How banking’s changed since 2008
FEES UNDER PRESSURE: CAPITEC IS THE MARKET DISRUPTOR
Low costs enabled it to add 1.3 million clients in last financial year.
After the 2008 financial collapse, bank fees have been under pressure, but some would say the pressure’s not nearly enough. The two banks that most aggressively pursued new retail customers in recent years were FNB and Capitec. Capitec now has 8.6 million active clients, adding 1.3 million in the last financial year alone. Its technology-heavy transactional platform allowed it to keep costs down.
FNB grew retail customers 10% and business banking clientele by 14% in the last financial year to June 2016.
Capitec’s cost-to-income ratio (0.77), is about half that of other major banks. Its return on assets hit double digits in the last few years, placing it leagues ahead of the opposition. Its aggressive pursuit of new customers, using a low-cost delivery and transactional system, has paid off handsomely. As Capitec Bank CEO Gerrie Fourie recently stated, the bank’s success relies on the fundamentals of delivering simplified banking that’s affordable and easy to access through personal service.
Ratings Afrika’s Charl Kocks says competition for fee-earning income among banks is intense, and in many cases, it’s a zero-sum game.
Where Capitec doesn’t score so well is in the non-interest fee income space. This typically comprises transaction fees, merchant banking, asset management and the dozens of other fee-earning services banks offer.
Dealmakers figures show the extent to which merchant banks have been hit by falling corporate activity. Three years after the collapse, deal activity was less than 20% of the 2008 peak. Last year there were 578 deals valued at R3,7trn, though even this is somewhat deceptive.
Because so much corporate activity is cross-border, a lot of the juiciest deals now go to foreign banks with the international presence SA companies are seeking.
This explains in part why non-interest income as a ratio of total income has waned for several SA banks. While there are bank-specific reasons for this decline, there’s a clear pattern on display. One exception to this is Investec, which has substantially increased non-interest income after establishing a regional footprint in the UK.
Standard Bank sold a 60% stake in its UK operations to Industrial and Commercial Bank of China two years ago, with a resultant 34% increase in profits last year. Standard’s ratio of non-interest to interest-earning income is a fraction of what it was a decade ago.
Chasing fees will always be a top priority for the banks, since these activities make less claim on the balance sheet. Banks will fight to keep transaction-based fees being regulated lower. When it comes to fees from corporate advisory and debt-raising activiOverseas ties, there’s a big associated cost.
Banks play a crucial role in making daily business and similar transactions safe, fast and reliable. The question is whether the fees we are being charged are fair. The difference in fees charged by Capitec compared with the others, suggests there is plenty scope for more aggressive competition.