Transparency gives Capitec Bank’s clients more control

“There is a need for affordable and straightforward everyday banking.” The bank’s CEO, Riaan Stassen stated. “Consumers are frustrated with traditional banking jargon and complex pricing. Finance Minister Pravin Gordhan’s recent call for absolute transparency in banking institutions reflects this need in the market”

The bank acquired over 700 000 new clients in the reporting period which ended on 28 February 2011. This represents a growth of 33% in client numbers year-on-year to 2,8 million clients as at end February 2011.

 

“As a result of our client growth, the increase in transaction activity and the ongoing efficiency improvements we have implemented, we were able to keep banking fees unchanged for 2011”. Stassen added. “This is in accordance with our strategy to offer the lowest banking fees in the market.”

 

Capitec Bank’s headline earnings grew to R640 million for the year ending 28 February 2011. The bank says it is satisfied with the 46% growth in earnings, given the slow recovery of the local and global economy after the recessionary market conditions experienced more than a year ago. Headline earnings per share grew by 44 % to 757 cents and a final dividend of 205 cents per share has been proposed by the board of directors.

 

Capitec Bank’s net transaction income grew by 80% in 2011 to R 532 million and represents 19% of income from operations and 29% of operating expenses.

The total value of loans granted increased by 66% to R14,3 billion. This was a result of more clients opting for longer term loans, as the maximum loan term and loan size were increased to 60 months and R120 000 respectively. The average value of a loan is currently R2617.

 

Short term loans remain a high proportion of the total volume of loans advanced. i.e. loans to be repaid within a month. “The quick turnaround of these loans enables the bank to evaluate the effectiveness of its lending criteria continually and to make rapid adjustments when the behaviour of borrowers changes,” Stassen said.

 

“Net loan impairments (after taking into account recoveries) grew by 80% (R440 million) to R988 million, however gross loans and advances grew by 95% to R10,9 billion. Of the R440 million (R468 gross) increase, R699 million (gross) increase was directly attributable to book growth and a R231 million (gross) decrease was achieved due to an improvement in overall arrears. The provision for doubtful debts increased by 121% which Stassen explained as follows “We always provide conservatively for a new loan product in the early stages of its introduction, as we do not have the full history of the performance of the loan over its full term. Our approach is also to write off the full value of a loan, if repayments are not received for three months. In most cases we recover some portion of a loan under these conditions.”

 

Operating expenses grew by 33%, year-on-year, as a result of on-going distribution expansion. The bank increased its distribution footprint by opening 54 new branches throughout South Africa. It has also upgraded its existing branches to align its offer with the needs of its broadening client base, which includes increasing numbers of higher income clients.

 

“Capitec Bank has trained 5 378 new employees through its Firm Foundations programme at a total cost of over R50 million (excluding IT costs) since the launch of this course in June 2005. This programme was nominated as one of the three top training programmes in the financial services sector in South Africa at the Skills Summit in 2009. The bank presented its 100th Firm Foundations programme in 2010.”

 

At the end of February 2011, Capitec Bank held R3,5 billion in equity and R 11,6 billion in assets, excluding cash. The bank grew its retail fixed deposits by 102% to R2,3 billion and its call savings deposits by 68% to R3,9 billion.

 

The bank’s approach to liquidity remains conservative. Says Stassen: “On 28 February, the bank was in a position to repay all retail call savings and other deposits due immediately. On average, throughout the year, Capitec Bank could repay all savings deposits due within three days.” Stassen added “Despite the international crisis, deposits and shareholders’ funds have increased by 53% from R9,1 billion to R13,9 billion over the past financial year. The 99,9% take up of the recent rights issue was a positive reflection of the sentiment towards Capitec Bank by its shareholders and the market in general. Our on-going client growth and ability to consistently deliver profit growth year on year has resulted in positive acceptance of our unique business model by the investor market.”

 

Capitec Bank’s long-term and short-term national scale credit ratings from Moody’s Investors Service remain unchanged at A2.za and P-1.za respectively. Moody’s also reconfirmed the bank’s stable outlook and that it has so far “successfully navigated through the global credit crunch and macro-economic slowdown”.

 

The bank’s new above-the-line advertising campaign is a continuation of its previous one and focuses strongly on transparency. “We want to drive home the message that our banking offer is transparent and that our fees are fixed and known upfront. This puts clients in control of their money” says Stassen.

 

“We will continue to underpin our banking offer with innovative technology to drive efficiencies and improve a service front-end that is transparent and makes easy money management possible for our clients. Our financial results and market take-up across all income groups confirm that our strategy and business model is working,” Stassen concluded.