Capitec has once again beaten market expectations, hardly putting a foot wrong. It seems to merit, if that’s possible, its stratospheric 32 earnings multiple compared with the second most highly rated bank, FirstRand, at about 10.
There is no doubt Capitec is a racy outlier in the stodgy, slow-growth banking sector. Headline earnings increased by 28% to R13.5bn for the year to February 28 2025.
Outgoing CEO Gerrie Fourie, after 11 years at the helm, will hand over the bank in good shape to CEO-designate Graham Lee in July. Lee is the head of personal banking, which remains Capitec’s core business.
There are 24-million clients in the Capitec ecosystem, of which 8.8-million are main-banked clients, those whose wages or salaries are deposited into their account.
But the fastest-growing part of the business is Capitec Connect, which provides airtime and data as well as cash vouchers and streaming bundles.
Fourie says the Connect customer base increased by almost three quarters to 1.6-million, with minutes used rising more than 260% to 307-million and data used rising by 190% to 13.4 petabytes.
Chris Logan, chief investment officer of activist investor Opportune Investments, says initiatives such as Capitec Connect have changed the group into a platform business as opposed to just a lender.
“And platform businesses can enjoy significantly higher ratings than banks,” he says.
About 11-million clients use Capitec’s value-added services. Capitec Insurance has 3.3-million clients. The bulk of this is the 2.7-million funeral policies which moved over from the Sanlam licence in November 2024.
Previously Capitec earned 70% of the profit from the venture and controlled the distribution, while 30% went to Sanlam for actuarial and other services. It was clear to everyone that once Sanlam had taught Capitec everything it needed to know about funeral policies, Capitec would go solo.
The bank has added another 576,000 funeral policies since the Sanlam divorce and it also has almost 100,000 life policies, a line of business it launched only in May 2024.
When it comes to the core banking business, PSG Asset Management portfolio manager Mikhail Motala says that Capitec has defied what happens in textbooks as its loan book is growing faster than expected, but the credit loss ratio has improved more than expected.
The credit loss ratio in personal banking fell from 11% in the six months to August 2023 to 8.1% in the year to 2025.
Yet net interest income before impairments increased by 23% to R20.2bn including its AvaFin international operations, and by 10% in South Africa to R18.2bn.
The local net interest income after bad debts increased by 39% to R10.8bn and by 54% in the group to R11.9bn.
But since Fourie was appointed CEO in 2014 the group has diversified its income. It now earns 53% of operating income from transaction and commission income, which includes value-added services, and a further 11% from insurance.
Personal banking now accounts for just 45% of headline earnings. Fourie tells the FM that this is misleading. Personal banking carries the costs of the 860 branch infrastructure and 8,800 cash devices (primarily ATMs) from which the rest of the group benefits.
Insurance accounts for 25% of headline earnings, and strategic initiatives, or value-added services, a further 23%.
I don’t mind when executives are rewarded for delivering value. And Gerrie has delivered value to both shareholders and customers
— Chris Logan
The minnows in the group are AvaFin, at 2%, and business banking (formerly Mercantile) at 5%.
AvaFin is a somewhat eccentric portfolio of lending businesses, which contributes just R196m to headline earnings. Quite what the point is of holding onto a business in Latvia that contributes just 2% of the 2% isn’t clear.
AvaFin’s operations in other countries are reasonably substantial, with Poland contributing 30%, the Czech Republic 26%, Mexico 24% and Spain 18%. There are 220,000 active clients, with €407m in loans approved since May 1 2024.
These businesses at least do not take up much management time and for the most part run autonomously.
There is more runway in these markets, most of which are larger economies than South Africa.
A more immediate priority, however, is the local business banking unit. There the gross loan book increased by 22% to R23.3bn, with a 15% increase in borrowers to 218,000.
A key business line is enterprise payment services, with a 124% increase in trading merchant customers using Capitec hand-held devices and total merchant turnover up 28% to R64bn. High commission rates have made merchant services a highly profitable line of business for banks.
Fourie says Capitec now has the lowest commission rates on transactions in South Africa, with rates as low as 0.6% on debit cards and 1.6% on credit cards.
Reducing business banking fees delivered a hit to the bottom line, as R66m was given back to clients through reduced transactional banking fees and a further R136m from reduced commission rates on sales through Capitec devices.
Normalised headline earnings for the unit were nonetheless up 29% to R938m.
The business banking unit has been relaunched to position itself in line with the rest of the Capitec group as “the business bank for everyone”.
Fourie says: “Through a merger of technology with personal service we aim to treat every business in the same way, from the smallest SME to large companies.”
He says Capitec already offers business banking, enterprise payment solutions, foreign exchange and rental finance with the same low and transparent fees as personal banking.
Capitec opens online accounts for business clients in minutes, Fourie says, and pre-approved overdrafts are available immediately, while other forms of finance are approved within days.
Controversy inevitably arose over Fourie’s pay for the financial year exceeding R100m.
But Logan says Fourie’s shareholding in Capitec is about 100 times more than his guaranteed pay.
“I don’t mind when executives are rewarded for delivering value. And Gerrie has delivered value to both shareholders and customers,” he says.
Logan points out that Capitec’s return on equity of 29% is the highest since 2011, when, as a much less complex business focused predominantly on microlending, it achieved 34%.
Logan says Capitec is now trading on a very demanding 7.7 times book value “and there is no room for any slip-ups at this rating”.
Motala says the firm held the share 10 years ago — and he insists this isn’t because of the common heritage of the businesses in the PSG Group.
“At the time there was fear in the market about the future of microlenders and Capitec was trading on a similar rating to Absa, but with hindsight we took profits far too early in Capitec. We took the view that while it was still a quality company it was no longer at a bargain price.”
He says there are similarities between Capitec and Discovery. “Discovery is in the life insurance sector, but a very diversified business has been built on the Discovery chassis, with health-care administration, short-term insurance investments and most recently a bank.”
Capitec has a large bank branch infrastructure, but it is now rolling out distribution of a wide range of nonbanking products. It is far removed from its roots as a monoline microlender.
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