Capitec Bank Holdings increased its stake in fintech Avafin Holdings in a €26.3 million (R534.6m) deal, effectively taking full control and positioning the local bank to expand into online, unsecured consumer lending in other developing countries, analysts said yesterday.
Capitec announced yesterday the Prudential Authority of the South African Reserve Bank had approved a transaction for Capitec to increase its shareholding in Avafin to 97.69% from 40.66%. The initial 40.66% had been acquired by Capitec in 2017.
The deal provided Capitec with the opportunity to gain experience in the international online consumer credit market, management of operations and risk in foreign markets, and international diversification of Capitec’s income sources, Capitec directors said in a regulatory JSE notice.
Avafin’s management would continue to hold the rest of the shares in the business, in line with Capitec’s philosophy of management ownership.
Avafin, which provides consumer loan products in Poland, Czechia, Latvia, Spain and Mexico, would enable Capitec to diversify its business model geographically – previously its model was dependent on a single market.
Capitec said Avafin was a strong cultural fit, and worked with a “sophisticated, scalable, technology-driven online consumer credit platform and sound credit risk management principles”.
Avafin also provided loans for unbanked consumers in the five markets, and some 96% of its customers received their loans within two hours. The average loan size was €355 and the company has some 1.3 million unique customers. Its last reported €8.3m in net profit had expanded 144% from the previous annual results.
Nitrogen Fund Managers chief investment officer Rowan Williams said the transaction was likely an “exploratory acquisition” that was prompted when the remaining shareholding in Avafin became available to buy.
He said the deal indicated Capitec was committed to pursuing opportunities that may arise from Avafin, and it also indicated that Capitec was happy with the existing management at Avafin.
He said the deal also pointed to Capitec’s ambitions to grow into developing markets, globally.
Capitec is South Africa’s biggest retail bank by customer numbers, with more than 21 million customers as at August 2023, and it already does unsecured consumer lending in this country.
Williams said hopefully more details would be released on the plans for Avafin at the release of Capitec’s annual results on April 24, 2024.
Gryphon Asset Management portfolio manager Casparus Treurnicht said the deal was “ambitious”, but it might also indicate that Capitec was experiencing slower growth in the local market, hence the aspirations to take its business model offshore.
Treurnicht said Avafin was still relatively small in the banking world – its market capitalisation was around R1 billion, while Capitec’s was around R250bn.
He said Capitec had “stuck out feelers” on a number of businesses for possible offshore expansion five years ago, and this transaction indicated that Avafin was now likely correctly positioned for Capitec to take it forward.
However, he said the South African unsecured consumer lending market was unique in many respects, and time would tell if Capitec’s unsecured lending model could be replicated in other developing countries.
Capitec’s directors said on Friday they expected annual headline earnings per share to increase by between 14% and 16% following strong double-digit growth in net transaction and commission income, fuelled by growth in clients transacting digitally, and client adoption of value-added services and new payment channels.
Capitec said the impact of tightened credit granting criteria had began to manifest during the second half. and the credit impairment charge decreased compared to the preceding half of the year.
Meanwhile, TymeBank, a South African digital bank, two years ago added to its transaction product range with unsecured lending services, and it started a bank in the Philippines in 2021 and this year said it would open a third digital bank in Vietnam.
Capitec’s share price slipped marginally by 0.24% to R2129.81 yesterday afternoon, a price that was 28.9% higher than a year ago.
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