Capitec attracts more higher-income earners

Demand for loans from constrained consumers and investment in digital banking benefited Capitec during the six months ended August, despite headwinds such as the war in Ukraine and the struggling domestic economy.

Capitec, SA’s fastest growing bank, said loan sales and disbursements jumped by 35% to R26.5bn in August 2022 from R19.7bn in August 2021 after risk appetite returned to pre-Covid levels and it attracted more higher-income clients.

Capitec, which was established in 2001, said customers using its banking app increased to 10.8-million, up 21% from a year ago, representing 57% of customers. The bank's active clients grew 13% to 19-million during the period.

CEO Gerrie Fourie told analysts during a virtual financial results presentation on Thursday that the bank applied strict lending criteria with the spike in demand for credit.

“In our case, we manage [loans] on a continuous basis. We are basically making changes to our credit policy on a weekly basis. We are very agile and that shows this year,” said Fourie.  

Capitec said the move away from low-income clients earning up to R5,000 was strong. Fourie said 10,000 more customers earning R50,000 a month or more after deductions had applied for loans during the period, compared with 6,000 new clients in 2021.

“When we started off we said we would like to bank 95% of South Africans, where you need specialised banking we will leave it to the other banks. What we have seen is that we have gone through a normal cycle and we are starting to bank high-income clients. This is 100% in line with our strategy.”

Fourie said clients had shifted their loan applications from branches  to the Capitec apps.

The group was  growing Capitec Connect, the prepaid mobile offering launched this month, which would be a game changer.

“Capitec Connect will disrupt the market. It is very well priced,” he said, citing data costs of R4.50 per 100MB, voice minutes at 90c and SMSes at 25c.  

Fourie said compared with purely digital banks, including Tyme and Discovery Bank, 65% of Capitec's clients were on a digital platform, while it also offered a branch network.

“Our offer in totality is comprehensive for the South African client base,” through the group's strategy of combining digital banking, branches and strong client engagement.

“The challenge with cash is that in the informal market a lot of people still need cash for taxis, accommodation and food at spaza shops, and that is the ecosystem that needs to change.”

Euromonitor senior analyst Peter Hirst said the shift to digital technologies and demand for credit were a boost for the bank.

While the bank partnered with Samsung and Google Pay to facilitate contactless payments, it launched its own Capitec Pay to satisfy demand for secure, convenient payment methods, he said. Capitec Pay is an online payment tool.

In our case, we manage [loans] on a continuous basis. We are basically making changes to our credit policy on a weekly basis. We are very agile and that shows this year

“To this end, consumers continue to shift away from cash to digital transaction methods. The bank’s robust financial performance proves the growth potential that exists among lower-income consumers, specifically for convenient, digital banking solutions to replace their dependency on transacting in cash. It also serves as a signal for its competitors to continue investing in their digital services,” said Hirst.

Of  the long queues at the bank’s ATMs, Fourie said many were accessing their social grant benefits. 

“You are sitting with South African Social Security Agency beneficiaries that are withdrawing their R350 social grants. That is where banks and the government must work together because cash is expensive and has a massive security concern. We need to drive the behaviour of clients in SA towards digital payment mechanisms. We have to have confidence in the digital side.”  

Fourie said the percentage of financially active clients with “cash stress”, or less than 20% disposable income after meeting their monthly obligations, was 13.1`% in August from 12.2% the previous year.

“There is definitely stress coming through from our clients and that is what we need to manage going forward,” he said. 

The bank's headline earnings jumped 17% to R4.7bn from R4bn for the comparative period. It declared a dividend of R14 per ordinary share from R12 a year earlier.