A Capitec Bank branch in Braamfontein, Johannesburg.Picture: SUNDAY TIMES
A Capitec Bank branch in Braamfontein, Johannesburg.Picture: SUNDAY TIMES

Capitec, whose shares plunged earlier in 2018 after a controversial research team accused it of unethical practices, delivered results that suggest it has ridden that particular storm.

The bank, which mainly serves lower-income users, added an impressive 109,000 active users per month in the half-year period to August. Those are customers who pay their salaries into their accounts with the bank.

It recorded a 25% increase in transactions and boosted its lending book 3% to R41.8bn.

“We have continued to focus on running the business in the best possible manner, so nothing has changed,” CEO Gerrie Fourie said on Wednesday, after releasing interim results that showed a 20% jump in earnings and dividends.

JSE investors rewarded the company by pushing its share price 2% higher, making it the top performer on the FTSE/JSE banking index.

Shares in Capitec plunged in January after Viceroy, which gained prominence with a report on disgraced furniture retailer Steinhoff the month before, published a note titled “Capitec: A wolf in sheep’s clothing”.

It claimed that Capitec’s loan book was “massively overstated” and it would need to increase writedowns for loans that could not be repaid.

It also accused the bank of charging “predatory” loan origination fees, meaning it would be liable to pay back tens of billions of rands.

Viceroy went as far as to suggest that the SA Reserve Bank would need to put Capitec into curatorship, a statement that earned the ire of SA regulators, who said Viceroy’s claim was reckless and could lead to a run on the bank.

In the immediate aftermath of the report, the shares plunged as much as 21% from about R1,070 to R800, its lowest price of 2018 on the day following the report. The shares have since gained 22% to close at R981.99 a share on Wednesday, valuing the company at R113bn.

“They have shrugged off the accusations by Viceroy,” said Brad Preston, head of listed investments at Mergence Investment Managers.

“We take comfort from the fact they have implemented new statutory accounting standards that are potentially more punitive on bad debts and yet Capitec’s credit metrics continue to improve,” he said.

Preston also said the quality of the bank’s earnings have been improving, as it reduced its reliance on lending activities to generate profit.

Capitec’s net transaction fee income rose 32% to R3.1bn, meaning that 90% of the bank’s operating costs are now covered by transactional banking income. “They continue to win customers and enjoy higher customer engagement,” Preston said.

The bank was the subject of controversy in August when claims, which were later denied, emerged that it may have commissioned and paid for a Business Leadership SA report that discredited Viceroy.

The report, by financial research company Intellidex, demolished Viceroy’s work and the integrity of its members, and accused it of plagiarism.

Fourie reaffirmed the group’s plan to enter the lucrative business banking market. having earlier in 2018 submitted a bid to purchase the local arm of Mercantile Bank. A decision on the winning bidder is expected by the end of 2018.

“Either way, build or buy, we will look to offer a business banking product to the small and mid-sized market,” Fourie said.

Capitec has a 10% share of merchants using point-of-sale devices, which are used to execute payments by vendors.

According to one analyst, this data could be valuable in analysing the cash flows of businesses using Capitec’s analytic capabilities and could lead them to extending loans where other banks are hesitant to compete.