If its bid for Mer­can­tile fails, Capitec will go into SME busi­ness bank­ing on its own

Sunday Times - - Business | Financial Services - By PER­I­CLES ANETOS

● One way or another, Capitec will be of­fer­ing bank­ing ser­vices to small and medi­um­size en­ter­prises, ir­re­spec­tive of whether it is suc­cess­ful in its for bid for Mer­can­tile Bank.

Capitec chief fi­nan­cial of­fi­cer An­dré du Plessis said if the bid was un­suc­cess­ful, Capitec would build a busi­ness bank it­self.

Ac­quir­ing Mer­can­tile would fast-track the group’s plan to ex­pand its fo­cus to a broader bank­ing strat­egy, he said. Capitec saw a num­ber of op­por­tu­ni­ties to serve SMEs and owner-man­aged busi­nesses bet­ter.

Capitec, Ned­bank and two con­sor­tiums — one con­sist­ing of Arise, an African in­vest­ment com­pany, and Grindrod Bank; and the other of the Pub­lic In­vest­ment Cor­po­ra­tion and Bay­port Fi­nan­cial Ser­vices — are among lo­cal con­tenders for the South African busi­ness of Por­tuguese state-owned bank­ing group Caixa Geral de Depósi­tos.

The sale is a con­di­tion of a Euro­pean Cen­tral Bank loan that re­quires Caixa to re­duce its for­eign as­sets.

The po­ten­tial buy­ers will be al­lowed to con­duct a due dili­gence ex­am­i­na­tion of Mer­can­tile, in­clud­ing a full-day strate­gic en­gage­ment with its board and man­age­ment. The prospec­tive buy­ers can then sub­mit bind­ing of­fers.

The deal is ex­pected to be fi­nalised by year-end, with fi­nal ap­proval by the Por­tuguese gov­ern­ment, and would be sub­ject to South African reg­u­la­tory ap­proval.

Mer­can­tile’s busi­ness in South Africa serves more than 12 000 en­trepreneurs — a small mar­ket share for the likes of Ned­bank but a good foun­da­tion for Capitec.

Kokkie Kooy­man, port­fo­lio man­ager at Denker Cap­i­tal, thinks that en­ter­ing the SME mar­ket would be a nat­u­ral fit for the group as a num­ber of the peo­ple that started Capitec were in­volved in the mar­ket.

Kooy­man said that while that en­vi­ron­ment had changed, Capitec’s man­age­ment un­der­stood the needs of the small busi­ness­man, and the group had al­ways planned to move in this di­rec­tion.

He said, though, that it was a ques­tion for Capitec and its in­vestors whether Mer­can­tile would be the “right fit” for the bank, con­sid­er­ing ev­ery­thing from how the busi­ness worked to the IT sys­tems used.

Du Plessis dis­missed this, say­ing Mer­can­tile had the same sys­tem as Capitec in terms of its back­bone. The mat­ter would be deter­mined by the due dili­gence.

“We looked at their busi­ness on pub­lic in­for­ma­tion and the whole idea is that we want to get into busi­ness bank­ing. If the pur­chase of Mer­can­tile can help us kick-start and hit the busi­ness road as op­posed to hav­ing to rein­vent the wheel for ev­ery­thing, then good, but if there are many risks and legacy is­sues and things we don’t like, then we would rather do it our­selves,” he said.

Kooy­man said another ben­e­fit of Mer­can­tile was that it of­fered Capitec a whole­sale fund­ing de­posit base.

The whole idea is we want to get into busi­ness bank­ing An­dré du Plessis

Capitec chief fi­nan­cial of­fi­cer

Ac­cord­ing to a state­ment by Mer­can­tile, the lat­est fi­nan­cial re­sults, for the year end­ing De­cem­ber 31 2017, saw its net profit af­ter tax climb by 20% to R213-mil­lion. This fol­lows growth in net profit af­ter tax of 21% in 2016 and 15% in 2015. Mer­can­tile’s as­sets grew by 9% in 2017 to R13.4-bil­lion, and de­posits grew by 10% to R9.3-bil­lion.

Kooy­man said if the Capitec bid was suc­cess­ful, the strat­egy would be to fo­cus on growth, whereas Ned­bank would be likely to ab­sorb Mer­can­tile into its busi­ness. Ned­bank would prob­a­bly fol­low cost ra­tio­nal­i­sa­tion.

Ned­bank CEO Mike Brown said it had not made any firm pro­pos­als and was re­view­ing its op­tions to de­ter­mine the next step.

Capitec’s at­tempt to di­ver­sify its busi­ness comes in the year it was targeted by short­seller Viceroy Re­search, which caused a slump in Capitec’s share price af­ter Viceroy at­tacked the bank for its sup­pos­edly risky busi­ness model. Capitec has re­jected Viceroy’s al­le­ga­tions. The Re­serve Bank also came to the bank’s de­fence.

The at­tacks have fed into the com­pany’s share price, which has fallen 19% this year, com­pared to the JSE All Share in­dex, which has dropped 4.5%.

Pic­ture: Reuters

A Mer­can­tile Bank branch in Venezuela. The sale is a con­di­tion of a Euro­pean Cen­tral Bank loan re­quir­ing Caixa Geral de Depósi­tos to re­duce its for­eign as­sets.

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