.
Active client numbers, including lending customers, grew 16% to 7.3 million over the period.
Over December, January and February, Capitec added on average 140 000 new clients per month, Fourie said.
While rivals pay interest in the region of 1-2% on transactional bank accounts, Capitec offers interest rates of 5.25% to its customers from the first rand.
Its banking fees are 30% to 60% lower than the market, according to Fourie.
“If people are looking for value for money, for a very simplistic, transparent banking offer, we’ve got that offer,” he said.
Majority of loans used for housing
While the bank grew gross loans and advances by 13% to R40.9 billion over the period, Fourie acknowledged that lending growth would moderate in a weaker economic environment.
Capitec has increased provisions for doubtful debts by 33% to R5.1 billion and tightened credit granting criteria as it gears itself for financial stress among clients going forward.
The bank issued 31% more loans over the period, or 3.7 million, at an average loan size of R6 600.
According to loan application forms filled out by clients, around 65% of loans are being used for improving and making adjustments to homes, Fourie said.
Some 20% of loans are listed as being used for ‘education’, which often includes the food and accommodation costs of children studying in cities at distance from their hometowns, Fourie explained.
Where people have a loss of income for several months – such as women on maternity leave or striking miners, for example – Capitec elects to reschedule loans by reducing clients’ monthly instalments or offering variable instalments.
Loans in arrears rescheduled during the second half of the financial year jumped 75% to R1.5 billion, reflecting cash-flow pressure faced by clients.
“We believe if you use it [rescheduling] right you can get very positive results out of it. If he [the client] doesn’t repay the rescheduled loan, then it stops,” Fourie said, noting that before a loan is rescheduled the client’s affordability and credit record is assessed.
“If he’s in arrears, we will help once and we’ll help twice and then we’ll stop,” he said.
Capitec’s grew headline earnings by 26% to R3.3 billion for the year, comparing favourably to growth figures posted by peers.
|Bank||Full-year headline earnings growth (%)||Total headline earnings (Rbillion)||Return on equity (%)|
|Barclays Africa (Dec ’15)||10||14.3||17|
|Capitec (Feb ’16)||26||3.3||27|
|FirstRand (June ’15)||13||21.1||24.7|
|Nedbank (Dec ’15)||9.6||10.8||17|
|Standard Bank (Dec ’15)||13||22||15.3|
Brad Preston, portfolio manager at Mergence Investment Managers, said Capitec continued to grow earnings while provisioning conservatively. “Their provision cover seems to be quite solid and at a better level than it’s been in a number of years,” Preston said, noting that the bank was growing in a space where its competitors had pulled back.
The conversion of lending clients into primary bank customers and rapid growth in transactional volumes was noteworthy, Preston said.
Brought to you by Moneyweb