Capitec not worried about South Africa’s new bank

 ·24 Apr 2024

Capitec CEO Gerrie Fourie says the group is not concerned about the launch of Old Mutual’s new bank, with the companies already in competition.

Last Friday, 19 April, Old Mutual said that it received approval from the South African Reserve Bank’s (SARB’s) Prudential Authority to establish a bank in South Africa, which is expected to launch by the end of 2024.

The group said that it is now formally transitioning from ‘bank build mode’ and will enter into a strict and rigorous industry testing phase with selected bank partners.

The bank is set to operate in the mass market space, taking on the likes of Capitec and African Bank.

However, speaking with BusinessTech following the release of Capitec’s financial results for the year ended 29 February 2024, Fourie said that Old Mutual is not a new competitor, as it already operates in the unsecured lending space.

Fourie said that the group is not concerned that Old Mutual will start to gain market share, despite Capitec’s own move to cut back in the unsecured lending space.

Opening the taps

Fourie said that the group is expecting some relief for its customers as food inflation and load shedding ease in intensity.

However, he said that the group will remain cautious about extending credit in the unsecured retail segment – its core business.

Amidst the challenging economic environment in South Africa over the last year, Capitec aggressively cut sales in the unsecured lending market.

Data from the National Credit Regulator showed that Capitec’s competitors cut quarterly unsecured credit sales by 9% in Q3 2023. Capitec, on the other hand, saw a 32% decrease over the period.

However, Fourie said that the group was possibly too aggressive in its strategy and will look to open up to certain pockets while still remaining cautious.

He told BusinessTech that these pockets would be sector- and client-specific, highlighting the hospitality sector as an example, which is seeing a resurgence amid increased foreign travel into South Africa.

Source: Capitec

Amid heightened interest rates in South Africa, Capitec, like many other banks in South Africa, saw its credit loss ratio increase from its through-the-cycle target of 8.5% in February 2023 to 11.0% in August 2023.

The group is expecting the credit loss ratio to return to the 8.5% target by February 2025.

Although Fourie expects interest rates to only be cut around September 2024, he said that the group factors in interest rate shocks of roughly 2% when making its credit loss ratio predictions, meaning that no cut this year, which many analysts are now expecting, will not affect Capitec’s credit losses.

Read: Capitec CEO scores massive R65 million payday

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