Capitec Limited (CPI) Earnings Call Transcript & Summary

Please welcome to the stage, our CEO, Graham Lee.

Thank you. Good morning, everybody. Thank you for being here. Thank you to all of the Capitec people, all 7,781 of you for the excellent job that you've done. These results are yours. From client care to the branches, from tech and data to our risk teams and finance teams and HR and everybody, the job you've done has been exceptional. Thank you so much. It's been a half in which there has been a little bit of global uncertainty, and our approach has been to simply continue, to continue to calmly focus on our clients, to make a meaningful difference in now more than 26 million of those clients and to diversify our income and to focus on executing our business plan. And executing our business plan leads to clients being served well. We now have more than 26.6 million clients. That's up 7%. All of this was delivered as a team. All of these client numbers, all of the client experience that we're so proud of was delivered as a team. Because we delivered the results as a team, we're also going to be delivering this presentation as a team. So a little bit later on, Basani and Deepesh and Karl will come up and speak on Personal Bank, Insurance and Business Bank, respectively. And if you are wondering why we're all dressed so similarly, it's because we are modeling for you. We are modeling for you our new branch uniform, which will be in our branches from December. When you look at these client numbers, what pleases all of us most is the depth. 16.5 million people are active on our app now, active on our app every single month, highly engaged. And our fully banked clients, they are now at 10.4 million. That's the growth which really drives our business. And if you look at the segments, which have the highest potential, high income owners, people who earn above ZAR 50,000, that's up 22% and multiple income owners. People working in the gig economy, people with hustles, entrepreneurs, that's up 138%, those client numbers. And then, of course, businesses. Businesses and entrepreneurs together now comprise 686,000 clients. And this is the base. These clients are our asset from which we will build all of our future businesses. At Capitec, what we build is for everyone. We don't discriminate. What we don't do is create something exclusive just for a few. We differentiate without discrimination. And our offer resonates with many different types of clients, and you can see here just two of them. So banking the youth is where we build the next 25 years. We now serve 4.9 million clients who are aged between 18 and 25. 78% of these are app clients. Clients taking credit card for the first time, use credit card, accessible credit card is up 57%. And for young people, that's an opportunity to build a score to be able to develop their credit responsibly, supported by rewards that are meaningful to them. And then our credit card remains the best card to travel with. It travels exceptionally well. No ForEx fees, no international commission, no ForEx margins, 1% cash back on everything as well as the free lounge access, the free travel insurance that you'd expect. It now means that our card has been used in the last 6 months in 178 different countries. Clients respond to our fundamentals and the fact that we put them first. So you've seen the slide before, as I mentioned last time, you'll sit again next time and the time after, that's the point. Our founding philosophy hasn't changed. Our fundamentals, how we design and build for our clients of simplicity, affordability, accessibility and personalized experience. They remain our watchwords. And how we show up, how we as individuals, employees of Capitec show up putting our client first with energy and with ownership, that's what sets us apart. The world around us changes, our principles don't. Our vision is to be the most trusted. In a world of AI-enabled crime, being the safest bank isn't hygiene, it's a competitive advantage. And so we put so much into continuing to develop everything we can to protect our clients. We use the world's best technologies, including but not limited to AI to identify and categorize fraud as it emerges at the level of individual conversations themselves. We see new patents earlier. We create interventions earlier so that we can be there in the moment that our client needs us, not too late. The result of that is that in the last 6 months, we have protected clients from themselves and prevented more than 229 million in scams by helping the clients see it before it happened. And our clients notice. The banking division of the financial has received more than 4,600 complaints from the banking industry in totality. Most of those relate to banking fraud, digital fraud mostly. Capitec is 18% of those complaints, far too high, but it is much lower than our market share. We have by far the lowest complaint-to-client ratio of any one of the significant banks. And we're never going to stop. We release improvements every single day, and these are just a couple. So Secure Safe, hide your accounts on your app when you want to, when you never want it to be visible to anybody else. Malware alerts now scan your entire phone and prevent dangerous apps from interacting with all of your other apps. Scan Check now screens links and messages for you. That's the first in South Africa to help you identify when this is not legitimate. And then trusted approval is coming soon. That is the ability for you to ask somebody else for any high-risk or high-value payments to be part of the approval process so that you can be stronger than just yourself. Turning to the economy. It's given us some mixed signals. Formal market growth stumbled in the second quarter. And you can see that trade, manufacturing and mining all contracted. But what we see from our data is that this is not broad-based across all of our clients. It's very much concentrated in specific sectors. And there are data points that we find encouraging. So firstly, non-salary inflows. Inflows coming to people on a regular basis that are not from a formal employer. They continue to outgrow salaries. So 5.8% for non-salary income compared to 3.5% growth for the salaries. That is the entrepreneurship and ingenuity of the emerging market at work. We also take great comfort in all of the great work being done as part of the collaboration between government and business. And we continue to make a difference together in improving our