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