Simplified Solution Remains Winning Formula

Capitec Bank’s client base continues to grow rapidly.  This was reflected in the bank’s exceptional interim results announced today.  In the present economic climate consumers remain cost conscious, increasingly choosing Capitec Bank’s innovative money management solution.

Capitec Bank’s success is underlined by the bank achieving the 2.5 million active clients mark by September 2010 – an increase of 42% in 12 months.
Capitec Bank’s profit grew to R283 million for the 6 months ended 31 August 2010 – an impressive 59% year-on-year growth despite difficult market conditions.
Headline earnings per share grew by 58% to 340 cents. An interim dividend of 85 cents per share, up from 55 cents in 2009, was approved.

Capitec Bank’s CEO, Riaan Stassen said, “Even though we are continuing to operate in challenging economic conditions, Capitec Bank has a solid base from which to grow. Our simplified solution to money management continued to find great appeal with the cost-conscious consumer looking for value, accessibility and easy to use banking products.”

The bank’s net transaction fee income increased by 87% year-on-year to R235 million. This represents a 39% increase compared to the 6 months ended February 2010.
Operating expenses grew by 37%, year-on-year, as a result of ongoing distribution expansion. The bank increased its distribution footprint by opening 51 new branches during the past 12 months and is now operating over 420 branches throughout South Africa.

The cost to income ratio declined further to 51% and is evidence of the cost-benefit deriving from the innovative technology implemented in the business.
Loans of R6.4 billion were granted in the last 6 months, an increase of 73% on the 6 month period to August 2009. This was the result of an increase in the number of loans granted, as well as more clients opting for loans with a term longer than 12 months, which now comprise 83% of the gross loan book. The bank’s arrears continued to decline, coming down to 4.6%, from 7.6% at the end of August 2009.

“Given the present economic climate, an improvement in the default rates is proof of the bank’s persistent focus on its lending criteria and collection systems. We are concerned about the impact of the recent government and labour union strikes on the default rates, the loss of jobs over the past 18 months and the slow recovery in economic conditions presently experienced. We therefore felt it prudent to increase the provision for doubtful debts,” Stassen said.

The provision for doubtful debts as a percentage of the gross loan book was increased to 7.1% from 6.8% in February 2010.  Capitec Bank’s medium to long term funding is mainly derived from wholesale contractual deposits, which increased by R1.5 billion year-on-year to R3.6 billion.  The bank continues its approach to increase its funding base via longer term contracted funding outside of South Africa.

The bank follows a particularly conservative approach to funding and continues to seek primarily long term contractual relationships to secure funding for growth.
Retail call savings deposits increased to R3.0 billion from R1.6 billion at the end of August 2009 and R2.3 billion at the end of February 2010. The increase reflects the growth in client numbers as well as an increase in the average savings balance.

Retail fixed savings increased to R1.9 billion, an increase of 134% on the balance at the end of August 2009. The balance increased by R726 million since February 2010. Retail fixed-term funding comprised 34% of total (retail and wholesale) term funding compared to 27% at the end of August 2009. Retail fixed savings terms extend up to 60 months at competitive interest rates. The above growth is testimony to the confidence in the bank shown by depositors.
The group’s risk-weighted capital adequacy ratio is 32% and, at 31 August, the bank was in a position to repay all deposits due immediately.
At the end of August, Capitec Bank had R1.9 billion in equity and R7.7 billion in assets, excluding cash.

“Capitec Bank is well positioned to continue its exciting growth path in the current economic environment, as well as in the improved market conditions that economists are predicting,” Stassen concluded.