economy and growing business confidence. And then if you look at the client level data itself, what we see is a picture of transactions across our client base remains healthy, and that gives us some cautious optimism for growth in the future. Clients themselves, though, do face headwinds if you look beyond what we're simply seeing in the data today and look forward to 12 months and 18 months from now. So two of the great risks are a reescalation of both global conflict and then from that, the global rates and inflation that flow. There's also a risk that an exaggerated El Niño event will lead to higher food price inflation, and both of those will weigh heavily on our clients and economy. The fuel and transport, particularly tax inflation that you can see up on the screen at 20%, they are bad news for our clients, both now because they're having to pay those costs, but also because they are lead indicators of further inflation to follow because so much of our economy is based on logistics that travels on the road. The households are responding in the way that they always do by prioritizing, by prioritizing what's necessary and making the shifts that they need to, to manage their lives. And our data lets us see the different ways in which our clients are adapting. Youth under 25 and lower income owners are reducing their discretionary spend and concentrating it much more both in transport and groceries. Higher income owners as a contrast, are spending much more on clothing. Two really interesting data points, although small, is that more affluent clients have a very significant increase in luxury brand clothing. That's up 16%. And the paid for use of AI, people using paid for AI subscriptions, that's gone up 122% albeit from a very low base. Thinking of our business plan, we strategize and execute and think and plan all in multiple time frames in order to be able to diversify our income and serve our clients. We prioritize always protecting and growing what we have, our base. I've showed this to everybody before at the beginning of the year, and the message is simply that we're continuing to execute our business plans. Our strategy remains unchanged. And executing our business plans together yields results. Our key indicators show quality growth. Our headline earnings are up 19% now to ZAR 9.5 billion. That growth comes from all sides of the business. So if you look up on the screen, we grew our net interest income by 7% to ZAR 12.7 billion. And on the other side, our noninterest income is up even more, 21% to ZAR 16.1 billion. That noninterest income now comprises 70% of all of our income from operations after taking credit impairments into account. Our credit impairments are up 21% to ZAR 5.7 billion, and our credit loss ratio has raised as a group from 7.9% to 8.4%. Now these credit numbers are very important numbers that I'd like to explain clearly. Out of context, I can imagine that they would be cause for concern. But I'd like to give you assurance that these are sensible numbers that indicate that we are executing our business plan. And I'll tell you why? There are four drivers of these numbers. So the first is that we deliberately raised our forward-looking macroeconomic provisions early, not because of the experience that we're having now, but looking ahead to 12 and 18 months where we think the macro is going to be tougher. That's proactive. The second is we plan to grow our loan sales and our credit book we have. We have significantly grown our loan sales on our credit book. And the implications of that in the short term are a large upfront provision and the book against which we're holding our provisions is much bigger. That's successfully executing our strategy. The third is there's been a change in mix, a change in mix in our business bank, particularly towards more scored unsecured lending for which we price. That's executing our plan. And then lastly, the driver is serving the emerging markets, bringing a business repay as you earn that is appropriate to the small traders, the mechanics, the hairdressers and salons, all the emerging markets who need to pay differently. That's brand-new business for us, and we are providing prudently whilst we grow and learn. Those are the drivers of those two numbers. Then funeral life cover is up very significantly 32%. Deepesh will talk about that a little bit more. And operating expenses are up only 5% to ZAR 10.5 billion, and we held our return on equity steady. If you look at where our income comes from, it's now even more evenly spread than previously. So we're not dependent on one single income stream. All are now significant in proportion and are independent enough to provide quality diversification. Personal Banking contributes 37% as well as the platform of branches and service and people upon which our brand is based. Fintech, which has everything to do with BAS and Capitec Connect and the advances that go along with that is now at 29%. Insurance, 27%; Business banking, 6%; and all of those will be unpacked in detail just now. AvaFin contributed ZAR 90 million to the half's earnings. That's down from ZAR 120 million. And the reason for that, it's expected is because the plan at AvaFin is to increase term, reduce rates and attract better quality clients, which in the short term means that we're earning less interest income. The proof point of that is that AvaFin's credit loss ratio has gone down by more than 1/3. Looking at our expenses in total as a group. Overall, the expense growth is very muted. What you can see if you look at the different components, though is salaries go up by 10%. We have more people serving all of our clients. If you take all of our IT investments, that's the OpEx that we put directly into our systems, into our hardware into our software as well as all of the brilliant people who do so much of the work. That's up by 12%. Our incentives are down slightly, and that's driven largely by a small decrease in the share price since the beginning of the financial year. And then all other expenses are flat. Just a thought is that in the previous years, we invested very heavily, particularly in technology and data to create new businesses, insurance and business banking. We invested very heavily in providing platforms that would scale in the future, and now those businesses are turning. Now the revenue of those businesses are growing far more than the expense of the platforms. I will now hand over to Basani, who's going to take you through Personal Bank.

