The surge in Capitec’s share price over the past year has seen its value shoot up to R335bn, more than that of Absa, Nedbank and Investec Ltd combined, while it is closing in fast on Standard Bank — Africa’s largest lender by assets.
Capitec’s share price is up 75% in the past year, while the banking sector is up 29% over the same period. FirstRand, the country’s most valuable banking group, is up 20%, taking its value to R474bn.
“Big Blue” as Standard Bank is referred to in finance circles due to the size of its balance sheet, is up 26% in the period under review, valuing the lender at R396bn — R61bn more than Capitec.
Absa, the sector’s perennial underachiever, is down 4.2% in the past year, valuing it at R146bn, while Nedbank has surged 46%, taking its value to R146bn.
Investec Ltd, the niche private banking and wealth management group’s stock is up 27%, valuing the Anglo-SA group at R39.3bn.
The surge in Capitec’s share price is a boon for asset managers, including workers, whose pension funds have invested in the Stellenbosch-based lender. Chief among them is the Public Investment Corporation (PIC) which holds a sizeable stake.
The lender’s headline earnings have grown from R2bn 10 years ago to R10.6bn in the past financial year, with a return on equity of 26%, and deposits of R156bn.
Capitec, which is seen as still having the potential to make further market share gains, has grown an army of 22-million clients, making it the country’s largest lender by customer numbers.
Its latest results for the year to end-February show users of the bank’s app increased by 19% to 11.2-million, while transaction volumes increased 21% to 9.9-billion and, as a result, Capitec’s transaction and commission income grew 29% year on year to R14.8bn.
Led by Gerrie Fourie, Capitec has evolved and broadened its revenue streams by increasing its products and balanced its mix of lending and transactional income by also targeting higher-income earners.
Retail lending contributed 38% to operating income in its last financial year, from 76% in August 2017, while transaction income, funeral insurance, business banking, and value-added services contributed 62% compared with 24% in the previous year.
Business banking
The bank has also made a foray in the competitive business banking arena.
In 2019 it bought Mercantile Bank from the Portuguese state-owned banking group Caixa Geral de Depósitos in a deal worth R3.5bn, shrugging off competition from Nedbank and a consortium of the PIC and Bayport Financial Services.
It has since rebranded Mercantile to Capitec Business and is also looking at expanding its international business.
In March the Reserve Bank approved a transaction in which Capitec will increase its shareholding in international online consumer lending group Avafin to 97.69% from 40.66% at a purchase price of €26.3m (about R523m).
Avafin provides online consumer loan products in Poland, Latvia, Spain, the Czech Republic and Mexico.
S&P Global in June said Capitec’s business model was resilient, weathering economic cycles and the weak SA economy.
The ratings agency said the bank’s strategic execution strengthened its competitive positioning in the sector. It expects the bank’s wider business scope to accelerate revenue diversification and support profitability and capital over the medium term.
Asief Mohamed, CIO of Aeon Investment Management, said the Capitec success story and its outperformance relative to other banks started many years ago when the founders decided to form a bank to service the underbanked and lower-income end of the market.
“I must add the driving force behind this decision was the profit motive. There is nothing wrong with the profit motive. The big banks (similar to Pick n Pay who did not see a profit opportunity in the black townships) did not see the profit opportunity in the lower income groups or underbanked. The Capitec founders then realised they had to build a bank that had scale and needed to be as paperless as possible,” he said.
“This was helped by not having many legacy systems that the big banks had. Also what helped significantly was that there was no competition in the lower end or underbanked [sections of the market]. The only competition was the loan sharks who provided loans at extortionate interest rates and broke your legs if you did not pay them back.”
Nedbank’s latest annual report shows Standard Bank continues to dominate market share of SA’s R11-trillion banking sector. Data from the Reserve Bank shows the country’s banking sector had R5.1-trillion in advances at end-2023 and deposits of R5.7-trillion. Standard Bank has a leading market position on both fronts.
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