Capitec goes after untapped informal business market
Capitec, SA’s third-biggest bank by market value, has identified informal small business as one of its potential growth areas, a move that sends it down a largely untapped, risky but potentially lucrative unbanked market.
“I think the economy is stronger in the informal market than anyone anticipates,” CEO Gerrie Fourie told Business Day during an interview. “I think there is a whole informal market that one needs to say: how do you unlock its full potential because a big portion of those people are [still using] cash.”
By going after the informal business banking market, Capitec is hoping to replicate its ascent to the upper echelon of the SA banking industry since its founding more than two decades ago as a go-to bank for retail consumers shut out of the formal banking system.
The lender, which has been positioning itself as a fully fledged bank, is in the middle of integrating Mercantile Bank – a small business-focused lender it acquired in 2019 that gives it a foothold in the sector that has long being hailed as SA’s economic engine.
Mercantile Bank is being rebranded as Capitec Business.
Though data on the size of the informal business market is hard to come by, townships are home to hundreds of thousands of small businesses, from spaza shops and shisa nyama “buy and braai” restaurants to carwashes and catering services.
Fourie’s comments to Business Day came after Capitec issued its annual earnings report, which showed active clients grew 14% to 18.1-million in the year to the end of February. It suggests the bank’s product offering appealed beyond its traditional blue-collar workers, who typically earn between R3,000 and R5,000 a month.
Headline earnings, the primary measure of profit that strips out certain one-off items, rose 84% to R8.4bn. It was 16% higher compared with 2019 levels before the pandemic.
Capitec, which has kept most of its digital banking fees unchanged for the past four years, said clients performed 1.4-billion digital transactions for the year, up more than a quarter, while the number of retail clients using digital channels rose 17% to 10.1-million.
The group declared a final dividend of R24.40 a share, bringing its total dividend to
R36.40, which is 128% higher year on year. This is a R4.22bn total payout for shareholders from a bank valued at R267.6bn on the JSE, putting it behind FirstRand and Standard Bank. It also declared a R15 per share special dividend (R1.74bn).
Credit impairment charges on loans and advances decreased by more than half to R3.5bn, while its gross loan book increased 11% to R71.2bn, mainly during the last six months of the year, when credit-granting restrictions were eased as Covid-19 concerns waned and economic activity normalised.
Capitec said the full effect of the Covid-19 pandemic was accounted for in the 2021 financial year, and the percentage of its loan book classified as high risk had fallen to 21% in its 2022 year, from 24% previously.
Capitec’s shares ended 1.52% higher at R2,269.98 on Tuesday, having more than doubled over the past year.
Rowan Williams, director of Nitrogen Fund Managers, said the challenge for Capitec will be to continue to grow its strong customer acquisitions and revenue growth “at the same rate given the penetration to the lower end of the market, coupled with increased competition from new, low-fee entrants”.