Good morning. Thank you, Graham. So turning to Personal Bank, we are very proud to be serving 26 million clients. And how we serve those clients is by making available to them an entire ecosystem of products, rewards and channels to help them to bank better so that they can live better. And I'm going to go through all that list of rewards and channels, et cetera, in my subsequent slides with an attempt to demonstrate to you how we have created value for our clients over the last 6 months. The first one I'm going to talk to is our distribution. So we believe that having a multichannel distribution strategy is absolutely a winner in the environment we're working in. So as you know, the client preferences or client behavior has been evolving quite rapidly over the last few years, driven predominantly by the switch to digital across our entire client base. So whether it is now a client who pops into a branch quickly to print a card that has expired or a client who chooses to sit with MSC in the one-to-one area because they have a complex need that they need to solve or a client who has a few minutes between meetings to quickly make a payment on an app, we plan to be there in every channel required for our clients to make sure we are providing the most convenient service when and where our clients need it. As a result, we continue to invest in our existing channels and to evolve our channels to make sure that we are there when our clients need us to be. And as you know, lastly, the last bullet point on this slide, over the last 6 months, we have been in a relationship with the Department of Home Affairs to start providing smart IDs to our clients. The uptake of smart IDs in our branches has really been overwhelming and the demand for it continues to grow. And we are pleased to report that in the last 6 months, we were able to successfully conclude 594,000 smart ID applications. Then moving on to our personal banking income. So we have been on the journey over the last few years to diversify our income stream in personal banking, meaning we want to make sure that we are diversifying away from too high reliance on our lending income. If you look at last year, our transactional banking income was ZAR 1 billion lower than our lending income. And in this year, you can see that we are now pretty much equal at ZAR 11.3 billion, which is an 18% increase in our transactional income and at ZAR 11.4 billion for lending income, which is up by 9%. The increase in our transactional fee income is particularly notable because it was driven by an increase in VAS and Connect, which has gone up by a massive 32% in the last 6 months. Then looking specifically at Transact. So Transact is really a story about a digital transition for our clients. But before we talk about digital, I want to just talk about cash for a little bit. So as you can see, cash has gone up by 8% in the 6 months to August, and that's on 433 million transactions that have been executed on our cash devices. Our clients continue to rely on cash. And interestingly, on Friday last week, the 25th of September, we had one more record in withdrawals with 1.5 million transactions or withdrawals specifically being executed on our ATMs in one single day. The reliance on cash continues. And as a result, we will continue to roll out more and more cash devices to make sure that we're meeting that evolving client need. But over and above that, if you switch to the right of the slide, you can see that digital and card payments have increased by 21% to 3.7 billion transactions. And maybe the most exciting thing about this is the increase of 27%, which is attributable only to digital transactions. So I will look now specifically at what that actually means. And I think the most telling thing is the adoption of VAS and electronic payments, which are the two -- on bottom right, transactions or numbers there on your screen. So VAS has gone up by 26% and electronic payments by 18%. But what really stands me about these numbers is that we processed ZAR 1.6 trillion of value in the last 6 months for electronic payments, meaning our clients really are getting very comfortable with operating on our app in particular. What's also notable here is a 66% increase in pay wallet, which is the uptake of Google Pay, Apple Pay and all the other pays that our clients are now using. And now I'm going to shift to credit. So we were really excited to have grown credit by 20% -- our sales by 20% in the last 6 months to ZAR 38 billion. And I think what's really important to note is that the sale is underpinned by an increase of 21% in applications, and I will talk about those applications in the following slide. But what I want to focus on in this slide is that the growth in our sales has been -- has not been at the expense of very prudent credit risk management. You will see there that we have made 1,500 different micro changes to our models over the last 6 months to make sure that we're taking account of the changing macro environment that Graham explained earlier. And as you know, we have seen petrol prices go up. We have seen a lot of fluctuations in client behavior and of course, in different industries as well. And all of these trigger changes to our granting models to ensure that we are managing our credit risk prudently. As a result, we continue to be very selective in who we grant to and our approval rates have stayed at that 50% level with take-up rates of 22%. Looking now at that 20% increase in applications. And this is a story that I'm going to tell in 3 phases. The first talks about the high-income segment that Graham spoke to earlier, which is our multiple income streams. So Capitec for sure, has one of the best credit businesses -- unsecured businesses in the country. And those skills have been honed on lending to salaried clients. Over the last few years, we have seen that clients