Capitec Bids for Business Bank to Veer From Consumer Lending

(Bloomberg) -- Capitec Bank Holdings Ltd. is switching gears from the focus on consumer lending that made it South Africa’s fastest-growing financial institution by bidding for the domestic business-banking unit of Caixa Geral de Depositos SA.

The lender is among four acquirers short-listed for CGD’s Mercantile Bank. Nedbank Group Ltd., a group of investors consisting of Bayport Financial Services Pty Ltd. and Public Investment Corp., as well as a rival consortium comprising of Arise (Pty) Ltd. and Grindrod Bank Ltd., are also bidding, according to Portugal’s official gazette. Fourteen bidders weren’t 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 email. “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 only providing 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.

‘Beef Up’

“Mercantile is reasonably profitable, has a banking license and a good customer base,” said Harry Botha, an analyst at Avior Capital Markets. “This is an opportunity for the smaller players in South Africa 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 European Union.

The Other Bidders 

  • Arise was started in January 2017 by pooling together the African assets of Norfund, Rabobank Groep and Dutch development bank FMO
  • Grindrod Bank is South Africa’s eighth-biggest bank, focusing on corporate finance and lending, investments and property
  • Bayport Financial is an unsecured lender started in 2004, while its partner, the PIC, manages more than 1.9 trillion rand ($140 billion) in South African government pensions

A deal would be Capitec’s first after it last year invested in Cream Finance Holding Ltd., 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.”

Shares in Capitec, based in Stellenbosch near Cape Town, dropped 2 percent by 3:53 p.m. in Johannesburg on Monday, compared with a 2.2 percent decline in the six-member banks index.

"It is interesting that 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.

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