Posted 28 March 2013 - 09:27 AM
Back to Finbond then, read the article on Moneyweb this morning:
Finbond the next Capitec?
Issuing of mutual banking license the catalyst behind a strong performance
JOHANNESBURG The rapid increase in the price of Finbond shares suggests that some are punting it as the next Capitec. The percentage change in the share price over the last year currently stands at 1350.0% and today the share traded at a new high of R1.25.
The share price started to pick up at the end of last year in November and is currently trading on a 3 year high.
Magnus Heystek, of Brenthurst Wealth Management, makes the comparison between Capitec and Finbond because they are operating on similar business models and because Capitec found itself in a similar position in the early 2000s.
Finbond CEO Dr, Willie van Aardt says that the comparison is not too farfetched as Finbond like Capitec developed from the short term micro finance market into a bank, but highlights that Finbond is a "Mutual Bank" which means that each depositor is also a shareholder and that the bank is specifically managed for the benefit of the depositors in line with the conservative Mutual Bank model.
Heystek states that the catalyst behind Finbond's JSE performance is linked to the issuing of the Mutual Bank licence in 2012. The banking licence was granted by the South African Reserve Bank in May 2012 and gave Finbond the opportunity to raise funds from the public through its fixed term deposit and mutual bank share offerings.
Van Aardt concurs with Heystek's observation with regards to the advantage of the licence and adds that prior to obtaining it's Mutual Banking License Finbond were mainly funded by DFI's such as the Dutch Development Finance Corporation (FMO) at a hefty 18-24% interest per annum. Van Aardt says that now it is able to access funding at less than half of the previous cost.
Finbond Mutual bank currently offers 10% for a 60 month fixed term deposit. This is higher than what both Capitec offers, at 8.5%, and 9% from African Bank.
Finbond however, does differ from Capitec and other lenders operating in the same space in that Finbond's average loan period is significantly shorter than its larger competitors.
Finbond claims that by doing this, it is being more conservative and reducing its risk. Finbonds historic data and vintage curves indicates that the shorter the loan tenure the lower the write off and bad debt. Shorter term loans therefor offer lower risk as consumers are more likely to pay them back as opposed to longer term loans.
Moneyweb has previously reported that the average Finbond loan is around R2 500 with an average term of 2,5 months. In contrast, Capitec and African Bank offer unsecured loans of up to R230 000 over 84 months.
Van Aardt states that the banking licence does impose stricter rules, however he says that this also improved the business model. The strict regulation can also put investors at ease as the close scrutiny by the South African Reserve Bank every month ensures that the mutual bank complies with regulation and prudential requirements relating to minimum regulatory capital, capital adequacy and liquidity.
Finbond has been able to attract more than R210m of fixed term deposits since the end of September 2012 with an average deposit size of R 310 000 and average term of 30 months at an average interest rate of 9.49%. Heystek says that this is a phenomenal performance by Finbond and that it has attracted a lot of interest from investors as well as analysts.
Finbond further differs from Capitec in that Finbond is not exposed to the uncertainty that accompanies the use of call deposits as a funding mechanism since Finbond only accepts 6 60 month fixed term deposits. Given the long term nature of Finbond's liabilities [fixed term deposits with average term of 30 months] and short term nature of its assets [short term micro loans with an average term of less than 3 months] Finbond possess a low risk liquidity structure.
Finbond currently operates 172 branches nationwide and offers investment and savings products as well as micro credit products.
Opinions guys?
Never underestimate the potential for human stupidity when wealth and power are at stake!