who are not salaried, but actually have multiple incomes have been growing. And as Graham explained, these are clients who either in the emerging markets or there are clients who are now deriving income from operating on YouTube, Spotify, et cetera. So over the last couple of years, we have been honing our skills on lending into that base, and we are proud to have been able to lend ZAR 1.5 billion into that client, which typically is underserved over the course of the last 6 months. The next high-level area that we have seen from a credit point of view is growth of sales on our app. So over the last few years, we've also been working hard on making sure that we are personalizing offers on the app and making sure that the journey for clients to take that credit on the app has become much more seamless. And as a result, we have seen a 100% increase in our sales in that platform over the last 6 months. And then last but not least is our lending to clients in our high-earning segments. And this is a story mostly of our credit card. The sales in this area have predominantly been driven by growth in the take-up of that credit card, and that's predominantly because our credit card has been positioned as the best credit card to travel with, and that is particularly attractive to clients in that market segment. Then turning now to risk. So Graham has spoken at length about why it is that our credit loss ratio has gone up. And you can see there that our credit loss ratio has increased predominantly because of the fly. So the increase in our forward-looking overlay of 0.7% and that's a question of looking forward and thinking to ourselves, we are seeing a lot more risk potentially going to create more stress, financial stress on our clients over the course of the next 6 months that lie ahead. But I think what is really important is to note that our NPL ratio has stayed pretty stable over the last 2 years, which is really a function of our very prudent credit risk management. Then last but not least, from a credit point of view, is a conversation about how proud we are to have now grown our credit book to ZAR 100 billion. What is really gratifying about the growth in this book is also just the mix of products that now sits in that book. If you look at what that mix looked like in August '21, we really were focused on three main products with a high concentration in our fixed term loans -- in our fixed term loans rather. But if you look now 5 years later at our book, we now have about almost 40% of our book sitting in facilities, which is credit cards and excess facilities, which, of course, derisks the entire credit book for us as well. And I want to just touch a little bit on home loans. So we know that home loans are a key need, particularly for clients who are in the high-income segment and of course, also lower-risk clients. So you know we have our partnership with SA Home Loans, which in partnership with us disburses loans to our clients. And last year, we mentioned that in December, we entered into a partnership with SA Home Loans in terms of which we are investing in the disbursement of loans to our home loan clients. And in that partnership, we have now invested ZAR 1.5 billion to start to lend to our client base. The significance of that is simply that we are now able to make -- we are now able to offer loans into our home loan base that are much more attractive from an interest rate perspective than what we were able to do prior to entering into this investment strategy with SA Home Loans. And due to those much more attractive offers that we can put in front of our home loan clients, we have seen this 27% increase in registrations, a number which we are very proud of. And then turning now to Capitec Connect, which is definitely one of the new kids on the block for -- in our product suite. I think what's important to note here is, the important thing around Capitec Connect was to make sure that we build this product to complement our entire banking service. And as a result, it has been built on the same fundamentals of accessibility, affordability, simplicity and now and personalized experience. And this is exactly what has risen -- has allowed the product to grow as fast as it has, and I will show you what I mean by that in this slide. So as you can see, we now have 1.8 million active clients on Capitec Connect. That's a 64% increase over the last 6 months. In addition, over the last 6 months, we launched free Capitec to Capitec calls, which has seen a really strong uptake in clients -- from our client base. specifically, this means that we now see clients coming into our branches and taking up multiple SIM cards because they want to be able to give SIM cards to their loved ones so they can take advantage of the benefits of free Capitec to Capitec calls. In addition, we have been given a lot of rewards to our clients in data for good client behavior, and this has definitely increased the usage of our banking services because of these rewards. But notwithstanding our rewards and free Capitec to Capitec calls, we have seen an increase in data usage of 34 million gigabytes, which is a 130% increase over the course of the last 6 months. And of course, you can see the increase there in our minute usage as well. But potentially, what is most exciting is that we are -- we've seen the 72% increase over the last 6 months of our net income from Connect to ZAR 284 million. And then also exciting over the course 6 months is the launch of device finance or devices that we're now selling to our clients. This offer to our clients is really exciting compared to anything else that is available in the market. We are able to make available premium phones, premium Apple and Samsung devices, in particular, to our clients at a price point that is really, really attractive in the market. But not only that, our clients are