Capitec can stand up to junk, says bank boss

I ask that question in every credit committee meeting: when we pull back [on granting credit], have we pulled back enough? I haven’t got a clear answer on that, but wherever we’ve seen strain or opportunities we’ve pulled back.

What we spend a lot of time on is commitments-to-income: so we take our 3.3 million banking clients, we analyse their income, their debt and then look at what’s changed. So we’ve got clients with more than 40% free cash flow, and that has improved a lot in the past three years. Why? Because there was too much credit being granted in 2012-13. Everyone has pulled back and now clients’ cash flow is better. We also see it in clients that are under stress, who only have 20% of free cash flow left, but even there we’ve seen an improvement.

Well, there used to very strong growth coming from the credit side. And if you look at the past two years we’d pulled back — although this [past] year we opened up a little, until about August, September. On the banking clients, we’re seeing strong growth — 7.3 million customers, 3.3 million banking clients, so the opportunity is the four million: how do we bring them on board and [get them to] transact.

You’ll never get all 7.3 million, but you can definitely get the 3.3 million [banking customers] to four or five million.

For sure, but when the economy’s under stress — like now — it’s easier to convince a client to move. Say he’s paying R200 to R300 a month, we can do it for R50. Then he says “Hell, I need that R200” and he’ll switch. The moment the economy is going well, he’ll say “Ag,

R200 is not the end of the world.”

If you look at 2013, we introduced our long-term loans, and in that we built a model that was suitable for long-term loans. Then, 18 months back, we realised that the longterm loan model was not suitable for shorter-term loans, and we saw that your Capfins, et cetera, were taking quite a lot of market share away from us. So what we’ve done is to build two credit models: one for shorter-term clients and one for longer-term clients, and we’ve actually just taken our market share back on the shorter-term side.

I think the one thing that we’ve proved, over the past couple of years, is that when we say we look at our credit model and we make adjustments on a frequent basis, we’ve been proved right.

We say there are three elements to [granting] credit: behaviour, affordability and source (where he gets his salary from, how stable is that salary, et cetera). If you get a shock of a downgrade, interest rates going up to 24% and unemployment going to 50%, say, we’re all going to be hit.

Short term it will have little effect because our funding is strong; we are getting tremendous growth in our retail funding on fixed and call. We’ve got wholesale funding, but that’s dropped in the past couple of years. If you look at our total funding, we’ve got R24-billion on retail call, R13-billion on fixed deposit and R10-billion wholesale.

We’re staying in the market on the wholesale side just to be part of GOING WITH CASH FLOW: Gerrie Fourie of Capitec the market, but we don’t really need that funding at this stage. But over four or five years [a downgrade] will definitely have an effect. And investors in the bank will say they don’t invest in junk economies or junk companies and they’ll withdraw, and you’ll find yourself back in a pure South African economy.

I think the biggest risk in being downgraded is actually that South Africa gets isolated, that we just operate in our small little bubble.

We’re not formally looking at overseas markets, but from time to time we get opportunities, we visit and talk to regulators. You need to learn and understand what’s happening out there. There is opportunity, but the moment you chase those opportunities it’s going to take a lot of focus away from the current management team.

We are growing strongly [in South Africa] and we need to make certain we capture the South African market. If we start seeing that growth is tapering off, then you can probably afford to say here’s 20 or 30 people and send them off to look at different areas.

Everyone thinks we’ll go to Africa, but there are four or five critical things that you need: an ID system, a [credit] bureau, fixed-line communication and electricity. A friend in Nigeria recently said his biggest bill is fuel for generators: on a good day, his branches will have six hours’ electricity. Then it makes it quite tricky to bank.

No, I don’t think so. You’ve still got big shareholders that I believe will support us. We’re seeing them on a frequent basis. When we talk to shareholders overseas they say it’s much worse in other emerging countries. South Africa compared against the likes of Brazil and Russia is still much better. It’s not doom and gloom, I think it’s just going to be a bit uncomfortable.

Talevi is a BDTV anchor