Capitec still taking strides

By Staff Writer

When he announced the results, CEO Riaan Stassen attributed the bank's sustained success largely to client growth. The bank has been acquiring about 70 000 new clients every month, since September 2009, increasing its active client base to over 2.1 million clients - a growth of 37% in numbers year-on-year.

Capitec Bank's profit grew to R435 million for the year ending 28 February 2010 - an impressive 45% growth year-on-year given the recessionary market conditions.

Headline earnings per share grew by 44% to 527 cents and a final dividend of 155 cents per share will be proposed.

Operating expenses grew by 29%, year-on-year, as a result of ongoing distribution expansion. The bank increased its distribution footprint by opening 38 new branches and now has over 400 branches throughout South Africa.

"Capitec Bank's simplified solution to money management has found great appeal with the cost-conscious consumer looking for value, accessibility and easy to use banking products. Particularly in the light of the recent recession and relatively slow economic recovery, our appeal has grown across all income groups," Stassen said.

"Given the improvement in current economic conditions, we will continue to grow from our solid base."

Capitec Bank's net transaction income has grown by 84% to R295 million and represents 15% of our total revenue.

The total value of loans granted increased by 38% to R8.6 billion. This was a result of more clients opting for longer term loans, as the maximum loan term and loan size were increased respectively to 48 months and R100 000. The average value of a loan is currently R2 239.

At the end of February 2010, Capitec Bank had R1.7 billion in equity and R6.9 billion in assets, excluding cash.

When asked how Capitec Bank had weathered the international banking crisis so well, Stassen replied: "Capitec Bank was founded during the small banking crisis in 2001 and gained invaluable lessons from the crisis. It influenced our business model and approach to funding.

"Our approach entails contractual borrowing on a long-term basis and lending out money on a short-term basis. This ensures a stable liquidity position. Our conservative approach to gearing has helped us to comfortably weather the last few months'dismal economic conditions in the financial markets. It costs a little more, but we prefer the conservative approach."

Capitec Bank has been able to obtain long-term corporate deposits, now amounting to R3 billion of which R2 billion was raised through the bank's listed bond programme. These bonds are for three, five and seven years. The bank also obtained a R250 million 12 year subordinated loan that is regarded as secondary capital, during the first 7 years. This is a great achievement for Capitec Bank, signifying the trust that international financiers have in the group.

In November 2008, Capitec Bank launched its first fixed retail deposit in the market. Capitec Bank now has more than R1 billion in retail fixed deposits and more than R2 billion of normal savings deposits.

"Despite the international crisis, total funding has more than doubled from R3 billion to R7 billion over the last financial year, and is not a constraint on our growth," Stassen said.

He also pointed out with regard to their conservative approach to liquidity: "At year-end, on 28 February, the bank was in a position to repay all retail call savings deposits immediately. On average, throughout the year, Capitec Bank could repay all call savings deposits within one day of month-end."

Stassen's comments regarding the impressive improvement in the overall bad debt ratio for the year was as follows: "More than 18 months ago, Capitec Bank set stricter selection criteria for borrowers who needed a loan, and focussed on the quality of the employer of a prospective borrower. Our bad debt ratio has decreased from 14.5% to 9.8%." In the financial year, Capitec Bank made 2.9 million short term loans, i.e. loans to be repaid within a month. "The quick turnaround of these loans enable the bank to evaluate the effectiveness of its lending criteria continually and to make rapid adjustments when the behaviour of borrowers changes," Stassen said.

"Net bad debts (after taking into account recoveries) grew by 17%. Taking into account that, at the same time, the loan book has grown by 73%, it is clear that, this has been a commendable performance under the present economic conditions."

Capitec Bank's long-term and short-term national scale credit ratings from Moody's Investors Service have been kept unchanged at A2.za and P-1.za respectively. These rates were reaffirmed on 8 September 2009 and 12 March 2010. The outlook for both ratings remains stable, while many banks and organisations have been downgraded.

Capitec Bank was the only South African brand - and one of only 27 brands globally - to be named a ‘Great Brand of Tomorrow' by Swiss-based financial services group Credit Suisse. A group of 3 000 analysts in 50 countries identified brands around the world that are most likely to significantly outperform their markets and competitors over the next three to five years.

The list includes world-renowned brands like Amazon, Apple, Mercedes-Benz and Facebook, which puts Capitec Bank amongst international heavyweights in business.

"We have applied a pioneering approach to traditional banking by using technology to simplify clients' money management. This international recognition is a powerful endorsement of the success of our strategy and innovative business model so far," Stassen concluded.

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