Capitec: The budget bank rattling South Africa’s financial sector

STELLENBOSCH, South Africa (Reuters) – A budget bank is booming in South Africa’s economic slump, challenging the decades-long dominance of the “big four” lenders and prompting a price war that is driving down banking costs in a country where many people can’t afford an account.

Capitec Bank has doubled its customer numbers over the past five years and quadrupled in market value, even as South Africa’s economic growth has stalled and the country has slid into recession, squeezing household incomes.

It offers a single “no-frills” bank account with low fees, as well as unsecured loans to customers including low-income borrowers, but steers clear of the more complex financial products offered by rivals.

This model has insulated it from the downturn, which has constrained mortgage lending and vehicle finance, key business areas for the four biggest banks: Standard Bank, FirstRand, Barclays Africa and Nedbank.

Those four heavyweights have reigned unchallenged over South Africa’s financial sector since the 1990s.

But Capitec, whose shares have risen more than 300 percent since 2012 and over 30 percent this year, now has a market value of 103 billion rand ($7.9 billion) – closing in on the number four lender Nedbank, which is worth 110 billion rand.

The Stellenbosch-based bank, which launched in 2001, has 9 million customers, of which 4 million are so-called primary clients who have their salaries deposited into these accounts.

“Most of them we’ve taken from other banks,” Capitec Chief Executive Gerrie Fourie told Reuters in an interview, saying that his bank attracts 100,000 to 150,000 new customers a month.

“The economy is helping us,” he added. “People have started questioning why they have to pay banking costs.”

There are clear risks to the bank’s business model of offering unsecured loans to lower-income borrowers without any other forms of lending to counter any losses, according to industry experts.

Capitec’s rise is nonetheless forcing its rivals to respond. They are all fighting back with their own no frills accounts aimed at hard-pressed consumers.

This is pushing down the cost of banking in South Africa – a significant development in a country where only around half of the 55 million population have bank accounts, according to Nielsen research, partly because of the charges involved.


Bank fees for deposits, withdrawals, transfers and administration have for years largely ranged between 100 and 250 rand a month, but can rise as high as 450 – a stiff ask in a country where the minimum wage is 20 rand an hour.

Nedbank has reduced the administration fees for its most basic account to Capitec’s level of 5.50 rand a month and also lowered transaction costs. It now offers bank accounts that are about half the price of five years ago.

Chief Executive Mike Brown told Reuters it was focusing strongly on entry-level banking and was looking to that segment for customer growth.

The other big banks have gone even further, more than halving their fees for their most basic accounts over the past five years to undercut Capitec.

FirstRand’s FNB arm now offers an account with a monthly fee of 5.25, Standard Bank runs one for 4.99 rand per month, while Barclays Africa’s Absa division offers 4.95 rand.

Standard Bank’s co-Chief Executive Ben Kruger told Reuters it needed to be able to respond nimbly to counter lean new entrants like Capitec who have been able to enter the market without the stifling processes established banks have inherited from their paper-based legacy systems.

“Capitec is gaining market share in the bottom end and the middle of the market and they are increasingly becoming more aggressive in business banking,” said the bank’s other Co-CEO, Sim Tshabalala.

FirstRand, the largest banking group with a market value of 318 billion rand, has 7.7 million customers through its FNB arm; Standard Bank, valued at 276 billion rand, has 12 million; Barclays Africa, which is worth 128 billion rand, has 9.4 million through Absa; and Nedbank has 5.7 million.


Nestled in the vineyards of the Western Cape, far from South Africa’s financial hub of Johannesburg, Capitec has enjoyed a rapid rise since it launched 16 years ago. The biggest growth came during the economic downturn of the past five years, both in terms of customers and market value.

“Capitec came from zero, to being a big player,” said Feroz Basa, head of Old Mutual’s Global Emerging Markets Fund. “It’s centred around this low-cost model, that’s how they are gaining market share.”

The retail bank has also been swiftly expanding its branch network, adding 76 last year to reach more than 800, compared with Absa’s 719, Standard’s 630, FNB’s 645 and Nedbank’s 513.

The bank’s growing deposit base has narrowed its own cost of funding significantly, Arqaam Capital analysts Jaap Meijer and Leen Antonios said in a note, adding that they expect it to generate higher-than-expected revenues in the next few years.

However, in terms of risks, the amount of Capitec’s loans in arrears at the end of December were up 24 percent to compared with a year earlier, at 2.86 billion rand, outstripping the 11 percent growth rate of its interest income.

Unlike its rivals, the bank offers only unsecured loans and cannot count on other lending areas such as mortgages to counter any losses. The company is due to report half-year results at the end of September.

