capitec bank remains resilient and agile14/04/2020
Cape Town, 14 April 2020: Capitec Bank once again reported consistently strong financial results for the period up to end February 2020. Headline earnings increased by 19% to R6,28-billion driven by strong client growth (over 2.5-million new clients), progressive move to digital banking and solid credit performance. Capitec’s founding principles of simplicity, accessibility, affordability and personal service experiences remained in place.
The group has acted swiftly to counter the impact of COVID-19 on its clients and business operations. Clients are motivated to use digital channels like their new banking app to bank from home while they benefit from the lower transaction fees and zero-rated data charges. Currently, 6.7 million (up 29%) of their retail clients use digital banking channels, equipping them well for this period, and making Capitec South Africa’s largest digital bank.
In addition to keeping 50% of its branches open with reduced trading hours – while staff earn their full salaries - it has also enabled 2 500 staff members in client care and support services to work from home. Capitec has worked with the industry to ensure that SASWITCH penalty fees were waived for all clients, which means they can draw cash at any other bank’s ATM for the same fee of R8 per R1000. The group also confirmed that there will be no increases this year in director fees and senior executive salaries, and no cash bonuses will be paid to senior executives.
Clients with credit, which is about 9% of the retail bank’s total client base, are assisted wherever necessary on an individual basis with credit arrangements to provide cash flow relief in the form of credit insurance, rescheduling or payment breaks. Furthermore, businesses that bank with the newly acquired Mercantile Bank are assisted with credit restructuring to assist their cash flow and sustainability. The minimum merchant account fee and monthly card machine rental fee were also waived for Capitec merchants that are unable to trade during the lockdown.
In March 2019, Capitec’s pricing strategy was to decrease the fees on debit orders and digital banking transactions to motivate clients to move from branch-based banking towards banking on their app or paying by card. Capitec also launched the new-design contactless-enabled card and new banking app with innovative transaction categorisation features in the second half of the year. As a result banking app transactions grew by 69% to 327-million, card payments increased 29% to 796-million, and the reduced fees in digital and self-service banking saved clients R474-million in the past year.
Other indicators highlighting the bank’s diversified growth were:
- Active client base increased with 2.5-million to 13,9-million (up by 22%);
- Retail net transaction fees and funeral income now cover 93% of retail operating expenses, and contribute 47% of retail net income which indicates that the bank is well diversified;
- Retail deposits increased by 23% to R87.5-billion, and the number of savings clients that have at least one flexible or fixed-term savings plan grew by 20% to 5.1-million;
- Credit card clients increased by 30% to 578,488 and represent 4.4% market share of balances on book;
- More than 1,1million funeral policies were issued during the past year;
- Total branches increased with 12 to 852 indicating Capitec’s commitment to continuing personal service based on the market demand;
- Capitec retail employs 14 029 employees (up by 255) of which 11 644 employees are below the age 35, and spent R98.6-million on their learning and development.
Gerrie Fourie, CEO of Capitec Bank says the current set of results is proof of the bank’s sustainability and its agility as it enters its 20th year of banking.
“We have a simple fee structure, a range of affordable and easy-to-understand products, and an operating model that is enabled through technology and built for scale. We use advanced data capabilities and machine learning models to understand our client’s behaviour and to inform them of ways to bank better. Good behaviour is rewarded through our reduced digital fees, reduced cost of credit, high interest on savings and discounts through benefit partners which, in total, saved our clients over R2.9-billion in the past year.”
Commenting on the 17% growth in its retail loan book, Fourie says Capitec’s focus on purpose-driven lending ensured that 67% of its credit clients took up less credit or a shorter term than what was offered, resulting in a lower average interest rate of 18.7%. Clients take up credit for the right reasons such as education and home improvements. “Our loan book is underpinned by clients’ stable income, behaviour and affordability. During the year under review, Capitec attracted higher-income clients and therefore advanced better quality loans at lower interest rates. The result was a 19% increase in loans over the 37-84 month loan period and 52% of credit granted over the last three months was to clients with a net income over R20,000.”
Given the tougher trading conditions, Capitec tightened its affordability criteria and raised the minimum living expenses threshold for its credit clients. It is now using its data to refine its offering to the market.
Commenting on prospects, Fourie announced that the bank will launch a new Access Facility early in the current financial year, which offers clients revolving credit of up to R250 000 with interest rates linked to prime. With this, the bank moves out of the short term (6 months and less) loans market. The facility can be accessed via the banking app and clients can choose the payment terms that suit them best. Clients will only pay the monthly administration fee and interest in months when they utilise the facility.
Mercantile Bank, was acquired on 7 November 2019. The future opportunity is to offer a digitally-led business banking solution to small and medium businesses, built on the same fundamentals as the retail bank.
In conclusion, Fourie says Capitec remains well capitalised with a capital adequacy ratio of 30,5% for the group, slightly down as a result of the acquisition of Mercantile Bank.
“We have an opportunity to disrupt the business banking market – and will continue to use agile technology to understand clients better and provide products to suit their individual needs. Our brand promise is about making banking simple, affordable and personalised. This will remain our focus when investing in the future.”