able to buy either in cash or to get credit from us to be able to acquire these devices. And last but not least, we also added sweet metal clients buying devices from us of 5 megabytes of data per month for the first year, which is extremely attractive given that we know that data has now become a human right, a thing that none of us can breathe without. And that is valued at 1,200 for the year. So if you look at that proposition, it is really an attractive proposition, and we expect to see a lot of traction and take up -- a lot of traction as clients take up devices through our app and our branches over the course of the next few years. Now moving on to savings. So we know that when clients stay with us, it is absolutely an indication of them demonstrating the trust they are putting in us as a brand, a trust that we work very hard to earn and to retain. So we were particularly encouraged to see that our deposits have grown by up to ZAR 170 billion in the last 6 months. And what is even more encouraging is that we have seen a 13% growth -- sorry, let me try that again. We have seen a growth of ZAR 13 billion in our savings plans. And you can see there that the savings in our main accounts have remained flat over the course of the last 3 years. This has been by design. It's been by design because we have, over the last couple of years, increased the portfolio of savings products that we now offer to our clients. And I will demonstrate this by showing you the growth that we have seen in our notice deposits. So we launched notice deposits about 2 years ago. And that explains the very high growth rates that you are seeing year-on-year of 75% and 59% on those two deposit accounts. And we launched these deposit accounts specifically to give our clients a lot more flexibility in terms of how they can save with us. And the take-up that we have seen absolutely encourages us because we can see that clients definitely like the product. They clearly were looking for a different way to be able to invest. And as a result, the strong culture of savings that we are seeing in our client base has been allowed to continue. And our market share as a result on fixed unnoticed deposits has gone up by 13%. And then last but not least, we have finally launched our Stokvel account. This baby has been in gestation for a good few years, and we are finally very happy to allow it out into the world. So while we're not the first to launch Stokvel, we definitely will be the best. With that, that is the Personal Bank story. And like Graham, I want to congratulate you all on a really good set of results for the first 6 months of the year. And I will now hand over to my colleague, Deepesh, who will take you through the insurance results.

Thanks, Basani. Our insurance business is a good example of what happens when we apply the Capitec fundamentals, simplicity, accessibility, affordability and personalized service to a market that has historically not really served our clients well. Over the past 6 months, the theme in this business has been efficiency and scale, growing the number of clients we protect, deepening the value of that protection and doing it at a cost that keeps the cover affordable. You'll see this pattern repeated on every slide in this section. We have strong book growth, better claims outcomes and continued investment in the client experience. Now what is this client experience? Capitec Cover has a competitive price that delivers value from day 1. Our premiums never increase, giving our client certainty in a world where very little else is certain. We don't double debit any premiums. What has this meant for our clients over the past 6 months? We've covered 60,000 funerals. We paid ZAR 3.2 billion in claims. This is money that reaches families the moment they need it the most. And because our pricing is so affordable, we estimate that we saved clients ZAR 4.8 billion in premium. Now, funeral cover remains the foundation of this book. We grew lives assured by 8% to ZAR 17.1 million. This means that one in four South Africans are likely covered under Capitec insurance policy. What's really good to see though is sum assured grew by 10%. Now, sum assured growing faster than lives assured tells you that our clients are not just joining Capitec cover, they're choosing more meaningful levels of cover for themselves and their family. However, Life cover, our newest product and our fastest-growing product had a really standout performance. Sum assured here grew 75% to ZAR 126 billion. We're now having -- this is really unique. We are giving ordinary South Africans access to meaningful Life cover. Many of these clients have never bought this product. So it's really the first time that they're accessing something like this through probably South Africa's most personalized channel. This product is really designed around how clients experience a loss because at Capitec, we took time to understand what these families need at the time. Benefits payouts are needs based. So we've got about 50% that's paid out as a lump sum for clients to settle any immediate obligations. Just over 1/4 goes to children's needs, for example, children's education, and this is paid with a regular frequency and just under 1/4 goes to household income just to make sure that this family can keep running after an event. This mix tells you the protection is doing real work in our clients' lives, and we're really very proud of this. So what does this mean for us financially? The net insurance results for funeral and Life cover grew 32% year-on-year. The drivers are on this slide, so I'm just going to pick up what I want to highlight or focus on. The first one is ZAR 220 million -- ZAR 221 million, sorry, attributable to funeral claims. Now this is a combination of three things: One, highly disciplined pricing; two, very effective risk management; and three, we