Going into business
Capitec’s push into business banking is starting to pay off, but analysts are worried that the stock has run too hard
SMEs are now in Capitec’s sights as the bank solidifies its retail customer base.
Capitec’s plan to increase its business banking clients comes three years after it pounced on Mercantile Bank. And, says CEO Gerrie Fourie, the business banking unit has been adding 1,500 clients a month as recently as March for a total of more than 125,000 accounts at year-end in February. That implies a 10% increase on the previous fiscal year.
“SMEs showed their resilience during the pandemic,” Fourie tells the FM. “The SA economy has a strong foundation, which many people underestimate.”
Though still small, the business banking unit contributed R174.5m to group earnings of R8.5bn a welcome turnaround after its R1.5m loss last year.
“We have been rebuilding the business bank from a paper-driven enterprise to a digital offering over the past couple of years,” says Fourie, adding that the target market for this unit is businesses with a turnover of less than R100m a year.
This aim echoes that of Capitec’s original approach to retail banking, when it took on the established banks two decades ago.
Rella Suskin, head of research at Benguela Global Fund Managers, says: “I think the big opportunity for Capitec and Mercantile is to transform the transactional business banking space in the same way that Capitec forced fees lower across all the banks in the retail space.
“As one example, why are small businesses charged more to transact when they have a small business banking account [compared to] a personal banking account? Capitec looks to align pricing across the two segments.”
As the traditional banks scramble to attract more customers to their retail and business banking units, Capitec may yet have a small edge.
“Capitec [against the other big four banks] probably has a better chance of succeeding in the SMME space due to its innovative approach to this market,” says Patrick Mathidi, head of equity and balanced funds at Aluwani Capital Partners. “Instead of a more traditional approach to lending, which is asset-backed, it is signing up SMMEs and monitoring their transactions and cash flows, to then learn their behaviour and lend on the back of that.”
Yet the stats, according to a recent report by Genesis, do not yet bear this out. According to its analysis of market share changes between SA’s banks, over 12 months, FirstRand is the biggest gainer in terms of loans and advances followed by Absa. Nedbank is the biggest loser, and Capitec finds itself in the camp of market share losses, not gains.
Still, Capitec has transformed over the years from a microlender reliant on charging high interest rates to generating