While the bigger South African banks have toned down their profit growth expectations in light of the morbid economic outlook for the medium term, Stellenbosch-based Capitec Bank continues to thrive.
A recently released trading update showed Capitec expected earnings for the financial year to end February to increase by between 18% and 21%.
This performance is comfortably ahead of the mainstream banks, and – as yet – shows scant evidence of any disruptive influence of new banking ventures like Tyme Bank and Discovery Bank.
Capitec, which was launched out of investment house PSG in the late nineties, stole a march on the mainstream banks by offering simple banking solutions to SA’s sprawling unbanked market. Extended opening hours, easy-to-open bank accounts and low costs were the main thrusts that saw Capitec compete aggressively with SA’s traditional ‘big four’ banks.
The bank has remained innovative and nimble – despite growing into a much larger banking enterprise.
But last month Capitec still needed to reassure the market – specifically in light of the serious outbreak of the Covid-19 virus – that its earnings guidance was unchanged and that its fundamental business remained strong.
Capitec’s share price on the JSE, however, was extremely volatile – falling from R1 100 to under R700 in a matter of days in mid-March. The share, at the time of writing, had recovered close to the R1 000 mark again.
Capitec conceded that markets are in economic turmoil due to the effects of Covid-19, and many companies – including the banks – had seen big declines in their share prices.
Capitec reckoned the sharp fall in its share price in mid-March was mainly attributable to technical reasons – most likely international shareholders impacted by the weaker Rand and algorithms applied by professional traders to enforce the disposal of a share when the price falls below a certain limit.
Capitec was also keen to address speculation that the bank would be severely impacted by Covid-19 due to the market on which it focuses and its unsecured credit business model. Capitec stressed that only 1.1 million of the bank’s 12.6 million active clients (or 9%) have credit with Capitec Bank.
In addition, Capitec’s business model is well diversified and income is strengthened by transaction fee income and funeral cover sales.
Capitec disclosed that net transaction fee and funeral income contributed a hefty 46% of net income – and this reassuringly covered 91% of operating expenses.
Capitec also indicated that there had been a significant migration in the bank’s client base to the middle and higher income segment.
So much so, that 81% of credit granted in August 2019 was to clients with a gross salary of over R10 000 per month. What’s more 47% of credit granted was to clients with a gross salary of over R20 000 per month. Capitec also reiterated that it had a strong retail deposit base.
So despite the market getting itself in a twist about Capitec’s prospects, the bank maintained that its liquidity position remained strong and its liquidity ratios were still in line with that published at the end of 2012 – that being Capital Adequacy Ratio at 28.4%; Liquidity Coverage Ratio at 1 444%; Net Stable Funding Ratio at 186% and Leverage Ratio at 16.6%
In addition, Capitec Bank’s excess deposit base had grown by more than 5% from the end of August last year.