Capitec pursues business banking

ACQUISITION: IT’S LOOKING TO BUY MERCANTILE BANK

If bid fails, it’ll keep building business banking ability.

Capitec intends to expand its product offering to business banking. The retail bank made the announcement, alongside its interim financial results, stating that its plans to enter into business banking may include the acquisition of Mercantile Bank.

It submitted a formal bid to acquire the specialist bank on August 31, 2018 and expects a decision in mid-to-late October.

“It is not often that an opportunity like Mercantile comes on the market. We looked at it and we believe there is an opportunity for us to use Mercantile as a foundation to focus on the SME (small and medium enterprise) market,” said Capitec CEO Gerrie Fourie.

Mercantile Bank is currently held by Caixa Geral de Depósitos (CGD), which is wholly owned by the government of Portugal. CDG, Portugal’s largest bank, announced its intention to sell Mercantile Bank in March 2017 as part of a plan to dispose of foreign assets. A decree law to facilitate the sale, which constitutes a privatisation of state-owned assets, was passed and promulgated in Portugal in December 2017.

Fourie said Capitec was already in the early phase of building a business bank. Should its bid for Mercantile fail, it would resume focus on building business banking capabilities. However, a strategic decision would be taken to balance resources and efforts against potential opportunities in business banking and retail banking, including further growth in credit and insurance, which remains a top priority.

Capitec entered the insurance market with a funeral cover product, underwritten by Sanlam, in May 2018. According to Fourie, it is selling around 2000 funeral policies a day and has already paid out claims, one in under three hours. It built an insurance platform to roll out funeral plans and is widely expected to add more insurance products to the platform in due course.

Capitec is the fastest growing retail bank in South Africa. An average of 109 000 clients joined the bank every month during the six months through to August, helping it grow its client base to 10.5 million by the end of the period.

“The economy is helping because people are looking for value [and] for a simplistic, transparent offer to fulfil their banking needs.”

Of the 10.5 million clients, about 4.9 million are primary banking clients, measured in terms of a constant inflow of money, typically salaries, entering their accounts. The banking is also making progress in growing its high-income client base, with Fourie saying that segment of its market is growing by 28% compared with an average of 15%.

For the six months ended August 31, Capitec reported a 20% increase in headline earnings per share to R21.28. It lifted its interim dividend by a similar margin to R6.30.

There’s an opportunity for us to use Mercantile as a foundation to focus on the SME market. Gerrie Fourie Capitec CEO