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capitec clients show strong digital adoption

Client base continues to grow and embrace digital banking with net transaction fee and funeral plan income covering 97% of operating expenses

Cape Town, 30 September 2020: Capitec Bank released their interim results for the 6 months ended 31 August 2020. The national lockdown severely impacted all areas of the business as consumers and various industries experienced economic loss. Capitec’s results, which include 5 months under lockdown, are down by 78% compared to the same period last year. The company reported a loss of R404 million for the quarter ended 31 May 2020 but showed a strong recovery of over R1 billion in the second quarter resulting in headline earnings of R650 million for the 6 month period ended 31 August 2020. Retail banking generated earnings of R701 million, whilst business banking made a loss of R47 million. Impairment of intangible assets created on the acquisition of Mercantile Bank amounted to R4 million.

The bank met the challenges of the Covid-19 pandemic with agility and continued to focus on simplified, accessible banking that puts the client first. Furthermore, they were able to provide relief to clients and ensure job security for their over 14 000 employees.

The results showed an increase of 24% in digital banking clients, since August 2019, which now amounts to 7.3 million clients, making Capitec South Africa’s largest digital bank.  The accelerated adoption was driven by clients’ need to stay safe and bank from home, while benefitting from lower transaction fees and zero-rated data charges on the app. Consequently, app, internet and USSD transactions collectively grew by 52% to 556 million in the past 6 months

Gerrie Fourie, CEO of Capitec says that the lockdown has significantly increased the importance of digital banking, helping to drive its adoption. “The lockdown has accelerated South Africa’s shift towards a digital economy and consumers are now more than ever looking for client-centric digital banking that puts them in control of their finances. Our active app clients have grown 38% to over 4 million and our new app is the most downloaded app on all major South African app stores.”

By August 2020, client income returned to March 2020 levels, while active retail banking clients rapidly grew by 784 000 in the past 6 months to 14.6 million. As a result, income from operations (before net credit impairments) increased by 10% compared to the six months ended August 2019 and amounted to R11 billion. Almost all of its businesses operating expenses (97%) are now covered by its net transaction fee and funeral income (August 2019: 91%).

Fourie mentioned that the bank is now reaping the benefits of its continued focus on their transactional banking model. “The subsequent years of investing in creating a digital bank with transactional income covering operating expenses has benefitted us greatly. It has provided financial robustness during a time that has challenged all businesses.” 

The retail bank results also highlight its resilience due to its strong fundamentals:

  • Retail bank operating expenses were down by 2% and its cost to income ratio decreased to 38% (Aug 2019: 40%) due to management’s focus on cost containment;
  • Transaction volumes were up 15% to 2.4 billion for the period in comparison to August 2019;
  • Online shopping and subscription payments grew with 99% to 4 million card-not-present transactions in August 2020;
  • Funeral plan income increased by more than 100% to R350 million (August 2019: R107 million);
  • Saving clients increasing by 17% to 5.5 million clients with a fixed or flexible savings plan;
  • Saving deposits amounted to R97.6 billion reflecting a 20% increase compared to August 2019;
  • Loan sales compared to 2019 were down by 35%, however, as the lockdown was relaxed and economic activity gradually increased, the credit granting criteria was eased. The gross loan book amounted to R63.4 billion (end Feb 2020: R65.4 billion);

While loan criteria were tightened, the bank offered relief to its clients in the form of payment breaks and variable payment reschedules, which amounted to R7.5 billion. All of the clients that were rescheduled were in good standing at the end of February 2020 and the most of these reschedules took place between March and July 2020. By August 2020 credit clients received on average the same salary as in February 2020.

Fourie added that the performance to date of the Covid-19 rescheduled loans is encouraging, but payment success rates, going forward, will reveal the medium- to long-term impact of the lockdown on its clients.

“The impact will likely be softened by the clients employed in essential services, which comprise 60% of the bank’s performing loan book.”

The lockdown contributed R4.2 billion to the total gross impairment charge of R6.3 billion for the reporting period ended August 2020.

Mercantile Bank, with a focus on SME’s and entrepreneurs, which was acquired in November 2019, runs independently as the Capitec team refines its strategy. The acquisition provides the bank with the opportunity to deliver digitally-led solutions based on the same fundamentals as its retail banking solution.

Business banking active clients increased by 14% since February 2020, and deposits increased with 5% to R12.8 billion. Against the background of the national lockdown impact, the same credit loss provision philosophy was applied to Mercantile. By end August 2020, the gross loan book amounted to R10.5 billion with an impairment coverage ratio of 5.5% (Feb 2020: 3.0%).  

In line with the SA Reserve Bank’s guidance, Capitec has not declared an interim dividend.

Commenting on its prospects, Fourie said that Covid-19 did not steer the bank off course and its management team remained highly focused on building a bank for the future. He alluded to new credit products and exciting digital innovations, including the ability to open an account on your phone and sign agreements with a selfie.

“We will be launching some exciting new solutions in the coming months, designed around the principles of simplicity and accessibility. These digitally-led offerings will help clients to easily manage their financial lives from anywhere, anytime. You’ll soon be able to apply for credit in a couple of simple steps and open an account or sign a document using facial biometrics, which is verified in real-time against the Department of Home Affairs database.”

“We believe our purpose of providing simplified, affordable banking that puts clients in control of their financial lives is now more relevant than ever. We’ve welcomed nearly 800 000 new clients during the last 6 months, a testament to the relevance of our offering during a time where consumers have placed significant focus on their money matters.”

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