Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

How a bank for the forgotten made its investors very rich

How do you get a stock to increase 144,000% in less than two decades? For one South African bank, the answer is a relentless focus on customers others forgot.

Capitec Bank was founded in 2001 by entrepreneurs who loaned money to low-income South Africans ignored by bigger banks. It extended credit to people who didn't have collateral, such as a home, to secure a loan.

While critics say Capitec (CKHGY) helped fuel a rise in risky loans, its business has thrived. It took less than two decades for the lender to overtake overly confident rivals and amass more customers than any other bank in South Africa.

"It's an amazing story of how some retailers and farmers managed to break into South Africa's banking oligopoly, where very few had succeeded historically," said Stuart Theobald, chairman of the financial services research firm Intellidex.


Simplifying banking

Capitec's founders cut their teeth selling wine and spirits, working for companies that would later merge to become Distell (DSTZF), Africa's biggest alcoholic drinks maker.

Believing the four big South African banks made things unnecessarily complicated and expensive for clients, they decided to found a lender with branches that felt more like grocery stores.

"When you're in liquor [sales] you spend time in townships and shebeens [beer taverns], understanding South Africa in totality. That gave us a better understanding of the client," Capitec CEO Gerrie Fourie told CNN Business.

Capitec started by removing the fiberglass security screens that typically separated bank tellers from customers, allowing for better service. It also cut loads of red tape to make it easier to apply for a loan.

While rivals would stop serving customers at 3 p.m. to focus on completing paperwork, Capitec deployed technology that improved efficiency and allowed its branches to stay open into the evening.

"What the other banks did wrong is they didn't see [Capitec] as a real intrusion on their space," said Kokkie Kooyman, a portfolio manager at South African asset manager Denker Capital.

Capitec might have started out making small loans to people who didn't have access to other money, but its plan was always to take on market leaders such as FirstRand and Standard Bank (SGBLY), said Kooyman.

When the company debuted its bank account product, it took a novel approach. Instead of creating premium accounts for some customers, it gave everyone the same account with the same gold card -a gamble in a country where bank cards are status symbols.

Capitec still offers just one account, even as wealthier people flock to the lender to save money on bank charges.

The bank said in September that it now has 12.6 million customers -about 30% of the population older than 15 -and that it's been adding 200,000 new clients per month. Some 5.6 million of its customers have checking accounts, as opposed to savings or credit products.

An obsession with customer service means that new branch workers spend 10 days training at headquarters, which culminates in a graduation ceremony and gala dinner. Fourie personally welcomes each employee to the bank. The relaxed culture is also evident in the design of Capitec's headquarters, which eschews the statement conference rooms or art collections common at rival banks.

A ruthless focus on keeping costs low has paid off. Capitec has delivered much faster profit growth than its competitors, with earnings increasing by double-digit percentages for each of the past 15 years.

A conservative approach to provisioning for bad debts helped Capitec weather a crisis among small banks around the time of its launch, as well as the 2014 collapse of its largest rival, African Bank. (That bank has since relaunched under new ownership.) Capitec remains obsessed with risk, analyzing its credit performances "in the smallest detail" and tweaking its credit policies monthly, said Fourie.


Investors win big

For Capitec's shareholders, the payoff has been huge.

When the bank went public in February 2002, its shares were worth little more than 1 rand (7 US cents). The stock is now trading at 1,440 rand ($98), an increase of more than 144,000%. The Johannesburg Stock Exchange All Share Index is up 424% over the same period.

Capitec is "the perfect business school case study on how to grow a bank," said Theobald, referring to its shift from an operation dependent on shareholder funds and the money it makes off loans to one that now derives 80% of funding from customer deposits and nearly half its income from transaction fees.

The profile of its loans has also changed to cater to its increasingly middle class customer base: the bank now grants unsecured loans of up to 250,000 rand ($16,900) with payback periods of up to seven years.


South Africa's debt problem

Few would dispute that Capitec has made financial services more accessible. But critics argue the bank bears some responsibility for an explosion in risky lending that has left some customers drowning in debt.

Capitec built its business on unsecured lending -or loans that do not use property or other assets as collateral and typically come with higher interest rates.

Forty percent of the 7.8 million South Africans with an unsecured loan are in default, according to asset manager Differential Capital. Those in default spend a third of their income on average to service the loans.

While Capitec "pushed the envelope" in terms of offering larger loans, all the big banks "contributed enthusiastically" to South Africa's unsecured lending boom, said Gabriel Davel, CEO of the Centre for Credit Market Development and the previous head of South Africa's National Credit Regulator.

Capitec is now South Africa's second biggest unsecured lender after Standard Bank (SGBLY).


Capitec's new competitors

As it moves away from unsecured lending towards traditional banking, Capitec hopes to steal an increasing share of the market from wary rivals in new areas such as small business lending.

But it is no longer the new kid on the block and will also have to fend off competition from several tech banking startups, which, thanks to Capitec, now know what is possible.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
The Personality Rights Challenge in India’s AI Era
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Study Finds No Safe Level of Alcohol for Dementia Risk
Trump Says Ukraine Can Fully Restore Borders with NATO Backing
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Germany Weighs Excluding France from Key European Fighter Jet Programme
Cyberattack Disrupts Check-in and Boarding Systems at Major European Airports
Björn Borg Breaks Silence: Memoir Reveals Addiction, Shame and Cancer Battle
When Extremism Hijacks Idealism: How the Baader-Meinhof Gang Emerged and Fell
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
Trump Orders $100,000 Fee on H-1B Visas and Launches ‘Gold Card’ Immigration Pathway
France’s Looming Budget Crisis and Political Fracture Raise Fears of Becoming Europe’s “Sick Man”
Three Russian MiG-31 Jets Breach Estonian Airspace in ‘Unprecedentedly Brazen’ NATO Incident
European manufacturers against ban on polluting cars: "The industry may collapse"
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
Christian Brueckner Released from German Prison after Serving Unrelated Sentence
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
The conservative right spreads westward: a huge achievement for 'Alternative for Germany' in local elections
Pope Leo Warns of Societal Crisis Over Mega-CEO Pay, Citing Tesla’s Proposed Trillion-Dollar Package
Poland Green-Lights NATO Deployment in Response to Major Russian Drone Incursion
U.S. and China Agree on Framework to Shift TikTok to American Ownership
Le Pen Tightens the Pressure on Macron as France Edges Toward Political Breakdown
Czech Republic signs €1.34 billion contract for Leopard 2A8 main battle tanks with delivery from 2028
Penske Media Sues Google Over “AI Overviews,” Claiming It Uses Journalism Without Consent and Destroys Traffic
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
The New Life of Novak Djokovic
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
The Country That Got Too Rich? Public Spending Dominates Norway Election
EU Proposes Phasing Out Russian Oil and Gas by End of 2027 to End Energy Dependence
×