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Capitec’s client-centric digital banking bolsters results

In a challenging socio-economic climate, Capitec enhanced its service to clients through digitalisation. Its success in adapting rapidly and innovatively is reflected in the results for the 6 months ended August 2021.

Agility, resilience and innovation. Capitec’s successful digital strategy led to a strong set of interim results with group headline earnings up 513% to R3.987 billion over the first six months ended August 2021. This results in 35.5% growth on the group headline earnings compared to August 2019 indicating a strong recovery to exceed pre-pandemic levels. Shareholders were rewarded with an interim dividend of 1 200 cents per share.

The bank viewed the challenging socio-economic climate as an opportunity to assist clients by enhancing its digital offering. This has yielded results, with active digital banking clients (app, internet banking and USSD) growing by 22% to 8.9 million, of which clients using the banking app increased 46% to 6 million. Capitec was also recognised as South Africa’s best digital bank in the SITEisfaction® 2021 survey and voted the Coolest Bank by South Africa’s tech-savvy youth in the 2021 Sunday Times Generation Next Awards validating our strong acceptance in the youth market.

Recent developments include the capability for any South African to download their retail banking app, scan their face and identity document and open a Global One account in real-time, as well as the option to have their card delivered within 3 working days. A free virtual card with no transaction fees, designed for safer online shopping, is available on their app.  Clients can use their app to scan and pay on Snapscan, Zapper or Masterpass making cashless banking easier and more convenient.  Enhancements were also made to internet banking for Business bank clients.

“We bolstered our digital offering while staying true to our fundamentals of simplicity, affordability and personalised service. This combined with our continued commitment to our branch network and call centers, resonated with South Africans from all walks of life. Our retail client base has grown by 2.1 million to 16.7 million clients. They performed 623 million digital transactions, an increase of 21% over the past year. We’re seeing rapid growth in South Africa’s digital economy as clients also adopt contactless card payments and online shopping.” said Gerrie Fourie, CEO of Capitec Bank.

“This period is also a testament to Capitec’s ability to adapt rapidly to prevailing circumstances. Following the civil unrest that resulted in some of our branches in KwaZulu-Natal and Gauteng being temporarily unavailable, the services offered by our call centres were bolstered by our multi-skilled employees from the affected branches. We strengthened the capacity of our online lending team and our clients can now apply for credit cards and access facilities without visiting a branch.”

Other indicators highlighting the Group’s diversified growth were:

  • Return on equity is 27%.
  • Net transaction income was 33% higher to R5.2 billion;
  • Net transaction and funeral plan income is 51% of net income and covers 97% of operating expenses;
  • Savings deposits increased by 16% to R127.9 billion, and Capitec paid R2.1 billion in interest on call deposits, fixed deposits and credit card balances back to clients;
  • Funeral plan income increased by 5% to R366.0 million with 1.5 million active clients;
  • Income from credit life policies increased by 15% to R571.2 million;
  • The gross loan book increased by 5% to R77.7 billion.
  • Credit impairments decreased by 66% as the full impact of the COVID-19 pandemic was accounted for in the first half of the 2021 financial year

Retail Credit is diversified and performs well with agile risk management

Overall, the value of loans advanced and disbursements made increased by 68% to R19.7 billion, which is in line with pre-COVID-19 levels. The increase is mainly due to the proactive management of credit granting criteria throughout the pandemic and competitive pricing with interest rates from 7%. Lending clients totalled 1.1 million of the banks 16.7 million client base.

The credit portfolio was well diversified with the introduction of the Capitec access facility in 2020, which combined with the credit card now makes up 59% of the retail disbursed.  The lower ROE on these products than term loans drive quality sales with limits up to R250,000 and interest rates from 7% on the credit card and 12.15% on the access facility.

Capitec mitigated its risk at the start of the pandemic by applying significant credit-granting restrictions on certain industries and smaller-sized employers. Measured relaxation of credit granting criteria back to pre-COVID-19 levels is in progress. Less than 27% of credit applications are approved and daily risk management resulted in 13% of access facility limits decreased.  The credit book performed well with an improvement in arrears and unrehabilitated reschedules. The bank is monitoring industries such as tourism and hospitality that are still impacted by the pandemic, as well as those impacted by the unrest during July 2021.

Interest income on loans decreased by 2% to R6.1 billion. The bank attributed the decrease to several factors including the decrease in the repo rate during 2020 and the 25% decrease in loan sales and disbursements resulting from their conservative approach to the COVID-19 pandemic.

“Our credit focus remains on decreasing the cost of credit for our clients and designing better credit solutions to meet their need for funding home improvement, vehicles, education or medical expenses,” adds Fourie.

Partnerships create better value for all clients

Capitec partnered with leading brands to create bespoke purpose credit solutions with more favourable interest rates. Clients can apply for finance for home improvements at CTM, vehicle finance at WeBuyCars and over 300 dealerships, medical treatment at Mediclinic and education at Stadio. Capitec home loans in partnership with SA Home Loans was launched in November 2020 and has gained traction with over 3000 applications.

As part of its Live Better programme, the bank also partnered with Dis-Chem, Shell, Educate24, GetSmarter, Hello Doctor, JOOX, Rentalcars.com, and Travelstart. By simply activating their Live Better savings account, at no cost, and paying with their Capitec card, clients receive cashback or discounts.

The Live Better Savings account is a new feature available for free to all Capitec clients. It differs from their other savings plans because clients don’t transfer or deposit money into Live Better Savings. Rather it grows automatically through a range of smart, easy-to-run savings tools and cashback benefits from selected partners. In addition to a higher interest rate, it has no fees and money in the account can be transferred to a client’s main transactional account at any time.

“Within just 3 months of launching, we’ve already had over 2.2 million clients activate their Live Better Savings accounts. Our goal is to grow a strong savings culture in South Africa. We are one of the few banks in the world that offers our clients interest on their main transactional account, and now that interest can work even harder for them in their Live Better Savings account. By the end of August 2021, our clients had saved R55.6 million using the automatic savings tools, and cashback amounting to R19.4 million was paid.”

“We’re going to continue expanding our Live Better benefit programme by partnering with other leading SA brands to create further benefit to our clients.”

Business Bank development remains on track

The rebranding of Mercantile to Capitec late next year will accelerate the growth in client numbers that has already begun. The integration of the new business bank division into all areas of the company is progressing well.

“Our team is busy with the enhancement of systems, processes and service models to ensure we offer the best digital banking solution for entrepreneurs. When we launch our new business bank solution it will encompass the same principles of simplicity, affordability and personalised service our retail clients have grown to love.”

The Business bank generated an after-tax profit of R126 million, compared to a loss of R47 million for the period ended August 2020.

Future focus

Commenting on the rest of the financial year, Fourie said Capitec will maintain its focus on digitalisation to enhance clients’ banking experience and help South Africans live better.

“We believe our human connection and service ethos remains our key competitive advantage.  We will use advanced technology, data and AI to help scale our personalised banking experience for our clients while helping them to simplify their banking further.  This strategy will be assisted by our strategic partnerships with some of the world’s best technology providers.  We will also partner with more leading South African consumer brands to offer our clients purpose-designed credit solutions and more Live Better benefits.

We are committed to our purpose to help people improve their financial lives.  We maintain our small company culture and entrepreneurial mindset and will continue to innovate in relevant ways that help South Africans simplify their banking so that they can live better,” says CEO of Capitec Bank, Gerrie Fourie.

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