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AfricaFebruary 1 2013

Banks to watch in 2013, Capitec

The Banker has identified 13 banks to keep an eye on in the coming year based on a variety of factors. South Africa-based Capitec has been selected for the exponential growth it has achieved in its lending portfolio over the past few years.
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South Africa has experienced a boom in unsecured personal lending in the past five years. The government has largely encouraged the market’s growth, seeing it as a way of bringing more South Africans into the banking system and enabling many who are too poor to take on asset-backed loans to access credit for the first time.

The chief actors in the rise of unsecured lending have not been the country’s ‘Big Four’ lenders, which dominate the overall market. Rather, the pioneers have been African Bank and Capitec.

Capitec’s expansion has been rapid. Barely a decade old, it had R32bn ($3.6bn) of assets at the end of August 2012. In the past five years, its lending portfolio has increased by more than 600%.

The Stellenbosch-based bank, which targets the likes of junior civil servants, offers unsecured loans of up to R230,000 for periods of one month to seven years. Interest rates can be as high as 60%, but are typically between 16% and 31%.

Such lending has proved highly profitable. Capitec’s return on equity for the six months to the end of August last year was 28%. Its earnings during that period rose 43% year on year to R700m. Moreover, its rise has so far been managed carefully. Loans in arrears made up 4.4% of its book, which analysts say is respectable given the profile of its average borrower.

Concerns about unsecured lending have mounted recently in South Africa, especially given the economy’s slowdown and fears that unemployment will rise. The finance minister met banks last August specifically to discuss the issue. Riaan Stassen, Capitec’s chief executive, said in January that almost one-third of the people walking through the bank’s doors were “so over-committed, or… have such a bad credit record, that we are unable to extend them any form of credit”.

Yet most bankers say the unsecured market will merely decelerate over the coming few years and that lenders’ risk management is good enough to avoid any systemic problems.

In the near future, Capitec might look to move into other parts of Africa and exploit the growing demand for credit among the continent’s middle class. Mr Stassen believes the bank’s model can work outside South Africa, although he has said it will prioritise further expansion at home before venturing abroad.

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