/ 12 January 2012

Capitec eyes higher bank fee income

Unsecured lender Capitec Bank is aiming to boost transaction income in a year which it expects to be challenging in terms of interest revenue, the rapidly expanding bank’s finance director said.

Capitec’s revenues from transaction fees jumped 54% to R361-million in the six months to August 2011, while loan revenue rose 50% to R2.6-billion, according to the bank’s filings to the bourse.

Finance director Andre du Plessis said Capitec would soon replace its Maestro debit card with a Master debit card that will allow online bookings and payments, which should boost non-lending earnings.

“The intention is to have a better mix of banking, transactional income versus lending income so that we are not as reliant on lending income as we were in the past,” he said in a phone interview from the bank’s Stellenbosch-based offices.

The bank’s target is for non-lending income to cover at least 40% of its operational expenses by 2014. It is now just over 30%.

Capitec prides itself as having a simpler bank fee structure than larger rivals Standard Bank, Absa, First Rand and Nedbank.

Capitec, which opens roughly 50 branches every year, said 2012 could be tough as Africa’s biggest economy feels some of the economic stress going on in the rest of the world.

“It’s fair to say it’s going to be a challenging year, both from an economic and a credit point of view,” Du Plessis said. “The economy worldwide is tough, jobs are scarce and there is a lot more competition in the market,” he said.

Unsecured lending
Despite very high interest rates of between 23.5 and 28.5% for five-year loans, Capitec’s loan book jumped 86% to R14.5-billion in the year to August.

Unsecured lending was South Africa’s fastest growing consumer credit segment with a 52.8% leap in September from a year earlier, according to the National Credit Regulator.

With an interest rate ceiling of 32% for unsecured loans, banks are finding the segment more lucrative for financing things like cars and house extensions, which would normally fall under secured credit.

Du Plessis said the lender’s balance sheet held zero non-performing loans because Capitec writes off advances that are in arrears for longer than three months.

“The most important thing when someone has skipped a payment is to follow up to prevent the client defaulting again, because with every payment that is missed, the probability of a write-off increases,” he said.

Capitec’s provisions were higher than actual arrears at 7.6% of the loan book at the end of August. Defaulting advances were at 4.5%.

After two rights issues in 2011 to bolster capital levels ahead of the global implementation of new capital and liquidity requirements, Du Plessis said it was unlikely Capitec would require another serious capital raising initiative this year.

Capitec shares were trading at R177.99 as at 11am GMT, or a price earnings ratio of 19.12 times. African Bank, another major mass-market lender, is trading at 11.7 times its price earnings ratio. — Reuters