have had favorable mortality experience. This was the single largest driver. However, that gets reduced by about ZAR 38 million, which is something that is deliberate on our side. It is a choice that we take on proactive claims. What does this mean is we go and actively find and pay valid claims rather than our clients asking us. It may look like it costs us in the short term. But in the long term, it's how we build trust in a product that most people are only just finding out about and buying for the first time. Now we are really very proud of a 32% growth rate. But in this period, we had some once-off movements that voided. For example, claims experience and interest rate movements. We do not expect this to repeat consistently at every period. The sustainable engine for this is the book growth. The ZAR 205 million that's coming from a growing client base, both new clients and existing. So we expect growth to normalize to this trend over time. And finally, we keep investing to make this better and to build better cover. Just to call out some of the areas, we now have a much better claims process that keeps getting better, but this means that 80% of our claims are paid in 24 hours. If you're a family that's planning a funeral, the speed is actually the product, and this is something that we're most proud of. We have new product features and pricing where we give some better value for cover. We have premium course functionality now for families that need to manage their premium payments over tough times. And our app and digital features allow for better arrears management. Really importantly, our risk management processes have saved at least or estimated ZAR 155 million in fraud. This is incredibly important because it means that we protect our most vulnerable clients, and we also keep this product affordable for many people. Lastly, what I want to end on is that what Capitec has done is increasing awareness about this cover. Most of our clients know what funeral cover is, far fewer have ever been shown what life cover can do. And so we're on a mission to create better awareness around this product, educating our clients that cover means protecting a lifetime, not just a funeral. Capitec has started this, let's call it, a national conversation around what can we do today to protect our families tomorrow. And so I'll end off for saying that Capitec cover can bank on being covered for the funeral and every day after. With that, I'm going to hand over to Karl Kumbier, our Executive for Business.

Thanks, Deepesh. All right. Morning, everyone. It's been hard work over the last few years building the business bank, but we're starting to get some really nice momentum at the moment. And just a little reminder, while we all get out of bed every morning, we really feel that if we can provide access to finance to small businesses, those businesses grow. As they grow, they create jobs, as they create jobs, to stimulate the economy, and that makes a difference in the lives of all South Africans. Now when we built the business bank, exactly like Basani and Deepesh said, we built it on the 4 fundamentals of Capitec. The first one is simplicity. We've got one account for everyone. It doesn't matter if you're a tiny business or a big business. Some of our competitors out there have up to 32 different variations of a transactional account. We've only got one, right? Then the affordability piece, we want to be the most affordable in the market by a long way. We feel SMEs have paid too much for banking in the past. And if businesses move to us now, we'll save them up to 50% in bank charges. And the larger businesses are moving to us that are saving up to 90% at the moment in bank charges. The next one is accessibility. We wanted to make it really easy to open an account, full remote onboarding, no paperwork and then access to an app, access to online banking and then personalized experience. Every one of our clients has access to a banker and that banker's job is to help the clients grow the business. So I just want to explain the flywheel. If you look at the top right-hand side, we wanted to reduce the cost of banking, then get a whole lot of clients to join us. And when those clients join us, we've got data going through the account. When we've got data going to the account, we can score the client and lend the money to grow their business or cross-sell other products, then we generate more revenue from that, and then we can reinvest that revenue in improving the client experience or reducing the cost of banking. And this flywheel is starting to turn slowly now. So we're quite excited about that. So what have we built, right? We've got a fully fledged business bank now. And I'm not going to go through all of this, but I want to just say from a lending point of view, we've got commercial property loans, car finance, asset finance, overdraft. But I want to try and hone in quickly on two products we launched recently. The first one is an overdraft for small businesses. So we'll -- if you qualify, we'll present an overdraft to you in your app. If you like the terms and conditions, you click and then you want to -- then you sign a legal agreement through a selfie and then we load the limit on that overdraft. And the entire process takes less than 2 minutes for our clients. The second product is what Graham mentioned briefly is our business repay as you earn for your higher-risk client. And for that reason, we collect daily. So we give a term loan, 1-year, 2-year or 3-year term loan. And every single day, we collect a little bit out of the account. And then basically, you repay your loan over that year or 2 years, whatever the term was. So if you have a good day, we collect a bit more. If you have a bad day, we collect a little bit less. And then the next thing I wanted to just touch on is our systems. We moved -- we replatformed