Capitec the cat that got the cream — online

Stake in European lender gives bank access to new credit models

CAPITEC’S first international acquisition — a 40% stake in European online lender Creamfinance — is a clear indication of how it views the future of financial services and adds the bank to a long list of South African companies that have gone in search of growth in Eastern European markets.

CEO Gerrie Fourie said that the acquisition would not contribute materially to profit in the shortterm but gave the lender the international exposure it had been seeking and access to innovative credit scoring models.

Capitec is paying just à21million (about R299.6-million) for the stake in the context of its R73billion balance sheet

Capitec would seek to adopt some of Creamfinance’s credit scoring tools. For example, to determine a risk profile Creamfinance examined the online activity of potential borrowers, such as the websites visited, and used credit bureau data as a last resort, Fourie said.

“The typical bricks and mortar model is not going to be the future model in 10 years,” Fourie said this week after the release of the group’s financial results for the 12 months to February 2017.

Despite weak economic growth, which has inhibited lending at its rivals, Capitec grew gross loans and advances 10% to R45.1-billion.

Headline earnings increased 18% to R3.8-billion.

Traditionally a bank for lowerincome consumers, Capitec has made inroads into the higher-income segment of the market, with a 2% market share among people earning more than R30 000 a month and an 11% share of those earning R10 000- R30 000.

Yet Capitec wrote only about 10% of loans via telephone and online channels, said Fourie.

“There’s quite an opportunity still in South Africa. The top-end client doesn’t want to go into a branch.”

The bank has poached customers from its competitors over the past year, growing active clients by 1.3 million to 8.6 million. It has 3.9 million primary bank customers — those who make regular deposits, mainly salaries.

Capitec would help scale up Creamfinance’s lending operahoff, tions — it has a gross loan book of just R1.2-billion — as quickly as possible, providing expertise on new products, such as term loans, Fourie said.

Creamfinance’s product portfolio includes microloans and instalment loans. The lender is headquartered in Poland and also operates in Latvia, Czech Republic, Georgia, Denmark and Mexico. Fourie said that it had identified 30 other countries it wanted to enter.

The acquisition demonstrated the avenues available to Capitec outside South Africa, where there were “substantial growth opportunities with better risk/reward [profiles]”, said Arqaam Capital MD Jaap Meijer, who changed his rating on the stock from “sell” to “buy” about a year ago.

“The companies can share best practice, especially with respect to risk systems.”

Capitec is not the first South African company to venture into fast-growing central and Eastern Europe. It joins the likes of Stein- GOING PLACES: More and more South Africans are joining the upstart bank which is increasingly going online Pepkor, Hyprop and New Europe Property Investments, all of which have enjoyed significant success in the region, as domestic growth lags.

Fourie said Capitec had identified Creamfinance as a potential acquisition in November 2015, when he and Capitec finance chief André du Plessis visited Poland to “find out what the fuss was about”.

Eastern Europe was growing about three times faster than Western Europe and equity valuations were relatively cheap, said Carsten Hesse, emerging European equity strategist at German private bank Berenberg.

Risk-averse Western European investors were not rushing in, yielding opportunities for South African investors accustomed to higher risks, Hesse said.

Eastern European banks had lagged in establishing an online presence in a region with large numbers of young, tech savvy consumers, he said.

Nonperforming loans were low, as consumers borrowed cautiously. Increased regulatory scrutiny in the consumer lending market could pose a risk.

The top-end client doesn’t want to go into a branch