Business
Capitec Bank spreads its net in South Africa
The bank’s business model, based on unsecured loans and low-cost transactions, has proved successful as it seeks to attract the unbanked population. Blowing up in growth, 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 percent 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.”