all of our systems. We moved all of our systems into the cloud, and that gives us firstly, scalability. We can scale this business now because it's without impacting on client experience. And secondly, it's stability. Since the 1st of January this year to end of September now today, we've only had 20 minutes of downtime and all the time for business banking, which is a fantastic achievement for the technology staff. So thanks for that. Okay. So from a pricing point of view, we spoke briefly about it now. We're the only bank in the country that's priced retail or personal bank pricing and business bank pricing per transaction exactly the same. We always why should businesses pay a higher amount, the same rails. And then from a point-of-sale device, the traditional market, you rent the device at ZAR 450 a month. We said, no, no, we'll rather subsidize it, sell you the device upfront for ZAR 699. And think about it, then you got 1.5 months, your device is paid off. When you got the device, you never pay rental again for the next 5 or 6 years or however long the device lasts. So that's the first thing we did. The second thing is we're the only bank in the country that's completely transparent in our commission rates. So we've got 4 tiers of commission rates and your turnover falls within a certain tier, that's the commission that you're going to pay. Now if you go back now since we changed our pricing for the last 2 years between bank fees, commission rates and the subsidy we've given our clients, we've given back ZAR 550 million to our existing client base that banks with us. Okay. So what has this all done for us? So our global business account, so that's the formal market. Our business is -- we've grown the client base just under 50% since August last year. And then the red block, that's an exciting block for us. So that's the entrepreneur account. We built that in the personal banking rails. And the reason why is because if you've got a Global One account and so now you've got a side hustle or you're a sole proprietor, you've got a business, we want to make it really easy for you to open that account. So you go in your app, you open your entrepreneur account, you can then get a debit card, you can order a debit card with the name of your business on there. Then you can get a point-of-sale device and settle into that entrepreneur account. And then you can -- and then also if you've got enough transactions going through the account, you can start borrowing money in the future to help you grow your business. So if you take all of them into account, we've got over 500,000 businesses now banking with Capitec. All right. Here's a real nice story for us. This is our merchant -- our point-of-sale business. You'll see that 2 years ago, we had -- 2 years ago, 32,000 merchants. We've -- last year, we had 85,000 merchants. This year, we've got 141,000 merchants that have moved or doing the banking through us. And then if you look at the -- you say, are they quality merchants or not, you've got to have a look at that. So the turnover going through the devices went from ZAR 27 billion 2 years ago for the 6-month period to ZAR 42 billion a year ago to ZAR 62 billion in the last year. So it's growing really, really nicely. Normally, when you look at point-of-sale turnover, your December month is your biggest and then the next biggest month will be the next December because it's such a big jump in turnover. But the good news is in August, so just last month, we beat last December. We had ZAR 12.5 billion of turnover going through the devices, and we processed 44 million transactions just in August. So we're starting to get some really good progress there. Okay. Then the lending. This is exciting for us because this is the fuel that the economy needs for the small businesses. So we've grown our lending book. It's gone up 37% to ZAR 35.5 billion. And our traditional book, which is our intuitive book has grown 29% to ZAR 31 billion. So it's still 88%, 89% of the overall book. But we're really excited about the scored book. That's the small little loans, the overdraft, the -- the business who pays earn product. That's grown from ZAR 1.5 billion to ZAR 4.2 billion over the past year. Graham touched on it briefly, but on impairments. But I thought let me just go and just unpack quickly the one item in the income statement I wanted to highlight, and that is the credit impairments. The impairments has pretty much doubled year-on-year from a rand value point of view. But let's look at the credit loss ratio. So on the left-hand side, last year was 2.1% credit loss ratio, and that's grown to 3.4%. How you look at that traditional book, the intuitive book, it's exactly the same as last year. So it's exactly the same quality. And in fact, the rolls into Stage 2 and 3 are actually performing even better than we expected. So that's in line. And then the 6, the next lighter block on top, that's the upfront provision. So we've grown our book faster than we have in the past. So you add another 6 there. So every new loan you write, you have an upfront provision, which is a good thing. And then I'm just going to go to the red piece first. That's the forward-looking macroeconomic data that we spoke about earlier, the fly because of what's happening in the economy. We've raised just under ZAR 80 million of additional provisions there. So that counts for 0.5%. And then the gray block, that's what Graham spoke about. That's the new scored unsecured product that's raised our provision or credit loss ratio by 0.8%. But we price for it. It's a higher risk loan, but we price for it. So yield on those loans is much higher than what it is on our traditional intuitive book. And every single day, we're looking at that how ways of improving our credit models, improving our collections, how we collect on those loans. And the reason why is because