Capitec is switching gears from the focus on consumer lending that made it SA’s fastest-growing financial institution by bidding for the domestic business-banking unit of Caixa Geral de Depositos (CGD).
The lender is among four acquirers short-listed for CGD’s Mercantile Bank. Nedbank Group, a group of investors consisting of Bayport Financial Services and the Public Investment Corporation (PIC), and a rival consortium comprising of Arise and Grindrod Bank are also bidding, according to Portugal’s official gazette. Fourteen bidders were not selected.
A deal would "fast track our desire to expand our focus to a broader bank strategy", Capitec chief finance officer Andre du Plessis said in an e-mail. "There are many opportunities in the market to serve small-to-medium enterprises and owner-managed businesses better."
Since starting in 2001, Capitec has expanded away from providing only unsecured loans into taking deposits and offering funeral insurance to its almost 10-million customers. A deal with Johannesburg-based Mercantile would give Capitec access to a 53-year-old company mainly plugged into small- and medium-sized enterprises (SMEs).
"Mercantile is reasonably profitable, has a banking licence and a good customer base," said Avior Capital Markets analyst Harry Botha. "This is an opportunity for the smaller players in SA to beef up their offerings."
A takeover would help Capitec narrow the gap with its much larger rivals like Nedbank, which has 10 times its assets and already well-established in the business banking segment. Mercantile Bank’s parent is disposing of assets to focus on its Portuguese home market as it seeks a capital injection from the EU.
A deal would be Capitec’s first after it invested in 2017 in Cream Finance Holding, founded in Latvia in 2012, to add online-lending services in eight countries, including Poland, Czech Republic, Georgia, Denmark and Mexico.
Du Plessis said in September 2015 that the company was debating how to enter the SME market.
"The benefit of an acquisition is that we would not have to reinvent and create everything from scratch," Du Plessis said. "The problem with an acquisition strategy is that one could buy others’ problems, but we will be able to do a detailed due diligence to ensure we understand what is for sale and what the major risks in the business are."
At 9.20am shares in Capitec were down 2.4% at R825, while the JSE’s banking index was down 2.8%.
"It is interesting that they are considering this as it shows sustained confidence in penetrating and growing in the South African market," said Neelash Hansjee, a banking analyst at Old Mutual Investment Group.
Mercantile’s business clients would also offer existing lenders an attractive deposit base "which is cash in the bank", while supporting transaction activity, he said.