“The other banks might have a bit of a moat by having vehicle finance, housing loans and bonds and higher value loans,” said Momentum SP Reid banking analyst Brian Mugabe. “Their (Capitec’s) biggest challenge comes as they move up the value chain.”

Nonetheless, as the price war for low-income customers gears up, Capitec warned its bigger competitors that it plans to climb the income ladder – but not all the way up.

“We designed this bank to service 90 to 95 percent of South Africa’s banking public,” said Fourie. “The wealthiest 5 to 10 percent of the population we leave for the guys offering private banking services.”

($1 = 13.2158 rand)

Additional reporting by Tiisetso Motsoeneng; Editing by Pravin Char

Related Content

Equities dip further as FY earnings trickle in: Nigerian market watch

Nigeria’s equities market extended losses from Monday weighed down by the Banking and oil and gas sectors. Dare Fajimolu, Chief Research Officer at Blue Vertex joins CNBC Africa for a recap of today’s trade.

Mukwandi Chibesakunda on expanding financial inclusion to the unbanked

Banking of the previously unbanked is seen as an opportunity for banks on the continent, a task that Mukwandi Chibesakunda, as the first female CEO of the National Savings and Credit Bank is out to ensure. On this issue and her journey to the top, she joins CNBC Africa for more.

Here’s how Absa is planning to take you further into Africa than ever before

Now in its third year, the Absa Africa Financial Markets Index evaluates financial market development in 20 countries across the African continent and the improvements show the progress being made within the financial markets.

Contrarian Capitec still hiring, sees more room for growth

Capitec Bank reported a 20 per cent increase in half-year profit thanks to its customer base soaring. The bank obtained an average client growth of almost 200 000 clients per month over the last 6 months bringing the total number to 12.6 million. CNBC Africa is joined by the CEO, Gerrie Fourie to unpack the numbers.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

Uganda Securities Exchange CEO on how COVID-19 is impacting the bourse

The economic turmoil caused by the COVID-19 pandemic has had wide severe impact on financial markets not leaving behind stocks, bond and commodity markets. Uganda Securities Exchange CEO, Paul Bwiso joins CNBC Africa for more.

COVID-19: How the pandemic is accelerating the digitalization of healthcare

The COVID-19 pandemic has caused huge disruptions in healthcare provision, highlighting the need to adopt and invest in digitalization. Dr. Wanjeri Millicent Loice, Director and Content Manager, Toto Health Kenya joins CNBC Africa for more.

AfDB’s Nnenna Nwabufo on how COVID-19 has impacted African economies

According to the African Development Bank’s revised African Economic Outlook, though the continent is expected to rebound next year; it could lose a quarter of a trillion dollars in economic output for the rest of this year and 2021. Nnenna Nwabufo, Acting Director-General of East Africa Regional Office at the AfDB joins CNBC Africa for more.

Kenyan sports minister Amina Mohamed to bid for top WTO job

The Geneva-based body is seeking a replacement for Brazil’s Roberto Azevedo who is stepping down a year early at the end of August at a critical juncture for the trade watchdog.

Partner Content

Maktech’s Godwin Makyao: Now Is A Time of Entrepreneurial Opportunity in East Africa

As an executive decision-maker in both the telecommunications and tourism industries, Godwin Makyao could not have experienced a more diverse set of...

Sanlam launches urgent job-preservation initiative in response to COVID-19

Sanlam Investments is responding to the COVID-19 pandemic through large-scale support of the recovery of South African companies, from small enterprises to...

Trending Now

Steinhoff agrees to sell stake in Conforama France to Mobilux

JOHANNESBURG (Reuters) - Scandal-hit Steinhoff International agreed to sell its shares in furniture retailer Conforama France to Mobilux Sàrl, the parent company...

Namibia to ground national carrier’s license over cash hole

WINDHOEK (Reuters) - Cash-strapped Air Namibia will have its planes grounded at midnight on Wednesday after it failed to secure enough funding...

Uganda growth to sink as low as 0.4% this year – World Bank

KAMPALA (Reuters) - Ugandan economic growth is set to plunge to as low as 0.4% in 2020 from 5.6% last year as...

How retirement funds can contribute to rebuilding SA’s economy

Sanlam Benchmark Symposium: Sanlam has conducted research across a wide breadth of employers, retirement funds and professional consultants to benchmark their employee benefits experiences of the lock-down as well as their expectations of the future in a COVID-19 impacted economy. Chris Bishop spoke to Viresh Maharaj, Managing Executive, Sanlam Corporate Distribution, about the outcomes of the research and current trends in the Industry....
- Advertisement -