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Exploded would be the only way to describe the way Capitec Bank has appeared on the South African banking scene since it was established on 1 March 2001.
In the space of 12 years, the bank has established a franchise that now spans 589 branches, 9,000 staff and 4.7 million clients.
The business was the brainchild of Riaan Stassen – who stepped down as chief executive in December last year – and chairman Michiel le Roux, who identified the opportunity to provide cheap and easily accessible banking products.
The bank secured its initial funding from PSG Group, a financial services conglomerate founded by Jannie Mouton, which still owns
28.5% of Capitec.
The business began life as a micro-lender, essentially making 30-day loans.
The introduction of the National Credit Act in June 2007 greatly assisted the bank’s ambitions, as the previously murky world of micro-lending came out of the shadows with the introduction of regulations that legitimized the industry and provided explicit guidelines on how and at what cost unsecured loans could be extended.
Instant decisions
With the benefit of being a brand new company, Capitec’s architects were able to build a state-of-the- art information management system.
Capitec branches are paperless, and decisions regarding the duration and price of loans can be made in seconds.
The bank began moving into areas where the ‘big four’ – South Africa’s four largest retail banks: Absa, Standard Bank, Nedbank and First National Bank – were not represented or were poorly represented.
While the surge in the bank’s profitability came on the back of a 30-40% growth in advances over the last few years, the health of the
consumer in South Africa has been the subject of intense debate.
The latest figures released from the National Credit Regulator indicated a decline in unsecured credit extended between the second and third quarters of 2013.
At the same time, economic growth has been tepid, and competitors like African Bank have had nasty surprises in their collection rates.
So what are analysts saying about the state of the unsecured lending market? Macquarie Group banking analyst Charles Russell says: “We are quite concerned about the situation.
Non-performing [unsecured] loans are at their highest level since 2009.
The environment in which to collect loans is not getting any easier either. With specific reference to Capitec, we have questions on the amount necessary to adequately provision for restructured loans, but on the whole their banking platform and their aggressive provisioning of non-performing loans makes their model more robust than [that of ] some of their competitors.”
Cautious accounting
Capitec has been especially cautious in the provisioning of bad debts, choosing to write off loans after the first missed payment. At the same time, the success of its low-cost bank accounts means that fee-based income is rising.
When asked whether he thought Capitec’s stratospheric growth rates could be sustained, incoming chief executive Gerrie Fourie explained: “Our focus is to offer a banking product that resonates with people of all income levels. It appears that we have managed to offer a simple, transparent, easily accessible product that increasingly gains market acceptance. We do not expect this to change in the year to come.”
So while lower growth rates can be expected in the extension of credit, the bank plans to power ahead with the roll-out of its banking products, like the Global One account, which has a fixed monthly fee of R4.50 ($0.40).
With many South African banks expanding into the continent to find growth, is this the next step for Capitec?
Fourie says: “The bank’s intention from day one was to take the model internationally, but this will only be done once we have a strong foothold in our local market. [So] we do not foresee that we will expand beyond our borders during the next financial year.”
But before it does so, Capitec and the broader lending industry will seek to con- vince the market that the phenomenal growth rates enjoyed prior to 2012 do not hide the weakness of the unsecured loan sector. ●
