Bigger banks target Capitec's niche

Johannesburg - Low-cost banking group Capitec [JSE:CPI] will no longer be able to compete on price alone, as bigger banks becoming increasingly hungry for the lower end of the market.

That much became apparent after First National Bank [JSE:FSR] (FNB) rolled out its annual pricing review for 2010.

FNB fees have risen by an average 6%, but it is clear the bank is serious about targeting the lower end of the market.

"Our competitors can no longer just compete on price," said James Fowle, pricing executive at FNB.

Fowle pointed to FNB plans to roll out more than 100 of its EasyPlan branches over the next 12 months. These are less flashy branches, designed to cater for only three different product types.

Another change is encouraging consumers to draw cash from retailers like Pick n Pay and Shoprite Checkers, rather than using ATMs. If customers use a retailer they will pay 90c, while ATM costs can vary from R2.95 to R5.50.

FNBs' announcement comes a week after Capitec announced it would be trialing a three-month "free" cash withdrawal offering from retailers.

In a recent note to clients, Darren Coulter from Imara SP Reid commented there is still scope for Capitec on price. He wrote: "Capitec's fee structure will still attract new customers looking for cheaper bank charges as well as unbanked clients, and given that their current active client base is only 2.1 million there is still significant scope for growth in this area."

Capitec is not the only high-growth bank facing renewed competition from its bigger counterparts.

African Bank (Abil) has been taking some stick from analysts in recent weeks around its own competition issues.

Deutsche Banks analysts last week said: "Abil's credit operations generated more profit in the past 12 months than the retail operations of FNB and Nedbank combined and two-thirds of the profit of Absa [the largest retail bank]."

They said the roll-out of FNB's EasyPlan branches would put it on a collision course with the microlending operations of both Capitec and Abil.

Referring to Abil's dividend yield, stockbrokerage Barnard Jacobs Mellet said: "We are mostly interested in accessing the sustainability of the current yield, with growth rates under pressure and competition in the industry mounting."