George asks whether his money is safe with Capitec and whether he should invest in government bonds: I have money invested in a fixed deposit with Capitec at 11%, which is about to mature. Recently I have met a few people who have expressed grave doubt on Capitec’s future and have suggested that the money I invested is at risk. Do you have any comments, and what other investment will give a reasonable return, such as government bonds?
Maya replies:
Personally I have not heard any concerns about Capitec. As a smaller bank, Capitec is well aware of the perception that it carries a higher risk profile, and as such it runs its business so that on any one given day it is in a position to repay all of its savings deposits immediately. As a smaller bank it will have a higher risk profile, which is why it pays a higher interest rate (there is never a free lunch). Read below for a full comment from the bank about your concerns.
Inflation-linked bonds: In terms of bonds, the government inflation-linked bonds are an extremely popular investment as they provide you with a return that will keep pace with inflation and the risks are very low (the risk of the government defaulting is very low based on international agency ratings). Given the amount you have to invest you could purchase an inflation-linked bond through a stockbroker. However, given the popularity of these bonds they are not always available in the market. An alternative is to invest in RMB’s BIPS Inflation-X fund. This is an exchange-traded fund that tracks the inflation bond index and can also be purchased through your stockbroker. For more information go to www.rmb.co.za/online/bips-inflation-x-5-may-2009.
Carl Fischer, executive: marketing and corporate affairs at Capitec, replies:
Capitec Bank was founded during the small banking crisis in 2001. We gained invaluable learnings from the crisis, which influenced our business model and approach to funding. Capitec Bank follows a particularly conservative approach to funding (probably the most conservative in the banking industry) by continuously seeking primarily long-term contractual five- to seven-year agreements to secure funding for future growth. Our approach entails borrowing on a long-term basis and lending out money on the short-term basis. This ensures a stable liquidity position.
This conservative approach to gearing has helped us to comfortably weather the last few months’ dismal economic conditions in the financial market. Capitec Bank also actively manages its liquidity to maintain a positive mismatch of assets and liabilities. With our large capital base, our risk-weighted capital adequacy ratio was 36% at August 31 2009.
Capitec Bank was also in a position to repay all our saving deposits immediately, on average, throughout the current fiscal. Further confidence shown by the investment market, and that Capitec Bank’s business model and funding approach is sound, was when Capitec Bank Limited listed three new bonds totalling R1-billion on the bond market of the JSE in November 2009. I trust the above information gives you the reassurance that Capitec Bank’s strategy and business model is sound and definitely a secure bank to keep your savings in.