Capitec is one of South Africa’s best-performing companies. Over the last 22 years, the bank gave investors a 220,000% return.
Michiel le Roux and Riaan Stassen founded Capitec in 1999 and listed the company on the JSE in February 2002.
Capitec targeted South Africa’s emerging middle class, a group the larger banks had previously ignored.
Le Roux and Stassen saw lower-income and disadvantaged South Africans as an untapped market of “the unbanked”.
“I told our shareholders we’ll either be a big success or a small failure. Not in my wildest dreams could I foresee the success we’ve had,” Le Roux said.
Capitec showed exceptional growth. The group’s latest financial results show that it now has 866 branches, over 15,000 employees, and 22.2 million active clients.
Capitec has ranked number one for outstanding disruption in financial services in the Africa Bank 4.0 Awards.
In 2016, Lafferty ranked it the best bank in the world, the only bank out of hundreds to receive a five-star rating.
Capitec became the most popular bank in South Africa by taking an innovative approach—it did not call itself a bank. It focused on its status as a financial service provider.
In addition to its core banking services, it offers a range of value-added products and services that enhance the overall banking experience for its clients.
Capitec’s commitment to providing innovative and affordable financial services has made it popular among South African consumers.
Value-added products and services like Showmax, EasyEquities, and Capitec Connect enhance its clients’ overall banking experience and increase loyalty.
This has helped Capitec to outperform its peers and achieve much higher valuations in the stock market.
Here is a look at Capitec’s performance and how it compares to Standard Bank, Nedbank, and Absa.
Capitec has been the best-performing banking share on the Johannesburg Stock Exchange (JSE) in 2024
It has delivered a stock price return of 53%, significantly higher than most of its competitors.
| Bank | Capitec | Nedbank | Standard Bank | ABSA |
| YTD Return | 53% | 41% | 20% | 9% |
Capitec also enjoys a much higher price-to-earnings (P/E) ratio than other banks. It seems out of sync with the rest of the market.
Old Mutual Wealth research analyst Tasneem Samodien explained that Capitec’s value lies in its ability to generate half of its revenue from non-interest activities.
Samodien believes this is the biggest reason for Capitec’s premium which, at a price-to-earnings ratio of 34 times, is much higher than the other banks.
| Bank | Capitec | Standard Bank | Nedbank | ABSA |
| P/E Ratio | 33.62 | 9.40 | 7.81 | 7.68 |
The large contribution of non-interest revenue makes Capitec less sensitive to interest rate risks, thereby creating a premium.
At 54%, Capitec’s non-interest revenue is significantly higher than Standard Bank at 45%, Nedbank at 40%, and Absa at 35%.
Capitec’s revenue breakdown over the past ten financial years clearly illustrates the growth in non-interest revenue.
In the 2015 financila year, Capitec’s revenue mostly depended on its interest-related income.
As time passed, Capitec shifted its revenue structure to become less dependent on interest income and more on banking fees.
Transaction and banking fees have a greater degree of predictability, which is a bonus for investors who do not like uncertainty.
Interest rate volatility is, however, likely not the main reason why Capitec shifted to this business model.
Non-interest revenue fits better with Capitec’s consumer base. Lower LSM clients have higher degrees of credit risk and tend to take out lower-value loans.
It would also be incredibly difficult for Capitec to compete with other banks by trying to build a loan book that is large enough from the low LSM market.
These aspects make it less attractive for a bank to base its revenue model on the loan repayments of higher-risk clients.
Capitec, having catered to the lower LSM segment of the market, grew its client base to become the largest bank in South Africa by customer numbers, having 22 million customers.
The appeal of lower LSM markets is not to provide the segment with financing but to provide the segment with banking services.
With high customer numbers, Capitec made a smart move to capitalise on the vast volumes of transactions it carries out for those customers.
Capitec’s pricing is primarily transaction-based, meaning customers pay a small fee per transaction.
This fits well with its customer base, which has lower LSM clients but large volumes.
Major risk for low LSM loans
When providing loans to the lower LSM market in South Africa, Capitec faces significant credit risk.
Credit risk is strongly related to a client’s ability to make debt repayments and is, therefore, dependent on interest rate changes.
Capitec has much higher credit risk in its books than other banks. This can be seen when considering Capitec’s stage 3 loans, which are credit-impaired loans, relative to its loan book.
These are loans for which the borrower is under significant financial stress. They typically are behind on repayments, declared bankrupt, or under loan restructuring.
Capitec also has a significantly higher credit loss ratio than its competitors, which indicates the percentage of loans written off as bad debt relative to the bank’s total loan book.
Higher credit risk translates to higher interest rates on loans. Capitec must be compensated for the additional risk it takes to finance higher-risk clients.
Therefore, Capitec generates significantly higher returns on its loans, which also rewards investors for bearing a greater credit risk.
In its latest annual report, Capitec showed it generated net interest revenue after credit impairments of 9.2% on its total loan book.
This is almost two times higher than its closest rival, Standard Bank, which delivered only a 5.1% return.
Investors have been rewarded for taking on the additional risk of investing in Capitec. Over the past ten years, the bank experienced the highest growth rates in revenue and profitability.
| 10 Year Average Annual Growth | Revenue | Net Profit |
| Capitec | 13.70% | 20.90% |
| Nedbank | 5.45% | 18.75% |
| Standard Bank | 3.26% | 16.61% |
| Absa | 5.88% | 16.08% |