Capitec closes in on 10-million customers

A whipsaw two months on the stock market and the attention of activist short-sellers Viceroy Research has not stopped South Africans from opening Capitec accounts.

The bank is expecting to top 10-million active accounts by the end of March, helping it close in on Standard Bank as the largest retail franchise in SA.

That is no small deal for a bank that thought its limit was 5-million customers when it opened its doors in 2000.

Customer growth helped drive an 18% rise in headline earnings for the year to endFebruary, to R38.58 a share, an 18% increase in the dividend, to R14.70, and return on equity of 27%. Net transaction fee income climbed 31% over the period, to R5.1bn — fees on bank accounts and not loans now account for 41% of total net income.

The ratio of fees to operating expenses has moved up to 81%, from 72% in 2017, and Capitec’s goal is to cover all operating costs with transaction fees by 2022.

That implies persistent growth in attracting new customers, even as Capitec’s share of the unsecured lending market

has not budged much: the bank had an unchanged 27% share in unsecured credit and just 5% of the total credit market in SA.

Of its 9.9-million active clients, only 1.4-million are borrowers of unsecured loans. That hardly bears out Viceroy’s picture of a reckless lender expanding at breakneck speed.

Capitec’s loan book grew just ahead of inflation: up 6% in the year to R47.6bn, with most of the increase from its higher-income credit card, which was launched a year ago. Arrears as a percentage of gross loans and advances fell during the year to 5.7%, while provision for doubtful debts as a percentage of its book dropped to 12.2% from 13.1%. At the same time, Capitec has lifted its provision coverage of arrears to 216% from 208%.

The lower provision percentage and higher coverage ratio was the “direct result of the better performing loan book”.

The bank is poised to launch a funeral plan, underwritten by Sanlam, in May as part of its burgeoning insurance business, Insure. While the move may help diversify its business away from contentious and risky unsecured lending, it will also help Capitec increasingly monetise its large customer base.

CEO Gerrie Fourie said the thinking behind it was “simple”.

“If I look at [funeral policies] that’s something we’re not offering at this stage, so it’s a very nice way for us to offer what our clients want. There’s a massive opportunity. That’s why we’re attacking funeral and we’re going to attack it hard because we believe we can come through as the consumers’ friend. And then we’ll look at other insurance products.”

The lowest fee on a R5,000 policy will cost R25 on Capitec’s app, but R40 in the branch. That is a deliberate move to drive customers to app banking, which is partly behind a 17% jump in operating costs to R6.4bn. Much of that was spent on IT development, such as artificial learning, where, for example, Capitec’s systems may instantly identify debit orders coming off an account. It said the technology would enable staff to spend more time explaining credit intricacies to customers than having to manually parse debit orders to assess a customer’s credit worthiness.

The increase was “in line with expectations”, Avior analyst Harry Botha said.

Capitec’s insurance foray would help “diversify Capitec’s revenue streams, keeping fee income growth elevated even if customer gains start to slow”.