it's a really, really fantastic product for small businesses. And we want to try and get this product out to as many small businesses as we possibly can in the future. All right. So then we've got our payments business. Now just to remind everyone, we put -- we've got our point-of-sale business, which we've spoken about. Then we've got our debit order collection business and we got Capitec Pay, and that's all together forms Capitec payments, right? We've had a really fantastic year run on that side. So Capitec Pay transactions have grown 37% year-on-year. Point of sale, we've spoken about 60% growth year-on-year in that business. And then debit orders is up 21%. But if you just look at the number of transactions, in Capitec Pay, 180 million transactions, post transactions 240 million and debit orders 127 million transactions over the past 6 months. Now the exciting part in this business is we launched two new products recently. The first one is variable recurring payments. And if you go into [ 6060 ] and you do your delivery, you normally only a card option. Now you'll see a little Capitec Pay button there. You click on it, you can pay and then yes, within seconds, your payment has been made. We've already processed close to 2 million transactions just in the past couple of months when we launched the product. And then the last one is Capitec Pay International. So this is where you can either do once-off payment or a recurring payment. But if you pay -- say you buy something from Shin, you'll go into the system, there's a Capitec Pay button, you click, done, you paid for your overseas goods that you bought through Capitec Pay or the likes of Spotify, Meta, those subscriptions, you can pay also using Capitec Pay now that's also gone live. And we already processed close to 3 million transactions in that space, right? So what does it mean from a bottom line point of view? Our net interest income has grown around about 40%. We've -- noninterest income has been good to us as well has been 38% growth. The impairments we've spoken about, but our cost growth has only grown 8%. And we really feel that we've got the costs in place now that can handle scale into the future. So we don't have to invest heavily in systems and process, et cetera, like we have in the past. Yes, we can continue with what we've got now, and that resulted in a bottom line increase of 52% for the business bank. So what does it mean for us? The exciting part is we've got -- if you look at the profit pool for business banking in South Africa, we've only got about 5% of that market. We've got 3% of the lending market -- of lending out to clients, and we've got around about 2% of the deposit base. So it just shows you there's a massive, massive runway there for us to be able to grow our business, which is very exciting. So I just want to say thank you so much to everyone who's been involved in helping build the business bank. We really appreciate it. And then thanks so much to all of the clients that have joined us and chosen us as their partner to be able to help them grow their business. Thanks very much.

All I've got to say is thank you. Thank you to all of our teams, all of our people for the excellent job that you do. Thank you to our Board members for the expert advice and leadership that you give us. To all of our shareholders, thanks for the support. And to our clients, thank you for continuing to trust us. Thanks. We have covered quite a lot in quite a short space of time. So Grant, please, will you join me? Grant is going to come up. And together, we will do our best to answer any questions that you have.

Okay. The first question is from Charles Russell at Standard Bank. Could you give some color on margin compression, therefore the disconnect between gross loans being up 13% and interest income only being up 5%?

Okay. Let's check because it's working. Okay, fantastic. Thank you, Charles, for the question. So we mentioned you saw disbursement -- we didn't mention, but disbursements on the personal bank book were up 20%. The bulk of that coming from credit card. Now credit card is at a lower interest rate and has a lower NCA cap. So as the proportion of that book changes and more of the mix moves to credit card, the interest income does become lower. And then secondly, Basani highlighted clients earning over a certain amount growing more. That's also led to lower rates because we price for risk. And then finally, just a change in repo. So if you look at the repo rate for the first 6 months of last year, it was higher than the first 6 months of this year.

Great. And then the second question is from Baron Nkomo from JPMorgan. How much of the recent CLR uptick is temporary in terms of the forward-looking overlay versus true deterioration in arrears and roll rate?

So I think it's important to highlight, if you go look at the staging of both books, so let's start with the personal bank book. The staging hasn't deteriorated. It's very, very stable. So the increase has nothing to do with deterioration of the personal bank book. Similarly, if you look at the staging on business banking, the staging is very stable, both 6 months and 12 months ago. The forward-looking, as we mentioned, we've been proactive in providing for that. And so that's driven a part of the increase. And then the mix change, obviously, as highlighted by Karl, as we grow more of the unsecured lending in business banking, you will see, let's say, that CLR for the total book increase, but you need to split it. You need to look at what is intuitive, so effectively secured and what is scored effectively unsecured. But it's not driven by deterioration at all.

Okay. The next question is from -- a couple of questions from Ross Krige at Investec. Please talk to the loan growth outlook in Personal Banking? And should we expect a slowdown ahead given challenging macro dynamics?