With SA’s largest banks vying for market share gains in the business banking sector, Nedbank has flagged Capitec’s foray into small and medium enterprises (SMEs) lending as presenting the toughest competition among its rivals.
Nedbank said in its annual report on Thursday that competition in the SA banking sector continues to intensify given the presence of strong incumbents and the growing threat posed by new entrants. It said SME lending has emerged as the next battleground among the country’s lenders.
“Small-and-medium-enterprise banking has emerged as the next battleground, driven by enhanced digital capabilities at incumbent banks and the entry of non-traditional competitors,” it said.
“Key investor concerns include the potential impact of Capitec replicating its retail market successes in the SME market.”
Capitec’s retail banking successes are well documented — with the Stellenbosch-based outfit having grown its client base to 24-million — making it SA’s largest bank by customer numbers.
Business banking generally refers to the services used by small companies, while commercial or corporate banking refers to the services used by large enterprises with a high turnover.
According to data from the Banking Association SA, small and medium-sized enterprises’ total economic output accounts for about 34% of GDP.
However, the World Bank’s International Finance Corporation estimates a funding gap of the sector amounting to $30bn.
Capitec in 2019 bought Mercantile Bank from Portuguese state-owned banking group Caixa Geral de Depósitos in a R3.5bn deal.
It has since rebranded the entity into Capitec Business. Asset management major Ninety One said in January that Capitec was poised to disrupt the competitive business banking sector.
The money manager said by offering business banking at a lower cost, with a special focus on point-of-sale, Capitec is acquiring business clients while gaining a better understanding of their transactional activities and cash flows allowing the bank to unlock an alternative approach to business financing.
Investec, known for its commercial banking prowess, has also indicated its plans to double its market share in the business banking space in the next two years.
The segment of the market is dominated by FNB, with Standard Bank and Absa also competing aggressively. African Bank and TymeBank are also competing to win market share in the sector.
In response, Nedbank in March announced a shake-up of its retail and business banking divisions. The reorganisation will see the creation of business and commercial banking, a juristic-focused cluster that will cover SMEs and commercial clients.
The segment will also target mid-corporate banking aimed at clients with a revenue turnover level per annum of R1bn and above.
Competition in the banking sector also extends to the retail sector, where Capitec and fintech lenders have made serious inroads over the years.
Nedbank said while the new players have won market share, that has not necessarily been at the expense of the traditional players, suggesting SA has a multi-banked industry as consumers expand their banking options.
New players that have entered the market in the past five years include Discovery Bank, while Old Mutual is also making a comeback to the banking sector with the launch of its banking proposition, OM Bank, set for later this year.
Telecommunication providers including MTN and Vodacom have also ventured into attractive banking profit pools, focusing primarily on transactional services and insurance.
“Large banks are competing fiercely for deposits and high-quality assets, which has resulted in margin pressure, while new entrants in the retail banking market are ensuring that bank fee increases remain well below inflation,” Nedbank said.
“In retail banking, asset pricing has become more competitive in secured lending products such as home loans and vehicle finance. Banks also continue to price competitively to retain market share in term and notice deposits,” it said.
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