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Capitec: Will SA's winning bank go global?

Jul 02 2017 12:57
Adiel Ismail

Cape Town - Capitec Bank's business model has the potential to go global, according to an independent analyst.

The bank, which recently made its maiden venture into international markets in a €21m deal, has come out shining as the Best Bank in the World, in the Lafferty Group’s 2017 Global Bank Quality Benchmarking study.

"From relatively small and difficult beginnings, a dedicated and humble team of executives have built a significant enterprise, refining their business model along the way," Mark Ingham, on behalf of EasyEquities, told Fin24.

"There is scope to take the Capitec business model abroad, including to more developed markets," he said.  

READ: Why SA's Capitec is Best Bank in the World

Capitec Bank Holdings [JSE:CPI] has been rated the very best in the world for a second time, beating other local and global leaders such as HSBC, Goldman Sachs and JPMorgan Chase. The Lafferty Group study awarded Capitec a 5-star rating, Absa achieved four stars, and FirstRand, Standard and Nedbank were given three stars.

"Capitec has its eye on the emerging South African consumer and knows how to serve them well," Lafferty group CEO Michael Lafferty told Fin24. This is unlike the big universal banks of Europe and the US that seem to want to do everything and usually fail to do anything particularly well, he added.

Capitec achieved a record growth of 1.3 million new clients for the financial year to February 2017.

Snatching market share

Ingham believes Capitec is taking retail banking market share away from the big four banks through providing customers with a level of service experience not typically found.

"Key to the success is good systems, active day-to-day management involvement at the coal face, common sense, and prudent housekeeping."

In turn, he said, Capitec has also built investor confidence and reduced its cost of capital.

"Foreign fund managers have been increasingly attracted to the company as an investment with their presence in the share register rising in the past few years."   

Ingham is of the view that unsecured lending, which Capitec is South Africa's biggest provider of, is here to stay but within an increasingly improved governance and operating regime. He explained that source of income, affordability of credit and behaviour remains a fundamental determinant of Capitec's model as opposed to collateral.

"Transaction banking is a growing driver with operating expenses now covered 72% by transaction fee income," he said.

A star in the banking sector

Petar Soldo, who has over 12 years’ experience in conducting research for major banks, told Fin24 South Africa’s banking system has consistently been rated one of the most advanced and well-functioning in the world.

"Capitec, in particular, has been a star in the banking industry for many years and shows no signs of a waning ambition to contain as such," said Soldo, who is also the founder and CEO of Digital Republic Consulting.

Shares in Capitec, which has a market capitalisation of R94.76bn, closed 1.01% higher on the JSE on Friday at R827.83.

The bank reported 18% growth in headline earnings to R3.8bn for the financial year to February 2017.

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